<PAGE>
ANNUAL REPORT
NOVEMBER 30 1998
STATE FARM
GROWTH FUND, INC.
STATE FARM
BALANCED FUND, INC.
STATE FARM
INTERIM FUND, INC.
STATE FARM
MUNICIPAL BOND FUND, INC.
[LOGO]
<PAGE>
The State Farm Mutual Funds are offered to the agents and employees of the State
Farm Insurance Companies and their families. As a result of our new computer
system which can reflect multiple Fund positions on a single statement, we have
taken this opportunity to combine the annual reports for each fund into a single
book. This book contains the November 30, 1998 portfolio and financial
statements for the following funds:
State Farm Growth Fund, Inc.
State Farm Balanced Fund, Inc.
State Farm Interim Fund, Inc.
State Farm Municipal Bond Fund, Inc.
For customer service, please call 1-800-447-0740 or 309-766-2029. Our telephone
recording system will allow you to choose from the following options:
LISTEN TO CLOSING PRICES FROM THE PRIOR DAY
REQUEST A PROSPECTUS
CHANGE PAYROLL / COMPENSATION DEDUCTIONS
REQUEST A TELEPHONE REDEMPTION
SPEAK TO A CUSTOMER SERVICE REPRESENTATIVE
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors 2
State Farm Growth Fund, Inc.
Message from the portfolio managers 3
Portfolio of investments 5
Financial statements 9
Financial highlights 12
State Farm Balanced Fund, Inc.
Message from the portfolio managers 13
Portfolio of investments 15
Financial statements 20
Financial highlights 23
State Farm Interim Fund, Inc.
Message from the portfolio managers 24
Portfolio of investments 26
Financial statements 27
Financial highlights 30
State Farm Municipal Bond Fund, Inc.
Message from the portfolio managers 31
Portfolio of investments 33
Financial statements 41
Financial highlights 44
Notes to Financial Statements 45
Tax Information 48
</TABLE>
1 -------
<PAGE>
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS AND SHAREOWNERS
STATE FARM GROWTH FUND, INC.
STATE FARM BALANCED FUND, INC.
STATE FARM INTERIM FUND, INC.
STATE FARM MUNICIPAL BOND FUND, INC.
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments, of State Farm Growth Fund, Inc., State Farm
Balanced Fund, Inc., State Farm Interim Fund, Inc., and State Farm Municipal
Bond Fund, Inc. as of November 30, 1998, the related statements of operations
and changes in net assets for each of the two years in the period then ended,
and the financial highlights for each of the fiscal years since 1989. These
financial statements and financial highlights are the responsibility of the
Funds' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
November 30, 1998, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of State
Farm Growth Fund, Inc., State Farm Balanced Fund Inc., State Farm Interim Fund,
Inc., and State Farm Municipal Bond Fund, Inc. at November 30, 1998, the results
of their operations and changes in their net assets for each of the two years in
the period then ended, and the financial highlights for each of the fiscal years
since 1989, in conformity with generally accepted accounting principles.
[SIG]
Chicago, Illinois
December 18, 1998
- ---------
2
<PAGE>
STATE FARM GROWTH FUND, INC.
Dear Shareowner:
The U.S. stock market has generated strong results over your Fund's 1998 fiscal
year. The S&P 500 Index produced a total return of 23.7% for the twelve months
ended November 30, 1998. The Growth Fund achieved a total return of 18.2% for
the same period. Returns earned by U.S. common stocks have been extraordinary
over the past four years. In our opinion, returns of this magnitude are not
sustainable over long periods of time.
During 1998 and over the four year period from 1995-98, the return of the S&P
500 has been generated by an increasingly narrow group of stocks. Over the four
year period from 1995-98, over 50% of the total return of the S&P 500 Index was
generated by only 20 stocks. In 1998, over 50% of the total return of the S&P
500 Index was generated by only ten stocks.
The following graph compares a $10,000 investment in the Growth Fund over the
last ten years to a theoretical investment of the same amount in the S&P 500
Index:
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
FOR THE YEARS ENDED NOVEMBER 30
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
GROWTH FUND S&P 500*
<S> <C> <C>
1988 $10,000 $10,000
1989 $13,051 $13,078
1990 $13,609 $12,617
1991 $17,663 $15,186
1992 $20,398 $17,985
1993 $20,265 $19,797
1994 $21,079 $20,010
1995 $28,176 $27,395
1996 $33,837 $35,026
1997 $42,230 $45,023
1998 $49,902 $55,679
Fund's Average Annual Total Return
1 YEAR 5 YEAR 10 YEAR
18.17% 19.75% 17.44%
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT
IN THE FUND WILL FLUCTUATE SO THAT FUND SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
</TABLE>
* The S&P 500 Index is a capitalization-weighted measure of 500 widely held
common stocks listed on the New York and American Stock Exchanges and traded in
the Over-The-Counter Market.
The S&P 500 Index represents an unmanaged group of stocks that differs from the
composition of the Growth Fund. Unlike an investment in the Growth Fund, a
theoretical investment in the Index does not reflect any expenses.
The Growth Fund's common stock holdings of drug and medical device firms and
telecommunications companies performed quite well over the past year. Results
produced by the Fund's investments in firms which produce commodities were below
those of the overall market.
The general composition of your Fund's portfolio has changed some over the last
twelve months. Cash balances have been reduced. Most transactions during the
year were oriented towards either further diversifying the portfolio or adding
investments in certain areas. Positions were initiated or increased in consumer
product firms, banks, oil and gas companies, telecommunications and
telecommunications equipment companies, chemical firms, electronic manufacturing
firms, and computer and software companies.
Common stock prices declined approximately 20% in the late summer and fall as a
result of widespread turmoil in the capital markets of the developing world.
Increasingly, the global linkage of financial markets causes regional turmoil to
be reflected worldwide. The U.S. stock market has recovered fully in recent
months.
While uncertainty always prevails in financial markets, this is a particularly
uncertain time. It is apparent that approximately 40% of the world economy is
either stagnant or in recession, concentrated primarily in Japan and the
emerging countries. Disinflationary forces have caused widespread commodity
price weakness and have limited significantly the capability of firms to
increase prices. Several well
3 -------
<PAGE>
STATE FARM GROWTH FUND, INC.
managed firms with strong global positions in their businesses are reporting
weaker than expected results. Even though near term uncertainty exists, in our
opinion, the primary challenge for any investor is development of a long-term
investment program which makes one comfortable regardless of what short-term
direction markets might take.
When measured by virtually all general standards, U.S. common stocks are selling
at the high end of historical valuation levels. To cope with the inevitable
uncertainties of financial markets, we encourage a disciplined long-term program
of periodic investments in the Growth Fund. Such an investment program should
allow shareowners to capture the benefits of dollar cost averaging and to
participate in any long-term appreciation of common stock prices. We strive to
invest the Fund's assets in growing companies with fine managements and are
confident that these investments will produce satisfactory long-term results.
Risk is managed, but not eliminated, through broad diversification in globally
competitive firms in essential businesses.
The directors have declared a capital gains distribution of $.045 per Growth
Fund share which was paid on December 21, 1998. A semi-annual income dividend of
$.28 per share was also paid on December 21, 1998. Both were used to purchase
additional shares for your account unless you have elected to receive payments
directly by check.
Sincerely,
<TABLE>
<S> <C> <C>
[SIG] [SIG] [SIG]
Paul N. Eckley John S. Concklin James E. Freytag
Vice President Vice President Vice President
</TABLE>
- ---------
4
<PAGE>
STATE FARM GROWTH FUND, INC.
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1998
<TABLE>
<CAPTION>
SHARES VALUE
- ----------- --------------
<C> <S> <C>
COMMON STOCKS (98.2%)
AGRICULTURE, FOODS, & BEVERAGE (7.1%)
3,003,997 Archer-Daniels-Midland Company $ 55,198,445
92,000 Campbell Soup Company 5,255,500
930,000 Kellogg Company 34,061,250
291,000 Pioneer Hi-Bred International 8,711,812
104,000 Sara Lee Corp. 6,071,000
81,600 Sysco Corp. 2,198,100
573,800 The Coca-Cola Company 40,201,862
140,500 Unilever NV 10,862,406
9,200 Vlasic Foods International Inc. (a) 198,950
--------------
162,759,325
--------------
BANKS (10.0%)
172,361 ABN Amro Holding NV 3,558,491
120,825 AmSouth Bancorporation 5,104,856
715,322 Bank One Corporation 36,704,960
168,268 BankAmerica Corp. 10,968,970
90,000 First Security Corporation 1,811,250
43,500 First Virginia Banks Inc. 1,952,062
61,300 Golden West Financial 5,804,344
135,000 J P Morgan & Co. Inc. 14,428,125
6,200 M&T Bank Corp. 3,090,700
809,800 National Commerce Bancorporation 14,677,625
72,000 Northern Trust Co. 5,814,000
640,074 Pacific Century Financial Corp. 13,681,582
830,316 Popular Inc. 24,701,901
345,000 Southtrust Corp. 12,678,750
74,900 Suntrust Banks Inc. 5,228,956
62,000 TCF Financial 1,499,625
238,900 Wachovia Corporation 20,858,956
1,220,000 Wells Fargo 43,920,000
67,950 U.S. Bancorp 2,501,409
--------------
228,986,562
--------------
BUILDING MATERIALS & CONSTRUCTION (1.9%)
346,400 Vulcan Materials Company 43,429,900
--------------
CHEMICALS (7.0%)
830,000 Air Products & Chemicals Inc. 31,643,750
81,000 Dow Chemical 7,887,375
331,900 E.I. du Pont de Nemours & Co. 19,499,125
588,300 Great Lakes Chemical Corp. 23,495,231
561,000 International Flavors & Fragrances 23,491,875
45,200 Praxair Inc. 1,726,075
203,600 Raychem Corporation 6,935,125
1,410,300 Sigma-Aldrich Corporation 45,305,887
--------------
159,984,443
--------------
COMMERCIAL SERVICE/SUPPLY (.1%)
38,500 FDX Corp. (a) 2,497,687
--------------
</TABLE>
5 -------
<PAGE>
STATE FARM GROWTH FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 1998
<TABLE>
<CAPTION>
SHARES VALUE
- ----------- --------------
<C> <S> <C>
COMPUTER SOFTWARE AND SERVICES (3.6%)
62,000 Automatic Data Processing Inc. $ 4,774,000
30,800 Electronic Data Systems Corp. 1,201,200
567,800 Microsoft Corporation (a) 69,271,600
229,800 Oracle Corp. (a) 7,870,650
--------------
83,117,450
--------------
COMPUTERS (6.2%)
322,200 Compaq Computer Corp. 10,471,500
1,437,000 Hewlett-Packard Company 90,171,750
248,200 International Business Machines Corp. 40,953,000
--------------
141,596,250
--------------
CONSUMER & MARKETING (5.5%)
91,900 Colgate Palmolive Co. 7,868,937
1,439,200 Hon Industries Inc. 34,181,000
43,728 Jostens Inc. 1,024,875
142,200 McDonald's Corporation 9,962,887
339,400 Procter & Gamble Co. 29,739,925
589,000 Rubbermaid Incorporated 19,473,812
62,600 Steelcase Inc. 1,115,063
500,000 The Gillette Company 22,968,750
--------------
126,335,249
--------------
ELECTRONIC/ELECTRICAL MFG. (6.4%)
91,900 Diebold Inc. 3,159,063
109,400 Emerson Electric Co. 7,111,000
771,200 General Electric Company 69,793,600
483,600 Intel Corporation 52,047,450
52,700 KLA-Tencor Corp. (a) 1,795,094
175,800 Linear Technology Corp. 12,316,988
--------------
146,223,195
--------------
ENGINEERING & CONSTRUCTION (.1%)
14,600 ABB AB Sponsored ADR 1,547,600
14,000 ABB AG Sponsored ADR 1,743,476
--------------
3,291,076
--------------
FINANCIAL SERVICES (.6%)
36,400 Finova Group Inc. 1,922,375
558,450 MBNA Corporation 12,669,834
--------------
14,592,209
--------------
HEALTH CARE (17.9%)
105,600 Abbott Laboratories 5,068,800
716,100 Ballard Medical Products 15,575,175
1,550,000 Biomet Inc. 59,287,500
29,800 Boston Scientific Corp. (a) 1,475,100
107,050 Covance Inc. (a) 2,676,250
947,200 Eli Lilly & Co. 84,952,000
1,240,800 Johnson & Johnson 100,815,000
40,000 Medtronic Inc. 2,707,500
182,000 Merck & Co. Inc. 28,187,250
</TABLE>
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6
<PAGE>
STATE FARM GROWTH FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 1998
<TABLE>
<CAPTION>
SHARES VALUE
- ----------- --------------
<C> <S> <C>
960,000 Pfizer Inc. $ 107,160,000
53,525 Quest Diagnostics Inc. (a) 956,759
--------------
408,861,334
--------------
MACHINERY & MANUFACTURING (3.3%)
133,800 Allied Signal Inc. 5,887,200
370,000 Caterpillar Inc. 18,291,875
428,200 Corning Incorporated 17,181,525
57,800 Deere & Company 2,019,388
70,000 Illinois Tool Works 4,449,375
173,200 Minnesota Mining & Manufacturing 13,910,125
337,500 Osmonics Inc. (a) 3,543,750
425,000 Pall Corporation 9,881,250
--------------
75,164,488
--------------
MEDIA & BROADCASTING (4.5%)
155,433 Reuters Group PLC ADR 8,937,398
360,181 Scandinavian Broadcasting System SA (a) 9,454,751
2,619,540 The Walt Disney Company 84,316,444
--------------
102,708,593
--------------
MINING & METALS (.8%)
36,700 Newmont Mining Corp. 729,413
195,000 Nucor Corporation 8,190,000
185,000 Rio Tinto PLC ADR 8,880,000
81,250 Steel Dynamics Inc. (a) 1,107,031
--------------
18,906,444
--------------
OIL, GAS, & OTHER ENERGY (6.7%)
244,000 Amoco Corp. 14,380,750
440,400 Barrett Resources Corp. (a) 10,762,275
530,000 Chevron Corporation 44,321,250
612,200 Exxon Corporation 45,953,263
77,800 KN Energy Inc. 3,403,750
237,100 Pennzoil Company 8,802,338
516,300 Royal Dutch Petroleum Company 24,266,100
--------------
151,889,726
--------------
RETAILERS (1.8%)
531,600 Wal-Mart Stores Inc. 40,036,125
--------------
TELECOM & TELECOM EQUIPMENT (12.6%)
450,000 ADC Telecommunications Inc. (a) 13,443,750
86,000 Airtouch Communications Inc. (a) 4,918,125
232,000 Ameritech Corp. 12,557,000
400,000 AT&T Corp. 24,925,000
338,100 Cisco Systems Inc. (a) 25,484,288
290,200 Deutsche Telekom ADR 8,216,288
575,000 LM Ericsson Telephone Co. ADR 15,884,375
259,266 Lucent Technologies Inc. 22,313,080
1,023,729 MCI Worldcom Inc. (a) 60,400,011
264,000 Motorola Inc. 16,368,000
57,700 Nextlink Communication (Class A) (a) 1,745,425
</TABLE>
7 -------
<PAGE>
STATE FARM GROWTH FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 1998
<TABLE>
<CAPTION>
SHARES VALUE
- ----------- --------------
<C> <S> <C>
64,900 Nokia Corporation ADR $ 6,360,200
173,300 Northern Telecom Ltd. 8,090,944
1,192,200 SBC Communications 57,151,088
173,700 Tele Danmark AS ADR 9,629,494
--------------
287,487,068
--------------
UTILITIES & ENERGY (2.1%)
74,900 CMS Energy Corporation 3,651,375
132,000 Duke Energy Corp. 8,258,250
88,500 FPL Group Inc. 5,420,625
390,900 Pacificorp 7,329,375
288,000 Southern Co. 8,496,000
166,000 Teco Energy Inc. 4,461,250
98,500 Texas Utilities Co. Holding Co. 4,389,406
112,400 The AES Corp. (a) 5,142,300
--------------
47,148,581
--------------
TOTAL COMMON STOCKS
(cost $974,503,078) 2,245,015,705
--------------
<CAPTION>
PRINCIPAL
AMOUNT
- -----------
<C> <S> <C>
SHORT-TERM INVESTMENTS (1.8%)
$13,215,000 General Motors Acceptance Corp., 4.860%,
December, 1998 13,227,500
1,350,000 General Electric Capital Corp., 5.350%,
December, 1998 1,350,201
27,000,000 U.S. Treasury Bills, 3.600%, January,
1999 26,883,630
--------------
TOTAL SHORT-TERM INVESTMENTS
(cost $41,477,259) 41,461,331
--------------
TOTAL INVESTMENTS (100.0%)
(cost $1,015,980,337) 2,286,477,036
LIABILITIES, LESS CASH AND OTHER ASSETS (0.0%) (988,284)
--------------
NET ASSETS (100.0%) $2,285,488,752
--------------
--------------
</TABLE>
Notes:
(a) Non-income producing security.
(b) At November 30, 1998, net unrealized appreciation of $1,270,496,699
consisted of gross unrealized appreciation of $1,285,409,124 and gross
unrealized depreciation of $14,912,425 based on cost of $1,015,980,337 for
federal income tax purposes.
See accompanying notes to financial statements.
- ---------
8
<PAGE>
STATE FARM GROWTH FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1998
<TABLE>
<S> <C> <C>
ASSETS
Investments, at value (cost
$1,015,980,337) $2,286,477,036
Cash 900,142
Receivable for:
Dividends and interest $3,510,228
Shares of the Fund sold 832,238
Sundry 8,859 4,351,325
----------
Prepaid expenses 51,953
--------------
Total assets 2,291,780,456
--------------
LIABILITIES AND NET ASSETS
Payable for:
Shares of the Fund redeemed 4,287,916
Securities purchased 1,350,000
Other (including $576,147 to
Manager) 653,788
----------
6,291,704
--------------
Total liabilities 6,291,704
--------------
Net assets applicable to 51,183,621
shares outstanding of
$0.50 par value common stock
(100,000,000 shares authorized) $2,285,488,752
--------------
--------------
Net asset value, offering price and
redemption price per share $ 44.65
--------------
--------------
ANALYSIS OF NET ASSETS
Excess of amounts received from sales
of shares over amounts paid on
redemptions of shares on account of
capital $ 993,097,815
Accumulated net realized gain on sales
of investments 2,197,936
Net unrealized appreciation of
investments 1,270,496,699
Undistributed net investment income 19,696,302
--------------
Net assets applicable to shares
outstanding $2,285,488,752
--------------
--------------
</TABLE>
See accompanying notes to financial statements.
9 -------
<PAGE>
STATE FARM GROWTH FUND, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-------------------------
1998 1997
------------ -----------
<S> <C> <C>
INVESTMENT INCOME:
Dividends $ 29,997,754 24,033,712
Interest 3,413,231 5,877,994
------------ -----------
33,410,985 29,911,706
Less: foreign withholding taxes 297,805 205,192
------------ -----------
Total investment income 33,113,180 29,706,514
EXPENSES:
Investment advisory and management
fees 2,221,492 1,705,166
Professional fees 55,382 37,364
ICI dues 44,841 48,215
Registration fees 61,281 65,847
Fidelity bond expense 8,367 6,932
Directors' fees 16,259 9,900
Reports to shareowners 21,287 19,799
Security evaluation fees 3,237 3,463
Franchise taxes 17,495 15,568
Custodian fees 26,161 23,607
Proxy and related expense 31,777 --
Other 10,745 --
------------ -----------
Total expenses 2,518,324 1,935,861
------------ -----------
Net investment income 30,594,856 27,770,653
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS:
Net realized gain on sales of
investments 2,197,936 52,537,716
Change in net unrealized appreciation 306,511,650 270,232,368
------------ -----------
Net realized and unrealized gain on
investments 308,709,586 322,770,084
------------ -----------
Net change in net assets resulting from
operations $339,304,442 350,540,737
------------ -----------
------------ -----------
</TABLE>
See accompanying notes to financial statements.
- ---------
10
<PAGE>
STATE FARM GROWTH FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-----------------------------
1998 1997
-------------- -------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income $ 30,594,856 27,770,653
Net realized gain on sales of
investments 2,197,936 52,537,716
Change in net unrealized appreciation 306,511,650 270,232,368
-------------- -------------
Net change in net assets resulting from
operations 339,304,442 350,540,737
Undistributed net investment income
included in price of shares issued and
redeemed 789,317 1,240,326
DISTRIBUTION TO SHAREOWNERS FROM:
Net investment income (per share $.64
in 1998, and $.61 in 1997) (31,134,862) (25,616,492)
Net realized gain (per share $1.13 in
1998, and $2.31 in 1997) (52,131,683) (90,788,938)
-------------- -------------
Total distributions to shareowners (83,266,545) (116,405,430)
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold 334,952,191 252,636,657
Reinvestment of ordinary income
dividends and capital gain
distributions 80,862,911 113,414,471
-------------- -------------
415,815,102 366,051,128
Less payments for shares redeemed 208,248,185 143,241,394
-------------- -------------
Net increase in net assets from Fund
share transactions 207,566,917 222,809,734
-------------- -------------
Total increase in net assets 464,394,131 458,185,367
-------------- -------------
NET ASSETS:
Beginning of year 1,821,094,621 1,362,909,254
-------------- -------------
End of year (including undistributed
net investment income of $19,696,302
in 1998, and $19,446,991 in 1997) $2,285,488,752 1,821,094,621
-------------- -------------
-------------- -------------
</TABLE>
See accompanying notes to financial statements.
11-------
<PAGE>
STATE FARM GROWTH FUND, INC.
FINANCIAL HIGHLIGHTS
PER SHARE INCOME AND CAPITAL CHANGES (For a share outstanding throughout each
year)
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
---------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
--------- --------- --------- --------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $ 39.48 34.55 29.40 22.63 22.21 23.05 20.33 16.77 16.90 13.34
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.61 0.62 0.63 0.50 0.44 0.45 0.43 0.42 0.47 0.41
Net gain or loss on
investments (both
realized and
unrealized) 6.33 7.23 5.17 6.97 0.43 (0.60) 2.70 4.32 0.26 3.57
--------- --------- --------- --------- ------- ------- ------- ------- ------- -------
Total from investment
operations 6.94 7.85 5.80 7.47 0.87 (0.15) 3.13 4.74 0.73 3.98
--------- --------- --------- --------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS
Net investment income (0.64) (0.61) (0.53) (0.52) (0.45) (0.45) (0.41) (0.54) (0.40) (0.42)
Capital gains (1.13) (2.31) (0.12) (0.18) -- (0.24) -- (0.64) (0.46) --
--------- --------- --------- --------- ------- ------- ------- ------- ------- -------
Total distributions (1.77) (2.92) (0.65) (0.70) (0.45) (0.69) (0.41) (1.18) (0.86) (0.42)
--------- --------- --------- --------- ------- ------- ------- ------- ------- -------
Net asset value, end of
year $ 44.65 39.48 34.55 29.40 22.63 22.21 23.05 20.33 16.77 16.90
--------- --------- --------- --------- ------- ------- ------- ------- ------- -------
--------- --------- --------- --------- ------- ------- ------- ------- ------- -------
TOTAL RETURN 18.17% 24.80% 20.09% 33.67% 4.02% (0.65)% 15.42% 29.79% 4.27% 30.51%
RATIOS/SUPPLEMENTAL
DATA
Net assets, end of year
(millions) $ 2,285.5 1,821.1 1,362.9 1,068.6 771.7 725.1 696.1 558.4 414.3 383.0
Ratio of expenses to
average net assets 0.12% 0.12% 0.13% 0.14%(a) 0.14% 0.14% 0.16% 0.19% 0.21% 0.21%
Ratio of net investment
income to average net
assets 1.47% 1.78% 1.88% 1.95% 2.00% 2.05% 1.99% 2.22% 2.84% 2.69%
Portfolio turnover rate 1% 6% 16% 3% 3% 2% 2% 1% 16% 9%
</TABLE>
- ----------
(a) The ratio based on net custodian expenses would have been .13% in 1995.
- ---------
12
<PAGE>
STATE FARM BALANCED FUND, INC.
Dear Shareowner:
The U.S. stock market has generated strong results over your Fund's 1998 fiscal
year. The S&P 500 Index produced a total return of 23.7% for the twelve months
ended November 30, 1998. The Balanced Fund, which has approximately two-thirds
of its assets invested in common stocks, achieved a total return of 12.7% for
the same period. Returns earned by U.S. common stocks have been extraordinary
over the past four years. In our opinion, returns of this magnitude are not
sustainable over long periods of time.
The portion of your Fund that is not invested in common stocks holds high
quality fixed income securities. Values of the fixed-income securities increased
nicely over the year while interest rates declined. However, bond prices did not
improve as much as stock prices, and, as to be expected in periods of robust
equity markets, the total return of the entire Fund was pulled down by results
of its fixed income portfolio.
During 1998 and over the four year period from 1995-98, the return of the S&P
500 has been generated by an increasingly narrow group of stocks. Over the four
year period from 1995-98, over 50% of the total return of the S&P 500 Index was
generated by only 20 stocks. In 1998, over 50% of the total return of the S&P
500 Index was generated by only ten stocks.
The following graph compares a $10,000 investment in the Balanced Fund over the
last ten years to a theoretical investment of the same amount in the S&P 500
Index and Lehman Brothers Intermediate Treasury Index:
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
FOR THE YEARS ENDED NOVEMBER 30
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
BALANCED FUND S&P 500*
<S> <C> <C> <C>
1988 $10,000 $10,000
1989 $12,509 $13,078
1990 $13,546 $12,617
1991 $17,757 $15,186
1992 $20,497 $17,985
1993 $21,094 $19,797
1994 $21,933 $20,010
1995 $27,752 $27,395
1996 $32,131 $35,026
1997 $37,700 $45,023
1998 $42,494 $55,679
Fund's Average Annual Total Return
1 YEAR 5 YEAR 10 YEAR
12.72% 15.04% 15.57%
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT
IN THE FUND WILL FLUCTUATE SO THAT FUND SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
<CAPTION>
LEHMAN BROTHERS INTERMEDIATE TREASURY**
<S> <C>
1988 $10,000
1989 $11,246
1990 $12,175
1991 $13,743
1992 $14,868
1993 $16,235
1994 $15,961
1995 $18,137
1996 $19,153
1997 $20,348
1998 $21,812
Fund's Average Annual Total Return
1 YEAR
12.72%
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT
IN THE FUND WILL FLUCTUATE SO THAT FUND SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
</TABLE>
* The S&P 500 Index is a capitalization-weighted measure of 500 widely held
common stocks listed on the New York and American Stock Exchanges and traded in
the Over-The-Counter Market.
**The Lehman Brothers Intermediate Treasury Index contains approximately 130
U.S. Treasury securities with maturities ranging from one to ten years.
The S&P 500 Index and the Lehman Brothers Intermediate Treasury Index represent
unmanaged groups of stocks and bonds that differ from the composition of the
Balanced Fund. Unlike an investment in the Balanced Fund, theoretical
investments in the indices do not reflect expenses.
The Balanced Fund's common stock holdings of drug and medical device firms and
telecommunications companies performed quite well over the past year. Results
produced by the Fund's investments in firms which produce commodities were below
those of the overall market.
The general composition of your Fund's common stock portfolio has changed some
over the last twelve months. Most transactions during the year were oriented
towards either further diversifying the portfolio or adding investments in
certain areas. Positions were initiated or increased in consumer product firms,
banks, oil and gas companies, telecommunications and telecommunications
equipment companies, chemical firms, and electronic manufacturing firms.
U.S. Treasury bonds continue to dominate the fixed-income portfolio of the Fund.
However, a few good quality corporate bonds were added to the portfolio recently
when their yields appeared attractive compared to those available on U.S.
Treasury securities. The overall
13-------
<PAGE>
STATE FARM BALANCED FUND, INC.
maturity structure of fixed-income investments has not changed much over the
course of the year. The average weighted maturity of long-term obligations
stands at approximately 5.2 years down slightly from 5.3 years a year ago.
Maturities or likely calls are spread mostly over the next ten years.
Common stock prices declined approximately 20% in the late summer and fall as a
result of widespread turmoil in the capital markets of the developing world.
Increasingly, the global linkage of financial markets causes regional turmoil to
be reflected worldwide. The U.S. stock market has recovered fully in recent
months.
While uncertainty always prevails in financial markets, this is a particularly
uncertain time. It is apparent that approximately 40% of the world economy is
either stagnant or in recession, concentrated primarily in Japan and the
emerging countries. Disinflationary forces have caused widespread commodity
price weakness and have limited significantly the capability of firms to
increase prices. Several well managed firms with strong global positions in
their businesses are reporting weaker than expected results. Even though near
term uncertainty exists, in our opinion, the primary challenge for any investor
is development of a long-term investment program which makes one comfortable
regardless of what short-term direction markets might take.
When measured by virtually all general standards, U.S. common stocks are selling
at the high end of historical valuation levels. To cope with the inevitable
uncertainties of financial markets, we encourage a disciplined long-term program
of periodic investments in the Balanced Fund. Such an investment program should
allow shareowners to capture the benefits of dollar cost averaging and to
participate in any long-term appreciation of common stock prices. We strive to
invest the Fund's assets in good quality bonds and common stocks of growing
companies with fine managements and are confident that these investments will
produce satisfactory long-term results. Risk is managed, but not eliminated,
through broad diversification in globally competitive firms in essential
businesses.
The directors have declared a capital gains distribution of $.0225 per Balanced
Fund share which was paid on December 21, 1998. A semi-annual income dividend of
$.73 per share was also paid on December 21, 1998. Both were used to purchase
additional shares for your account unless you have elected to receive payments
directly by check.
Sincerely,
<TABLE>
<S> <C>
[SIG] [SIG]
Paul N. Eckley Kurt G. Moser
Vice President Vice President
</TABLE>
- ---------
14
<PAGE>
STATE FARM BALANCED FUND, INC.
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1998
<TABLE>
<CAPTION>
SHARES VALUE
- ----------- ------------
<C> <S> <C> <C> <C>
COMMON STOCKS (65.8%)
AGRICULTURE, FOODS, & BEVERAGE (5.3%)
812,494 Archer-Daniels-Midland Company $ 14,929,577
26,000 Campbell Soup Company 1,485,250
310,000 Kellogg Company 11,353,750
81,000 Pioneer Hi-Bred International 2,424,937
29,000 Sara Lee Corp. 1,692,875
190,000 The Coca-Cola Company 13,311,875
25,600 Unilever NV 1,979,200
Vlasic Foods International
2,600 Inc. (a) 56,225
------------
47,233,689
------------
BANKS (6.3%)
48,666 ABN Amro Holding NV 1,004,737
34,875 AmSouth Bancorporation 1,473,469
184,100 Bank One Corporation 9,446,631
25,650 First Security Corporation 516,206
12,300 First Virginia Banks Inc. 551,962
17,700 Golden West Financial 1,675,969
38,400 J P Morgan & Co. Inc. 4,104,000
1,900 M&T Bank Corp. 947,150
20,500 Northern Trust Co. 1,655,375
Pacific Century Financial
180,960 Corp. 3,868,020
166,924 Popular Inc. 4,965,989
99,000 Southtrust Corp. 3,638,250
21,400 Suntrust Banks Inc. 1,493,987
17,600 TCF Financial 425,700
19,251 U.S. Bancorp 708,677
75,700 Wachovia Corporation 6,609,556
373,800 Wells Fargo 13,456,800
------------
56,542,478
------------
BUILDING MATERIALS & CONSTRUCTION (.7%)
53,400 Vulcan Materials Company 6,695,025
------------
CHEMICALS (4.6%)
230,000 Air Products & Chemicals Inc. 8,768,750
23,000 Dow Chemical 2,239,625
63,000 E.I. du Pont de Nemours & Co. 3,701,250
141,400 Great Lakes Chemical Corp. 5,647,162
International Flavors &
120,000 Fragrances 5,025,000
11,800 Praxair Inc. 450,612
220,000 Raychem Corporation 7,493,750
245,500 Sigma-Aldrich Corporation 7,886,687
------------
41,212,836
------------
COMMERCIAL SERVICE/SUPPLY (.1%)
9,900 FDX Corp. (a) 642,262
------------
COMPUTER SOFTWARE AND SERVICES (.9%)
8,800 Electronic Data Systems Corp. 343,200
63,000 Microsoft Corporation (a) 7,686,000
------------
8,029,200
------------
</TABLE>
15-------
<PAGE>
STATE FARM BALANCED FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 1998
<TABLE>
<CAPTION>
SHARES VALUE
- ----------- ------------
<C> <S> <C> <C> <C>
COMPUTERS (3.9%)
377,000 Hewlett-Packard Company $ 23,656,750
International Business
68,600 Machines Corp. 11,319,000
------------
34,975,750
------------
CONSUMER & MARKETING (3.5%)
160,000 Hon Industries Inc. 3,800,000
27,100 Jostens Inc. 635,156
16,900 McDonald's Corporation 1,184,056
68,000 Procter & Gamble Co. 5,958,500
172,800 Rubbermaid Incorporated 5,713,200
17,800 Steelcase Inc. 317,062
300,000 The Gillette Company 13,781,250
------------
31,389,224
------------
ELECTRONIC/ELECTRICAL MFG. (3.6%)
10,100 Diebold Inc. 347,188
31,200 Emerson Electric Co. 2,028,000
159,900 General Electric Company 14,470,950
125,700 Intel Corporation 13,528,463
20,400 Linear Technology Corp. 1,429,275
------------
31,803,876
------------
FINANCIAL SERVICES (.5%)
9,900 Finova Group Inc. 522,844
160,650 MBNA Corporation 3,644,747
------------
4,167,591
------------
HEALTH CARE (12.0%)
38,700 Allergan Inc. 2,355,863
400,851 Ballard Medical Products 8,718,509
405,000 Biomet Inc. 15,491,250
31,025 Covance Inc. (a) 775,625
212,000 Eli Lilly & Co. 19,013,750
198,000 Johnson & Johnson 16,087,500
10,800 Medtronic Inc. 731,025
50,000 Merck & Co. Inc. 7,743,750
320,000 Pfizer Inc. 35,720,000
15,512 Quest Diagnostics Inc. (a) 277,277
------------
106,914,549
------------
MACHINERY & MANUFACTURING (2.0%)
34,600 Allied Signal Inc. 1,522,400
100,000 Caterpillar Inc. 4,943,750
124,100 Corning Incorporated 4,979,513
14,700 Deere & Company 513,581
20,000 Illinois Tool Works 1,271,250
Minnesota Mining &
47,700 Manufacturing 3,830,906
84,375 Osmonics Inc. (a) 885,938
------------
17,947,338
------------
</TABLE>
- ---------
16
<PAGE>
STATE FARM BALANCED FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 1998
<TABLE>
<CAPTION>
SHARES VALUE
- ----------- ------------
<C> <S> <C> <C> <C>
MEDIA & BROADCASTING (5.0%)
42,000 Lee Enterprises $ 1,176,000
42,000 Lee Enterprises (Class B) 1,176,000
173,333 Reuters Group PLC ADR 9,966,648
993,495 The Walt Disney Company 31,978,120
------------
44,296,768
------------
MINING & METALS (1.1%)
29,200 Newmont Mining Corp. 580,350
160,000 Nucor Corporation 6,720,000
50,000 Rio Tinto PLC ADR 2,400,000
18,750 Steel Dynamics Inc. (a) 255,469
------------
9,955,819
------------
OIL, GAS, & OTHER ENERGY (5.2%)
68,000 Amoco Corp. 4,007,750
144,000 Chevron Corporation 12,042,000
152,000 Exxon Corporation 11,409,500
180,000 KN Energy Inc. 7,875,000
65,220 Pennzoil Company 2,421,293
188,700 Royal Dutch Petroleum Company 8,868,900
------------
46,624,443
------------
RETAILERS (.4%)
47,000 Wal-Mart Stores Inc. 3,539,688
------------
TELECOM & TELECOM EQUIPMENT (9.3%)
ADC Telecommunications Inc.
258,200 (a) 7,713,725
Airtouch Communications Inc.
24,000 (a) 1,372,500
64,000 Ameritech Corp. 3,464,000
170,000 AT&T Corp. 10,593,125
83,000 Deutsche Telekom ADR 2,349,938
136,000 LM Ericsson Telephone Co. ADR 3,757,000
110,188 Lucent Technologies Inc. 9,483,055
324,657 MCI Worldcom Inc. (a) 19,154,763
64,000 Motorola Inc. 3,968,000
Nextlink Communication (Class
14,900 A) (a) 450,725
44,600 Northern Telecom Ltd. 2,082,263
385,800 SBC Communications 18,494,288
------------
82,883,382
------------
UTILITIES & ENERGY (1.4%)
20,800 CMS Energy Corporation 1,014,000
36,000 Duke Energy Corp. 2,252,250
25,200 FPL Group Inc. 1,543,500
85,000 Pacificorp 1,593,750
80,000 Southern Co. 2,360,000
47,300 Teco Energy Inc. 1,271,188
Texas Utilities Co. Holding
28,000 Co. 1,247,750
30,200 The AES Corp. (a) 1,381,650
------------
12,664,088
------------
TOTAL COMMON STOCKS
(cost $248,178,937) 587,518,006
------------
</TABLE>
17-------
<PAGE>
STATE FARM BALANCED FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 1998
<TABLE>
<CAPTION>
PRINCIPAL COUPON MATURITY
AMOUNT RATE DATE VALUE
- ----------- ------- ------------------- ------------
CORPORATE BONDS (1.5%)
<C> <S> <C> <C> <C>
AGRICULTURE, FOODS, & BEVERAGE (.3%)
$2,950,000 Archer-Daniels-Midland Company 5.870% November 15, 2010 $ 2,875,778
------------
CONSUMER & MARKETING (.6%)
5,000,000 Avery Dennison 5.900% December 1, 2008 5,000,000
------------
TELECOM & TELECOM EQUIPMENT (.6%)
5,000,000 US West Communications 5.625% November 15, 2008 5,034,300
------------
TOTAL CORPORATE BONDS
(cost $12,887,460) 12,910,078
------------
LONG-TERM U.S. TREASURY OBLIGATIONS (26.7%)
625,000 U.S. Treasury Bonds 13.125% May 15, 2001 747,319
680,000 U.S. Treasury Bonds 13.375% August 15, 2001 830,375
U.S. Treasury Bonds (principal
5,000,000 only) 14.250% February 15, 2002 6,409,700
2,570,000 U.S. Treasury Bonds 11.625% November 15, 2002 3,202,991
3,000,000 U.S. Treasury Bonds 10.750% May 15, 2003 3,717,450
5,500,000 U.S. Treasury Bonds 11.875% November 15, 2003 7,207,585
1,500,000 U.S. Treasury Bonds 11.625% November 15, 2004 2,025,975
1,785,000 U.S. Treasury Bonds 8.250% May 15, 2005 1,870,251
4,800,000 U.S. Treasury Bonds 10.750% August 15, 2005 6,417,504
11,500,000 U.S. Treasury Bonds 9.375% February 15, 2006 14,695,045
1,000,000 U.S. Treasury Bonds 10.375% November 15, 2009 1,281,920
7,000,000 U.S. Treasury Bonds 10.000% May 15, 2010 8,952,720
3,000,000 U.S. Treasury Notes 8.875% February 15, 1999 3,025,530
2,000,000 U.S. Treasury Notes 7.000% April 15, 1999 2,017,220
2,000,000 U.S. Treasury Notes 9.125% May 15, 1999 2,039,480
3,000,000 U.S. Treasury Notes 6.375% July 15, 1999 3,030,450
3,000,000 U.S. Treasury Notes 7.125% September 30, 1999 3,058,680
1,500,000 U.S. Treasury Notes 6.000% October 15, 1999 1,516,815
2,500,000 U.S. Treasury Notes 7.875% November 15, 1999 2,574,250
3,000,000 U.S. Treasury Notes 6.375% January 15, 2000 3,054,870
2,000,000 U.S. Treasury Notes 8.500% February 15, 2000 2,088,780
3,000,000 U.S. Treasury Notes 6.875% March 31, 2000 3,084,810
3,000,000 U.S. Treasury Notes 5.500% April 15, 2000 3,033,750
5,000,000 U.S. Treasury Notes 6.250% May 31, 2000 5,115,150
3,000,000 U.S. Treasury Notes 8.750% August 15, 2000 3,199,530
3,000,000 U.S. Treasury Notes 8.500% November 15, 2000 3,215,460
4,200,000 U.S. Treasury Notes 7.750% February 15, 2001 4,473,420
5,000,000 U.S. Treasury Notes 6.375% March 31, 2001 5,191,350
2,000,000 U.S. Treasury Notes 8.000% May 15, 2001 2,155,360
4,000,000 U.S. Treasury Notes 7.875% August 15, 2001 4,327,000
5,500,000 U.S. Treasury Notes 7.500% November 15, 2001 5,932,135
2,000,000 U.S. Treasury Notes 7.500% May 15, 2002 2,180,140
5,000,000 U.S. Treasury Notes 6.000% July 31, 2002 5,227,750
7,500,000 U.S. Treasury Notes 6.375% August 15, 2002 7,933,875
5,000,000 U.S. Treasury Notes 6.250% February 15, 2003 5,299,400
9,000,000 U.S. Treasury Notes 5.750% August 15, 2003 9,412,830
9,000,000 U.S. Treasury Notes 5.875% February 15, 2004 9,532,260
9,000,000 U.S. Treasury Notes 7.250% May 15, 2004 10,092,420
6,000,000 U.S. Treasury Notes 7.250% August 15, 2004 6,751,740
5,000,000 U.S. Treasury Notes 7.500% February 15, 2005 5,730,300
7,500,000 U.S. Treasury Notes 6.500% May 15, 2005 8,237,925
6,000,000 U.S. Treasury Notes 5.875% November 15, 2005 6,413,460
6,000,000 U.S. Treasury Notes 6.875% May 15, 2006 6,775,440
</TABLE>
- ---------
18
<PAGE>
STATE FARM BALANCED FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 1998
<TABLE>
<CAPTION>
PRINCIPAL COUPON MATURITY
AMOUNT RATE DATE VALUE
- ----------- ------- ------------------- ------------
<C> <S> <C> <C> <C>
$3,000,000 U.S. Treasury Notes 7.000% July 15, 2006 $ 3,412,680
4,000,000 U.S. Treasury Notes 6.500% October 15, 2006 4,435,120
10,000,000 U.S. Treasury Notes 6.250% February 15, 2007 10,972,900
11,000,000 U.S. Treasury Notes 6.625% May 15, 2007 12,349,370
4,000,000 U.S. Treasury Notes 6.125% August 15, 2007 4,361,120
------------
TOTAL LONG-TERM U.S. TREASURY OBLIGATIONS
(cost $228,033,881) 238,611,605
------------
SHORT-TERM INVESTMENTS (5.7%)
Ford Motor Credit Co., 4.88%
11,695,000 to 5.160%, December, 1998 11,697,813
General Electric Capital
Corp., 5.350%, December,
13,625,000 1998 13,627,025
U.S. Treasury Bills, 3.600% to
4.760%, December, 1998 to
26,000,000 February, 1999 25,891,900
------------
TOTAL SHORT-TERM INVESTMENTS
(cost $51,220,941) 51,216,738
------------
TOTAL INVESTMENTS (99.7%)
(cost $540,321,219) 890,256,427
CASH AND OTHER ASSETS, LESS LIABILITIES (0.3%) 2,944,941
------------
NET ASSETS (100.0%) $893,201,368
------------
------------
</TABLE>
Notes:
(a) Non-income producing security.
(b) At November 30, 1998, net unrealized appreciation of $349,935,208 consisted
of gross unrealized appreciation of $355,039,754 and gross unrealized
depreciation of $5,104,546 based on cost of $540,321,219 for federal income
tax purposes.
See accompanying notes to financial statements.
19-------
<PAGE>
STATE FARM BALANCED FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1998
<TABLE>
<S> <C> <C>
ASSETS
Investments, at value (cost
$540,321,219) $890,256,427
Cash 339,980
Receivable for:
Dividends and interest $ 4,083,723
Shares of the Fund sold 571,633
Securities sold 22,912,757
Sundry 4,725 27,572,838
-----------
Prepaid expenses 24,332
------------
Total assets 918,193,577
------------
LIABILITIES AND NET ASSETS
Payable for:
Shares of the Fund redeemed 1,079,750
Securities purchased 23,625,000
Other (including $256,675 to
Manager) 287,459
-----------
24,992,209
------------
Total liabilities 24,992,209
------------
Net assets applicable to 18,028,260
shares outstanding of
$1.00 par value common stock
(40,000,000 shares authorized) $893,201,368
------------
------------
Net asset value, offering price and
redemption price per share $ 49.54
------------
------------
ANALYSIS OF NET ASSETS
Excess of amounts received from sales
of shares over amounts paid on
redemptions of shares on account of
capital $518,204,884
Accumulated net realized gain on sales
of investments 446,940
Net unrealized appreciation of
investments 349,935,208
Undistributed net investment income 24,614,336
------------
Net assets applicable to shares
outstanding $893,201,368
------------
------------
</TABLE>
See accompanying notes to financial statements.
- ---------
20
<PAGE>
STATE FARM BALANCED FUND, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
------------------------
1998 1997
----------- -----------
<S> <C> <C>
INVESTMENT INCOME:
Dividends $ 9,838,359 7,013,356
Interest 19,172,814 17,286,259
----------- -----------
29,011,173 24,299,615
Less: foreign withholding taxes 113,470 83,157
----------- -----------
Total investment income 28,897,703 24,216,458
EXPENSES:
Investment advisory and management
fees 980,972 829,724
Professional fees 33,191 25,413
ICI dues 20,048 21,227
Registration fees 20,140 17,826
Fidelity bond expense 4,827 4,990
Directors' fees 8,129 4,950
Reports to shareowners 11,907 12,077
Security evaluation fees 4,893 5,475
Franchise taxes 17,229 15,667
Custodian fees 17,454 22,820
Proxy and related expense 14,077 --
Other 140 103
----------- -----------
Total expenses 1,133,007 960,272
----------- -----------
Net investment income 27,764,696 23,256,186
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS:
Net realized gain on sales of
investments 446,940 11,354,841
Change in net unrealized appreciation 70,040,582 77,000,826
----------- -----------
Net realized and unrealized gain on
investments 70,487,522 88,355,667
----------- -----------
Net change in net assets resulting from
operations $98,252,218 111,611,853
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to financial statements.
21-------
<PAGE>
STATE FARM BALANCED FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-------------------------
1998 1997
------------ -----------
<S> <C> <C>
FROM OPERATIONS:
Net investment income $ 27,764,696 23,256,186
Net realized gain on sales of
investments 446,940 11,354,841
Change in net unrealized appreciation 70,040,582 77,000,826
------------ -----------
Net change in net assets resulting from
operations 98,252,218 111,611,853
Undistributed net investment income
included in price of shares issued and
redeemed 714,370 728,764
DISTRIBUTIONS TO SHAREOWNERS FROM:
Net investment income (per share $1.54
in 1998, and $1.47 in 1997) (26,507,020) (22,824,265)
Net realized gain (per share $.69 in
1998, and $1.33 in 1997) (11,354,841) (19,696,852)
------------ -----------
Total distributions to shareowners (37,861,861) (42,521,117)
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold 143,691,069 107,496,503
Reinvestment of ordinary income
dividends and capital gain
distributions 36,429,240 41,061,305
------------ -----------
180,120,309 148,557,808
Less payments for shares redeemed 110,302,865 82,191,577
------------ -----------
Net increase in net assets from Fund
share transactions 69,817,444 66,366,231
------------ -----------
Total increase in net assets 130,922,171 136,185,731
------------ -----------
NET ASSETS:
Beginning of year 762,279,197 626,093,466
------------ -----------
End of year (including undistributed
net investment income of $24,614,336
in 1998, and $22,642,290 in 1997) $893,201,368 762,279,197
------------ -----------
------------ -----------
</TABLE>
See accompanying notes to financial statements.
- ---------
22
<PAGE>
STATE FARM BALANCED FUND, INC.
FINANCIAL HIGHLIGHTS
PER SHARE INCOME AND CAPITAL CHANGES (For a share outstanding throughout each
year)
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
---------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
year $ 46.09 42.04 37.76 31.12 30.88 31.24 27.98 22.72 22.27 18.81
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 1.54 1.40 1.39 1.25 1.03 0.98 0.98 0.94 1.06 0.92
Net gain or loss on
investments (both realized
and unrealized) 4.14 5.45 4.38 6.77 0.17 (0.09) 3.29 5.81 0.74 3.61
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total from investment
operations 5.68 6.85 5.77 8.02 1.20 0.89 4.27 6.75 1.80 4.53
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS
Net investment income (1.54) (1.47) (1.30) (1.19) (0.89) (1.01) (0.89) (1.03) (0.92) (0.86)
Capital gains (0.69) (1.33) (0.19) (0.19) (0.07) (0.24) (0.12) (0.46) (0.43) (0.21)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total distributions (2.23) (2.80) (1.49) (1.38) (0.96) (1.25) (1.01) (1.49) (1.35) (1.07)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net asset value, end of year $ 49.54 46.09 42.04 37.76 31.12 30.88 31.24 27.98 22.72 22.27
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
TOTAL RETURN 12.72% 17.33% 15.78% 26.53% 3.98% 2.91% 15.43% 31.09% 8.29% 25.09%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year
(millions) $ 893.2 762.3 626.1 499.7 370.5 327.8 259.7 173.5 108.8 88.7
Ratio of expenses to average
net assets 0.14% 0.14% 0.15% 0.17%(a) 0.17% 0.19% 0.22% 0.26% 0.27% 0.29%
Ratio of net investment income
to average net assets 3.34% 3.42% 3.63% 3.66% 3.36% 3.20% 3.29% 3.66% 4.87% 4.50%
Portfolio turnover rate 2% 6% 9% 6% 4% 4% 4% 1% 10% 10%
</TABLE>
- ----------
(a) The ratio based on net custodian expenses would have been .16% in 1995.
23-------
<PAGE>
STATE FARM INTERIM FUND, INC.
Dear Shareowner:
Interest rates on good quality bonds have dropped substantially over the course
of the Fund's recently completed fiscal year. Yields on the U. S. Treasury
securities which dominate the investments of your Fund now stand at levels which
are about 125 basis points (a basis point is .01%) lower than those which
existed a year ago. Consequently, values of investments held by the Fund have
risen, and its net asset value increased 1.3% over the past twelve months. The
Fund's total return, which includes the reinvestment of dividends and the change
in net asset value, for the year was 8.3%.
The following graph compares a $10,000 investment in the Interim Fund over the
last ten years to a theoretical investment of the same amount in the Lehman
Brothers 1-5 Year U.S. Treasury Index:
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
FOR THE YEARS ENDED NOVEMBER 30
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
LEHMAN BROTHERS
<S> <C> <C>
INTERIM FUND 1-5 YEAR TREASURY INDEX*
1988 $10,000 $10,000
1989 $11,180 $11,133
1990 $12,106 $12,111
1991 $13,497 $13,598
1992 $14,455 $14,599
1993 $15,577 $15,564
1994 $15,442 $15,467
1995 $17,277 $17,322
1996 $18,217 $18,312
1997 $19,304 $19,420
1998 $20,906 $21,011
Fund's Average Annual Total Return
1 YEAR 5 YEAR 10 YEAR
8.31% 6.06% 7.65%
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT
IN THE FUND WILL FLUCTUATE SO THAT FUND SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
</TABLE>
* The Lehman Brothers 1-5 Year U.S. Treasury Index presently contains
approximately 87 U.S. Treasury Securities with maturities ranging from one to
five years. In preceding years, performance of the Interim Fund was compared to
a Lehman Brothers Intermediate Treasury Index, which contains approximately 130
U.S. Treasury Securities with maturities ranging from one to ten years. The
Lehman 1-5 Year Index more closely approximates the weighted average maturity of
Interim Fund's portfolio. For the 12 months ended November 30, 1998, the Lehman
Intermediate Index showed an increase of 7.2% and the 1-5 Year Index showed an
increase of 8.2%, compared to Interim Fund's total return of 8.3% for the same
period.
The Lehman Brothers 1-5 Year U.S. Treasury Index represents an unmanaged group
of bonds that differs from the composition of the Interim Fund. Unlike an
investment in the Interim Fund, a theoretical investment in the Index does not
reflect any expenses.
It has been an eventful year in money and capital markets. While interest rates
on high quality U. S. bonds have been trending downward significantly, the
magnitude of any decline is much less for bonds with lower credit ratings. In
fact, contrary to the general falling trend in interest rates, yields have
actually risen on bonds carrying ratings below investment grade. These movements
display investors' preferences for higher quality assets during times when
financial markets across the globe are volatile and the future seems more
uncertain. Several aggressive and leveraged entities, such as the
well-publicized Long-Term Capital Management hedge fund, have experienced large
financial losses because major investment positions were taken with expectations
that yields in low quality bonds would move in line with the higher quality
issues.
The U. S. economy remains remarkably robust at the macroeconomic level thanks to
strength in consumer spending. The strong showing in the consumer sector has
been able to offset weakness on the manufacturing side where weak export demand
and intense overseas competition are taking their toll. Most economists are
expecting the pace of domestic economic growth to slow in coming months as the
effects of weakness in several foreign economies spill over more fully to the
United States.
Central banks across the developed world have been easing monetary policy in
recent months in response to evidence that their economies are slowing. Our
Federal Reserve Board has been very prominent in this activity. Its Open Market
Committee cut short-term interest rates by a total of 75 basis points through
three 25 basis point moves within a seven-week period. Current low levels of
inflation
- ---------
24
<PAGE>
STATE FARM INTERIM FUND, INC.
give the Federal Reserve flexibility to do whatever it deems necessary in an
attempt to keep our economy growing. While long-term market interest rates have
been following the direction of short-term yields recently, that is not always
the case. Market interest rates are also influenced heavily by expectations for
the economy, inflation and international capital flows.
The general composition of the Fund's portfolio changed very little over the
year with primary investments consisting of U. S. Treasury issues which mature
regularly over the next six years. The weighted average maturity of the
portfolio presently stands at three years, which is unchanged from a year ago.
The relatively short maturity structure of the portfolio tends to mitigate
fluctuations in the Fund's net asset value. The high quality investments provide
a dependable flow of dividend income.
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,
<TABLE>
<S> <C>
[SIG] [SIG]
Kurt G. Moser Donald E. Heltner
Vice President Vice President
</TABLE>
25-------
<PAGE>
STATE FARM INTERIM FUND, INC.
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1998
<TABLE>
<CAPTION>
PRINCIPAL COUPON MATURITY
AMOUNT RATE DATE VALUE
- ----------- ------- ------------------- ------------
<C> <S> <C> <C> <C>
LONG-TERM U.S. TREASURY OBLIGATIONS (95.5%)
U.S. Treasury Bonds (principal
$4,000,000 only) 14.250% February 15, 2002 $ 5,127,760
4,000,000 U.S. Treasury Bonds 11.625% November 15, 2002 4,985,200
2,000,000 U.S. Treasury Bonds 10.750% May 15, 2003 2,478,300
2,000,000 U.S. Treasury Bonds 11.125% August 15, 2003 2,531,760
1,000,000 U.S. Treasury Bonds 11.875% November 15, 2003 1,310,470
4,000,000 U.S. Treasury Notes 6.375% January 15, 1999 4,009,240
1,000,000 U.S. Treasury Notes 5.875% March 31, 1999 1,004,360
3,750,000 U.S. Treasury Notes 7.000% April 15, 1999 3,782,287
4,000,000 U.S. Treasury Notes 6.375% July 15, 1999 4,040,600
1,000,000 U.S. Treasury Notes 5.750% September 30, 1999 1,008,580
4,000,000 U.S. Treasury Notes 6.000% October 15, 1999 4,044,840
2,000,000 U.S. Treasury Notes 6.375% January 15, 2000 2,036,580
2,000,000 U.S. Treasury Notes 8.500% February 15, 2000 2,088,780
1,000,000 U.S. Treasury Notes 6.875% March 31, 2000 1,028,270
6,250,000 U.S. Treasury Notes 5.500% April 15, 2000 6,320,313
1,000,000 U.S. Treasury Notes 6.750% April 30, 2000 1,028,280
1,000,000 U.S. Treasury Notes 8.875% May 15, 2000 1,058,990
1,000,000 U.S. Treasury Notes 6.250% May 31, 2000 1,023,030
4,000,000 U.S. Treasury Notes 8.750% August 15, 2000 4,266,040
3,750,000 U.S. Treasury Notes 8.500% November 15, 2000 4,019,325
3,000,000 U.S. Treasury Notes 5.500% December 31, 2000 3,052,020
1,000,000 U.S. Treasury Notes 5.250% January 31, 2001 1,013,180
4,000,000 U.S. Treasury Notes 7.750% February 15, 2001 4,260,400
4,000,000 U.S. Treasury Notes 5.625% February 28, 2001 4,086,720
5,000,000 U.S. Treasury Notes 8.000% May 15, 2001 5,388,400
4,000,000 U.S. Treasury Notes 7.875% August 15, 2001 4,327,000
3,000,000 U.S. Treasury Notes 6.375% September 30, 2001 3,138,300
4,000,000 U.S. Treasury Notes 7.500% November 15, 2001 4,314,280
4,000,000 U.S. Treasury Notes 7.500% May 15, 2002 4,360,280
8,000,000 U.S. Treasury Notes 6.375% August 15, 2002 8,462,800
5,000,000 U.S. Treasury Notes 5.750% November 30, 2002 5,195,800
6,000,000 U.S. Treasury Notes 6.250% February 15, 2003 6,359,280
7,000,000 U.S. Treasury Notes 5.750% April 30, 2003 7,305,340
7,000,000 U.S. Treasury Notes 5.750% August 15, 2003 7,321,090
3,000,000 U.S. Treasury Notes 5.875% February 15, 2004 3,177,420
8,000,000 U.S. Treasury Notes 7.250% May 15, 2004 8,971,040
8,000,000 U.S. Treasury Notes 7.875% November 15, 2004 9,283,520
------------
TOTAL LONG-TERM U.S. TREASURY OBLIGATIONS
(cost $146,688,555) 147,209,875
------------
SHORT-TERM INVESTMENTS (4.2%)
Ford Motor Credit Co., 4.880%,
4,480,000 December, 1998 4,483,647
U.S. Treasury Bills, 4.410%,
2,000,000 February, 1999 1,982,320
------------
TOTAL SHORT-TERM INVESTMENTS
(cost $6,465,961) 6,465,967
------------
TOTAL INVESTMENTS (99.7%)
(cost $153,154,516) 153,675,842
CASH AND OTHER ASSETS, LESS LIABILITIES (0.3%) 468,724
------------
NET ASSETS (100.0%) $154,144,566
------------
------------
</TABLE>
Notes:
(a) At November 30, 1998, net unrealized appreciation of $521,326 consisted of
gross unrealized appreciation of $2,120,931 and gross unrealized
depreciation of $1,599,605 based on cost of $153,154,516 for federal income
tax purposes.
See accompanying notes to financial statements.
- ---------
26
<PAGE>
STATE FARM INTERIM FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1998
<TABLE>
<S> <C> <C>
ASSETS
Investments, at value (cost
$153,154,516) $153,675,842
Cash 603,260
Receivable for:
Interest $1,923,326
Shares of the Fund sold 20,000
Sundry 3,544 1,946,870
----------
Prepaid expenses 8,286
------------
Total assets 156,234,258
LIABILITIES AND NET ASSETS
Dividends payable to shareowners 1,581,531
Payable for:
Shares of the Fund redeemed 427,582
Other (including $60,844 to Manager) 80,579
----------
508,161
------------
Total liabilities 2,089,692
------------
Net assets applicable to 15,450,980
shares outstanding of
$1.00 par value common stock
(40,000,000 shares authorized) $154,144,566
------------
------------
Net asset value, offering price and
redemption price per share $ 9.98
------------
------------
ANALYSIS OF NET ASSETS
Excess of amounts received from sales
of shares over amounts paid on
redemptions of shares on account of
capital $156,838,488
Accumulated net realized loss on sales
of investments (3,215,248)
Net unrealized appreciation of
investments 521,326
------------
Net assets applicable to shares
outstanding $154,144,566
------------
------------
</TABLE>
See accompanying notes to financial statements.
27-------
<PAGE>
STATE FARM INTERIM FUND, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER
30,
----------------------
1998 1997
---------- ----------
<S> <C> <C>
INVESTMENT INCOME:
Interest $8,742,391 7,939,168
EXPENSES:
Investment advisory and management
fees 199,209 184,551
Professional fees 19,501 17,993
ICI dues 3,283 4,053
Registration fees 12,266 2,577
Fidelity bond expense 2,638 2,912
Directors' fees 2,709 1,650
Reports to shareowners 2,713 2,207
Security evaluation fees 1,862 2,094
Franchise taxes 12,547 9,391
Custodian fees 6,112 10,745
Proxy and related expense 2,950 --
Other 140 122
---------- ----------
Total expenses 265,930 238,295
---------- ----------
Net investment income 8,476,461 7,700,873
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized loss on sales of
investments (994,996) (922,190)
Change in net unrealized appreciation
or depreciation 2,484,327 (453,800)
---------- ----------
Net realized and unrealized gain (loss)
on investments 1,489,331 (1,375,990)
---------- ----------
Net change in net assets resulting from
operations $9,965,792 6,324,883
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to financial statements.
- ---------
28
<PAGE>
STATE FARM INTERIM FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-------------------------
1998 1997
------------ -----------
<S> <C> <C>
FROM OPERATIONS:
Net investment income $ 8,476,461 7,700,873
Net realized loss on sales of
investments (994,996) (922,190)
Change in net unrealized appreciation
or depreciation 2,484,327 (453,800)
------------ -----------
Net change in net assets resulting from
operations 9,965,792 6,324,883
DISTRIBUTIONS TO SHAREOWNERS FROM:
Net investment income (per share $.68
in 1998, and $.69 in 1997) (8,476,461) (7,700,873)
------------ -----------
Total distributions to shareowners (8,476,461) (7,700,873)
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold 100,294,008 57,531,569
Reinvestment of ordinary income
dividends 7,418,955 7,150,343
------------ -----------
107,712,963 64,681,912
Less payments for shares redeemed 67,903,936 58,104,026
------------ -----------
Net increase in net assets from Fund
share transactions 39,809,027 6,577,886
------------ -----------
Total increase in net assets 41,298,358 5,201,896
------------ -----------
NET ASSETS:
Beginning of year 112,846,208 107,644,312
------------ -----------
End of year $154,144,566 112,846,208
------------ -----------
------------ -----------
</TABLE>
See accompanying notes to financial statements.
29-------
<PAGE>
STATE FARM INTERIM FUND, INC.
FINANCIAL HIGHLIGHTS
PER SHARE INCOME AND CAPITAL CHANGES (For a share outstanding throughout each
year)
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-----------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $ 9.85 9.98 10.15 9.72 10.52 10.46 10.50 10.16 10.17 9.86
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.68 0.69 0.70 0.70 0.71 0.74 0.78 0.78 0.82 0.81
Net gain or loss on
investments (both
realized and
unrealized) 0.13 (0.13) (0.17) 0.43 (0.80) 0.06 (0.04) 0.34 (0.01) 0.31
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total from investment
operations 0.81 0.56 0.53 1.13 (0.09) 0.80 0.74 1.12 0.81 1.12
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS
Net investment income (0.68) (0.69) (0.70) (0.70) (0.71) (0.74) (0.78) (0.78) (0.82) (0.81)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total distributions (0.68) (0.69) (0.70) (0.70) (0.71) (0.74) (0.78) (0.78) (0.82) (0.81)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net asset value, end of
year $ 9.98 9.85 9.98 10.15 9.72 10.52 10.46 10.50 10.16 10.17
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
TOTAL RETURN 8.31% 5.87% 5.44% 11.91% (0.85)% 7.82% 7.19% 11.41% 8.27% 11.82%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year
(millions) $ 154.1 112.8 107.6 104.7 94.3 103.7 85.9 66.8 52.7 42.2
Ratio of expenses to
average net assets 0.21% 0.22% 0.23%(a) 0.25%(a) 0.22% 0.25% 0.27% 0.28% 0.30% 0.31%
Ratio of net investment
income to average net
assets 6.80% 7.03% 7.03% 7.00% 7.00% 7.00% 7.30% 7.65% 8.12% 8.16%
Portfolio turnover rate 14% 15% 17% 17% 15% 15% 15% 14% 14% 17%
</TABLE>
- ----------
(a) The ratio based on net custodian expenses would have been .22% in 1996 and
.24% in 1995.
- ---------
30
<PAGE>
STATE FARM MUNICIPAL BOND FUND
Dear Shareowner:
The past year produced a general decline in interest rates on good quality bond
issues. Yields on U. S. Treasury securities dropped the most as their issuance
lessened and investors showed a preference for the highest quality and most
liquid assets. This flight to quality occurred while global stock and currency
markets exhibited much volatility; Russia defaulted on its bonds; and hedge
funds experienced heavy losses on leveraged bets relating to yield relationships
between high and low quality bond issues.
In the midst of all this activity, yields on municipal bonds managed to fall
around 30 basis points (a basis point is .01%) over the course of the year which
compares to a decrease of more than an 100 basis points on U. S. Treasury
securities having similar maturities. Municipal bonds issued for solid
governmental purposes are considered good quality investments, but lack the
liquidity of U. S. Treasury securities. Furthermore, municipal bonds are most
attractive to domestic investors who can benefit from the tax exemption on
interest received. Consequently, demand factors for municipal bonds differ
markedly from those of U. S. Treasury obligations, and it is not unusual for the
two markets to act differently.
Municipal bonds maturing in 20 years now provide yields which are 93-95% of
those produced by U. S. Treasury Bonds having comparable maturities. This ratio
of yields was around 85% last year at this time and stayed around 80% during
most of 1996 and 1997. In addition to heavy demand for U. S. Treasury
securities, the change in relative yields is probably mostly attributable to
declining demand for municipal bonds by property and casualty companies and some
total-return oriented investors in the face of new municipal bond issuance which
is up 28% from 1997 levels. In the past, municipal bonds have provided yields
this close to those of U. S. Treasury securities only when market participants
were concerned that legislation might be enacted which would be detrimental to
the tax-advantaged status of municipal bonds.
Prices of the municipal bonds held by your Fund improved over the last twelve
months raising the net asset value to $8.55, a 1.3% rise from the $8.43 value
which existed at the close of the 1997 fiscal year. The Fund's total return,
which includes the reinvestment of dividends and the change in net asset value,
for the year was 6.8%.
The following graph compares a $10,000 investment in the Municipal Bond Fund
over the last 10 years to a theoretical investment of the same amount in the
Lehman Brothers Municipal Bond Index:
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
FOR THE YEARS ENDED NOVEMBER 30
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
MUNICIPAL LEHMAN BROTHERS
<S> <C> <C>
BOND FUND MUNI BOND INDEX*
1988 $10,000 $10,000
1989 $11,043 $11,101
1990 $11,903 $11,956
1991 $13,002 $13,182
1992 $14,172 $14,505
1993 $15,469 $16,113
1994 $15,072 $15,267
1995 $17,213 $18,153
1996 $18,111 $19,220
1997 $19,152 $20,685
1998 $20,455 $22,290
Fund's Average Annual Total Return
1 YEAR 5 YEAR 10 YEAR
6.82% 5.75% 7.42%
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT
IN THE FUND WILL FLUCTUATE SO THAT FUND SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
</TABLE>
* The Lehman Brothers Municipal Bond Index includes approximately 47,000
municipal bonds which are selected to be representative of the market. To be
included in the Index, a municipal bond must meet the following criteria: have a
minimum credit rating of Baa; have been issued as part of an issue of at least
$50 million; have an amount outstanding of at least $3 million; have been issued
since December 31, 1990; and have a maturity of at least one year.
The Lehman Brothers Index represents an unmanaged group of bonds that differs
from the composition of the Municipal Bond Fund. Unlike an investment in the
Municipal Bond Fund, a theoretical investment in the Index does not reflect any
expenses.
31-------
<PAGE>
STATE FARM MUNICIPAL BOND FUND
The composition of your Fund's investments has changed very little since our
last annual report. Municipal bonds purchased over the past twelve months had
maturities ranging from 13-17 years. Good quality bonds dominate the portfolio.
About 85% of the long-term assets are rated AA or better, and another 4% are not
rated but are considered to be of equivalent quality since those issues are
backed by U. S. Treasury securities. The entire portfolio of the Fund falls into
the top three rating categories when the aforementioned issues are included at
appropriate equivalent ratings. The average weighted maturity of the Fund's
portfolio is approximately 7.5 years with all maturities spread out over the
next 17 years.
An intermediate maturity structure has been the orientation of the Fund's
portfolio for several years. Recent purchases have been providing about 93-95%
of the yield available from bonds with long maturities.
As always, we encourage 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. The high quality investments of the
Fund should provide a dependable flow of dividend income through all types of
markets.
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,
<TABLE>
<S> <C>
[SIG] [SIG]
Julian R. Bucher Kurt G. Moser
Vice President Vice President
</TABLE>
- ---------
32
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1998
<TABLE>
<CAPTION>
RATING
(MOODY'S
PRINCIPAL COUPON MATURITY OR
AMOUNT RATE DATE S&P) VALUE
- ----------- ------- ------------------- ----- ------------
<C> <S> <C> <C> <C> <C>
LONG-TERM MUNICIPAL BONDS (98.3%)
ALABAMA (1.3%)
$2,465,000 Limestone County Board of Education,
Alabama, Capital Outlay Tax Antic
Warrants, Series 1998 4.900% July 1, 2015 Aaa $ 2,458,246
2,200,000 The Water Works and Sewer Board,
Birmingham, Alabama, Water and Sewer
Revenue Bonds, Series 1994 4.750% January 1, 2005 Aa 2,284,656
------------
4,742,902
------------
ALASKA (1.2%)
1,505,000 Anchorage, Alaska, General Obligation
General Purpose Refunding Bonds 4.600% February 1, 2003 Aaa 1,546,448
1,500,000 Municipality of Anchorage, Alaska, 1993
General Obligation Refunding School
Bonds, Series B 4.900% September 1, 2003 Aaa 1,564,410
1,100,000 Municipality of Anchorage, Alaska, 1994
General Obligation School Bonds 5.400% July 1, 2005 Aaa 1,184,392
------------
4,295,250
------------
ARIZONA (6.2%)
2,340,000 City of Phoenix, Arizona, General
Obligation Refunding Bonds, Ser. 1993
A 5.300% July 1, 2006 Aa1 2,534,080
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% July 1, 2004 Aaa 2,120,820
1,000,000 Maricopa County, Arizona, Unified School
District No. 69, Paradise Valley
School Improvement Bonds, Ser. 1990A 7.100% July 1, 2004 A1 1,154,510
1,000,000 Maricopa County, Arizona, Unified School
District No. 69, Paradise Valley
School Improvement Bonds, Ser. 1994A 7.100% July 1, 2008 A1 1,215,220
1,200,000 Maricopa County, Arizona, Unified School
District No. 69, Paradise Valley
School Improvement Bonds, Ser. 1994A 7.000% July 1, 2009 A1 1,462,860
2,500,000 Maricopa County, Arizona, Unified School
District No. 69, Paradise Valley
School Improvement Bonds, Ser. 1994A 7.000% July 1, 2010 A1 3,074,675
4,250,000 Mesa Unified School District No. 4 of
Maricopa County, Arizona, School
Improvement Bonds, Project of 1995,
Series D (1997) 4.750% July 1, 2010 Aaa 4,358,332
1,000,000 Pima County, Arizona, General Obligation
Refunding Bonds, Ser. 1992 6.300% July 1, 2002 A1 1,085,060
2,250,000 Pima County, Arizona, Unified School
District No. 1, Tucson School
Improvement Bonds, Ser. 1990 B
(Prerefunded to 7-1-2000 @ 101) 6.900% July 1, 2002 A 2,390,535
3,000,000 Tempe Union High School District No.
213, Maricopa County, Arizona, School
Improvement General Obligation Bonds,
Project of 1989, Ser. 1992B
(Prerefunded to 7-1-2001 @ 101) 5.875% July 1, 2002 A+ 3,192,060
------------
22,588,152
------------
CALIFORNIA (5.3%)
3,000,000 City of Los Angeles, California,
Department of Water and Power,
Electric Plant Refunding Revenue
Bonds, Second Issue of 1993 4.800% November 15, 2004 Aa3 3,153,030
3,500,000 City of Los Angeles, California,
Wastewater System Rev. Bonds, Ser.
1990 B (Prerefunded to 6-1-2000 @ 102) 6.900% June 1, 2004 Aaa 3,752,420
2,830,000 Sacramento County, California, Sanitary
District Financing Authority Revenue
Bonds, 1995 5.000% December 1, 2007 Aa3 3,039,986
1,500,000 Sacramento County, California, Sanitary
District Financing Authority Revenue
Bonds, 1995 5.000% December 1, 2008 Aa3 1,600,770
1,400,000 San Diego County, California, Water
Authority Water Rev. Certificates of
Participation, Ser. 1991A 6.000% May 1, 2001 Aa3 1,482,040
400,000 State of California, General Obligation
Veterans Bonds, Series AL 9.600% April 1, 2001 Aa3 453,856
400,000 State of California, Variable Purpose
General Obligation Bonds 9.000% April 1, 1999 Aa3 407,996
3,000,000 State of California, Various Purpose
General Obligation Bonds 5.900% February 1, 2000 Aa3 3,094,020
</TABLE>
33-------
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 1998
<TABLE>
<CAPTION>
RATING
(MOODY'S
PRINCIPAL COUPON MATURITY OR
AMOUNT RATE DATE S&P) VALUE
- ----------- ------- ------------------- ----- ------------
<C> <S> <C> <C> <C> <C>
$2,000,000 State of California, Various Purpose
General Obligation Bonds 6.000% October 1, 2006 Aa3 $ 2,271,000
------------
19,255,118
------------
COLORADO (3.6%)
2,000,000 Arapahoe County School District # 6,
Colorado, Littleton Public Schools
General Obligation Improvement Bonds,
Series 1995A 5.000% December 1, 2007 Aa2 2,137,480
2,620,000 Cherry Creek School District No. 5,
Arapahoe County, Colorado, General
Obligation Improvement Bonds, Ser.
1990 (Prerefunded to 12-15-2000 @ 101) 7.000% December 15, 2003 Aa2 2,825,801
2,000,000 Jefferson County, Colorado, School
District No. R-1 General Obligation
Bonds, Ser. 1992 (Prerefunded to
12-15-2002 @ 101) 5.750% December 15, 2003 Aaa 2,169,020
2,540,000 Mesa County Valley School District No.
51, County of Mesa, State of Colorado,
General Obligation Bonds, Series 1996 5.300% December 1, 2010 Aaa 2,708,021
3,135,000 St. Vrain School District # R3-1J,
Colorado, General Obligation, Ser.
1997 5.000% December 15, 2012 Aaa 3,234,881
------------
13,075,203
------------
DELAWARE (.7%)
1,125,000 The State of Delaware, General
Obligation Bonds, Series 1994B
(Prerefunded to 12-1-2004 @ 100) 6.000% December 1, 2011 Aa1 1,248,446
1,125,000 The State of Delaware, General
Obligation Bonds, Series 1994B
(Prerefunded to 12-1-2004 @ 100) 6.000% December 1, 2012 Aa1 1,248,446
------------
2,496,892
------------
FLORIDA (2.7%)
2,000,000 Alachua County School District, Alachua
County, Florida, General Obligation
Refunding Bonds, Series 1994 4.500% July 1, 2004 Aaa 2,066,760
3,000,000 City of Lakeland, Florida, Electric and
Water Rev., Ser. 1989 (Prerefunded to
10-1-1999 @ 102) 6.900% October 1, 2003 A1 3,151,770
500,000 Orlando Utilities Commission, Florida,
Water and Electric Rev., Ser. 1983
(Escrowed to maturity) 9.600% October 1, 1999 Aaa 526,705
2,000,000 School District of Leon County, Florida,
General Obligation Refunding Bonds,
Ser. 1991 5.850% July 1, 2001 A1 2,105,860
2,000,000 State of Florida, State Board of
Education, Public Education Capital
Outlay Refunding Bonds, 1995 Series C 5.125% June 1, 2008 Aa2 2,125,940
------------
9,977,035
------------
GEORGIA (7.8%)
2,100,000 Cherokee County School Systems, Georgia,
General Obligation School, Series 1993 4.900% February 1, 2004 A2 2,194,353
1,055,000 Columbia County, Georgia, General
Obligation Bonds (Courthouse/Detention
Center Projects), Series 1998 4.700% February 1, 2013 A+ 1,045,674
1,195,000 Columbia County, Georgia, General
Obligation Bonds (Courthouse/Detention
Center Projects), Series 1998 4.800% February 1, 2014 A+ 1,188,559
1,205,000 DeKalb County School District, Georgia,
General Obligation Refunding Bonds,
Series 1993 5.100% July 1, 2004 Aa 1,277,529
3,215,000 Forsyth County School District, Georgia,
General Obligation Bonds, Series 1995
(Prerefunded to 7-1-2005 @ 102) 5.050% July 1, 2007 Aaa 3,462,073
4,000,000 Gwinnett County Water & Sewer Authority,
Georgia, Revenue Series 1998 5.000% August 1, 2011 Aaa 4,209,520
1,500,000 Municipal Electric Authority of Georgia,
General Power Rev. Bonds, 1993A Series 5.000% January 1, 2004 A3 1,559,955
3,590,000 State of Georgia, General Obligation
Bonds, 1996 C 6.250% August 1, 2009 Aaa 4,207,265
3,000,000 State of Georgia, General Obligation
Bonds, Series 1994B 6.250% April 1, 2012 Aaa 3,528,570
3,000,000 State of Georgia, General Obligation
Bonds, Series 1995B 5.750% March 1, 2012 Aaa 3,377,460
</TABLE>
- ---------
34
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 1998
<TABLE>
<CAPTION>
RATING
(MOODY'S
PRINCIPAL COUPON MATURITY OR
AMOUNT RATE DATE S&P) VALUE
- ----------- ------- ------------------- ----- ------------
<C> <S> <C> <C> <C> <C>
$2,000,000 State of Georgia, General Obligation
Bonds, Series 1995C 5.700% July 1, 2011 Aaa $ 2,249,140
------------
28,300,098
------------
HAWAII (2.8%)
4,000,000 City and County of Honolulu, Hawaii,
General Obligation Bonds, Series 1996A 5.400% September 1, 2009 Aaa 4,320,720
2,200,000 City and County of Honolulu, Hawaii,
General Obligation Refunding Bonds,
Ser. 1 5.600% June 1, 2001 Aa2 2,297,812
3,000,000 State of Hawaii, General Obligation
Bonds of 1992, Series BW 6.375% March 1, 2011 A1 3,500,430
------------
10,118,962
------------
IDAHO (.4%)
1,540,000 Joint School District No. 2, Ada &
Canyon Counties, Idaho, General
Obligation School Bonds, Series 1994 5.000% July 30, 2004 Aa2 1,627,703
------------
ILLINOIS (4.8%)
200,000 Charleston, Illinois, Water Works
Improvement Bonds 8.000% January 1, 2000 A 209,390
2,025,000 County of DuPage, Illinois, General
Obligation Refunding Bonds (Alternate
Rev. Source - Stormwater Project) 5.100% January 1, 2004 Aaa 2,131,292
3,785,000 DuPage County Forest Preserve District,
Illinois, General Obligation, Ser.
1997 4.900% October 1, 2013 Aaa 3,854,001
2,500,000 DuPage Water Commission, Illinois,
General Obligation Water Refunding
Bonds, Ser. 1992 5.850% March 1, 2000 Aaa 2,574,700
2,000,000 Lake County, Illinois, Forest Preserve
District General Obligation Refunding
Bonds, Ser. 1992B 5.700% February 1, 2003 Aa2 2,141,400
4,000,000 State of Illinois, General Obligation
Bonds, Series September 1996 5.450% September 1, 2009 Aaa 4,341,200
2,000,000 State of Illinois, General Obligation
Refunding Bonds, Series of June 1993 5.000% June 1, 2003 Aa2 2,090,880
------------
17,342,863
------------
INDIANA (2.4%)
2,300,000 Indianapolis, Indiana, Local Public
Improvement Bond Bank Refunding Bonds,
Series 1993 B 4.700% February 15, 2004 Aaa 2,381,673
2,000,000 Indianapolis, Indiana, Local Public
Improvement Bond Bank, Series 1993A
Bonds 5.250% January 10, 2004 Aaa 2,122,040
900,000 Monroe County Jail, Indiana, First
Mortgage Refunding Bonds, Series 1993 4.900% January 1, 2002 A1 927,225
925,000 Monroe County Jail, Indiana, First
Mortgage Refunding Bonds, Series 1993 4.900% July 1, 2002 A1 955,645
2,125,000 Southwest Allen, Indiana, High School
Building Corp., 1st Mortgage Refunding
Bonds, Series 1996B 4.850% July 15, 2006 Aaa 2,225,534
------------
8,612,117
------------
IOWA (1.2%)
2,000,000 City of Des Moines, Iowa, Sewer Rev.
Bonds, Ser. 1992D 6.000% June 1, 2003 Aaa 2,137,620
2,045,000 City of Iowa City, Johnson County, Iowa,
Sewer Rev. Bonds 5.875% July 1, 2004 Aaa 2,175,348
------------
4,312,968
------------
KANSAS (.1%)
400,000 Johnson County Water District No. 1,
Kansas, Water Rev., Ser. 1982A
(Escrowed to maturity) 10.250% August 1, 2002 Aaa 446,416
------------
LOUISIANA (1.5%)
5,000,000 State of Louisiana, General Obligation
Bonds, Series 1997A 5.375% April 15, 2011 Aaa 5,354,950
------------
MARYLAND (3.8%)
2,000,000 Howard County, Maryland, Consolidated
Public Improvement Refunding Bonds,
Ser. 1991B 5.800% August 15, 2001 Aaa 2,113,520
</TABLE>
35-------
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 1998
<TABLE>
<CAPTION>
RATING
(MOODY'S
PRINCIPAL COUPON MATURITY OR
AMOUNT RATE DATE S&P) VALUE
- ----------- ------- ------------------- ----- ------------
<C> <S> <C> <C> <C> <C>
$5,750,000 Montgomery County, Maryland, General
Obligation Cons. Pub. Impt., 1998 Ser.
A 4.875% May 1, 2013 Aaa $ 5,883,917
2,840,000 Washington Suburban Sanitary District,
Maryland, General Obligation Bonds
(Prerefunded to 12-1-1998 @ 102) 7.000% December 1, 2001 Aaa 2,897,084
3,000,000 Washington Suburban Sanitary District,
Maryland, Water Supply Refunding Bonds
of 1991 6.000% November 1, 1999 Aa1 3,079,920
------------
13,974,441
------------
MICHIGAN (1.8%)
2,465,000 Clarkston Community Schools, Michigan,
General Obligation, 1998 Ref. 4.850% May 1, 2012 Aaa 2,502,172
3,800,000 Northville Public Schools, Michigan,
1997 Sch. Bldg. & Site & Ref. 5.100% May 1, 2011 Aaa 3,952,228
------------
6,454,400
------------
MINNESOTA (5.1%)
1,885,000 Anoka County, Minnesota, General
Obligation Capital Improvement
Refunding Bonds, Ser. 1992C 5.200% February 1, 2001 A1 1,946,903
3,000,000 Becker, Minnesota, Pollution Control
Rev. Refunding Bonds, Ser 1989A,
(Northern States Power Co. - Sherburne
Cnty. Gen. Sta. Units 1 & 2 Proj.) 6.800% April 1, 2007 A1 3,087,270
1,500,000 County of Ramsey, Minnesota, General
Obligation Capital Improvement
Refunding Bonds, Ser. 1992C 5.400% December 1, 2002 Aaa 1,593,495
2,300,000 Osseo Area Schools, Minnesota, General
Obligation Refunding Bonds, Series
1993 4.600% February 1, 2004 A1 2,375,256
1,710,000 Southern Minnesota Municipal Power
Agency, Power Supply System Revenue
Bonds, Series 1993 4.600% January 1, 2004 A2 1,748,047
3,215,000 State of Minnesota, General Obligation
State Refunding Bonds 5.125% August 1, 2004 Aaa 3,388,481
1,350,000 Stillwater, Minnesota, Independent
School District # 834, General
Obligation School Building Bonds, Ser.
1991 6.250% February 1, 1999 Aaa 1,357,236
3,000,000 Wayzata Independent School District
#284, Minnesota, General Obligation
School Building Ref., Ser. 1998A 5.000% February 1, 2012 Aa1 3,106,260
------------
18,602,948
------------
MISSISSIPPI (1.2%)
2,000,000 City of Jackson, Mississippi, Water and
Sewer System Rev. Refunding Bonds,
Series 1993-A 4.850% September 1, 2004 Aaa 2,091,920
2,100,000 Jackson Public School District,
Mississippi, General Obligation School
Bonds, Ser. 1992 5.800% July 1, 2002 A1 2,239,482
------------
4,331,402
------------
NEBRASKA (4.6%)
2,850,000 City of Lincoln, Nebraska, Electric
System Revenue Refunding Bonds, 1993
Series A 4.700% September 1, 2003 Aa2 2,950,633
2,000,000 City of Lincoln, Nebraska, Water Revenue
and Refunding Bonds, Series 1993 4.900% August 15, 2003 Aa2 2,090,400
3,000,000 Omaha Public Power District of Nebraska,
Electric Systems Rev., Ser. A
(Prerefunded to 2-1-2000 @ 101.5) 6.700% February 1, 2005 AA 3,158,340
6,000,000 Omaha Public Power District, Nebraska,
Electric System Revenue Bonds, 1992
Series B (Escrowed to maturity) 6.150% February 1, 2012 Aa2 6,892,260
1,500,000 Omaha, Nebraska, Public Power District
Electric System Rev. Bonds, 1993
Series B 5.100% February 1, 2005 Aa2 1,588,500
------------
16,680,133
------------
NEVADA (.6%)
2,110,000 State of Nevada, General Obligation
(Limited Tax) Hoover Uprating
Refunding Bonds, Ser 1992 6.000% October 1, 2001 Aa2 2,241,748
------------
</TABLE>
- ---------
36
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 1998
<TABLE>
<CAPTION>
RATING
(MOODY'S
PRINCIPAL COUPON MATURITY OR
AMOUNT RATE DATE S&P) VALUE
- ----------- ------- ------------------- ----- ------------
<C> <S> <C> <C> <C> <C>
NEW MEXICO (.7%)
$2,500,000 City of Albuquerque, New Mexico, Joint
Water and Sewer Refunding Rev. Bonds,
Ser. 1990B 7.000% July 1, 2003 Aa3 $ 2,676,250
------------
NEW YORK (.4%)
1,250,000 State of New York, Power Authority
General Purpose Bonds, Ser. Z
(Escrowed to maturity) 6.000% January 1, 2001 Aaa 1,309,725
------------
NORTH CAROLINA (2.5%)
1,600,000 County of Buncombe, North Carolina,
Refunding Bonds, Series 1993 5.100% March 1, 2004 Aa2 1,692,640
4,000,000 County of Wake, North Carolina, General
Obligation School Bonds, Series 1997 4.900% March 1, 2009 Aaa 4,214,280
1,325,000 Winston-Salem, North Carolina, Water and
Sewer System Revenue Bonds, Series
1995B 5.000% June 1, 2007 Aa2 1,413,801
1,665,000 Winston-Salem, North Carolina, Water and
Sewer System Revenue Bonds, Series
1995B 5.100% June 1, 2008 Aa2 1,774,890
------------
9,095,611
------------
NORTH DAKOTA (.6%)
2,000,000 Fargo, North Dakota, Water Revenue of
1993 (Escrowed to maturity) 5.000% January 1, 2004 Aaa 2,098,660
------------
OHIO (1.9%)
1,535,000 Columbus, Ohio, Sewer Improvement No. 27
Refunding Bonds, Ser. 1991 5.900% February 15, 2002 Aaa 1,638,152
5,000,000 State of Ohio, Full Faith & Credit
General Obligation Infrastructure
Improvement Bonds, Series 1997 5.350% August 1, 2012 Aa1 5,335,600
------------
6,973,752
------------
OKLAHOMA (1.6%)
1,500,000 City of Tulsa, Oklahoma, General
Obligation Refunding Bonds of 1993 5.050% June 1, 2002 Aa2 1,564,455
1,050,000 Oklahoma City, Oklahoma, General
Obligation Bonds, Series 1993 5.150% May 1, 2003 Aa2 1,105,388
1,050,000 Oklahoma City, Oklahoma, General
Obligation Bonds, Series 1993 5.250% May 1, 2004 Aa2 1,105,262
2,000,000 Oklahoma City, Oklahoma, General
Obligation Refunding Bonds, Series
1993 5.300% August 1, 2005 Aa2 2,148,340
------------
5,923,445
------------
OREGON (1.8%)
4,000,000 City of Portland, Oregon, Sewer System
Revenue Bonds, Series 1994A 5.000% June 1, 2011 Aaa 4,157,200
150,000 Oregon Veterans' Welfare General
Obligation Bonds, Ser. LXIV 9.000% April 1, 1999 Aa2 152,963
2,000,000 Washington and Clackamas Counties School
District #23J (Tigard-Tualatin),
Oregon, General Obligation Bonds,
Series 1995 5.550% June 1, 2011 A1 2,136,400
------------
6,446,563
------------
PENNSYLVANIA (1.2%)
1,645,000 City of Lancaster, Lancaster County,
Pennsylvania, General Obligation
Bonds, Series A of 1998 4.650% May 1, 2013 Aaa 1,639,473
2,695,000 City of Lancaster, Lancaster County,
Pennsylvania, General Obligation
Bonds, Series A of 1998 4.750% May 1, 2014 Aaa 2,694,892
------------
4,334,365
------------
SOUTH CAROLINA (1.8%)
1,625,000 Charleston County, South Carolina,
General Obligation Bonds of 1994 (ULT) 5.400% June 1, 2005 Aa3 1,756,073
1,080,000 Charleston, South Carolina, Waterworks
and Sewer Systems Rev. Refunding
Bonds, Ser. 1986A (Prerefunded to
1-1-1999 @ 100.5) 6.900% January 1, 2003 A1 1,088,813
1,700,000 State of South Carolina, General
Obligation State Highway Bonds, Series
1995 5.100% August 1, 2008 Aaa 1,821,601
</TABLE>
37-------
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 1998
<TABLE>
<CAPTION>
RATING
(MOODY'S
PRINCIPAL COUPON MATURITY OR
AMOUNT RATE DATE S&P) VALUE
- ----------- ------- ------------------- ----- ------------
<C> <S> <C> <C> <C> <C>
$1,700,000 State of South Carolina, General
Obligation State Highway Bonds, Series
1995 5.250% August 1, 2009 Aaa $ 1,827,211
------------
6,493,698
------------
TENNESSEE (4.1%)
2,000,000 Nashville & Davidson County, Tennessee,
Electric System Rev. Bonds, 1992
Series B 5.500% May 15, 2002 Aa3 2,112,500
2,000,000 Nashville & Davidson County, Tennessee,
General Obligation Refunding Bonds of
1993 5.000% May 15, 2003 Aa2 2,095,880
1,800,000 Nashville & Davidson County, Tennessee,
General Obligation Refunding Bonds of
1993 5.000% May 15, 2005 Aa2 1,903,626
1,500,000 Nashville & Davidson County, Tennessee,
Water and Sewer Revenue Refunding
Bonds, Series 1993 4.900% January 1, 2004 Aaa 1,566,435
4,500,000 Nashville & Davidson County, Tennessee,
Water and Sewer Revenue Refunding
Bonds, Series 1996 5.250% January 1, 2008 Aaa 4,843,125
1,200,000 Shelby County, Tennessee, General
Obligation Refunding Bonds, 1992 Ser.
B 5.200% March 1, 2001 Aa2 1,241,652
1,000,000 Williamson County, Tennessee, Public
Works Refunding Bonds, Ser. 1992 5.650% March 1, 2002 Aa1 1,058,550
------------
14,821,768
------------
TEXAS (6.4%)
2,500,000 Austin Independent School District,
Texas, Unlimited Tax Refunding Bonds,
Ser. 1991 6.200% August 1, 1999 Aaa 2,552,100
2,355,000 Carrollton-Farmers Branch Independent
School District (Dallas and Denton
Counties, Texas) School Building
Unlimited Tax Bonds, Series 1996 5.200% February 15, 2008 Aaa 2,489,518
2,000,000 City of Dallas, Texas, Waterworks and
Sewer System Rev. Refunding Bonds,
Series 1993 4.900% April 1, 2004 Aa2 2,074,120
1,840,000 City of Dallas, Texas, Waterworks and
Sewer System Revenue Bonds, Series
1994A 6.375% October 1, 2012 Aa2 1,986,390
1,900,000 Fort Worth Independent School District,
Texas, School Building Unlimited Tax
Bonds, Ser. 1989 (Prerefunded to
2-15-1999 @ 100) 6.750% February 15, 2006 AAA 1,914,250
2,000,000 Harris County, Texas, Road and Refunding
Bonds, Series 1993 4.700% October 1, 2004 Aa2 2,080,780
1,235,000 San Antonio, Texas, Water System Rev.
Refunding Bonds, Ser. 1992 5.800% May 15, 1999 Aaa 1,250,475
255,000 San Antonio, Texas, Water System Rev.
Refunding Bonds, Ser. 1992 (Escrowed
to maturity) 5.800% May 15, 1999 Aaa 258,162
1,000,000 State of Texas, Public Finance Authority
General Obligation Bonds, Ser 1990A
(Prerefunded to 10-1-1999 @ 100) 7.000% October 1, 2000 AA 1,031,890
1,000,000 State of Texas, Public Finance Authority
General Obligation Bonds, Ser. 1990A 7.000% October 1, 1999 Aa2 1,032,180
3,000,000 State of Texas, Public Finance
Authority, General Obligation
Refunding Bonds, Series 1996B 5.400% October 1, 2008 Aa2 3,236,010
1,000,000 State of Texas, Veterans' Land Board
General Obligation Bonds, Ser. 1984 9.000% December 1, 2000 Aa2 1,053,700
2,000,000 Texas Public Finance Authority, State of
Texas, General Obligation Refunding
Bonds, Ser. 1992A 5.700% October 1, 2003 Aa2 2,163,560
------------
23,123,135
------------
UTAH (1.4%)
2,000,000 Davis County School District, Davis
County, Utah, General Obligation
Refunding Bonds, Series 1993A 4.500% June 1, 2004 Aaa 2,055,920
2,780,000 Salt Lake County, Utah, General
Obligation Jail Bonds, Series 1995 5.000% December 15, 2007 Aaa 2,938,599
------------
4,994,519
------------
VIRGINIA (.5%)
1,685,000 Hampton Roads Sanitation District,
Virginia, Wastewater Refunding and
Capital Improvement Revenue Bonds,
Series 1993 4.700% October 1, 2004 Aa 1,753,057
------------
</TABLE>
- ---------
38
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 1998
<TABLE>
<CAPTION>
RATING
(MOODY'S
PRINCIPAL COUPON MATURITY OR
AMOUNT RATE DATE S&P) VALUE
- ----------- ------- ------------------- ----- ------------
<C> <S> <C> <C> <C> <C>
WASHINGTON (8.3%)
$2,000,000 City of Seattle, Washington, Unlimited
Tax General Obligation Refunding Bonds
of 1993 4.800% December 1, 2004 Aaa $ 2,066,860
2,000,000 City of Vancouver, Washington, Water and
Sewer Revenue Refunding Bonds, 1998 4.600% June 1, 2013 Aaa 1,977,480
2,605,000 City of Vancouver, Washington, Water and
Sewer Revenue Refunding Bonds, 1998 4.650% June 1, 2014 Aaa 2,569,338
2,520,000 Federal Way School District No. 210,
King County, Washington, Unlimited Tax
General Obligation and Refunding
Bonds, Series 1993 5.250% December 1, 2003 Aaa 2,679,163
2,500,000 King County, Washington, Health Care
Capital Improvement Bonds (Harborview
Project), Ser. 1988 B, (Prerefunded to
12-1-1998 @ 100) 7.300% December 1, 2005 NR 2,500,275
2,495,000 Seattle, Washington, Water System
Revenue 1998 5.000% October 1, 2013 Aa2 2,562,190
4,500,000 State of Washington, General Obligation
Bonds, Series 1993A 5.750% October 1, 2012 Aa1 5,054,580
2,000,000 State of Washington, Motor Vehicle Fuel
Tax General Obligation Bonds (State
Route 90), Ser CC-8 (Prerefunded to
3-1-1999 @ 100) 7.100% March 1, 2000 Aaa 2,019,960
2,600,000 Washington Public Power Supply System
Nuclear Project No. 1, Rev. Refunding
Bonds, Ser. 1989A (Prerefunded to
7-1-1999 @ 102) 7.500% July 1, 2007 Aaa 2,716,740
1,000,000 Washington Public Power Supply System
Nuclear Project No. 1, Rev. Refunding
Bonds, Ser. 1990C 7.700% July 1, 2002 Aa1 1,123,340
1,500,000 Washington Public Power Supply System
Nuclear Project No. 2, Rev. Refunding
Bonds, Ser. 1990A (Prerefunded to
7-1-2000 @ 102) 7.625% July 1, 2008 Aaa 1,622,985
1,250,000 Washington Public Power Supply System
Nuclear Project No. 3, Refunding Rev.
Bonds, Ser. 1991A 6.250% July 1, 2000 Aa1 1,299,400
2,000,000 Washington Public Power Supply System
Nuclear Project No. 3, Refunding
Revenue Bonds, Series 1993C 4.800% July 1, 2003 Aa1 2,064,680
------------
30,256,991
------------
WEST VIRGINIA (.7%)
2,540,000 State of West Virginia, State Road
General Obligation Bonds, Series 1998 5.000% June 1, 2013 Aaa 2,609,393
------------
WISCONSIN (4.8%)
2,180,000 Dane County, Wisconsin, General
Obligation Refunding Bonds, Series
1998B 4.800% March 1, 2012 Aaa 2,215,687
2,220,000 Dane County, Wisconsin, General
Obligation Refunding Bonds, Series
1998B 4.800% March 1, 2013 Aaa 2,241,334
3,500,000 Milwaukee, Wisconsin, Metropolitan
Sewerage District General Obligation
Capital Purpose Bonds, Ser. 1990A
(Escrowed to maturity) 6.700% October 1, 2002 Aa1 3,865,505
2,000,000 State of Wisconsin, General Obligation
Bonds of 1995, Series A (Prerefunded
to 5-1-2005 @ 100) 6.000% May 1, 2008 Aa2 2,222,020
2,000,000 State of Wisconsin, General Obligation
Refunding Bonds of 1993, Series 1 5.300% November 1, 2003 Aa2 2,128,780
2,500,000 State of Wisconsin, General Obligation
Refunding Bonds of 1993, Series 2 5.125% November 1, 2010 Aa2 2,673,825
2,000,000 State of Wisconsin, General Obligation
Refunding Bonds of 1993, Series 3 4.750% November 1, 2003 Aa2 2,080,820
------------
17,427,971
------------
WYOMING (.5%)
1,600,000 Natrona County, Wyoming, School District
No. 1 General Obligation Bonds, Ser
1994 5.450% July 1, 2006 Aaa 1,707,632
------------
TOTAL LONG-TERM MUNICIPAL BONDS
(cost $335,434,953) 356,878,236
------------
</TABLE>
39-------
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ------------
SHORT-TERM INVESTMENTS (3.3%)
<C> <S> <C> <C> <C> <C>
$6,180,000 General Motors Acceptance Corp., 4.860%,
December, 1998 $ 6,185,845
6,000,000 U.S. Treasury Bills, 3.600% to 4.760%,
December, 1998 to February, 1999 5,973,340
------------
TOTAL SHORT-TERM INVESTMENTS
(cost $12,160,269) 12,159,185
------------
TOTAL INVESTMENTS (101.6%)
(cost $347,595,222) 369,037,421
LIABILITIES, LESS CASH AND OTHER ASSETS (-1.6%) (5,945,852)
------------
NET ASSETS (100.0%) $363,091,569
------------
------------
</TABLE>
Notes:
(a) At November 30, 1998, net unrealized appreciation of $21,442,199 consisted
of gross unrealized appreciation of $21,495,741 and gross unrealized
depreciation of $53,542 based on cost of $347,595,222 for federal income
tax purposes.
(b) Ratings are unaudited. NR denotes no rating available.
See accompanying notes to financial statements.
- ---------
40
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1998
<TABLE>
<S> <C> <C>
ASSETS
Investments, at value (cost
$347,595,222) $369,037,421
Cash 463,300
Receivable for:
Interest $5,789,168
Shares of the Fund sold 26,800
Sundry 5,316 5,821,284
----------
Prepaid expenses 15,912
------------
Total assets 375,337,917
LIABILITIES AND NET ASSETS
Dividends payable to shareowners 3,110,719
Payable for:
Shares of the Fund redeemed 2,207,354
Securities purchased 6,795,478
Other (including $118,027 to
Manager) 132,797
----------
9,135,629
------------
Total liabilities 12,246,348
------------
Net assets applicable to 42,443,593
shares outstanding of
$1.00 par value common stock
(100,000,000 shares authorized) $363,091,569
------------
------------
Net asset value, offering price and
redemption price per share $ 8.55
------------
------------
ANALYSIS OF NET ASSETS
Excess of amounts received from sales
of shares over amounts paid on
redemptions of shares on account of
capital $341,712,231
Accumulated net realized loss on sales
of investments (62,861)
Net unrealized appreciation of
investments 21,442,199
------------
Net assets applicable to shares
outstanding $363,091,569
------------
------------
</TABLE>
See accompanying notes to financial statements.
41-------
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-----------------------
1998 1997
----------- ----------
<S> <C> <C>
INVESTMENT INCOME:
Taxable interest $ 548,684 450,856
Tax-exempt interest 18,524,272 18,341,212
----------- ----------
Total investment income 19,072,956 18,792,068
EXPENSES:
Investment advisory and management
fees 425,519 400,859
Professional fees 27,144 24,708
ICI dues 9,948 12,133
Registration fees 7,226 5,627
Fidelity bond expense 3,768 4,158
Directors' fees 5,420 3,300
Reports to shareowners 3,591 3,204
Security evaluation fees 19,711 18,314
Franchise taxes 19,353 17,859
Custodian fees 10,425 13,387
Proxy and related expense 3,710 --
Other 140 113
----------- ----------
Total expenses 535,955 503,662
----------- ----------
Net investment income 18,537,001 18,288,406
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized loss on sales of
investments (62,861) --
Change in net unrealized appreciation
or depreciation 5,100,703 (222,358)
----------- ----------
Net realized and unrealized gain (loss)
on investments 5,037,842 (222,358)
----------- ----------
Net change in net assets resulting from
operations $23,574,843 18,066,048
----------- ----------
----------- ----------
</TABLE>
See accompanying notes to financial statements.
- ---------
42
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-------------------------
1998 1997
------------ -----------
<S> <C> <C>
FROM OPERATIONS:
Net investment income $ 18,537,001 18,288,406
Net realized loss on sales of
investments (62,861) --
Change in net unrealized appreciation
or depreciation 5,100,703 (222,358)
------------ -----------
Net change in net assets resulting
from operations 23,574,843 18,066,048
DISTRIBUTIONS TO SHAREOWNERS FROM:
Net investment income (per share $.45
in 1998, and $.47 in 1997) (18,537,001) (18,288,406)
Net realized gain (per share $.003 in
1997) -- (121,825)
------------ -----------
Total distributions to shareowners (18,537,001) (18,410,231)
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold 38,871,460 27,490,904
Reinvestment of ordinary income
dividends and capital gain
distributions 13,564,060 14,256,886
------------ -----------
52,435,520 41,747,790
Less payments for shares redeemed 30,744,422 26,190,599
------------ -----------
Net increase in net assets from Fund
share transactions 21,691,098 15,557,191
------------ -----------
Total increase in net assets 26,728,940 15,213,008
------------ -----------
NET ASSETS:
Beginning of year 336,362,629 321,149,621
------------ -----------
End of year $363,091,569 336,362,629
------------ -----------
------------ -----------
</TABLE>
See accompanying notes to financial statements.
43-------
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.
FINANCIAL HIGHLIGHTS
PER SHARE INCOME AND CAPITAL CHANGES (For a share outstanding throughout each
year)
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
---------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
year $ 8.43 8.44 8.50 7.88 8.59 8.34 8.15 7.98 7.96 7.76
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.45 0.47 0.48 0.48 0.48 0.50 0.53 0.54 0.58 0.58
Net gain or loss on
investments (both realized
and unrealized) 0.12 (0.01) (0.06) 0.62 (0.69) 0.25 0.19 0.17 0.02 0.20
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total from investment
operations 0.57 0.46 0.42 1.10 (0.21) 0.75 0.72 0.71 0.60 0.78
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS
Net investment income (0.45) (0.47) (0.48) (0.48) (0.48) (0.50) (0.53) (0.54) (0.58) (0.58)
Capital gains (a) -- -- -- -- (0.02) -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total distributions (.45) (0.47) (0.48) (0.48) (0.50) (0.50) (0.53) (0.54) (0.58) (0.58)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net asset value, end of year $ 8.55 8.43 8.44 8.50 7.88 8.59 8.34 8.15 7.98 7.96
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
TOTAL RETURN 6.82% 5.68% 5.21% 14.25% (2.55)% 9.17% 9.05% 9.17% 7.78% 10.44%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year
(millions) $ 363.1 336.4 321.1 307.4 269.9 276.4 211.3 167.2 132.8 110.0
Ratio of expenses to average
net assets 0.15% 0.15% 0.16% 0.17%(b) 0.16% 0.18% 0.19% 0.21% 0.23% 0.25%
Ratio of net investment income
to average net assets 5.29% 5.61% 5.76% 5.80% 5.80% 5.84% 6.36% 6.75% 7.30% 7.42%
Portfolio turnover rate 6% 6% 6% 7% 8% 5% 4% 2% 8% 7%
</TABLE>
- ----------
(a) Distributions representing less than $.01 were made in 1997, 1996, 1993 and
1992.
(b) The ratio based on net custodian expenses would have been .16% in 1995.
- ---------
44
<PAGE>
STATE FARM MUTUAL FUNDS
NOTES TO FINANCIAL STATEMENTS
1. OBJECTIVE
The investment objective of the STATE FARM GROWTH FUND, INC. (GROWTH FUND) is
long-term growth of capital and income. The Fund seeks to achieve this objective
by investing most of its assets in income producing equity-type securities that
are believed collectively to have potential for long-term growth of capital and
income.
The investment objective of the STATE FARM BALANCED FUND, INC. (BALANCED FUND)
is to provide its shareowners income and some long-term growth of both principal
and income. The Fund seeks to achieve its objective by distributing its
investments among common stocks, preferred stocks and bonds in varying
proportions according to prevailing market conditions and the judgment of the
Manager.
The investment objective of the STATE FARM INTERIM FUND, INC. (INTERIM FUND) is
the realization over a period of years of the highest yield consistent with
relative price stability (relatively low volatility). The Fund seeks to achieve
its investment objective through investment in high quality debt securities with
primarily short-term (less than five years) and intermediate-term (five to
fifteen years) maturities.
The investment objective of the STATE FARM MUNICIPAL BOND FUND, INC. (MUNICIPAL
BOND 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.
The following is a summary of significant accounting policies followed by the
Funds in the preparation of their financial statements in accordance with
generally accepted accounting principles.
2. SIGNIFICANT ACCOUNTING POLICIES
SECURITIES 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 last reported bid price for the day. 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 Boards of Directors or their delegate.
SECURITIES 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. Premiums and original issue
discounts on tax-exempt securities in the Municipal Bond Fund are amortized.
Realized gains and losses from security transactions are reported on an
identified cost basis.
SECURITIES PURCHASED ON A 'WHEN-ISSUED' BASIS
The Municipal Bond 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
Fund shares are sold and redeemed on a continuous basis at net asset value. The
net asset value per share is determined daily on each business day other than
weekend and holiday closings, except that a 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 values for the Growth Fund, Balanced Fund, and Interim Fund
are determined as of 3:00 p.m. Bloomington, Illinois time. The net asset value
for the Municipal Bond Fund is determined as of 1:00 p.m. Bloomington, Illinois
time. The net asset value per share is computed by dividing the total value of a
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 each 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 taxable income, as well as any net realized gain on
sales of investments reportable for federal income tax purposes. Each Fund has
complied with this policy and, accordingly, no provision for federal income
taxes is required.
45-------
<PAGE>
STATE FARM MUTUAL FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The Interim Fund and Municipal Bond Fund declare dividends daily equal to each
Funds respective 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 a Fund's fiscal year. Dividends and distributions payable to
shareowners are recorded by the respective Fund on the ex-dividend date.
On December 18, 1998, the Growth Fund declared an ordinary income dividend of
$.28 per share and a capital gain distribution of $.045 per share to shareowners
of record on December 18, 1998 (reinvestment date December 21, 1998).
On December 18, 1998, the Balanced Fund declared an ordinary income dividend of
$.73 per share and a capital gain distribution of $.0225 per share to
shareowners of record on December 18, 1998 (reinvestment date December 21,
1998).
The accumulated net realized loss on sales of investments at November 30, 1998
for the Interim Fund, amounting to $3,215,248, is available to offset future
taxable gains. If not applied, the capital loss carryover expires as follows:
$92,150 in 1999, $22,669 in 2000, $162,716 in 2001, $335,277 in 2002, $321,293
in 2003, $363,957 in 2004, $922,190 in 2005, and $994,996 in 2006. A capital
loss carryover of $40,572 expired in 1998 and was re-classified from Accumulated
net realized loss on sales of investments to Excess of amounts received from
sales of shares over amounts paid on redemptions of shares on account of capital
on the Statement of Assets and Liabilities.
The accumulated net realized loss on sales of investments at November 30, 1998
for the Municipal Bond Fund, amounting to $62,861, is available to offset future
taxable gains. If not applied, the capital loss carryover expires in 2006.
EQUALIZATION ACCOUNTING
A portion of proceeds from sales and payments on redemptions of Fund shares is
credited or charged to undistributed net investment income for the Growth Fund
and Balanced Fund. As a result, undistributed net investment income per share is
unaffected by sales or redemptions of shares.
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.
3. TRANSACTIONS WITH AFFILIATES
Each Fund has an investment advisory and management services agreement with
State Farm Investment Management Corp. (Manager) pursuant to which each Fund
pays the Manager an annual fee (computed on a daily basis and paid quarterly) at
the following rates:
<TABLE>
<S> <C>
State Farm Growth Fund, Inc. .20% of the first $100 million of average net
assets
.15% of the next $100 million of average net
assets
.10% of the average net assets in excess of $200
million
State Farm Balanced Fund, Inc. .20% of the first $100 million of average net
assets
.15% of the next $100 million of average net
assets
.10% of the average net assets in excess of $200
million
State Farm Interim Fund, Inc. .20% of the first $50 million of average net
assets
.15% of the next $50 million of average net assets
.10% of the average net assets in excess of $100
million
State Farm Municipal Bond Fund, Inc. .20% of the first $50 million of average net
assets
.15% of the next $50 million of average net assets
.10% of the average net assets in excess of $100
million
</TABLE>
The Manager guarantees that all operating expenses of each Fund, including the
compensation of the Manager but excluding franchise taxes, interest,
extraordinary litigation expenses, brokerage commissions and other portfolio
transaction costs, shall not exceed .40% of each Fund's average net assets
annually.
- ---------
46
<PAGE>
STATE FARM MUTUAL FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Under the terms of these agreements, the Funds incurred the following fees for
the fiscal years ended November 30, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
---------- ---------
<S> <C> <C>
State Farm Growth Fund, Inc. $2,221,492 1,705,166
State Farm Balanced Fund, Inc. 980,972 829,724
State Farm Interim Fund, Inc. 199,209 184,551
State Farm Municipal Bond Fund, Inc. 425,519 400,859
</TABLE>
The Funds do not pay any discount, commission or other compensation for transfer
agent or underwriting services provided by the Manager.
Certain officers and/or directors of each Fund are also officers and/or
directors of the Manager. The Funds made no payments to its officers or
directors during the fiscal years ended November 30, 1998 and 1997, except for
the following directors fees paid to the Funds independent directors:
<TABLE>
<CAPTION>
1998 1997
------- -----
<S> <C> <C>
State Farm Growth Fund, Inc. $15,300 9,900
State Farm Balanced Fund, Inc. 7,650 4,950
State Farm Interim Fund, Inc. 2,550 1,650
State Farm Municipal Bond Fund, Inc. 5,100 3,300
</TABLE>
4. INVESTMENT TRANSACTIONS
Investment transactions (exclusive of short-term instruments, tax free
exchanges, and spin-offs) for each of the fiscal years ended November 30, were
as follows:
<TABLE>
<CAPTION>
1998 1997
------------ -----------
<S> <C> <C>
STATE FARM GROWTH FUND, INC.
Purchases $309,663,058 132,033,944
Proceeds from sales 14,874,459 89,316,149
STATE FARM BALANCED FUND, INC.
Purchases 92,615,420 69,819,614
Proceeds from sales 17,698,918 39,223,469
STATE FARM INTERIM FUND, INC.
Purchases 52,146,094 25,775,703
Proceeds from sales 16,756,328 15,750,000
STATE FARM MUNICIPAL BOND FUND, INC.
Purchases 48,047,861 28,925,145
Proceeds from sales 20,915,700 17,572,918
</TABLE>
5. FUND SHARE TRANSACTIONS
Proceeds and payments on Fund shares as shown in each Fund's statement of
changes in net assets are in respect of the following number of shares:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
STATE FARM GROWTH FUND, INC
Shares sold 8,122,332 7,264,071
Shares issued in reinvestment of
ordinary income dividends and
capital gain distributions 2,034,859 3,552,864
---------- ----------
10,157,191 10,816,935
Less shares redeemed 5,105,810 4,136,630
---------- ----------
Net increase in shares outstanding 5,051,381 6,680,305
---------- ----------
---------- ----------
STATE FARM BALANCED FUND, INC.
Shares sold 3,094,918 2,605,702
Shares issued in reinvestment of
ordinary income dividends and
capital gain distributions 785,967 1,017,327
---------- ----------
3,880,885 3,623,029
Less shares redeemed 2,390,819 1,979,036
---------- ----------
Net increase in shares outstanding 1,490,066 1,643,993
---------- ----------
---------- ----------
STATE FARM INTERIM FUND, INC.
Shares sold 10,094,227 5,855,197
Shares issued in reinvestment of
ordinary income dividends and
capital gain distributions 748,608 728,582
---------- ----------
10,842,835 6,583,779
Less shares redeemed 6,846,009 5,913,858
---------- ----------
Net increase in shares outstanding 3,996,826 669,921
---------- ----------
---------- ----------
STATE FARM MUNICIPAL BOND FUND, INC.
Shares sold 4,573,153 3,283,948
Shares issued in reinvestment of
ordinary income dividends and
capital gain distributions 1,593,850 1,706,790
---------- ----------
6,167,003 4,990,738
Less shares redeemed 3,616,812 3,132,346
---------- ----------
Net increase in shares outstanding 2,550,191 1,858,392
---------- ----------
---------- ----------
</TABLE>
47-------
<PAGE>
TAX INFORMATION
STATE FARM GROWTH FUND, INC.
The Fund paid ordinary income dividends of $.33 per share in June 1998 and $.28
per share in December 1998. Of these dividends, 85% qualifies for the 70%
deduction for dividends received by corporations as provided by the Internal
Revenue Code.
In December 1998 the Fund made a capital gain distribution of $.045 per share,
100% of which was paid from long-term capital gain and is designated as a
capital gain dividend.
STATE FARM BALANCED FUND, INC.
The Fund paid ordinary income dividends of $.83 per share in June 1998 and $.73
per share in December 1998. Of these dividends, 25% qualifies for the 70%
deduction for dividends received by corporations as provided by the Internal
Revenue Code.
In December 1998 the Fund made a capital gain distribution of $.0225 per share,
100% of which was paid from long-term capital gain and is designated as a
capital gain dividend.
STATE FARM INTERIM FUND, INC.
The Fund paid ordinary income dividends in March, June, September, and December.
The dividends paid to you will be included on the Form 1099-DIV to be sent in
January 1999.
Since the Fund's investment income was derived from interest, none of the
taxable portion of the Fund's distributions are eligible for the dividend
received deduction for corporations.
STATE FARM MUNICIPAL BOND FUND, INC.
The Fund paid ordinary income dividends in March, June, September and December.
Of those dividends, 97.06% in March, 97.27% in June, 97.42% in September and
96.91% in December are designated as exempt-interest dividends. The taxable
portion of the dividends paid to you will be included on the Form 1099-DIV to be
sent in January 1999.
Since the Fund's investment income was derived from interest, none of the
taxable portion of the Fund's distributions are eligible for the dividend
received deduction for corporations.
NOTE: The taxable portion of the dividends and distributions paid to you must be
included in your federal income tax return and must be reported by the Funds to
the Internal Revenue Service in accordance with provisions of the Internal
Revenue Code. The tax-exempt status of dividends derived from interest on
municipal bonds for federal income tax purposes does not necessarily result in
exemption from any state or local income taxes or other taxes.
- ---------
48
<PAGE>
Bulk Rate
U.S. Postage
Paid
Permit 439
Elk Grove, IL
STATE FARM MUTUAL FUNDS
ONE STATE FARM PLASA, BLOOMINGTON, IL 61710
(309) 766-2029 (800) 447-0740
190-4049-CH01-1999 Printed in U.S.A.
