<PAGE>
ANNUAL REPORT
NOVEMBER 30 1999
STATE FARM
GROWTH FUND, INC.
STATE FARM
BALANCED FUND, INC.
STATE FARM
INTERIM FUND, INC.
STATE FARM
MUNICIPAL BOND FUND, INC.
[LOGO] STATE FARM
MUTUAL FUNDS
<PAGE>
ANNUAL REPORT
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 21
Financial highlights 24
State Farm Interim Fund, Inc.
Message from the portfolio managers 25
Portfolio of investments 27
Financial statements 28
Financial highlights 31
State Farm Municipal Bond Fund, Inc.
Message from the portfolio managers 32
Portfolio of investments 34
Financial statements 42
Financial highlights 45
Notes to Financial Statements 46
Tax Information
</TABLE>
This report is not authorized for distribution unless accompanied by a State
Farm Mutual Funds prospectus.
Distributor: State Farm Investment Management Corp., member NASD.
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, 1999, 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 1990. 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, 1999, 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, 1999, 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 1990, in conformity with generally accepted accounting principles.
[SIG]
Chicago, Illinois
December 17, 1999
- ---------
2
<PAGE>
STATE FARM GROWTH FUND, INC.
Dear Shareowner:
The U.S. stock market has generated strong results over your Fund's 1999 fiscal
year. The S&P 500 Index produced a total return of 20.9% for the twelve months
ended November 30, 1999. The Growth Fund achieved a total return of 17.9% for
the same period. Returns earned by U.S. common stocks have been extraordinary
over the past five years. In our opinion, returns of this magnitude are not
sustainable over long periods of time.
During 1999 and over the five year period from 1995-99, the return of the S&P
500 has been generated by an increasingly narrow group of stocks. Over the five
year period from 1995-99, over 50% of the total return of the S&P 500 Index was
generated by only 20 stocks. In 1999, almost 90% of the total return of the S&P
500 Index was generated by only 20 stocks, mainly technology and
telecommunications companies.
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>
1989 $10,000 $10,000
1990 $10,427 $9,647
1991 $13,534 $11,612
1992 $15,629 $13,751
1993 $15,527 $15,137
1994 $16,151 $15,300
1995 $21,589 $20,946
1996 $25,926 $26,782
1997 $32,357 $34,425
1998 $38,236 $42,573
1999 $45,090 $51,464
Fund's Average Annual Total Return
1 YEAR 5 YEARS 10 YEARS
17.93% 22.79% 16.25%
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 technology firms, telecommunications
companies, and telecommunications equipment firms performed very well over the
past year. Results produced by the Fund's investments in electric utilities,
banks, chemicals, and consumer products were below those of the overall market.
The general composition of your Fund's portfolio changed some over the last
twelve months. Positions were initiated or increased in financial services
firms, consumer product companies, telecommunications and telecommunications
equipment companies, technology firms, pharmaceutical companies, international
oil firms, and electrical and non-electrical manufacturing companies.
Business conditions appear to be generally favorable around the world. Economic
activity is quite strong in the U.S. and is reasonably firm in Europe. Japan and
the emerging economies of the world appear to be recovering slowly.
3 -------
<PAGE>
STATE FARM GROWTH FUND, INC.
As investors, it is interesting to look back over the past century and examine
the total returns achieved by various asset classes. A British publication, The
Economist, recently calculated the average annual total returns expressed in
dollars from 1900-99 for those asset classes with sufficient historical data.
They are presented in the following table:
Average Annual Total Returns from 1900-99
In Percent Terms
<TABLE>
<S> <C>
US Shares 10%
UK Shares 8%
French Shares 7%
US Treasury Bonds 5%
US Treasury Bills 4%
US Inflation 3%
Gold 3%
Silver 2%
</TABLE>
It is obvious from the table that over the past century common stocks have
provided higher returns than government bonds or precious metals. Importantly,
U.S. shares have provided significantly higher returns than the U.S. inflation
rate. However, it is important to understand that the variability of common
stock returns is substantially greater than the variability of U.S. government
bond returns or the U.S. inflation rate. While a 10% average annual return from
U.S. common stocks over the century may appear relatively modest, the power of
compounding can be deceptive. One dollar growing at 10% per year is worth
$13,781 in 100 years. A 10% growth rate is quite meaningful over a typical
career. One dollar growing at 10% per year is worth $17 after 30 years and $45
after 40 years.
Given the very strong performance recently of common stocks associated with the
Internet, it is appropriate to place this important technology within a
historical context. Throughout history, major technological developments have
often triggered periods of speculative financial activity and valuation. For
example, the development of steam power and the railroads, the discovery and
application of hydrocarbons, the discovery of electricity, the invention of the
automobile and the airplane, the commercial promise of atomic energy, the advent
of biotechnology, and the development of the personal computer often were
accompanied by periods of financial speculation. It is very difficult to predict
in advance how these technologies will be utilized by society and what the
commercial and financial ramifications will be. Quite often, the early pioneers
are not the long-term commercial winners. The development of the personal
computer provides an interesting case study. Of the scores of personal computer
firms which were created in the early 1980s, only Apple Computer (with a
turbulent managerial and financial history) remains in existence. The real
beneficiaries of the technology were a group of semiconductor chip, software,
and personal computer firms which developed later. The financial speculation
associated with the Internet is quite large. Investors should be cautious and
thoughtful about their participation in it. The Growth Fund is unlikely to ever
own the highest Internet flyers, but is positioned to benefit from the
development of the Internet through its ownership of shares of several well
managed and highly profitable major technology, media, telecommunications and
telecommunications equipment firms.
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 cannot
ensure a profit, but it 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 $.23 per Growth Fund
share which was paid on December 20, 1999. A semi-annual income dividend of $.33
per share was also paid on December 20, 1999. 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, 1999
<TABLE>
<CAPTION>
SHARES VALUE
- ----------- --------------
<C> <S> <C>
COMMON STOCKS (98.4%)
AGRICULTURE, FOODS, & BEVERAGE (4.7%)
3,154,196 Archer-Daniels-Midland Company $ 39,230,313
92,000 Campbell Soup Company 4,105,500
930,000 Kellogg Company 31,503,750
208,000 Sara Lee Corporation 5,044,000
81,600 Sysco Corporation 3,105,900
710,900 The Coca-Cola Company 47,852,456
--------------
130,841,919
--------------
BANKS (8.9%)
176,945 ABN Amro Holding NV 4,314,396
181,237 Amsouth Bancorporation 4,089,160
421,268 Bank of America Corporation 24,644,178
715,322 Bank One Corporation 25,215,100
90,000 First Security Corporation 2,531,250
43,500 First Virginia Banks Inc. 1,973,812
61,300 Golden West Financial Corporation 6,187,469
47,700 JP Morgan & Co. Incorporated 6,272,550
6,200 M&T Bank Corporation 2,914,000
809,800 National Commerce Bancorporation 20,447,450
72,000 Northern Trust Corporation 6,970,500
640,074 Pacific Century Financial Corporation 12,561,452
830,316 Popular Inc. 23,871,585
345,000 Southtrust Corporation 13,390,313
157,900 SunTrust Banks Inc. 11,033,262
62,000 TCF Financial Corporation 1,755,375
158,350 U.S. Bancorp 5,413,591
238,900 Wachovia Corporation 18,499,819
1,220,000 Wells Fargo & Company 56,730,000
--------------
248,815,262
--------------
BUILDING MATERIALS & CONSTRUCTION (1.5%)
1,039,200 Vulcan Materials Company 41,827,800
--------------
CHEMICALS (5.3%)
830,000 Air Products & Chemicals Inc. 26,871,250
496,104 E.I. du Pont de Nemours and Company 29,487,181
588,300 Great Lakes Chemical Corporation 19,524,206
561,000 International Flavors & Fragrances Inc. 20,651,812
45,200 Praxair Inc. 2,017,050
1,410,300 Sigma-Aldrich Corporation 40,369,837
81,000 The Dow Chemical Company 9,487,125
--------------
148,408,461
--------------
COMPUTER SOFTWARE AND SERVICES (7.4%)
61,100 AutoDesk Inc. 1,790,994
124,000 Automatic Data Processing Inc. 6,122,500
719,700 Cisco Systems Inc. (a) 64,188,244
30,800 Electronic Data Systems Corporation 1,980,825
1,197,500 Microsoft Corporation (a) 109,028,663
344,700 Oracle Corporation (a) 23,374,969
--------------
206,486,195
--------------
</TABLE>
5 -------
<PAGE>
STATE FARM GROWTH FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 1999
<TABLE>
<CAPTION>
SHARES VALUE
- ----------- --------------
<C> <S> <C>
COMPUTERS (7.0%)
322,200 Compaq Computer Corporation $ 7,873,762
1,437,000 Hewlett-Packard Company 136,335,375
496,400 International Business Machines Corporation 51,160,225
--------------
195,369,362
--------------
CONSUMER & MARKETING (5.9%)
63,600 Clorox Co. 2,834,175
183,800 Colgate-Palmolive Company 10,086,025
1,439,200 Hon Industries Inc. 31,122,700
317,876 Kimberly Clark Corp. 20,304,330
413,700 McDonald's Corporation 18,616,500
464,308 Newell Rubbermaid Inc. 15,235,106
565,100 The Gillette Company 22,709,956
339,400 The Procter & Gamble Company 36,655,200
125,446 Unilever NV 6,828,967
--------------
164,392,959
--------------
ELECTRONIC/ELECTRICAL MFG. (8.2%)
46,043 ABB Ltd. (a) 4,563,957
82,300 Applied Materials Inc. (a) 8,019,106
91,900 Diebold Inc. 2,107,956
109,400 Emerson Electric Co. 6,235,800
771,200 General Electric Company 100,256,000
967,200 Intel Corporation 74,172,150
91,600 KLA Tencor Corporation (a) 7,745,925
351,600 Linear Technology Corp. 24,985,575
--------------
228,086,469
--------------
FINANCIAL SERVICES (2.7%)
537,200 Citigroup Inc. 28,941,650
167,400 Federal Home Loan Mortgage 8,265,375
250,800 Federal National Mortgage Association 16,709,550
124,600 First Union Corp. 4,820,462
558,450 MBNA Corporation 14,100,862
36,400 The Finova Group Inc. 1,353,625
--------------
74,191,524
--------------
HEALTH CARE (14.6%)
294,500 Abbott Laboratories 11,191,000
1,550,000 Biomet Inc. 49,115,625
59,600 Boston Scientific Corporation (a) 1,259,050
107,050 Covance Inc. (a) 1,164,169
947,200 Eli Lilly & Co. 67,961,600
1,240,800 Johnson & Johnson 128,733,000
80,000 Medtronic Inc. 3,110,000
523,400 Merck & Co. Inc. 41,086,900
2,880,000 Pfizer Inc. 104,220,000
--------------
407,841,344
--------------
</TABLE>
- ---------
6
<PAGE>
STATE FARM GROWTH FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 1999
<TABLE>
<CAPTION>
SHARES VALUE
- ----------- --------------
<C> <S> <C>
MACHINERY & MANUFACTURING (3.8%)
175,300 AlliedSignal Inc. $ 10,485,131
190,800 AptarGroup Inc. 5,175,450
370,000 Caterpillar Inc. 17,158,750
428,200 Corning Incorporated 40,116,987
50,000 Cummins Engine Company Inc. 2,025,000
57,800 Deere & Company 2,481,787
70,000 Illinois Tool Works Inc. 4,532,500
173,200 Minnesota Mining & Manufacturing Co. 16,551,425
337,500 Osmonics Inc. (a) 3,037,500
171,100 Pall Corporation 4,010,156
--------------
105,574,686
--------------
MEDIA & BROADCASTING (3.5%)
155,433 Reuters Group PLC ADR 10,180,861
360,181 SBS Broadcasting SA (a) 14,587,330
2,619,540 The Walt Disney Company 73,019,678
--------------
97,787,869
--------------
MINING & METALS (.8%)
36,700 Newmont Mining Corporation 869,331
132,800 Nucor Corporation 6,698,100
185,000 Rio Tinto PLC ADR 14,383,750
81,250 Steel Dynamics Inc. (a) 1,117,188
--------------
23,068,369
--------------
OIL, GAS, & OTHER ENERGY (6.0%)
440,400 Barrett Resources Corporation (a) 11,698,125
322,892 BP Amoco PLC ADR 19,676,231
530,000 Chevron Corporation 46,938,125
106,102 Devon Energy Corporation 3,740,096
646,300 Exxon Corporation 51,259,669
237,100 Pennzoil-Quaker State Co. 2,459,913
516,300 Royal Dutch Petroleum Company ADR 29,945,400
--------------
165,717,559
--------------
RETAILERS (2.2%)
1,063,200 Wal-Mart Stores Inc. 61,266,900
--------------
TELECOM & TELECOM EQUIPMENT (14.5%)
450,000 ADC Telecommunications Inc. (a) 23,990,625
600,000 AT&T Corp. 33,525,000
575,000 LM Ericsson Telephone Company ADR 27,707,813
638,732 Lucent Technologies Inc. 46,667,357
1,023,729 MCI Worldcom Inc. (a) 84,649,592
264,000 Motorola Inc. 30,162,000
115,400 Nextlink Communications Inc. (Class A) (a) 5,770,000
129,800 Nokia Corporation ADR 17,936,738
346,600 Nortel Networks Corp. 25,648,400
1,497,512 SBC Communications Inc. 77,777,030
347,400 Tele Danmark AS ADR 11,095,088
136,200 U.S. West Inc. 8,452,913
215,000 Vodafone AirTouch Public Limited Co. ADR (a) 10,145,313
--------------
403,527,869
--------------
</TABLE>
7 -------
<PAGE>
STATE FARM GROWTH FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 1999
<TABLE>
<CAPTION>
SHARES VALUE
- ----------- --------------
<C> <S> <C>
UTILITIES & ENERGY (1.4%)
74,900 CMS Energy Corporation $ 2,490,425
132,000 Duke Energy Corporation 6,690,750
88,500 FPL Group Inc. 3,871,875
188,674 Scottish Power PLC ADR (a) 6,591,798
288,000 Southern Company 6,732,000
166,000 Teco Energy Inc. 3,320,000
98,500 Texas Utilities Company (Holding Co.) 3,527,531
112,400 The AES Corporation (a) 6,512,175
--------------
39,736,554
--------------
TOTAL COMMON STOCKS
(cost $1,103,793,558) 2,742,941,101
--------------
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT
- ------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS (1.5%)
<C> <S> <C>
30,000,000 Ford Motor Credit Company, 5.505% to 5.616%, December, 1999 30,008,883
10,000,000 U.S. Treasury Bills, 4.670%, January, 2000 9,951,900
3,063,268 Chase Vista Treasury Plus Money Market Fund 3,063,268
--------------
TOTAL SHORT-TERM INVESTMENTS
(cost $43,025,115) 43,024,051
--------------
TOTAL INVESTMENTS (99.9%)
(cost $1,146,818,673) 2,785,965,152
CASH AND OTHER ASSETS, NET OF LIABILITIES (0.1%) 474,279
--------------
NET ASSETS (100.0%) $2,786,439,431
==============
</TABLE>
Notes:
<TABLE>
<C> <S>
(a) Non-income producing security.
At November 30, 1999, net unrealized appreciation of $1,639,146,479 consisted of
gross unrealized appreciation of $1,666,509,427 and gross unrealized depreciation of
$27,362,948 based on cost of $1,146,818,673 for federal income tax purposes.
</TABLE>
See accompanying notes to financial statements.
- ---------
8
<PAGE>
STATE FARM GROWTH FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1999
<TABLE>
<S> <C> <C>
ASSETS
Investments, at value (cost
$1,146,818,673) $2,785,965,152
Cash 2,946
Receivable for:
Dividends and interest $4,629,871
Shares of the Fund sold 714,812 5,344,683
----------
Prepaid expenses 47,942
--------------
Total assets 2,791,360,723
--------------
LIABILITIES AND NET ASSETS
Payable for:
Shares of the Fund redeemed 1,093,506
Securities purchased 3,000,000
Other (including $750,584 to
Manager) 827,786
----------
4,921,292
--------------
Total liabilities 4,921,292
--------------
Net assets applicable to 53,626,713
shares outstanding
of $0.50 par value common stock
(100,000,000 shares authorized) $2,786,439,431
==============
Net asset value, offering price and
redemption price per share $ 51.96
==============
ANALYSIS OF NET ASSETS
Excess of amounts received from sales
of shares over amounts paid on
redemptions of shares on account of
capital $1,111,497,452
Accumulated net realized gain on sales
of investments 13,478,727
Net unrealized appreciation of
investments 1,639,146,479
Undistributed net investment income 22,316,773
--------------
Net assets applicable to shares
outstanding $2,786,439,431
==============
</TABLE>
See accompanying notes to financial statements.
9 -------
<PAGE>
STATE FARM GROWTH FUND, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-------------------------
1999 1998
------------ -----------
<S> <C> <C>
INVESTMENT INCOME:
Dividends $ 33,916,255 29,997,754
Interest 2,390,006 3,413,231
------------ -----------
36,306,261 33,410,985
Less: foreign withholding taxes 547,592 297,805
------------ -----------
Total investment income 35,758,669 33,113,180
EXPENSES:
Investment advisory and management
fees 2,740,037 2,221,492
Professional fees 96,955 55,382
ICI dues 55,835 44,841
Registration fees 27,350 61,281
Fidelity bond expense 8,803 8,367
Directors' fees 14,400 16,259
Reports to shareowners 81,541 21,287
Security evaluation fees 3,128 3,237
Franchise taxes 18,148 17,495
Custodian fees 21,037 26,161
Proxy and related expense -- 31,777
Other 131 10,745
------------ -----------
Total expenses 3,067,365 2,518,324
------------ -----------
Net investment income 32,691,304 30,594,856
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS:
Net realized gain on sales of
investments 13,478,727 2,197,936
Change in net unrealized appreciation 368,649,780 306,511,650
------------ -----------
Net realized and unrealized gain on
investments 382,128,507 308,709,586
------------ -----------
Net change in net assets resulting from
operations $414,819,811 339,304,442
============ ===========
</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,
-----------------------------
1999 1998
-------------- -------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income $ 32,691,304 30,594,856
Net realized gain on sales of
investments 13,478,727 2,197,936
Change in net unrealized appreciation 368,649,780 306,511,650
-------------- -------------
Net change in net assets resulting from
operations 414,819,811 339,304,442
Undistributed net investment income
included in price of shares issued and
redeemed 666,112 789,317
DISTRIBUTION TO SHAREOWNERS FROM:
Net investment income (30,736,945) (31,134,862)
Net realized gain (2,197,936) (52,131,683)
-------------- -------------
Total distributions to shareowners (32,934,881) (83,266,545)
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold 313,280,990 334,952,191
Reinvestment of ordinary income
dividends and capital gain
distributions 31,660,456 80,862,911
-------------- -------------
344,941,446 415,815,102
Less payments for shares redeemed 226,541,809 208,248,185
-------------- -------------
Net increase in net assets from Fund
share transactions 118,399,637 207,566,917
-------------- -------------
Total increase in net assets 500,950,679 464,394,131
NET ASSETS:
Beginning of year 2,285,488,752 1,821,094,621
-------------- -------------
End of year (including undistributed
net investment income of $22,316,773
in 1999, and $19,696,302 in 1998) $2,786,439,431 2,285,488,752
============== =============
</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,
----------------------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994 1993 1992 1991 1990
-------- -------- -------- -------- -------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $ 44.65 39.48 34.55 29.40 22.63 22.21 23.05 20.33 16.77 16.90
INCOME FROM
INVESTMENT
OPERATIONS
Net investment
income 0.62 0.61 0.62 0.63 0.50 0.44 0.45 0.43 0.42 0.47
Net gain or (loss)
on investments
(both realized
and unrealized) 7.33 6.33 7.23 5.17 6.97 0.43 (0.60) 2.70 4.32 0.26
-------- ------- ------- ------- ------- ----- ----- ----- ----- -----
Total from
investment
operations 7.95 6.94 7.85 5.80 7.47 0.87 (0.15) 3.13 4.74 0.73
-------- ------- ------- ------- ------- ----- ----- ----- ----- -----
LESS DISTRIBUTIONS
Net investment
income (0.59) (0.64) (0.61) (0.53) (0.52) (0.45) (0.45) (0.41) (0.54) (0.40)
Capital gains (0.05) (1.13) (2.31) (0.12) (0.18) -- (0.24) -- (0.64) (0.46)
-------- ------- ------- ------- ------- ----- ----- ----- ----- -----
Total distributions (0.64) (1.77) (2.92) (0.65) (0.70) (0.45) (0.69) (0.41) (1.18) (0.86)
-------- ------- ------- ------- ------- ----- ----- ----- ----- -----
Net asset value, end
of year $ 51.96 44.65 39.48 34.55 29.40 22.63 22.21 23.05 20.33 16.77
======== ======= ======= ======= ======= ===== ===== ===== ===== =====
TOTAL RETURN 17.93% 18.17% 24.80% 20.09% 33.67% 4.02% (0.65)% 15.49% 29.79% 4.27%
RATIOS/SUPPLEMENTAL
DATA
Net assets, end of
year (millions) $2,786.4 2,285.5 1,821.1 1,362.9 1,068.6 771.7 725.1 696.1 558.4 414.3
Ratio of expenses to
average net assets 0.12% 0.12% 0.12% 0.13% 0.14%(a) 0.14% 0.14% 0.16% 0.19% 0.21%
Ratio of net
investment income
to average net
assets 1.27% 1.47% 1.78% 1.88% 1.95% 2.00% 2.05% 1.99% 2.22% 2.84%
Portfolio turnover
rate 2% 1% 6% 16% 3% 3% 2% 2% 1% 16%
</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 1999 fiscal
year. The S&P 500 Index produced a total return of 20.9% for the twelve months
ended November 30, 1999. The Balanced Fund achieved a total return of 9.7% for
the same period. Returns earned by U.S. common stocks have been extraordinary
over the past five years. In our opinion, returns of this magnitude are not
sustainable over long periods of time.
During 1999 and over the five year period from 1995-99, the return of the S&P
500 has been generated by an increasingly narrow group of stocks. Over the five
year period from 1995-99, over 50% of the total return of the S&P 500 Index was
generated by only 20 stocks. In 1999, almost 90% of the total return of the S&P
500 Index was generated by only 20 stocks, mainly technology and
telecommunications companies.
The portion of your Fund that is not invested in common stocks holds good
quality fixed income securities. Over the past twelve months yields on the bonds
held by the Fund have increased about 150 basis points (a basis point is .01%).
Consequently, their values have fallen, and the total return of the Fund was
pulled down by returns of fixed income assets during the fiscal year just ended.
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>
LEHMAN BROTHERS INTERMEDIATE
BALANCED FUND S&P 500* TREASURY**
<S> <C> <C> <C>
1989 $10,000 $10,000 $10,000
1990 $10,829 $9,647 $10,826
1991 $14,196 $11,612 $12,221
1992 $16,386 $13,751 $13,221
1993 $16,863 $15,137 $14,436
1994 $17,534 $15,300 $14,192
1995 $22,185 $20,946 $16,127
1996 $25,686 $26,782 $17,031
1997 $30,138 $34,425 $18,093
1998 $33,971 $42,573 $19,395
1999 $37,273 $51,464 $19,601
Fund's Average Annual Total Return
1 YEAR 5 YEARS 10 YEARS
9.72% 16.28% 14.06%
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 101
U.S. Treasury securities maturing within 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 technology firms,
telecommunications companies, and telecommunications equipment firms performed
very well over the past year. Results produced by the Fund's investments in
electric utilities, banks, chemicals, and consumer products were below those of
the overall market.
The general composition of your Fund's portfolio changed some over the last
twelve months. Positions were initiated or increased in financial services
firms, consumer product companies, telecommunications and telecommunications
equipment companies, technology firms, pharmaceutical companies, international
oil firms, and electrical manufacturing companies.
U.S. Treasury bonds continue to dominate the fixed-income portfolio of the Fund.
However, additions to the portfolio in 1999 emphasized good quality corporate
and U.S. Agency bonds because their yields appeared attractive when compared to
those available on U.S. Treasury securities. Corporate and Agency bonds now
represent 29% of the Fund's total bond portfolio. The overall 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
5.6 years up from 5.2 years a year ago. Maturities or likely calls are spread
mostly over the next ten years.
13-------
<PAGE>
STATE FARM BALANCED FUND, INC.
Business conditions appear to be generally favorable around the world. Economic
activity is quite strong in the U.S. and is reasonably firm in Europe. Japan and
the emerging economies of the world appear to be recovering slowly.
As investors, it is interesting to look back over the past century and examine
the total returns achieved by various asset classes. A British publication, The
Economist, recently calculated the average annual total returns expressed in
dollars from 1900-99 for those asset classes with sufficient historical data.
They are presented in the following table:
Average Annual Total Returns from 1900-99
In Percent Terms
<TABLE>
<S> <C>
US Shares 10%
UK Shares 8%
French Shares 7%
US Treasury Bonds 5%
US Treasury Bills 4%
US Inflation 3%
Gold 3%
Silver 2%
</TABLE>
It is obvious from the table that over the past century common stocks have
provided higher returns than government bonds or precious metals. Importantly,
U.S. shares have provided significantly higher returns than the U.S. inflation
rate. However, it is important to understand that the variability of common
stock returns is substantially greater than the variability of U.S. government
bond returns or the U.S. inflation rate. While a 10% average annual return from
U.S. common stocks over the century may appear relatively modest, the power of
compounding can be deceptive. One dollar growing at 10% per year is worth
$13,781 in 100 years. A 10% growth rate is quite meaningful over a typical
career. One dollar growing at 10% per year is worth $17 after 30 years and $45
after 40 years.
Given the very strong performance recently of common stocks associated with the
Internet, it is appropriate to place this important technology within a
historical context. Throughout history, major technological developments have
often triggered periods of speculative financial activity and valuation. For
example, the development of steam power and the railroads, the discovery and
application of hydrocarbons, the discovery of electricity, the invention of the
automobile and the airplane, the commercial promise of atomic energy, the advent
of biotechnology, and the development of the personal computer often were
accompanied by periods of financial speculation. It is very difficult to predict
in advance how these technologies will be utilized by society and what the
commercial and financial ramifications will be. Quite often, the early pioneers
are not the long-term commercial winners. The development of the personal
computer provides an interesting case study. Of the scores of personal computer
firms which were created in the early 1980s, only Apple Computer (with a
turbulent managerial and financial history) remains in existence. The real
beneficiaries of the technology were a group of semiconductor chip, software,
and personal computer firms which developed later. The financial speculation
associated with the Internet is quite large. Investors should be cautious and
thoughtful about their participation in it. The Balanced Fund is unlikely to
ever own the highest Internet flyers, but is positioned to benefit from the
development of the Internet through its ownership of shares of several well
managed and highly profitable major technology, media, telecommunications and
telecommunications equipment firms.
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 cannot
ensure a profit, but it should allow shareowners to capture the benefits of
dollar cost averaging and to participate in any long-term appreciation of common
stock prices. Dependable income should be generated from bond holdings. 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 $.57 per Balanced
Fund share which was paid on December 20, 1999. A semi-annual income dividend of
$.79 per share was also paid on December 20, 1999. 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, 1999
<TABLE>
<CAPTION>
SHARES VALUE
- ----------- ------------
<C> <S> <C> <C> <C>
COMMON STOCKS (68.1%)
AGRICULTURE, FOODS, & BEVERAGE (3.7%)
853,118 Archer-Daniels-Midland Company $ 10,610,655
26,000 Campbell Soup Company 1,160,250
310,000 Kellogg Company 10,501,250
58,000 Sara Lee Corporation 1,406,500
190,000 The Coca-Cola Company 12,789,375
------------
36,468,030
------------
BANKS (5.7%)
49,960 ABN Amro Holding NV 1,218,159
52,312 Amsouth Bancorporation 1,180,290
36,700 Bank of America Corporation 2,146,950
184,100 Bank One Corporation 6,489,525
25,650 First Security Corporation 721,406
12,300 First Virginia Banks Inc. 558,112
17,700 Golden West Financial
Corporation 1,786,594
10,900 JP Morgan & Co. Incorporated 1,433,350
1,900 M&T Bank Corporation 893,000
20,500 Northern Trust Corporation 1,984,656
180,960 Pacific Century Financial
Corporation 3,551,340
166,924 Popular Inc. 4,799,065
99,000 Southtrust Corporation 3,842,438
21,400 SunTrust Banks Inc. 1,495,325
17,600 TCF Financial Corporation 498,300
19,251 U.S. Bancorp 658,144
75,700 Wachovia Corporation 5,862,019
373,800 Wells Fargo & Company 17,381,700
------------
56,500,373
------------
BUILDING MATERIALS & CONSTRUCTION (.6%)
160,200 Vulcan Materials Company 6,448,050
------------
CHEMICALS (3.4%)
230,000 Air Products & Chemicals Inc. 7,446,250
108,705 E.I. du Pont de Nemours and
Company 6,461,153
141,400 Great Lakes Chemical
Corporation 4,692,712
120,000 International Flavors &
Fragrances Inc. 4,417,500
11,800 Praxair Inc. 526,575
245,500 Sigma-Aldrich Corporation 7,027,437
23,000 The Dow Chemical Company 2,693,875
------------
33,265,502
------------
COMPUTER SOFTWARE AND SERVICES (2.3%)
15,500 AutoDesk Inc. 454,344
67,700 Cisco Systems Inc. (a) 6,037,994
8,800 Electronic Data Systems
Corporation 565,950
168,600 Microsoft Corporation (a) 15,350,507
------------
22,408,795
------------
COMPUTERS (5.0%)
377,000 Hewlett-Packard Company 35,767,875
137,200 International Business
Machines Corporation 14,140,175
------------
49,908,050
------------
</TABLE>
15-------
<PAGE>
STATE FARM BALANCED FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 1999
<TABLE>
<CAPTION>
SHARES VALUE
- ----------- ------------
<C> <S> <C> <C> <C>
CONSUMER & MARKETING (4.7%)
22,200 Clorox Co. $ 989,287
160,000 Hon Industries Inc. 3,460,000
177,937 Kimberly Clark Corp. 11,365,726
96,700 McDonald's Corporation 4,351,500
136,218 Newell Rubbermaid Inc. 4,469,653
300,000 The Gillette Company 12,056,250
81,600 The Procter & Gamble Company 8,812,800
22,857 Unilever NV 1,244,278
------------
46,749,494
------------
ELECTRONIC/ELECTRICAL MFG. (5.0%)
28,600 Applied Materials Inc. (a) 2,786,712
10,100 Diebold Inc. 231,669
31,200 Emerson Electric Co. 1,778,400
159,900 General Electric Company 20,787,000
251,400 Intel Corporation 19,279,237
18,700 KLA Tencor Corporation (a) 1,581,319
40,800 Linear Technology Corp. 2,899,350
------------
49,343,687
------------
FINANCIAL SERVICES (.8%)
66,750 Citigroup Inc. 3,596,156
160,650 MBNA Corporation 4,056,412
9,900 The Finova Group Inc. 368,156
------------
8,020,724
------------
HEALTH CARE (9.9%)
38,700 Allergan Inc. 3,807,112
405,000 Biomet Inc. 12,833,437
31,025 Covance Inc. (a) 337,397
212,000 Eli Lilly & Co. 15,211,000
198,000 Johnson & Johnson 20,542,500
21,600 Medtronic Inc. 839,700
123,400 Merck & Co. Inc. 9,686,900
960,000 Pfizer Inc. 34,740,000
------------
97,998,046
------------
MACHINERY & MANUFACTURING (2.8%)
44,600 AlliedSignal Inc. 2,667,637
45,900 AptarGroup Inc. 1,245,038
100,000 Caterpillar Inc. 4,637,500
124,100 Corning Incorporated 11,626,619
14,700 Deere & Company 631,181
20,000 Illinois Tool Works Inc. 1,295,000
47,700 Minnesota Mining &
Manufacturing Co. 4,558,331
84,375 Osmonics Inc. (a) 759,375
------------
27,420,681
------------
MEDIA & BROADCASTING (4.2%)
42,000 Lee Enterprises Incorporated 1,189,125
42,000 Lee Enterprises Incorporated
Class B 1,189,125
173,333 Reuters Group PLC ADR 11,353,312
993,495 The Walt Disney Company 27,693,673
------------
41,425,235
------------
</TABLE>
- ---------
16
<PAGE>
STATE FARM BALANCED FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 1999
<TABLE>
<CAPTION>
SHARES VALUE
- ----------- ------------
<C> <S> <C> <C> <C>
MINING & METALS (1.0%)
29,200 Newmont Mining Corporation $ 691,675
109,200 Nucor Corporation 5,507,775
50,000 Rio Tinto PLC ADR 3,887,500
18,750 Steel Dynamics Inc. (a) 257,813
------------
10,344,763
------------
OIL, GAS, & OTHER ENERGY (4.4%)
89,986 BP Amoco PLC ADR 5,483,522
144,000 Chevron Corporation 12,753,000
29,185 Devon Energy Corporation 1,028,771
164,500 Exxon Corporation 13,046,906
65,220 Pennzoil-Quaker State Co. 676,658
188,700 Royal Dutch Petroleum Company
ADR 10,944,600
------------
43,933,457
------------
RETAILERS (.9%)
149,600 Wal-Mart Stores Inc. 8,620,700
------------
TELECOM & TELECOM EQUIPMENT (12.6%)
258,200 ADC Telecommunications
Inc. (a) 13,765,288
255,000 AT&T Corp. 14,248,125
136,000 LM Ericsson Telephone Company
ADR 6,553,500
220,376 Lucent Technologies Inc. 16,101,222
324,657 MCI Worldcom Inc. (a) 26,845,076
64,000 Motorola Inc. 7,312,000
29,800 Nextlink Communications Inc.
(Class A) (a) 1,490,000
22,100 Nokia Corporation ADR 3,053,944
89,200 Nortel Networks Corp. 6,600,800
470,024 SBC Communications Inc. 24,411,872
23,100 U.S. West Inc. 1,433,644
60,000 Vodafone AirTouch Public
Limited Co. ADR (a) 2,831,250
------------
124,646,721
------------
UTILITIES & ENERGY (1.1%)
20,800 CMS Energy Corporation 691,600
36,000 Duke Energy Corporation 1,824,750
25,200 FPL Group Inc. 1,102,500
49,300 Scottish Power PLC ADR (a) 1,722,419
80,000 Southern Company 1,870,000
47,300 Teco Energy Inc. 946,000
28,000 Texas Utilities Company
(Holding Co.) 1,002,750
30,200 The AES Corporation (a) 1,749,713
------------
10,909,732
------------
TOTAL COMMON STOCKS
(cost $267,308,424) 674,412,040
------------
</TABLE>
17-------
<PAGE>
STATE FARM BALANCED FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 1999
<TABLE>
<CAPTION>
PRINCIPAL COUPON MATURITY
AMOUNT RATE DATE VALUE
- --------------------------------------------------------------------------------------
CORPORATE BONDS (7.8%)
<C> <S> <C> <C> <C>
AGRICULTURE, FOODS, & BEVERAGE (.8%)
$ 3,000,000 Pioneer Hi-Bred International
Inc. 5.750% January 15, 2009 $ 2,732,430
3,000,000 Dean Foods Company 6.625% May 15, 2009 2,841,090
2,950,000 Archer-Daniels-Midland Company 5.870% November 15, 2010 2,937,669
------------
8,511,189
------------
AUTOMOTIVE (.6%)
3,000,000 Daimler Chrysler North America 6.900% September 1, 2004 2,993,250
3,000,000 Ford Motor Credit Company 5.800% January 12, 2009 2,703,420
------------
5,696,670
------------
BUILDING MATERIALS & CONSTRUCTION (.3%)
3,000,000 Vulcan Materials Company 6.000% April 1, 2009 2,734,590
------------
CHEMICALS (.6%)
3,000,000 PPG Industries Inc. 6.750% August 15, 2004 2,959,200
3,250,000 E.I. du Pont de Nemours and
Company 6.750% October 15, 2004 3,235,733
------------
6,194,933
------------
COMPUTERS (.3%)
3,000,000 International Business
Machines Corporation 5.375% February 1, 2009 2,675,220
------------
CONSUMER & MARKETING (.5%)
2,000,000 Hasbro Inc. 5.600% November 1, 2005 1,829,400
3,000,000 The Procter & Gamble Company 6.875% September 15, 2009 2,987,190
------------
4,816,590
------------
CONTAINERS & PACKAGING (.4%)
5,000,000 Avery Dennison Corp. 5.900% December 1, 2008 4,476,000
------------
ELECTRONIC/ELECTRICAL MFG. (.3%)
3,000,000 Emerson Electric Co. 5.850% March 15, 2009 2,762,400
------------
FINANCIAL SERVICES (.3%)
3,000,000 Household Finance 7.200% July 15, 2006 2,996,010
------------
HEALTH CARE (.6%)
3,000,000 Johnson & Johnson 6.625% September 1, 2009 2,947,200
3,000,000 Becton Dickinson & Co. 7.150% October 1, 2009 2,922,600
------------
5,869,800
------------
MACHINERY & MANUFACTURING (.9%)
3,000,000 United Technologies Corp. 7.000% September 15, 2006 2,977,470
3,000,000 Illinois Tool Works Inc. 5.750% March 1, 2009 2,737,260
3,000,000 Caterpillar Inc. 7.250% September 15, 2009 2,994,630
------------
8,709,360
------------
MEDIA & BROADCASTING (.3%)
3,000,000 The Washington Post Company 5.500% February 15, 2009 2,674,980
------------
</TABLE>
- ---------
18
<PAGE>
STATE FARM BALANCED FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 1999
<TABLE>
<CAPTION>
PRINCIPAL COUPON MATURITY
AMOUNT RATE DATE VALUE
- ----------- ------ ------------------- ------------
<C> <S> <C> <C> <C>
OIL, GAS, & OTHER ENERGY (.2%)
$ 3,000,000 Texaco Capital 5.500% January 15, 2009 $ 2,662,410
------------
RETAILERS (.6%)
3,000,000 Albertsons Inc. 6.950% August 1, 2009 2,932,980
3,000,000 Wal-Mart Stores Inc. 6.875% August 10, 2009 2,976,900
------------
5,909,880
------------
TELECOM & TELECOM EQUIPMENT (.8%)
5,000,000 US West Communications 5.625% November 15, 2008 4,404,300
3,000,000 AT&T Corp. 6.000% March 15, 2009 2,765,790
1,000,000 New England Telephone &
Telegraph Co. 5.875% April 15, 2009 906,070
------------
8,076,160
------------
UTILITIES & ENERGY (.3%)
3,000,000 Alabama Power Company 7.125% August 15, 2004 2,990,070
------------
TOTAL CORPORATE BONDS
(cost $81,676,545) 77,756,262
------------
U.S. TREASURY OBLIGATIONS (21.7%)
3,000,000 U.S. Treasury Notes 6.375% January 15, 2000 3,002,160
2,000,000 U.S. Treasury Notes 8.500% February 15, 2000 2,012,220
3,000,000 U.S. Treasury Notes 6.875% March 31, 2000 3,013,650
3,000,000 U.S. Treasury Notes 5.500% April 15, 2000 2,999,340
5,000,000 U.S. Treasury Notes 6.250% May 31, 2000 5,015,200
3,000,000 U.S. Treasury Notes 8.750% August 15, 2000 3,061,290
3,000,000 U.S. Treasury Notes 8.500% November 15, 2000 3,074,100
4,200,000 U.S. Treasury Notes 7.750% February 15, 2001 4,287,696
5,000,000 U.S. Treasury Notes 6.375% March 31, 2001 5,026,250
625,000 U.S. Treasury Bonds 13.125% May 15, 2001 686,556
2,000,000 U.S. Treasury Notes 8.000% May 15, 2001 2,056,040
680,000 U.S. Treasury Bonds 13.375% August 15, 2001 760,131
4,000,000 U.S. Treasury Notes 7.875% August 15, 2001 4,119,120
5,500,000 U.S. Treasury Notes 7.500% November 15, 2001 5,648,445
5,000,000 U.S. Treasury Bonds 14.250% February 15, 2002 5,837,900
2,000,000 U.S. Treasury Notes 7.500% May 15, 2002 2,065,840
5,000,000 U.S. Treasury Notes 6.000% July 31, 2002 4,996,600
7,500,000 U.S. Treasury Notes 6.375% August 15, 2002 7,552,725
2,570,000 U.S. Treasury Bonds 11.625% November 15, 2002 2,945,477
5,000,000 U.S. Treasury Notes 6.250% February 15, 2003 5,020,450
3,000,000 U.S. Treasury Bonds 10.750% May 15, 2003 3,417,150
9,000,000 U.S. Treasury Notes 5.750% August 15, 2003 8,888,850
5,500,000 U.S. Treasury Bonds 11.875% November 15, 2003 6,564,800
9,000,000 U.S. Treasury Notes 5.875% February 15, 2004 8,927,460
9,000,000 U.S. Treasury Notes 7.250% May 15, 2004 9,367,740
6,000,000 U.S. Treasury Notes 7.250% August 15, 2004 6,256,740
1,500,000 U.S. Treasury Bonds 11.625% November 15, 2004 1,835,460
5,000,000 U.S. Treasury Notes 7.500% February 15, 2005 5,276,500
1,785,000 U.S. Treasury Bonds 8.250% May 15, 2005 1,804,403
7,500,000 U.S. Treasury Notes 6.500% May 15, 2005 7,593,750
4,800,000 U.S. Treasury Bonds 10.750% August 15, 2005 5,804,640
</TABLE>
19-------
<PAGE>
STATE FARM BALANCED FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 1999
<TABLE>
<CAPTION>
PRINCIPAL COUPON MATURITY
AMOUNT RATE DATE VALUE
- ----------- ------ ------------------- ------------
$ 6,000,000 U.S. Treasury Notes %5.875 November 15, 2005 $ 5,902,020
<C> <S> <C> <C> <C>
11,500,000 U.S. Treasury Bonds 9.375% February 15, 2006 13,300,785
6,000,000 U.S. Treasury Notes 6.875% May 15, 2006 6,190,620
3,000,000 U.S. Treasury Notes 7.000% July 15, 2006 3,116,370
4,000,000 U.S. Treasury Notes 6.500% October 15, 2006 4,046,160
10,000,000 U.S. Treasury Notes 6.250% February 15, 2007 9,982,100
11,000,000 U.S. Treasury Notes 6.625% May 15, 2007 11,207,020
4,000,000 U.S. Treasury Notes 6.125% August 15, 2007 3,956,480
10,000,000 U.S. Treasury Notes 5.500% February 15, 2008 9,524,800
1,000,000 U.S. Treasury Bonds 10.375% November 15, 2009 1,165,080
7,000,000 U.S. Treasury Bonds 10.000% May 15, 2010 8,127,700
------------
TOTAL U.S. TREASURY OBLIGATIONS
(cost $220,390,521) 215,437,818
------------
GOVERNMENT AGENCY SECURITIES (1.0%)
10,000,000 Federal National Mortgage
Association
(cost $9,523,438) 6.000% May 15, 2008 9,501,500
------------
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT
- --------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS (.9%)
<C> <S> <C> <C> <C>
1,700,000 Ford Motor Credit Company,
5.616%, December, 1999 1,700,530
5,000,000 U.S. Treasury Bills, 4.670%,
January, 2000 4,975,950
2,082,036 Chase Vista Treasury Plus
Money Market Fund 2,082,036
------------
TOTAL SHORT-TERM INVESTMENTS
(cost $8,757,992) 8,758,516
------------
TOTAL INVESTMENTS (99.5%)
(cost $587,656,920) 985,866,136
CASH AND OTHER ASSETS, NET OF LIABILITIES (0.5%) 4,857,766
------------
NET ASSETS (100.0%) $990,723,902
============
</TABLE>
Notes:
(a) Non-income producing security.
At November 30, 1999, net unrealized appreciation of $398,209,216 consisted of
gross unrealized appreciation of $413,638,806 and gross unrealized depreciation
of $15,429,590 based on cost of $587,656,920 for federal income tax purposes.
See accompanying notes to financial statements.
- ---------
20
<PAGE>
STATE FARM BALANCED FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1999
<TABLE>
<S> <C> <C>
ASSETS
Investments, at value (cost
$587,656,920) $985,866,136
Cash 4,058
Receivable for:
Dividends and interest $5,548,228
Shares of the Fund sold 255,020 5,803,248
----------
Prepaid expenses 19,219
------------
Total assets 991,692,661
------------
LIABILITIES AND NET ASSETS
Payable for:
Shares of the Fund redeemed 626,768
Other (including $297,302 to
Manager) 341,991 968,759
---------- ------------
Total liabilities 968,759
------------
Net assets applicable to 18,766,813
shares outstanding of
$1.00 par value common stock
(40,000,000 shares authorized) $990,723,902
============
Net asset value, offering price and
redemption price per share $ 52.79
============
ANALYSIS OF NET ASSETS
Excess of amounts received from sales
of shares over amounts paid on
redemptions of shares on account of
capital $555,375,580
Accumulated net realized gain on sales
of investments 10,843,298
Net unrealized appreciation of
investments 398,209,216
Undistributed net investment income 26,295,808
------------
Net assets applicable to shares
outstanding $990,723,902
============
</TABLE>
See accompanying notes to financial statements.
21-------
<PAGE>
STATE FARM BALANCED FUND, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
------------------------
1999 1998
----------- -----------
<S> <C> <C>
INVESTMENT INCOME:
Dividends $ 8,844,759 9,838,359
Interest 21,001,785 19,172,814
----------- -----------
29,846,544 29,011,173
Less: foreign withholding taxes 144,691 113,470
----------- -----------
Total investment income 29,701,853 28,897,703
EXPENSES:
Investment advisory and management
fees 1,113,753 980,972
Professional fees 61,649 33,191
ICI dues 23,365 20,048
Registration fees 8,879 20,140
Fidelity bond expense 5,377 4,827
Directors' fees 7,200 8,129
Reports to shareowners 32,580 11,907
Security evaluation fees 4,571 4,893
Franchise taxes 17,600 17,229
Custodian fees 17,895 17,454
Proxy and related expense -- 14,077
Other 131 140
----------- -----------
Total expenses 1,293,000 1,133,007
----------- -----------
Net investment income 28,408,853 27,764,696
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS:
Net realized gain on sales of
investments 10,843,298 446,940
Change in net unrealized appreciation 48,274,008 70,040,582
----------- -----------
Net realized and unrealized gain on
investments 59,117,306 70,487,522
----------- -----------
Net change in net assets resulting from
operations $87,526,159 98,252,218
=========== ===========
</TABLE>
See accompanying notes to financial statements.
- ---------
22
<PAGE>
STATE FARM BALANCED FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-------------------------
1999 1998
------------ -----------
<S> <C> <C>
FROM OPERATIONS:
Net investment income $ 28,408,853 27,764,696
Net realized gain on sales of
investments 10,843,298 446,940
Change in net unrealized appreciation 48,274,008 70,040,582
------------ -----------
Net change in net assets resulting from
operations 87,526,159 98,252,218
Undistributed net investment income
included in price of shares issued and
redeemed 270,649 714,370
DISTRIBUTIONS TO SHAREOWNERS FROM:
Net investment income (27,062,617) (26,507,020)
Net realized gain (382,353) (11,354,841)
------------ -----------
Total distributions to shareowners (27,444,970) (37,861,861)
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold 112,775,656 143,691,069
Reinvestment of ordinary income
dividends and capital gain
distributions 26,064,784 36,429,240
------------ -----------
138,840,440 180,120,309
Less payments for shares redeemed 101,669,744 110,302,865
------------ -----------
Net increase in net assets from Fund
share transactions 37,170,696 69,817,444
------------ -----------
Total increase in net assets 97,522,534 130,922,171
------------ -----------
NET ASSETS:
Beginning of year 893,201,368 762,279,197
------------ -----------
End of year (including undistributed
net investment income of $26,295,808
in 1999, and $24,614,336 in 1998) $990,723,902 893,201,368
============ ===========
</TABLE>
See accompanying notes to financial statements.
23-------
<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,
--------------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994 1993 1992 1991 1990
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
year $49.54 46.09 42.04 37.76 31.12 30.88 31.24 27.98 22.72 22.27
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 1.51 1.54 1.40 1.39 1.25 1.03 0.98 0.98 0.94 1.06
Net gain or (loss) on
investments (both realized
and unrealized) 3.23 4.14 5.45 4.38 6.77 0.17 (0.09) 3.29 5.81 0.74
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Total from investment
operations 4.74 5.68 6.85 5.77 8.02 1.20 0.89 4.27 6.75 1.80
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
LESS DISTRIBUTIONS
Net investment income (1.47) (1.54) (1.47) (1.30) (1.19) (0.89) (1.01) (0.89) (1.03) (0.92)
Capital gains (0.02) (0.69) (1.33) (0.19) (0.19) (0.07) (0.24) (0.12) (0.46) (0.43)
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Total distributions (1.49) (2.23) (2.80) (1.49) (1.38) (0.96) (1.25) (1.01) (1.49) (1.35)
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Net asset value, end of year $52.79 49.54 46.09 42.04 37.76 31.12 30.88 31.24 27.98 22.72
====== ===== ===== ===== ===== ===== ===== ===== ===== =====
TOTAL RETURN 9.72% 12.72% 17.33% 15.78% 26.53% 3.98% 2.91% 15.43% 31.09% 8.29%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year
(millions) $990.7 893.2 762.3 626.1 499.7 370.5 327.8 259.7 173.5 108.8
Ratio of expenses to average
net assets 0.13% 0.14% 0.14% 0.15% 0.17%(a) 0.17% 0.19% 0.22% 0.26% 0.27%
Ratio of net investment income
to average net assets 2.96% 3.34% 3.42% 3.63% 3.66% 3.36% 3.20% 3.29% 3.66% 4.87%
Portfolio turnover rate 5% 2% 6% 9% 6% 4% 4% 4% 1% 10%
</TABLE>
- ----------
(a) The ratio based on net custodian expenses would have been .16% in 1995.
- ---------
24
<PAGE>
STATE FARM INTERIM FUND, INC.
Dear Shareowner:
Interest rates have been rising throughout 1999. Yields on the U.S. Treasury
securities which dominate the investments of your Fund now stand at levels that
are about 150 basis points (a basis point is .01%) higher than those which
existed a year ago. Consequently values of investments held by the Fund have
declined, and its net asset value has fallen 5.1% over the past twelve months.
The Fund's total return, which includes the reinvestment of dividends and
decrease in net asset value, for the year was 1.35%.
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 1-5 YEAR TREASURY
FUND INDEX*
1989 $10,000 $10,000
1990 $10,829 $10,878
1991 $12,073 $12,214
1992 $12,931 $13,114
1993 $13,933 $13,981
1994 $13,813 $13,893
1995 $15,455 $15,559
1996 $16,296 $16,448
1997 $17,268 $17,444
1998 $18,704 $18,873
1999 $18,956 $19,308
Fund's Average Annual Total Return
1 YEAR 5 YEARS 10 YEARS
1.35% 6.54% 6.60%
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 75 U.S. Treasury Securities maturing within one to five years.
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.
The increase of interest rates over the past year can be primarily attributed to
the strength of the U.S. economy while most global economies are also expanding.
Real GDP growth in the U.S. for the third quarter is now gauged at a 5.5% annual
rate. GDP growth has averaged 4% annually for the last four years.
Investors and policy makers are concerned that the economy is growing in excess
of its non-inflationary potential. Consequently, Federal Reserve officials have
raised short-term interest rates by 75 basis points in three separate actions
since June, and market yields have moved sharply upward. So far, inflation has
been restrained by high levels of productivity, and there has been ample
capacity to support the rapid economic growth. However, capital markets
inevitably attempt to look forward and somehow embody collective expectations of
investors at every point in time. Presently, the marketplace is suggesting that
a higher level of inflation is expected in the near future. It appears that high
employment and tight labor market conditions are being viewed as the most likely
potential source of any acceleration of inflation.
We tend to feel that bonds are beginning to represent reasonably good value at
present interest rate levels even though further tightening by the Federal
Reserve Board may occur with some accompanying rise in bond yields. Real yields
on U.S. Treasury bonds are around 3.5% after deducting the current level of
inflation. From a long-term perspective, we lean towards feeling that behavior
of the Federal Reserve Board and vigilant bond market investors will pull
together in order to keep inflation from getting out of control. However, as we
have stated to you many times in the past, we fully acknowledge the absolute
unpredictability of the future.
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.
25-------
<PAGE>
STATE FARM INTERIM FUND, INC.
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>
- ---------
26
<PAGE>
STATE FARM INTERIM FUND, INC.
PORTFOLIO OF INVESTMENTS
November 30, 1999
<TABLE>
<CAPTION>
Principal Coupon Maturity
amount Rate Date Value
- ---------- ------ ------------------- ------------
<C> <S> <C> <C> <C>
U.S. TREASURY OBLIGATIONS (97.7%)
$2,000,000 U.S. Treasury Notes 6.375% January 15, 2000 $ 2,001,440
2,000,000 U.S. Treasury Notes 8.500% February 15, 2000 2,012,220
1,000,000 U.S. Treasury Notes 6.875% March 31, 2000 1,004,550
6,250,000 U.S. Treasury Notes 5.500% April 15, 2000 6,248,625
1,000,000 U.S. Treasury Notes 6.750% April 30, 2000 1,004,670
1,000,000 U.S. Treasury Notes 8.875% May 15, 2000 1,015,270
1,000,000 U.S. Treasury Notes 6.250% May 31, 2000 1,003,040
4,000,000 U.S. Treasury Notes 8.750% August 15, 2000 4,081,720
3,750,000 U.S. Treasury Notes 8.500% November 15, 2000 3,842,625
3,000,000 U.S. Treasury Notes 5.500% December 31, 2000 2,987,580
1,000,000 U.S. Treasury Notes 5.250% January 31, 2001 992,900
4,000,000 U.S. Treasury Notes 7.750% February 15, 2001 4,083,520
4,000,000 U.S. Treasury Notes 5.625% February 28, 2001 3,985,960
5,000,000 U.S. Treasury Notes 8.000% May 15, 2001 5,140,100
4,000,000 U.S. Treasury Notes 7.875% August 15, 2001 4,119,120
3,000,000 U.S. Treasury Notes 6.375% September 30, 2001 3,018,330
4,000,000 U.S. Treasury Notes 7.500% November 15, 2001 4,107,960
4,000,000 U.S. Treasury Bonds 14.250% February 15, 2002 4,670,320
4,000,000 U.S. Treasury Notes 7.500% May 15, 2002 4,131,680
8,000,000 U.S. Treasury Notes 6.375% August 15, 2002 8,056,240
4,000,000 U.S. Treasury Bonds 11.625% November 15, 2002 4,584,400
5,000,000 U.S. Treasury Notes 5.750% November 30, 2002 4,958,550
6,000,000 U.S. Treasury Notes 6.250% February 15, 2003 6,024,540
7,000,000 U.S. Treasury Notes 5.750% April 30, 2003 6,923,560
2,000,000 U.S. Treasury Bonds 10.750% May 15, 2003 2,278,100
2,000,000 U.S. Treasury Bonds 11.125% August 15, 2003 2,318,260
7,000,000 U.S. Treasury Notes 5.750% August 15, 2003 6,913,550
1,000,000 U.S. Treasury Bonds 11.875% November 15, 2003 1,193,600
3,000,000 U.S. Treasury Notes 5.875% February 15, 2004 2,975,820
8,000,000 U.S. Treasury Notes 7.250% May 15, 2004 8,326,880
5,000,000 U.S. Treasury Notes 7.250% August 15, 2004 5,213,950
8,000,000 U.S. Treasury Notes 7.875% November 15, 2004 8,556,400
4,000,000 U.S. Treasury Notes 7.500% February 15, 2005 4,221,200
4,000,000 U.S. Treasury Notes 6.500% May 15, 2005 4,050,000
8,000,000 U.S. Treasury Notes 6.500% August 15, 2005 8,100,240
4,000,000 U.S. Treasury Notes 5.875% November 15, 2005 3,934,680
------------
Total U.S. treasury obligations
(cost $154,727,422) 148,081,600
------------
<CAPTION>
Shares or
Principal
amount
- -------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS (2.2%)
<C> <S> <C> <C> <C>
1,000,000 U.S. Treasury Bills, 4.670%,
January, 2000 995,190
2,341,436 Chase Vista Treasury Plus
Money Market Fund 2,341,436
------------
Total short-term investments
(cost $3,336,496) 3,336,626
------------
TOTAL INVESTMENTS (99.9%)
(cost $158,063,918) 151,418,226
CASH AND OTHER ASSETS, NET OF LIABILITIES (0.1%) 150,001
------------
NET ASSETS (100.0%) $151,568,227
============
</TABLE>
Notes:
At November 30, 1999, net unrealized depreciation of $6,645,692 consisted of
gross unrealized appreciation of $27,412 and gross unrealized depreciation of
$6,673,104 based on cost of $158,063,918 for federal income tax purposes.
See accompanying notes to financial statements.
27-------
<PAGE>
STATE FARM INTERIM FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1999
<TABLE>
<S> <C> <C>
ASSETS
Investments, at value (cost
$158,063,918) $151,418,226
Receivable for:
Interest $2,019,638
Shares of the Fund sold 61,773 2,081,411
----------
Prepaid expenses 4,909
------------
Total assets 153,504,546
LIABILITIES AND NET ASSETS
Dividends payable to shareowners 1,634,840
Payable for:
Shares of the Fund redeemed 217,722
Other (including $59,681 to Manager) 83,757 301,479
---------- ------------
Total liabilities 1,936,319
------------
Net assets applicable to 15,999,067
shares outstanding of
$1.00 par value common stock
(40,000,000 shares authorized) $151,568,227
============
Net asset value, offering price and
redemption price per share $ 9.47
============
ANALYSIS OF NET ASSETS
Excess of amounts received from sales
of shares over amounts paid on
redemptions of shares on account of
capital $162,221,550
Accumulated net realized loss on sales
of investments (4,007,631)
Net unrealized depreciation of
investments (6,645,692)
------------
Net assets applicable to shares
outstanding $151,568,227
============
</TABLE>
See accompanying notes to financial statements.
- ---------
28
<PAGE>
STATE FARM INTERIM FUND, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
------------------------
1999 1998
------------ ----------
<S> <C> <C>
INVESTMENT INCOME:
Interest $10,570,203 8,742,391
EXPENSES:
Investment advisory and management
fees 230,126 199,209
Professional fees 41,759 19,501
ICI dues 6,174 3,283
Registration fees 145 12,266
Fidelity bond expense 2,709 2,638
Directors' fees 2,400 2,709
Reports to shareowners 5,533 2,713
Security evaluation fees 963 1,862
Franchise taxes 8,323 12,547
Custodian fees 10,256 6,112
Proxy and related expense -- 2,950
Other 131 140
----------- ---------
Total expenses 308,519 265,930
----------- ---------
Net investment income 10,261,684 8,476,461
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized loss on sales of
investments (884,533) (994,996)
Change in net unrealized appreciation
or depreciation (7,167,018) 2,484,327
----------- ---------
Net realized and unrealized gain (loss)
on investments (8,051,551) 1,489,331
----------- ---------
Net change in net assets resulting from
operations $ 2,210,133 9,965,792
=========== =========
</TABLE>
See accompanying notes to financial statements.
29-------
<PAGE>
STATE FARM INTERIM FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-------------------------
1999 1998
------------ -----------
<S> <C> <C>
FROM OPERATIONS:
Net investment income $ 10,261,684 8,476,461
Net realized loss on sales of
investments (884,533) (994,996)
Change in net unrealized appreciation
or depreciation (7,167,018) 2,484,327
------------ -----------
Net change in net assets resulting from
operations 2,210,133 9,965,792
DISTRIBUTIONS TO SHAREOWNERS FROM:
Net investment income (10,261,684) (8,476,461)
------------ -----------
Total distributions to shareowners (10,261,684) (8,476,461)
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold 75,116,757 100,294,008
Reinvestment of ordinary income
dividends 9,326,141 7,418,955
------------ -----------
84,442,898 107,712,963
Less payments for shares redeemed 78,967,686 67,903,936
------------ -----------
Net increase in net assets from Fund
share transactions 5,475,212 39,809,027
------------ -----------
Total increase (decrease) in net assets (2,576,339) 41,298,358
------------ -----------
NET ASSETS:
Beginning of year 154,144,566 112,846,208
------------ -----------
End of year $151,568,227 154,144,566
============ ===========
</TABLE>
See accompanying notes to financial statements.
- ---------
30
<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,
----------------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994 1993 1992 1991 1990
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $ 9.98 9.85 9.98 10.15 9.72 10.52 10.46 10.50 10.16 10.17
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.64 0.68 0.69 0.70 0.70 0.71 0.74 0.78 0.78 0.82
Net gain or (loss) on
investments (both
realized and
unrealized) (0.51) 0.13 (0.13) (0.17) 0.43 (0.80) 0.06 (0.04) 0.34 (0.01)
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Total from investment
operations 0.13 0.81 0.56 0.53 1.13 (0.09) 0.80 0.74 1.12 0.81
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
LESS DISTRIBUTIONS
Net investment income (0.64) (0.68) (0.69) (0.70) (0.70) (0.71) (0.74) (0.78) (0.78) (0.82)
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Total distributions (0.64) (0.68) (0.69) (0.70) (0.70) (0.71) (0.74) (0.78) (0.78) (0.82)
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Net asset value, end of
year $ 9.47 9.98 9.85 9.98 10.15 9.72 10.52 10.46 10.50 10.16
====== ===== ===== ===== ===== ===== ===== ===== ===== =====
TOTAL RETURN 1.35% 8.31% 5.87% 5.44% 11.91% (0.85)% 7.82% 7.19% 11.41% 8.27%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year
(millions) $151.6 154.1 112.8 107.6 104.7 94.3 103.7 85.9 66.8 52.7
Ratio of expenses to
average net assets 0.20% 0.21% 0.22% 0.23%(a) 0.25%(a) 0.22% 0.25% 0.27% 0.28% 0.30%
Ratio of net investment
income to average net
assets 6.63% 6.80% 7.03% 7.03% 7.00% 7.00% 7.00% 7.30% 7.65% 8.12%
Portfolio turnover rate 12% 14% 15% 17% 17% 15% 15% 15% 14% 14%
</TABLE>
- ----------
(a) The ratio based on net custodian expenses would have been .22% in 1996 and
.24% in 1995.
31-------
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.
Dear Shareowner:
Interest rates have been rising throughout 1999. Yields on the municipal bond
investments of your Fund now stand at levels that are about 90 basis points (a
basis point is .01%) higher than those which existed a year ago. Consequently,
values of investments held by the Fund have declined, and its net asset value
has fallen 5.0% over the past twelve months. The Fund's total return, which
includes the reinvestment of dividends and decrease in net asset value, for the
year was only 0.04%.
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*
1989 $10,000 $10,000
1990 $10,780 $10,770
1991 $11,775 $11,875
1992 $12,835 $13,066
1993 $14,010 $14,515
1994 $13,650 $13,753
1995 $15,589 $16,352
1996 $16,403 $17,314
1997 $17,344 $18,633
1998 $18,525 $20,079
1999 $18,531 $19,864
Fund's Average Annual Total Return
1 YEAR 5 YEARS 10 YEARS
0.04% 6.31% 6.36%
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 52,000
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, 1991; and have a maturity of at least one year.
The Lehman Brothers Municipal Bond 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.
The increase of interest rates over the past year can be primarily attributed to
the strength of the U.S. economy while most global economies are also expanding.
Real GDP growth in the U.S. for the third quarter is now gauged at a 5.5% annual
rate. GDP growth has averaged 4% annually for the last four years.
Investors and policy makers are concerned that the economy is growing in excess
of its non-inflationary potential. Consequently, Federal Reserve officials have
raised short-term interest rates by 75 basis points in three separate actions
since June, and market yields have moved sharply upward. So far, inflation has
been restrained by high levels of productivity, and there has been ample
capacity to support the rapid economic growth. However, capital markets
inevitably attempt to look forward and somehow embody collective expectations of
investors at every point in time. Presently, the marketplace is suggesting that
a higher level of inflation is expected in the near future. It appears that high
employment and tight labor market conditions are being viewed as the most likely
potential source of any acceleration of inflation.
We tend to feel that bonds are beginning to represent reasonably good value at
present interest rate levels even though further tightening by the Federal
Reserve Board may occur with some accompanying rise in bond yields. Real yields
on bonds after deducting the current level of inflation appear quite
satisfactory when compared to historical real bond yields. From a long-term
perspective, we lean towards feeling that behavior of the Federal Reserve Board
and vigilant bond market investors will pull together in order to keep inflation
from getting out of control. However, as we have stated to you many times in the
past, we fully acknowledge the absolute unpredictability of the future.
- ---------
32
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.
This year's rise of interest rates is impacting the volume of new municipal bond
issues. New issuance for the first eleven months of 1999 was $207 billion and is
20% below last year's volume for the same period.
As we mentioned in our letter to you six months ago, direct retail investors are
now the dominant purchasers of municipal bonds. In fact their dominance seems to
be growing. An estimate recently done by Salomon Smith Barney indicates the net
investment by households in municipal bonds for 1999 may represent 91% of the
total net change in municipal holdings for the year.
The general composition of your Fund's investments has changed very little since
our last annual report. An intermediate maturity structure has been the
orientation of the Fund's portfolio for several years. Municipal bonds purchased
over the past twelve months had maturities ranging from 9-17 years. The average
weighted maturity of the Fund's present portfolio is approximately 8 years,
compared to 7.5 years one year ago, with all maturities spread over the next 17
years.
Good quality bonds dominate the portfolio. About 89% of the long-term assets are
rated AA or better, and another 2% 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.
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>
33-------
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.
PORTFOLIO OF INVESTMENTS
November 30, 1999
<TABLE>
<CAPTION>
Rating(b)
Principal Coupon Maturity (Moody's
amount Rate Date or S&P) Value
- ---------- ------ ------------------- --------- ------------
<C> <S> <C> <C> <C> <C>
LONG-TERM MUNICIPAL BONDS (97.8%)
Alabama (1.8%)
$2,200,000 The Water Works and Sewer Board,
Birmingham, Alabama, Water and Sewer
Revenue Bonds, Series 1994
(Prerefunded to 1-1-2004 @ 102) 4.750% January 1, 2005 Aa3 $ 2,243,648
2,165,000 Huntsville, Alabama, General Obligation
Warrants, Series 1998A 4.600% November 1, 2013 Aa2 1,931,656
2,465,000 Limestone County Board of Education,
Alabama, Capital Outlay Tax Antic
Warrants, Series 1998 4.900% July 1, 2015 Aaa 2,240,217
------------
6,415,521
------------
Alaska (1.6%)
1,505,000 Anchorage, Alaska, General Obligation
General Purpose Refunding Bonds 4.600% February 1, 2003 Aaa 1,506,099
1,500,000 Municipality of Anchorage, Alaska, 1993
General Obligation Refunding School
Bonds, Series B 4.900% September 1, 2003 Aaa 1,516,275
1,100,000 Municipality of Anchorage, Alaska, 1994
General Obligation School Bonds 5.400% July 1, 2005 Aaa 1,131,955
1,565,000 Matanuska-Susitna Borough, Alaska,
General Obligation School Bonds, 1999
Series A 5.000% March 1, 2015 Aaa 1,442,226
------------
5,596,555
------------
Arizona (6.0%)
1,000,000 Pima County, Arizona, General Obligation
Refunding Bonds, Series 1992 6.300% July 1, 2002 A1 1,045,870
2,250,000 Pima County, Arizona, Unified School
District No. 1, Tucson School
Improvement Bonds, Series 1990 B
(Prerefunded to 7-1-2000 @ 101) 6.900% July 1, 2002 A2 2,310,142
3,000,000 Tempe Union High School District No.
213, Maricopa County, Arizona, School
Improvement General Obligation Bonds,
Project of 1989, Series 1992B
(Prerefunded to 7-1-2001 @ 101) 5.875% July 1, 2002 A+ 3,101,490
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 2,038,740
1,000,000 Maricopa County, Arizona, Unified School
District No. 69, Paradise Valley
School Improvement Bonds,
Series 1990A 7.100% July 1, 2004 A1 1,095,640
2,340,000 City of Phoenix, Arizona, General
Obligation Refunding Bonds,
Series 1993 A 5.300% July 1, 2006 Aa1 2,406,620
1,000,000 Maricopa County, Arizona, Unified School
District No. 69, Paradise Valley
School Improvement Bonds,
Series 1994A 7.100% July 1, 2008 A1 1,132,700
1,200,000 Maricopa County, Arizona, Unified School
District No. 69, Paradise Valley
School Improvement Bonds,
Series 1994A 7.000% July 1, 2009 A1 1,360,392
2,500,000 Maricopa County, Arizona, Unified School
District No. 69, Paradise Valley
School Improvement Bonds,
Series 1994A 7.000% July 1, 2010 A1 2,862,650
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 4,062,277
------------
21,416,521
------------
California (5.0%)
3,000,000 State of California, Various Purpose
General Obligation Bonds 5.900% February 1, 2000 Aa3 3,011,100
400,000 State of California, General Obligation
Veterans Bonds, Series AL 9.600% April 1, 2001 Aa3 428,192
1,400,000 San Diego County, California, Water
Authority Water Revenue Certificates
of Participation, Series 1991A 6.000% May 1, 2001 Aa3 1,437,632
3,500,000 City of Los Angeles, California,
Wastewater System Revenue Bonds,
Series 1990 B (Prerefunded to 6-1-2000
@ 102) 6.900% June 1, 2004 Aaa 3,623,340
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 3,044,340
2,000,000 State of California, Various Purpose
General Obligation Bonds 6.000% October 1, 2006 Aa3 2,161,280
</TABLE>
- ---------
34
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.
PORTFOLIO OF INVESTMENTS (Continued)
November 30, 1999
<TABLE>
<CAPTION>
Rating(b)
Principal Coupon Maturity (Moody's
amount Rate Date or S&P) Value
- ---------- ------ ------------------- --------- ------------
<C> <S> <C> <C> <C> <C>
$2,830,000 Sacramento County, California, Sanitary
District Financing Authority Revenue
Bonds, 1995 5.000% December 1, 2007 Aa3 $ 2,886,091
1,500,000 Sacramento County, California, Sanitary
District Financing Authority Revenue
Bonds, 1995 5.000% December 1, 2008 Aa3 1,520,730
------------
18,112,705
------------
Colorado (4.0%)
2,620,000 Cherry Creek School District No. 5,
Arapahoe County, Colorado, General
Obligation Improvement Bonds,
Series 1990 (Prerefunded to
12-15-2000 @ 101) 7.000% December 15, 2003 Aa2 2,725,612
2,000,000 Jefferson County, Colorado, School
District No. R-1 General Obligation
Bonds, Series 1992 (Prerefunded to
12-15-2002 @ 101) 5.750% December 15, 2003 Aaa 2,093,560
2,000,000 Arapahoe County School District # 6,
Colorado, Littleton Public Schools
General Obligation Improvement Bonds,
Series 1995A 5.000% December 1, 2007 Aa2 2,019,700
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 2,559,761
3,135,000 St. Vrain School District # R3-1J,
Colorado, General Obligation,
Series 1997 5.000% December 15, 2012 Aaa 3,024,303
1,855,000 City of Boulder, Colorado, Open Space
Acquisition Refunding Bonds,
Series 1999 5.000% August 15, 2013 Aa1 1,778,426
------------
14,201,362
------------
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 1,191,577
1,125,000 The State of Delaware, General
Obligation Bonds, Series 1994B
(Prerefunded to 12-1-2004 @ 100) 6.000% December 1, 2012 Aa1 1,191,577
------------
2,383,154
------------
Florida (1.9%)
2,000,000 School District of Leon County, Florida,
General Obligation Refunding Bonds,
Series 1991 5.850% July 1, 2001 A1 2,050,040
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 2,015,940
3,000,000 State of Florida, State Board of
Education Capital Outlay, 1999
Series A 4.750% January 1, 2015 Aa2 2,699,970
------------
6,765,950
------------
Georgia (8.0%)
1,500,000 Municipal Electric Authority of Georgia,
General Power Revenue Bonds,
Series 1993A 5.000% January 1, 2004 A3 1,504,875
2,100,000 Cherokee County School Systems, Georgia,
General Obligation School,
Series 1993 4.900% February 1, 2004 A2 2,120,349
1,205,000 DeKalb County School District, Georgia,
General Obligation Refunding Bonds,
Series 1993 5.100% July 1, 2004 Aa2 1,230,606
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 3,315,983
3,590,000 State of Georgia, General Obligation
Bonds, Series 1996C 6.250% August 1, 2009 Aaa 3,930,440
2,000,000 State of Georgia, General Obligation
Bonds, Series 1995C 5.700% July 1, 2011 Aaa 2,103,900
4,000,000 Gwinnett County Water & Sewer Authority,
Georgia, Revenue Series 1998 5.000% August 1, 2011 Aaa 3,947,560
3,000,000 State of Georgia, General Obligation
Bonds, Series 1995B 5.750% March 1, 2012 Aaa 3,147,870
3,000,000 State of Georgia, General Obligation
Bonds, Series 1994B 6.250% April 1, 2012 Aaa 3,283,920
1,055,000 Columbia County, Georgia, General
Obligation Bonds (Courthouse/Detention
Center Projects), Series 1998 4.700% February 1, 2013 A+ 958,309
</TABLE>
35-------
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.
PORTFOLIO OF INVESTMENTS (Continued)
November 30, 1999
<TABLE>
<CAPTION>
Rating(b)
Principal Coupon Maturity (Moody's
amount Rate Date or S&P) Value
- ---------- ------ ------------------- --------- ------------
<C> <S> <C> <C> <C> <C>
$1,195,000 Columbia County, Georgia, General
Obligation Bonds (Courthouse/Detention
Center Projects), Series 1998 4.800% February 1, 2014 A+ $ 1,082,025
2,500,000 Fayette County School District, Georgia,
General Obligation Refunding School
Bonds, Series 1999 4.750% March 1, 2015 Aa3 2,241,100
------------
28,866,937
------------
Hawaii (2.7%)
2,200,000 City and County of Honolulu, Hawaii,
General Obligation Refunding Bonds,
Series 1 5.600% June 1, 2001 Aa3 2,239,578
1,775,000 City and County of Honolulu, Hawaii,
General Obligation Bonds, 1996
Series A 5.400% September 1, 2009 Aaa 1,804,554
2,225,000 City and County of Honolulu, Hawaii,
General Obligation Bonds, 1996
Series A (Prerefunded to 9-1-2008 @
100) 5.400% September 1, 2009 Aaa 2,292,061
3,000,000 State of Hawaii, General Obligation
Bonds of 1992, Series BW 6.375% March 1, 2011 A1 3,267,750
------------
9,603,943
------------
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 1,564,224
------------
Illinois (5.8%)
200,000 Charleston, Illinois, Water Works
Improvement Bonds 8.000% January 1, 2000 A 200,648
2,500,000 DuPage Water Commission, Illinois,
General Obligation Water Refunding
Bonds, Series 1992 5.850% March 1, 2000 Aaa 2,511,775
2,000,000 Lake County, Illinois, Forest Preserve
District General Obligation Refunding
Bonds, Series 1992B 5.700% February 1, 2003 Aa1 2,068,820
2,000,000 State of Illinois, General Obligation
Refunding Bonds, Series of June 1993 5.000% June 1, 2003 Aa2 2,027,540
2,025,000 County of DuPage, Illinois, General
Obligation Refunding Bonds (Alternate
Rev. Source--Stormwater Project) 5.100% January 1, 2004 Aaa 2,056,975
4,000,000 State of Illinois, General Obligation
Bonds, Series September 1996 5.450% September 1, 2009 Aaa 4,086,200
2,500,000 Forest Preserve District of Kane County,
Kane County, Illinois, General
Obligation Bonds, Series 1999 5.000% December 30, 2011 Aa3 2,429,250
3,785,000 DuPage County Forest Preserve District,
Illinois, General Obligation,
Series 1997 4.900% October 1, 2013 Aaa 3,579,361
2,195,000 Community Unit School District Number
200, DuPage County, Illinois,
(Wheaton-Warrenville), General
Obligation School Building Bonds,
Series 1999 5.050% February 1, 2015 Aaa 2,036,082
------------
20,996,651
------------
Indiana (2.9%)
900,000 Monroe County Jail, Indiana, First
Mortgage Refunding Bonds, Series 1993 4.900% January 1, 2002 A1 906,165
925,000 Monroe County Jail, Indiana, First
Mortgage Refunding Bonds, Series 1993 4.900% July 1, 2002 A1 932,557
2,000,000 Indianapolis, Indiana, Local Public
Improvement Bond Bank, Series 1993A
Bonds 5.250% January 10, 2004 Aaa 2,045,840
2,300,000 Indianapolis, Indiana, Local Public
Improvement Bond Bank Refunding Bonds,
Series 1993 B 4.700% February 15, 2004 Aaa 2,303,841
2,125,000 Southwest Allen, Indiana, High School
Building Corp., 1st Mortgage Refunding
Bonds, Series 1996B 4.850% July 15, 2006 Aaa 2,118,944
2,325,000 Eagle-Union Community Schools Building
Corporation, Boone County, Indiana,
1st Mortgage Refunding Bonds,
Series 1999 4.875% July 5, 2015 Aaa 2,086,222
------------
10,393,569
------------
</TABLE>
- ---------
36
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.
PORTFOLIO OF INVESTMENTS (Continued)
November 30, 1999
<TABLE>
<CAPTION>
Rating(b)
Principal Coupon Maturity (Moody's
amount Rate Date or S&P) Value
- ---------- ------ ------------------- --------- ------------
<C> <S> <C> <C> <C> <C>
Iowa (1.2%)
$2,000,000 City of Des Moines, Iowa, Sewer Revenue
Bonds, Series 1992D 6.000% June 1, 2003 Aaa $ 2,068,340
2,045,000 City of Iowa City, Johnson County, Iowa,
Sewer Revenue Bonds 5.875% July 1, 2004 Aaa 2,100,276
------------
4,168,616
------------
Kansas (.1%)
315,000 Johnson County Water District No. 1,
Kansas, Water Revenue, Series 1982A
(Escrowed to maturity) 10.250% August 1, 2002 Aaa 344,383
------------
Kentucky (.8%)
1,665,000 Jefferson County, Kentucky, General
Obligation Refunding Bonds,
Series 1998A 4.600% December 1, 2013 Aa2 1,498,284
1,745,000 Jefferson County, Kentucky, General
Obligation Refunding Bonds,
Series 1998A 4.700% December 1, 2014 Aa2 1,567,830
------------
3,066,114
------------
Louisiana (1.4%)
5,000,000 State of Louisiana, General Obligation
Bonds, Series 1997A 5.375% April 15, 2011 Aaa 5,019,750
------------
Maryland (2.1%)
2,000,000 Howard County, Maryland, Consolidated
Public Improvement Refunding Bonds,
Series 1991B 5.800% August 15, 2001 Aaa 2,053,340
5,750,000 Montgomery County, Maryland, General
Obligation Consolidated Public
Improvement, 1998 Series A 4.875% May 1, 2013 Aaa 5,453,645
------------
7,506,985
------------
Michigan (3.3%)
3,140,000 State of Michigan, General Obligation
Bonds, Clean Michigan Initiative
Program, Series 1999A 5.500% November 1, 2009 Aa1 3,254,013
3,800,000 Northville Public Schools, Michigan,
1997 General Obligation School
Building & Site & Refunding 5.100% May 1, 2011 Aaa 3,737,908
2,465,000 Clarkston Community Schools, County of
Oakland, State of Michigan, 1998
Refunding Bonds (General
Obligation-Unlimited Tax) 4.850% May 1, 2012 Aaa 2,319,097
1,400,000 Avondale School District, Oakland
County, Michigan, 1999 Refunding Bonds
(Unlimited Tax General Obligation) 4.850% May 1, 2015 Aaa 1,263,472
1,400,000 Avondale School District, Oakland
County, Michigan, 1999 Refunding Bonds
(Unlimited Tax General Obligation) 4.900% May 1, 2016 Aaa 1,259,706
------------
11,834,196
------------
Minnesota (3.5%)
1,885,000 Anoka County, Minnesota, General
Obligation Capital Improvement
Refunding Bonds, Series 1992C 5.200% February 1, 2001 A1 1,905,226
1,500,000 County of Ramsey, Minnesota, General
Obligation Capital Improvement
Refunding Bonds, Series 1992C 5.400% December 1, 2002 Aaa 1,545,165
3,215,000 State of Minnesota, General Obligation
State Refunding Bonds of 1983 5.125% August 1, 2004 Aaa 3,277,725
3,000,000 Becker, Minnesota, Pollution Control
Revenue Refunding Bonds,
Series 1989A, (Northern States Power
Co.--Sherburne County Gen. Station
Units 1 & 2 Project) 6.800% April 1, 2007 A1 3,063,780
3,000,000 Wayzata Independent School District
#284, Minnesota, General Obligation
School Building Refunding,
Series 1998A 5.000% February 1, 2012 Aa1 2,927,700
------------
12,719,596
------------
</TABLE>
37-------
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.
PORTFOLIO OF INVESTMENTS (Continued)
November 30, 1999
<TABLE>
<CAPTION>
Rating(b)
Principal Coupon Maturity (Moody's
amount Rate Date or S&P) Value
- ---------- ------ ------------------- --------- ------------
<C> <S> <C> <C> <C> <C>
Mississippi (1.2%)
$2,100,000 Jackson Public School District,
Mississippi, General Obligation School
Bonds, Series 1992 5.800% July 1, 2002 A1 $ 2,168,964
2,000,000 City of Jackson, Mississippi, Water and
Sewer System Revenue Refunding Bonds,
Series 1993-A 4.850% September 1, 2004 Aaa 2,015,900
------------
4,184,864
------------
Nebraska (4.4%)
2,000,000 City of Lincoln, Nebraska, Water Revenue
and Refunding Bonds, Series 1993 4.900% August 15, 2003 Aa2 2,026,920
2,850,000 City of Lincoln, Nebraska, Electric
System Revenue Refunding Bonds, 1993
Series A 4.700% September 1, 2003 Aa2 2,865,390
3,000,000 Omaha Public Power District of Nebraska,
Electric System Revenue, Series A
(Prerefunded to 2-1-2000 @ 101.5) 6.700% February 1, 2005 AA 3,058,620
1,500,000 Omaha, Nebraska, Public Power District
Electric System Revenue Bonds, 1993
Series B 5.100% February 1, 2005 Aa2 1,525,095
6,000,000 Omaha Public Power District, Nebraska,
Electric System Revenue Bonds, 1992
Series B (Escrowed to maturity) 6.150% February 1, 2012 Aa2 6,437,040
------------
15,913,065
------------
Nevada (.6%)
2,110,000 State of Nevada, General Obligation
(Limited Tax) Hoover Uprating
Refunding Bonds, Series 1992 6.000% October 1, 2001 Aa2 2,172,540
------------
New Mexico (.7%)
2,500,000 City of Albuquerque, New Mexico, Joint
Water and Sewer Refunding Revenue
Bonds, Series 1990B 7.000% July 1, 2003 Aa3 2,589,675
------------
New York (.3%)
1,250,000 State of New York, Power Authority
General Purpose Bonds, Series Z
(Escrowed to maturity) 6.000% January 1, 2001 Aaa 1,273,588
------------
North Carolina (3.1%)
1,600,000 County of Buncombe, North Carolina,
Refunding Bonds, Series 1993 5.100% March 1, 2004 Aa2 1,632,944
1,325,000 Winston-Salem, North Carolina, Water and
Sewer System Revenue Bonds,
Series 1995B 5.000% June 1, 2007 Aa2 1,332,407
1,665,000 Winston-Salem, North Carolina, Water and
Sewer System Revenue Bonds,
Series 1995B 5.100% June 1, 2008 Aa2 1,675,306
4,000,000 County of Wake, North Carolina, General
Obligation School Bonds, Series 1997 4.900% March 1, 2009 Aaa 3,969,200
3,000,000 State of North Carolina, Public School
Building Bonds, General Obligation,
Series 1999 4.600% April 1, 2016 Aaa 2,628,180
------------
11,238,037
------------
North Dakota (.6%)
2,000,000 Fargo, North Dakota, Water Revenue of
1993 (Escrowed to maturity) 5.000% January 1, 2004 Aaa 2,027,920
------------
Ohio (2.3%)
1,535,000 Columbus, Ohio, Sewer Improvement No. 27
Refunding Bonds, Series 1991
(Unlimited Tax General Obligation
Bonds) 5.900% February 15, 2002 Aaa 1,585,440
5,000,000 State of Ohio, Full Faith & Credit
General Obligation Infrastructure
Improvement Bonds, Series 1997 5.350% August 1, 2012 Aa1 5,020,250
</TABLE>
- ---------
38
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.
PORTFOLIO OF INVESTMENTS (Continued)
November 30, 1999
<TABLE>
<CAPTION>
Rating(b)
Principal Coupon Maturity (Moody's
amount Rate Date or S&P) Value
- ---------- ------ ------------------- --------- ------------
<C> <S> <C> <C> <C> <C>
$1,970,000 Delaware County, Ohio, General
Obligation, Limited Tax, Sewer
District Improvement Bonds,
Series 1999 4.900% December 1, 2015 Aaa $ 1,792,483
------------
8,398,173
------------
Oklahoma (2.1%)
1,500,000 City of Tulsa, Oklahoma, General
Obligation Refunding Bonds of 1993 5.050% June 1, 2002 Aa2 1,523,940
1,050,000 Oklahoma City, Oklahoma, General
Obligation Bonds, Series 1993 5.150% May 1, 2003 Aa2 1,070,706
1,050,000 Oklahoma City, Oklahoma, General
Obligation Bonds, Series 1993 5.250% May 1, 2004 Aa2 1,070,328
2,000,000 Oklahoma City, Oklahoma, General
Obligation Refunding Bonds,
Series 1993 5.300% August 1, 2005 Aa2 2,054,980
1,680,000 City of Tulsa, Oklahoma, General
Obligation Bonds, Series 1999 (a) 5.250% December 1, 2009 Aa2 1,703,503
------------
7,423,457
------------
Oregon (1.7%)
4,000,000 Portland, Oregon, Sewer System Revenue
Refunding Bonds, 1997 Series A 5.000% June 1, 2011 Aaa 3,921,200
2,000,000 Washington and Clackamas Counties School
District #23J (Tigard-Tualatin),
Oregon, General Obligation Bonds,
Series 1995 5.550% June 1, 2011 A1 2,037,100
------------
5,958,300
------------
Pennsylvania (1.1%)
1,645,000 City of Lancaster, Lancaster County,
Pennsylvania, General Obligation
Bonds, Series A of 1998 4.650% May 1, 2013 Aaa 1,486,455
2,695,000 City of Lancaster, Lancaster County,
Pennsylvania, General Obligation
Bonds, Series A of 1998 4.750% May 1, 2014 Aaa 2,430,701
------------
3,917,156
------------
South Carolina (2.7%)
1,625,000 Charleston County, South Carolina,
General Obligation Bonds of 1994 (ULT)
(Escrowed to maturity) 5.400% June 1, 2005 Aa3 1,676,415
1,700,000 State of South Carolina, General
Obligation State Highway Bonds,
Series 1995 5.100% August 1, 2008 Aaa 1,720,315
1,700,000 State of South Carolina, General
Obligation State Highway Bonds,
Series 1995 5.250% August 1, 2009 Aaa 1,727,761
2,675,000 City of Columbia, South Carolina,
Waterworks and Sewer System Revenue
Bonds, Series 1999 5.500% February 1, 2010 Aa2 2,743,935
1,800,000 School District No. 1 of Richland
County, South Carolina, General
Obligation Bonds, Series 1999 5.500% March 1, 2010 Aa1 1,850,994
------------
9,719,420
------------
Tennessee (4.0%)
1,200,000 Shelby County, Tennessee, General
Obligation Refunding Bonds, 1992
Series B 5.200% March 1, 2001 Aa3 1,214,136
1,000,000 Williamson County, Tennessee, Public
Works Refunding Bonds, Series 1992 5.650% March 1, 2002 Aa1 1,027,260
2,000,000 Nashville & Davidson County, Tennessee,
Electric System Revenue Bonds, 1992
Series B 5.500% May 15, 2002 Aa3 2,051,160
2,000,000 Nashville & Davidson County, Tennessee,
General Obligation Refunding Bonds of
1993 5.000% May 15, 2003 Aa2 2,031,020
1,500,000 Nashville & Davidson County, Tennessee,
Water and Sewer Revenue Refunding
Bonds, Series 1993 4.900% January 1, 2004 Aaa 1,514,310
1,800,000 Nashville & Davidson County, Tennessee,
General Obligation Refunding Bonds of
1993 5.000% May 15, 2005 Aa2 1,823,958
4,500,000 Nashville & Davidson County, Tennessee,
Water and Sewer Revenue Refunding
Bonds, Series 1996 5.250% January 1, 2008 Aaa 4,561,920
------------
14,223,764
------------
</TABLE>
39-------
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.
PORTFOLIO OF INVESTMENTS (Continued)
November 30, 1999
<TABLE>
<CAPTION>
Rating(b)
Principal Coupon Maturity (Moody's
amount Rate Date or S&P) Value
- ---------- ------ ------------------- --------- ------------
<C> <S> <C> <C> <C> <C>
Texas (5.6%)
$1,000,000 State of Texas, Veterans' Land Board
General Obligation Bonds, Series 1984
(Prerefunded to 12-1-1999 @ 100) 9.000% December 1, 2000 Aa1 $ 1,000,140
2,000,000 Texas Public Finance Authority, State of
Texas, General Obligation Refunding
Bonds, Series 1992A 5.700% October 1, 2003 Aa1 2,084,280
2,000,000 City of Dallas, Texas, Waterworks and
Sewer System Revenue Refunding Bonds,
Series 1993 4.900% April 1, 2004 Aa2 2,017,000
2,000,000 Harris County, Texas, Road and Refunding
Bonds, Series 1993 4.700% October 1, 2004 Aa1 2,007,260
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 2,375,936
1,000,000 Carrollton-Farmers Branch Independent
School District (Dallas County, Texas)
School Building Unlimited Tax Bonds,
Series 1999 (a) 5.375% February 15, 2008 Aaa 1,022,890
3,000,000 State of Texas, Public Finance
Authority, General Obligation
Refunding Bonds, Series 1996B 5.400% October 1, 2008 Aa1 3,070,290
2,455,000 Carrollton-Farmers Branch Independent
School District (Dallas County, Texas)
School Building Unlimited Tax Bonds,
Series 1999 (a) 5.500% February 15, 2009 Aaa 2,526,244
1,840,000 City of Dallas, Texas, Waterworks and
Sewer System Revenue Bonds,
Series 1994A (Prerefunded to 10-1-2001
@ 101.5) 6.375% October 1, 2012 Aa2 1,932,773
2,250,000 Round Rock Independent School District,
Williamson and Travis Counties, Texas,
Unlimited Tax School Building and
Refunding Bonds, Series 1999 4.750% August 1, 2015 Aaa 1,998,158
------------
20,034,971
------------
Utah (1.1%)
2,780,000 Salt Lake County, Utah, General
Obligation Jail Bonds, Series 1995 5.000% December 15, 2007 Aaa 2,801,545
1,300,000 City of Provo, Utah County, Utah,
General Obligation Library Bonds,
Series 1999 5.250% March 1, 2009 Aaa 1,317,004
------------
4,118,549
------------
Virginia (.5%)
1,685,000 Hampton Roads Sanitation District,
Virginia, Wastewater Refunding and
Capital Improvement Revenue Bonds,
Series 1993 4.700% October 1, 2004 Aa3 1,691,841
------------
Washington (6.8%)
1,250,000 Washington Public Power Supply System
Nuclear Project No. 3, Refunding
Revenue Bonds, Series 1991A 6.250% July 1, 2000 Aa1 1,265,350
1,000,000 Washington Public Power Supply System
Nuclear Project No. 1, Revenue
Refunding Bonds, Series 1990C 7.700% July 1, 2002 Aa1 1,074,690
2,000,000 Washington Public Power Supply System
Nuclear Project No. 3, Refunding
Revenue Bonds, Series 1993C 4.800% July 1, 2003 Aa1 2,008,420
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 2,583,882
2,000,000 City of Seattle, Washington, Unlimited
Tax General Obligation Refunding Bonds
of 1993 4.800% December 1, 2004 Aaa 2,008,320
1,500,000 Washington Public Power Supply System
Nuclear Project No. 2, Revenue
Refunding Bonds, Series 1990A
(Prerefunded to 7-1-2000 @ 102) 7.625% July 1, 2008 Aaa 1,560,240
4,500,000 State of Washington, General Obligation
Bonds, Series 1993A 5.750% October 1, 2012 Aa1 4,690,755
2,000,000 City of Vancouver, Washington, Water and
Sewer Revenue Refunding Bonds, 1998 4.600% June 1, 2013 Aaa 1,783,620
2,495,000 Seattle, Washington, Water System
Revenue 1998 5.000% October 1, 2013 Aa2 2,370,425
2,605,000 City of Vancouver, Washington, Water and
Sewer Revenue Refunding Bonds, 1998 4.650% June 1, 2014 Aaa 2,298,470
</TABLE>
- ---------
40
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.
PORTFOLIO OF INVESTMENTS (Continued)
November 30, 1999
<TABLE>
<CAPTION>
Rating(b)
Principal Coupon Maturity (Moody's
amount Rate Date or S&P) Value
- ---------- ------ ------------------- --------- ------------
<C> <S> <C> <C> <C> <C>
$3,000,000 State of Washington, Variable Purpose
General Obligation Refunding Bonds,
Series R-99A 4.750% January 1, 2015 Aa1 $ 2,669,340
------------
24,313,512
------------
West Virginia (.7%)
2,540,000 State of West Virginia, State Road
General Obligation Bonds, Series 1998 5.000% June 1, 2013 Aaa 2,417,750
------------
Wisconsin (4.6%)
3,500,000 Milwaukee, Wisconsin, Metropolitan
Sewerage District General Obligation
Capital Purpose Bonds, Series 1990A
(Escrowed to maturity) 6.700% October 1, 2002 Aa1 3,709,300
2,000,000 State of Wisconsin, General Obligation
Refunding Bonds of 1993, Series 1 5.300% November 1, 2003 Aa2 2,055,380
2,000,000 State of Wisconsin, General Obligation
Refunding Bonds of 1993, Series 3 4.750% November 1, 2003 Aa2 2,016,280
2,000,000 State of Wisconsin, General Obligation
Bonds of 1995, Series A (Prerefunded
to 5-1-2005 @ 100) 6.000% May 1, 2008 Aaa 2,121,080
2,500,000 State of Wisconsin, General Obligation
Refunding Bonds of 1993, Series 2 5.125% November 1, 2010 Aa2 2,500,925
2,180,000 Dane County, Wisconsin, General
Obligation Refunding Bonds,
Series 1998B 4.800% March 1, 2012 Aaa 2,066,684
2,220,000 Dane County, Wisconsin, General
Obligation Refunding Bonds,
Series 1998B 4.800% March 1, 2013 Aaa 2,075,323
------------
16,544,972
------------
Wyoming (.5%)
1,600,000 Natrona County, Wyoming, School District
No. 1 General Obligation Bonds,
Series 1994 (Prerefunded to 7-1-2004 @
100) 5.450% July 1, 2006 Aaa 1,654,256
------------
Total long-term municipal bonds
(cost $348,822,220) 350,792,542
------------
<CAPTION>
Shares or
Principal
amount
- ----------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS (2.2%)
<C> <S> <C> <C> <C> <C>
$2,000,000 General Electric Capital Corp., 5.260%,
December, 1999 2,006,156
4,900,000 U.S. Treasury Bills, 4.690% and 5.075%,
December, 1999 and February, 2000 4,867,909
1,005,823 Chase Vista Treasury Plus Money Market
Fund 1,005,823
------------
Total short-term investments
(cost $7,879,917) 7,879,888
------------
TOTAL INVESTMENTS (100.0%)
(cost $356,702,137) 358,672,430
LIABILITIES, NET OF CASH AND OTHER ASSETS (0.0%) (118,733)
------------
NET ASSETS (100.0%) $358,553,697
============
</TABLE>
Notes:
(a) Purchased on a 'when-issued' basis.
(b) Ratings are unaudited.
At November 30, 1999, net unrealized appreciation of $1,970,293 consisted of
gross unrealized appreciation of $7,558,840 and gross unrealized depreciation of
$5,588,547 based on cost of $356,702,137 for federal income tax purposes.
See accompanying notes to financial statements.
41-------
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1999
<TABLE>
<S> <C> <C>
ASSETS
Investments, at value (cost
$356,702,137) $358,672,430
Receivable for:
Interest $6,008,089
Shares of the Fund sold 79,500
Securities sold 2,320,236 8,407,825
----------
Prepaid expenses 9,987
------------
Total assets 367,090,242
LIABILITIES AND NET ASSETS
Dividends payable to shareowners 3,136,424
Payable for:
Shares of the Fund redeemed 23,750
Securities purchased 5,226,586
Other (including $113,785 to
Manager) 149,785 5,400,121
---------- ------------
Total liabilities 8,536,545
------------
Net assets applicable to 44,171,716
shares outstanding
of $1.00 par value common stock
(100,000,000 shares authorized) $358,553,697
============
Net asset value, offering price and
redemption price per share $ 8.12
============
ANALYSIS OF NET ASSETS
Excess of amounts received from sales
of shares over amounts paid on
redemptions of shares on account of
capital $356,624,780
Accumulated net realized loss on sales
of investments (41,376)
Net unrealized appreciation of
investments 1,970,293
------------
Net assets applicable to shares
outstanding $358,553,697
============
</TABLE>
See accompanying notes to financial statements.
- ---------
42
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-----------------------
1999 1998
----------- ----------
<S> <C> <C>
INVESTMENT INCOME:
Taxable interest $ 458,646 548,684
Tax-exempt interest 19,158,717 18,524,272
----------- ----------
Total investment income 19,617,363 19,072,956
EXPENSES:
Investment advisory and management
fees 442,211 425,519
Professional fees 54,134 27,144
ICI dues 12,972 9,948
Registration fees 2,879 7,226
Fidelity bond expense 3,453 3,768
Directors' fees 4,800 5,420
Reports to shareowners 6,310 3,591
Security evaluation fees 21,288 19,711
Franchise taxes 17,420 19,353
Custodian fees 12,456 10,425
Proxy and related expense -- 3,710
Other 131 140
----------- ----------
Total expenses 578,054 535,955
----------- ----------
Net investment income 19,039,309 18,537,001
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized gain (loss) on sales of
investments 21,485 (62,861)
Change in net unrealized appreciation
or depreciation (19,471,906) 5,100,703
----------- ----------
Net realized and unrealized gain (loss)
on investments (19,450,421) 5,037,842
----------- ----------
Net change in net assets resulting from
operations $ (411,112) 23,574,843
=========== ==========
</TABLE>
See accompanying notes to financial statements.
43-------
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-------------------------
1999 1998
------------ -----------
<S> <C> <C>
FROM OPERATIONS:
Net investment income $ 19,039,309 18,537,001
Net realized gain (loss) on sales of
investments 21,485 (62,861)
Change in net unrealized appreciation
or depreciation (19,471,906) 5,100,703
------------ -----------
Net change in net assets resulting
from operations (411,112) 23,574,843
DISTRIBUTIONS TO SHAREOWNERS FROM:
Net investment income (19,039,309) (18,537,001)
------------ -----------
Total distributions to shareowners (19,039,309) (18,537,001)
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold 39,488,742 38,871,460
Reinvestment of ordinary income
dividends 14,382,411 13,564,060
------------ -----------
53,871,153 52,435,520
Less payments for shares redeemed 38,958,604 30,744,422
------------ -----------
Net increase in net assets from Fund
share transactions 14,912,549 21,691,098
------------ -----------
Total increase (decrease) in net assets (4,537,872) 26,728,940
------------ -----------
NET ASSETS:
Beginning of year 363,091,569 336,362,629
------------ -----------
End of year $358,553,697 363,091,569
============ ===========
</TABLE>
See accompanying notes to financial statements.
- ---------
44
<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,
--------------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994 1993 1992 1991 1990
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
year $ 8.55 8.43 8.44 8.50 7.88 8.59 8.34 8.15 7.98 7.96
Income from Investment
Operations
Net investment income 0.43 0.45 0.47 0.48 0.48 0.48 0.50 0.53 0.54 0.58
Net gain or (loss) on
investments (both realized
and unrealized) (0.43) 0.12 (0.01) (0.06) 0.62 (0.69) 0.25 0.19 0.17 0.02
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Total from investment
operations -- 0.57 0.46 0.42 1.10 (0.21) 0.75 0.72 0.71 0.60
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Less Distributions
Net investment income (0.43) (0.45) (0.47) (0.48) (0.48) (0.48) (0.50) (0.53) (0.54) (0.58)
Capital gains(a) -- -- -- -- -- (0.02) -- -- -- --
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Total distributions (0.43) (0.45) (0.47) (0.48) (0.48) (0.50) (0.50) (0.53) (0.54) (0.58)
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Net asset value, end of year $ 8.12 8.55 8.43 8.44 8.50 7.88 8.59 8.34 8.15 7.98
====== ===== ===== ===== ===== ===== ===== ===== ===== =====
Total Return 0.04% 6.82% 5.68% 5.21% 14.25% (2.55)% 9.17% 9.05% 9.17% 7.78%
Ratios/Supplemental Data
Net assets, end of year
(millions) $358.6 363.1 336.4 321.1 307.4 269.9 276.4 211.3 167.2 132.8
Ratio of expenses to average
net assets 0.16% 0.15% 0.15% 0.16% 0.17%(b) 0.16% 0.18% 0.19% 0.21% 0.23%
Ratio of net investment income
to average net assets 5.20% 5.29% 5.61% 5.76% 5.80% 5.80% 5.84% 6.36% 6.75% 7.30%
Portfolio turnover rate 10% 6% 6% 6% 7% 8% 5% 4% 2% 8%
</TABLE>
- ----------
(a) Distributions representing less than $.01 per share were made in 1997,
1996, 1993 and 1992.
(b) The ratio based on net custodian expenses would have been .16% in 1995.
45-------
<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 common stocks and other income producing
equity securities that are believed to have potential for long-term growth of
capital or income, or both.
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 Municipal Bonds with maturities of 1-17 years.
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. At November 30, 1999, there were commitments of $5,226,586
for such securities, included in the investment portfolio.
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 day the New York Stock
Exchange is open, 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 the close of regular session trading on the New York Stock Exchange
(usually 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.
- ---------
46
<PAGE>
STATE FARM MUTUAL FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The Interim Fund and Municipal Bond Fund declare dividends daily equal to each
Fund's 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 17, 1999, the Growth Fund declared an ordinary income dividend of
$.33 per share and a capital gain distribution of $.23 per share to shareowners
of record on December 17, 1999 (reinvestment date December 20, 1999).
On December 17, 1999, the Balanced Fund declared an ordinary income dividend of
$.79 per share and a capital gain distribution of $.57 per share to shareowners
of record on December 17, 1999 (reinvestment date December 20, 1999).
The accumulated net realized loss on sales of investments at November 30, 1999
for the Interim Fund, amounting to $4,007,631, is available to offset future
taxable gains. If not applied, the capital loss carryover expires as follows:
$22,669 in 2000, $162,716 in 2001, $335,277 in 2002, $321,293 in 2003, $363,957
in 2004, $922,190 in 2005, $994,996 in 2006, and $884,533 in 2007. A capital
loss carryover of $92,150 expired in 1999 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, 1999
for the Municipal Bond Fund, amounting to $41,376, 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>
Under the terms of these agreements, the Funds incurred the following fees for
the fiscal years ended November 30:
<TABLE>
<CAPTION>
1999 1998
---------- ---------
<S> <C> <C>
State Farm Growth Fund, Inc. $2,740,037 2,221,492
State Farm Balanced Fund, Inc. 1,113,753 980,972
State Farm Interim Fund, Inc. 230,126 199,209
State Farm Municipal Bond Fund, Inc. 442,211 425,519
</TABLE>
The Funds do not pay any discount, commission or other compensation for transfer
agent or underwriting services provided by the Manager.
47-------
<PAGE>
STATE FARM MUTUAL FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Certain officers and/or directors of each Fund are also officers and/or
directors of the Manager. The Funds made no payments to their officers or
directors during the fiscal years ended November 30, except for the following
directors' fees paid to the Funds' independent directors:
<TABLE>
<CAPTION>
1999 1998
------- ------
<S> <C> <C>
State Farm Growth Fund, Inc. $14,400 15,300
State Farm Balanced Fund, Inc. 7,200 7,650
State Farm Interim Fund, Inc. 2,400 2,550
State Farm Municipal Bond Fund, Inc. 4,800 5,100
</TABLE>
4. INVESTMENT TRANSACTIONS
Investment transactions (exclusive of short-term instruments) for each of the
fiscal years ended November 30, were as follows:
<TABLE>
<CAPTION>
1999 1998
------------ -----------
<S> <C> <C>
STATE FARM GROWTH FUND, INC.
Purchases $166,759,514 309,663,058
Proceeds from sales 50,948,078 14,874,459
STATE FARM BALANCED FUND, INC.
Purchases 121,270,812 92,615,420
Proceeds from sales 42,344,646 17,698,918
STATE FARM INTERIM FUND, INC.
Purchases 26,673,672 52,146,094
Proceeds from sales 17,750,000 16,756,328
STATE FARM MUNICIPAL BOND FUND, INC.
Purchases 48,533,279 48,047,861
Proceeds from sales 35,579,660 20,915,700
</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>
1999 1998
---------- ----------
<S> <C> <C>
STATE FARM GROWTH FUND, INC.
Shares sold 6,423,670 8,122,332
Shares issued in reinvestment of
ordinary income dividends and capital
gain distributions 666,008 2,034,859
---------- ----------
7,089,678 10,157,191
Less shares redeemed 4,646,586 5,105,810
---------- ----------
Net increase in shares outstanding 2,443,092 5,051,381
========== ==========
STATE FARM BALANCED FUND, INC.
Shares sold 2,212,658 3,094,918
Shares issued in reinvestment of
ordinary income dividends and capital
gain distributions 518,187 785,967
---------- ----------
2,730,845 3,880,885
Less shares redeemed 1,992,292 2,390,819
---------- ----------
Net increase in shares outstanding 738,553 1,490,066
========== ==========
STATE FARM INTERIM FUND, INC.
Shares sold 7,721,510 10,094,227
Shares issued in reinvestment of
ordinary income dividends 959,304 748,608
---------- ----------
8,680,814 10,842,835
Less shares redeemed 8,132,727 6,846,009
---------- ----------
Net increase in shares outstanding 548,087 3,996,826
========== ==========
STATE FARM MUNICIPAL BOND FUND, INC.
Shares sold 4,692,572 4,573,153
Shares issued in reinvestment of
ordinary income dividends 1,721,081 1,593,850
---------- ----------
6,413,653 6,167,003
Less shares redeemed 4,685,530 3,616,812
---------- ----------
Net increase in shares outstanding 1,728,123 2,550,191
========== ==========
</TABLE>
- ---------
48
<PAGE>
TAX INFORMATION
STATE FARM GROWTH FUND, INC.
The Fund paid ordinary income dividends of $.31 per share in June 1999 and $.33
per share in December 1999. Of these dividends, 80% qualifies for the 70%
deduction for dividends received by corporations as provided by the Internal
Revenue Code.
In December 1999 the Fund made a capital gain distribution of $.23 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 $.74 per share in June 1999 and $.79
per share in December 1999. Of these dividends, 25% qualifies for the 70%
deduction for dividends received by corporations as provided by the Internal
Revenue Code.
In December 1999 the Fund made a capital gain distribution of $.57 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 2000.
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% in March, 98% in June, 98% in September and 98% 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 2000.
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.
<PAGE>
State Farm Mutual Funds BULK RATE
One State Farm Plaza, D-3 U.S. POSTAGE
Bloomington, IL 61710-0001 PAID
FORWARDING SERVICE REQUESTED PERMIT 439
ELK GROVE, IL
[LOGO] STATE FARM
MUTUAL FUNDS
(309) 766-2029 (800) 447-0740
190-4019.1-CH REV. 01-2000 Printed in U.S.A.
