<PAGE>
ANNUAL REPORT
------------------------------------------------------------------------------
NOVEMBER 30, 2000
STATE FARM
GROWTH FUND, INC.
STATE FARM
BALANCED FUND, INC.
STATE FARM
INTERIM FUND, INC.
STATE FARM
MUNICIPAL BOND FUND, INC.
[STATE FARM INSURANCE LOGO]
-------------------------------------------MUTUAL FUNDS-TM-
<PAGE>
ANNUAL REPORT
TABLE OF CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors 1
State Farm Growth Fund, Inc.
Message from the portfolio managers 2
Portfolio of investments 4
Financial statements 8
Financial highlights 11
State Farm Balanced Fund, Inc.
Message from the portfolio managers 12
Portfolio of investments 14
Financial statements 20
Financial highlights 23
State Farm Interim Fund, Inc.
Message from the portfolio managers 24
Portfolio of investments 26
Financial statements 27
Financial highlights 30
State Farm Municipal Bond Fund, Inc.
Message from the portfolio managers 31
Portfolio of investments 33
Financial statements 41
Financial highlights 44
Notes to Financial Statements 45
Tax Information
</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.
State Farm Mutual Funds are not insurance products and are offered by State Farm
Investment Management Corp., Three State Farm Plaza, Bloomington, IL 61791-0001,
1-800-447-0740.
<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, 2000, 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 1991. These
financial statements and financial highlights are the responsibility of the
Funds' management. Our responsibility is to express and opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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, 2000 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, 2000, 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 1991, in conformity with accounting principles generally
accepted in the United States.
[/S/ ERNST & YOUNG, LLP]
Chicago, Illinois
December 15, 2000
1
<PAGE>
STATE FARM GROWTH FUND, INC.
Dear Shareowner,
The U.S. stock market declined over your Fund's 2000 fiscal year. The S&P 500
Index produced a negative total return of 4.3% for the twelve months ended
November 30, 2000. The Growth Fund performed somewhat better than the S&P 500
Index for the same period, achieving a negative total return of 1.20%.
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
THOUSANDS
<TABLE>
<CAPTION>
GROWTH FUND S&P 500
<S> <C> <C>
1990 $10,000 $10,000
1991 $12,979 $12,037
1992 $14,989 $14,255
1993 $14,891 $15,691
1994 $15,489 $15,860
1995 $20,704 $21,713
1996 $24,864 $27,762
1997 $31,031 $35,685
1998 $36,669 $44,131
1999 $43,242 $53,348
2000 $42,725 $51,101
</TABLE>
<TABLE>
<CAPTION>
FUND'S AVERAGE ANNUAL TOTAL RETURN
1 YEAR 5 YEARS 10 YEARS
<S> <C> <C>
-1.20% 15.59% 15.63%
</TABLE>
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.
* 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 holdings of pharmaceutical and medical device firms, oil
companies and technology firms performed very well over the past year. Results
produced by the Fund's investments in banks and consumer products firms were
below those of the overall market.
The general composition of your Fund's portfolio changed some over the last 12
months. Positions were initiated or increased in consumer products firms,
retailers, oil and gas companies, telecommunications and telecommunications
equipment firms, media companies, and healthcare firms. Our exposure to electric
utilities and financial services companies was reduced.
It looks as if the S&P 500 Index may generate a negative return in the year
2000. To put this in historical perspective, in the 30 year period from
1970-1999, the S&P 500 Index generated negative returns in 5 years. Four of
these years occurred prior to 1982, during the difficult economic period of the
1970s and early 1980s which was characterized by two severe recessions, rapidly
escalating oil prices and significant inflation. The other negative year for the
index was in 1990 when Iraq invaded Kuwait, which induced a brief and mild
economic recession.
This review of stock market history suggests two important points:
1) The U.S. has enjoyed a period of enormous economic prosperity since 1982,
which has been reflected in common stock prices. The period from 1995-1999
produced the strongest common stock returns, as measured by the S&P 500
Index, of any 5 year period since the rebound from the Great Depression of
the 1930s.
2) It has been a very long time since investors have seen a prolonged bear
market. A person would have to be at least 40 years old to have witnessed
as an adult the last difficult stock market period of the 1970s and early
1980s.
2
<PAGE>
STATE FARM GROWTH FUND, INC.
Economic conditions in the U.S. appear to be weakening from the strong levels of
the past few years. Our conversations with executives from several firms suggest
that a business slowdown may have begun. However, there is no compelling
evidence at this point which suggests an economic recession is underway or
forthcoming. Rather, the rate of economic growth appears to be moderating.
A softer period for the economy and the stock market may be constructive for
investors for the following reasons:
1) Such a period could bring stock market valuation metrics (price/earnings
ratios, price/cash flow ratios, etc.) back to lower levels, which are more
in line with the longer-term historical experience.
2) Investors' expectations for long term stock market performance could be
moderated following the unsustainably high returns from 1995-99.
3) Remember that your Fund invests for the long term in well-managed firms
in essential businesses. A softer economic period often presents
opportunities for these companies to enhance their competitive positions.
In the past couple of years, the stock market has experienced a major
speculative boom and bust cycle with firms associated with the Internet. Your
Fund did not buy internet high flyers. The Growth Fund owns shares of several
well-managed and highly profitable major technology, media, telecommunications
and telecommunications equipment firms which are well positioned to benefit from
the development of the Internet.
We encourage the shareholders of the Growth Fund to view themselves as owners of
a selected list of high-quality companies rather than as participants in a
fluctuating stock market. The tradition and spirit of innovation and
entrepreneurship continue in the companies unfettered by stock market activity.
From ExxonMobil's work to develop deepwater oil fields offshore Angola, to
Pfizer's discovery of a chemical compound which is undergoing early stage
clinical trials to raise the level of "good" HDL cholesterol, to Disney's
efforts to make children smile, the spirit of innovation continues.
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.
The directors have declared a capital gains distribution of $.15 per Growth Fund
share which was paid on December 18, 2000. A semi-annual income dividend of
$.315 per share was also paid on December 18, 2000. Both were used to purchase
additional shares for your account unless you have elected to receive payments
directly by check.
Sincerely,
<TABLE>
<S> <C>
[/S/ PAUL N. ECKLEY] [/S/ JOHN S. CONCKLIN]
Paul N. Eckley John S. Concklin
Sr. Vice President Vice President
</TABLE>
3
<PAGE>
STATE FARM GROWTH FUND, INC.
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 2000
<TABLE>
<CAPTION>
SHARES VALUE
----------- --------------
<C> <S> <C>
COMMON STOCKS (96.4%)
AGRICULTURE, FOODS, & BEVERAGE (4.8%)
3,311,905 Archer-Daniels-Midland Company $ 42,226,789
92,000 Campbell Soup Company 3,070,500
930,000 Kellogg Company 22,901,250
214,300 McCormick & Company Inc. 7,982,675
208,000 Sara Lee Corporation 4,992,000
167,600 Sysco Corporation 9,259,900
710,900 The Coca-Cola Company 44,520,112
--------------
134,953,226
--------------
BANKS (6.9%)
183,411 ABN Amro Holding NV 3,854,419
333,637 AmSouth Bancorporation 4,962,850
421,268 Bank of America Corporation 16,824,391
715,322 Bank One Corporation 25,617,469
47,700 JP Morgan & Co. Incorporated 6,430,556
62,000 M&T Bank Corporation 3,395,120
144,000 Northern Trust Corporation 12,402,000
640,074 Pacific Century Financial Corporation 9,521,101
830,316 Popular Inc. 20,913,584
345,000 SouthTrust Corporation 11,643,750
211,800 SunTrust Banks Inc. 10,762,087
238,900 Wachovia Corporation 11,959,931
1,220,000 Wells Fargo & Company 57,873,750
--------------
196,161,008
--------------
BUILDING MATERIALS & CONSTRUCTION (1.6%)
1,039,200 Vulcan Materials Company 44,555,700
--------------
CHEMICALS (4.8%)
830,000 Air Products & Chemicals Inc. 28,583,125
496,104 EI du Pont de Nemours and Company 20,991,400
588,300 Great Lakes Chemical Corp. 20,553,731
561,000 International Flavors & Fragrances Inc. 10,483,687
1,375,000 Sigma-Aldrich Corporation 49,156,250
243,000 The Dow Chemical Company 7,426,687
--------------
137,194,880
--------------
COMPUTER SOFTWARE AND SERVICES (7.7%)
548,071 Agilent Technologies Inc. (a) 28,602,455
149,000 Automatic Data Processing Inc. 9,834,000
36,000 Check Point Software Technologies
Ltd. (a) 3,694,500
1,439,400 Cisco Systems Inc. (a) 68,911,275
1,239,500 Microsoft Corporation (a) 71,116,312
1,378,800 Oracle Corporation (a) 36,538,200
--------------
218,696,742
--------------
COMPUTERS (4.8%)
2,874,000 Hewlett-Packard Company 90,890,250
496,400 International Business Machines
Corporation 46,413,400
--------------
137,303,650
--------------
</TABLE>
4
<PAGE>
STATE FARM GROWTH FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 2000
<TABLE>
<CAPTION>
SHARES VALUE
----------- --------------
<C> <S> <C>
CONSUMER & MARKETING (5.2%)
63,600 Clorox Co. $ 2,842,125
183,800 Colgate-Palmolive Company 10,798,250
1,439,200 HON Industries Inc. 34,990,550
317,876 Kimberly Clark Corp. 22,231,453
499,600 McDonald's Corporation 15,924,750
464,308 Newell Rubbermaid Inc. 9,024,987
565,100 The Gillette Company 19,142,762
339,400 The Procter & Gamble Company 25,412,575
125,446 Unilever NV ADR 7,785,492
--------------
148,152,944
--------------
ELECTRONIC/ELECTRICAL MFG. (8.8%)
46,043 ABB Ltd. 4,207,741
164,600 Applied Materials Inc. (a) 6,656,013
109,400 Emerson Electric Co. 7,972,525
2,313,600 General Electric Company 114,667,800
1,934,400 Intel Corporation 73,628,100
183,200 KLA Tencor Corporation (a) 5,038,000
703,200 Linear Technology Corp. 33,270,150
154,400 Texas Instruments Inc. 5,761,050
--------------
251,201,379
--------------
FINANCIAL SERVICES (3.3%)
115,950 Charles Schwab Corp. 3,210,366
787,333 Citigroup Inc. 39,219,025
167,400 Federal Home Loan Mortgage Corp. 10,117,238
250,800 Federal National Mortgage Association 19,813,200
558,450 MBNA Corporation 19,929,684
--------------
92,289,513
--------------
HEALTH CARE (18.2%)
294,500 Abbott Laboratories 16,215,906
2,325,000 Biomet Inc. 86,025,000
253,800 Bristol-Myers Squibb Company 17,591,513
947,200 Eli Lilly & Co. 88,740,800
1,240,800 Johnson & Johnson 124,080,000
80,000 Medtronic Inc. 4,260,000
567,300 Merck & Co. Inc. 52,581,619
2,880,000 Pfizer Inc. 127,620,000
--------------
517,114,838
--------------
MACHINERY & MANUFACTURING (4.8%)
190,800 AptarGroup Inc. 4,770,000
370,000 Caterpillar Inc. 14,545,625
1,284,600 Corning Incorporated 75,149,100
57,800 Deere & Company 2,351,738
314,800 Honeywell International Inc. 15,346,500
125,600 Illinois Tool Works Inc. 7,072,850
173,200 Minnesota Mining & Manufacturing Co. 17,298,350
6,300 Osmonics Inc. (a) 46,856
--------------
136,581,019
--------------
</TABLE>
5
<PAGE>
STATE FARM GROWTH FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 2000
<TABLE>
<CAPTION>
SHARES VALUE
----------- --------------
<C> <S> <C>
MEDIA & BROADCASTING (4.2%)
155,433 Reuters Group PLC ADR $ 13,775,250
360,181 SBS Broadcasting SA ADR (a) 7,833,937
2,619,540 The Walt Disney Company 75,802,939
402,300 Viacom Inc. (a) 20,567,588
--------------
117,979,714
--------------
MINING & METALS (.7%)
36,700 Newmont Mining Corporation 573,438
132,800 Nucor Corporation 4,614,800
226,800 Rio Tinto PLC ADR 13,919,850
81,250 Steel Dynamics Inc. (a) 812,500
--------------
19,920,588
--------------
OIL & GAS (6.9%)
440,400 Barrett Resources Corporation (a) 17,010,450
322,892 BP Amoco PLC ADR 15,317,189
530,000 Chevron Corporation 43,393,750
106,102 Devon Energy Corporation 5,225,524
922,300 Exxon Mobil Corporation 81,162,400
237,100 Pennzoil-Quaker State Company 2,800,744
516,300 Royal Dutch Petroleum Company ADR 30,816,656
--------------
195,726,713
--------------
RETAILERS (2.2%)
207,500 Home Depot Inc. 8,131,406
1,063,200 Wal-Mart Stores Inc. 55,485,750
--------------
63,617,156
--------------
TELECOM & TELECOM EQUIPMENT (10.7%)
1,800,000 ADC Telecommunications Inc. (a) 36,337,500
600,000 AT&T Corp. 11,775,000
62,136 Avaya Inc. (a) 726,215
133,900 BellSouth Corporation 5,598,694
116,200 Extreme Networks Inc. (a) 5,969,775
62,500 Level 3 Communications Inc. (a) 1,679,688
2,300,000 LM Ericsson Telephone Company ADR 26,162,500
745,632 Lucent Technologies Inc. 11,603,898
792,000 Motorola Inc. 15,889,500
519,200 Nokia Corporation ADR 22,195,800
693,200 Nortel Networks Corp. 26,168,300
235,533 Qwest Communications International
Inc. (a) 8,891,371
1,497,512 SBC Communications Inc. 82,269,566
347,400 Tele Danmark AS ADR 6,948,000
49,300 Tellabs Inc. (a) 2,612,900
101,900 Verizon Communications 5,725,506
215,000 Vodafone Group PLC ADR 7,363,750
1,535,593 WorldCom Inc. (a) 22,937,920
230,800 XO Communications Incorporated (a) 3,433,150
--------------
304,289,033
--------------
</TABLE>
6
<PAGE>
STATE FARM GROWTH FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 2000
<TABLE>
<CAPTION>
SHARES VALUE
----------- --------------
<C> <S> <C>
UTILITIES & ENERGY (.8%)
132,000 Duke Energy Corporation $ 11,871,750
224,800 The AES Corporation (a) 11,661,500
--------------
23,533,250
--------------
TOTAL COMMON STOCKS
(cost $1,182,731,519) 2,739,271,353
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT
-----------
<C> <S> <C>
SHORT-TERM INVESTMENTS (3.5%)
$41,000,000 General Motors Acceptance Corp., 6.518%,
December, 2000 41,000,000
42,000,000 Ford Motor Credit Company, 6.528%,
December, 2000 42,000,000
4,000,000 John Deere Capital Corp., 6.478%,
December, 2000 4,000,000
10,000,000 U.S. Treasury Bills, 6.185%, January,
2001 9,908,500
2,840,518 Chase Vista Treasury Plus Money Market
Fund 2,840,518
--------------
TOTAL SHORT-TERM INVESTMENTS
(cost $99,745,437) 99,749,018
--------------
TOTAL INVESTMENTS (99.9%)
(cost $1,282,476,956) 2,839,020,371
OTHER ASSETS, NET OF LIABILITIES (0.1%) 3,658,270
--------------
NET ASSETS (100.0%) $2,842,678,641
==============
</TABLE>
Notes:
(a) Non-income producing security.
At November 30, 2000, net unrealized appreciation of $1,556,543,415 consisted of
gross unrealized appreciation of $1,614,951,637 and gross unrealized
depreciation of $58,408,222 based on cost of $1,282,476,956 for federal income
tax purposes.
See accompanying notes to financial statements.
7
<PAGE>
STATE FARM GROWTH FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 2000
<TABLE>
<S> <C> <C>
ASSETS
Investments, at value
(cost $1,282,476,956) $2,839,020,371
Receivable for:
Dividends and interest $4,756,899
Shares of the Fund sold 255,322
Securities sold 92,591 5,104,812
----------
Prepaid expenses 51,406
--------------
Total assets 2,844,176,589
--------------
LIABILITIES AND NET ASSETS
Payable for:
Shares of the Fund redeemed 520,746
Manager 897,505 1,418,251
----------
Accrued liabilities 79,697
--------------
Total liabilities 1,497,948
--------------
Net assets applicable to 56,263,869
shares outstanding of $0.50 par value
common stock (100,000,000 shares
authorized) $2,842,678,641
==============
Net asset value, offering price and
redemption price per share $ 50.52
==============
ANALYSIS OF NET ASSETS
Excess of amounts received from sales
of shares over amounts paid on
redemptions of shares on account of
capital $1,254,109,027
Accumulated net realized gain on sales
of investments 8,445,081
Net unrealized appreciation of
investments 1,556,543,415
Undistributed net investment income 23,581,118
--------------
Net assets applicable to shares
outstanding $2,842,678,641
==============
</TABLE>
See accompanying notes to financial statements.
8
<PAGE>
STATE FARM GROWTH FUND, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-------------------------
2000 1999
------------ -----------
<S> <C> <C>
INVESTMENT INCOME:
Dividends $ 35,053,087 33,916,255
Interest 3,979,915 2,390,006
------------ -----------
39,033,002 36,306,261
Less: foreign withholding taxes 405,228 547,592
------------ -----------
Total investment income 38,627,774 35,758,669
EXPENSES:
Investment advisory and management
fees 3,177,953 2,740,037
Professional fees 40,630 96,955
ICI dues 52,492 55,835
Registration fees 35,992 27,350
Fidelity bond expense 10,749 8,803
Directors' fees 13,500 14,400
Reports to shareowners 95,214 81,541
Security evaluation fees 3,105 3,128
Franchise taxes 18,897 18,148
Custodian fees 25,455 21,037
Other -- 131
------------ -----------
Total expenses 3,473,987 3,067,365
------------ -----------
Net investment income 35,153,787 32,691,304
REALIZED AND UNREALIZED GAIN (LOSS): ON
INVESTMENTS:
Net realized gain on sales of
investments 8,445,081 13,478,727
Change in net unrealized appreciation
or depreciation (82,603,064) 368,649,780
------------ -----------
Net realized and unrealized gain (loss)
on investments (74,157,983) 382,128,507
------------ -----------
Net change in net assets resulting from
operations $(39,004,196) 414,819,811
============ ===========
</TABLE>
See accompanying notes to financial statements.
9
<PAGE>
STATE FARM GROWTH FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-----------------------------
2000 1999
-------------- -------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income $ 35,153,787 32,691,304
Net realized gain on sales of
investments 8,445,081 13,478,727
Change in net unrealized appreciation
or depreciation (82,603,064) 368,649,780
-------------- -------------
Net change in net assets resulting from
operations (39,004,196) 414,819,811
Undistributed net investment income
included in the price of shares issued
and redeemed 298,404 666,112
DISTRIBUTIONS TO SHAREOWNERS FROM:
Net investment income (35,509,569) (30,736,945)
Net realized gain (12,157,004) (2,197,936)
-------------- -------------
Total distributions to shareowners (47,666,573) (32,934,881)
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold 575,189,471 313,280,990
Reinvestment of ordinary income
dividends and capital gain
distributions 45,894,745 31,660,456
-------------- -------------
621,084,216 344,941,446
Less payments for shares redeemed 478,472,641 226,541,809
-------------- -------------
Net increase in net assets from Fund
share transactions 142,611,575 118,399,637
-------------- -------------
Total increase in net assets 56,239,210 500,950,679
NET ASSETS:
Beginning of year 2,786,439,431 2,285,488,752
-------------- -------------
End of year (including undistributed
net investment income of $23,581,118
in 2000, and $22,316,773 in 1999) $2,842,678,641 2,786,439,431
============== =============
</TABLE>
See accompanying notes to financial statements.
10
<PAGE>
STATE FARM GROWTH FUND, INC.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the financial
performance of the Fund for the past ten years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Fund (assuming reinvestment of all dividends and distributions).
PER SHARE INCOME AND CAPITAL CHANGES (For a share outstanding throughout each
year):
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995 1994 1993 1992 1991
---------- -------- -------- -------- -------- ------------ ------ ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
year $ 51.96 44.65 39.48 34.55 29.40 22.63 22.21 23.05 20.33 16.77
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.65 0.62 0.61 0.62 0.63 0.50 0.44 0.45 0.43 0.42
Net gain (loss) on
investments (both realized
and unrealized) (1.21) 7.33 6.33 7.23 5.17 6.97 0.43 (0.60) 2.70 4.32
-------- ------- ------- ------- ------- ------- ------ ------ ------ ------
Total from investment
operations (0.56) 7.95 6.94 7.85 5.80 7.47 0.87 (0.15) 3.13 4.74
-------- ------- ------- ------- ------- ------- ------ ------ ------ ------
LESS DISTRIBUTIONS
Net investment income (0.65) (0.59) (0.64) (0.61) (0.53) (0.52) (0.45) (0.45) (0.41) (0.54)
Net realized gain (0.23) (0.05) (1.13) (2.31) (0.12) (0.18) -- (0.24) -- (0.64)
-------- ------- ------- ------- ------- ------- ------ ------ ------ ------
Total distributions (0.88) (0.64) (1.77) (2.92) (0.65) (0.70) (0.45) (0.69) (0.41) (1.18)
-------- ------- ------- ------- ------- ------- ------ ------ ------ ------
Net asset value, end of year $ 50.52 51.96 44.65 39.48 34.55 29.40 22.63 22.21 23.05 20.33
======== ======= ======= ======= ======= ======= ====== ====== ====== ======
TOTAL RETURN (1.20)% 17.93% 18.17% 24.80% 20.09% 33.67% 4.02% (0.65)% 15.49% 29.79%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year
(millions) $2,842.7 2,786.4 2,285.5 1,821.1 1,362.9 1,068.6 771.7 725.1 696.1 558.4
Ratio of expenses to average
net assets 0.11% 0.12% 0.12% 0.12% 0.13% 0.14%(a) 0.14% 0.14% 0.16% 0.19%
Ratio of net investment income
to average net assets 1.16% 1.27% 1.47% 1.78% 1.88% 1.95% 2.00% 2.05% 1.99% 2.22%
Portfolio turnover rate 3% 2% 1% 6% 16% 3% 3% 2% 2% 1%
</TABLE>
----------
(a) The ratio based on net custodian expenses would have been .13% in 1995.
11
<PAGE>
STATE FARM BALANCED FUND, INC.
Dear Shareowner,
Your Fund owns common stocks and bonds. The U.S. stock market declined while
prices of good quality bonds rose over the Fund's 2000 fiscal year. The S&P 500
Index produced a negative total return of 4.3% for the twelve months ended
November 30, 2000. The common stock holdings of the Balanced Fund performed
somewhat better than the S&P 500 Index for the same period, achieving a negative
total return of 1.7%. The Balanced Fund's return was enhanced by its bond
holdings this year. Consequently, the Balanced Fund achieved a positive total
return of 0.97%.
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
THOUSANDS
<TABLE>
<CAPTION>
LEHMAN BROTHERS
BALANCED FUND S&P 500 INTERMEDIATE TREASURY
<S> <C> <C> <C>
1990 $10,000 $10,000 $10,000
1991 $13,109 $12,037 $11,288
1992 $15,132 $14,255 $12,211
1993 $15,572 $15,691 $13,334
1994 $16,192 $15,860 $13,109
1995 $20,487 $21,713 $14,896
1996 $23,720 $27,762 $15,731
1997 $27,832 $35,685 $16,712
1998 $31,371 $44,131 $17,914
1999 $34,420 $53,348 $18,105
2000 $34,753 $51,101 $19,581
</TABLE>
<TABLE>
<CAPTION>
FUND'S AVERAGE ANNUAL TOTAL RETURN
1 YEAR 5 YEARS 10 YEARS
<S> <C> <C>
0.97% 11.15% 13.27%
</TABLE>
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.
* 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 84
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 pharmaceutical and medical device
firms, oil companies and technology firms performed very well over the past
year. Results produced by the Fund's stock investments in banks and consumer
products firms were below those of the overall market.
The general composition of your Fund's equity portfolio changed some over the
last 12 months. Positions were initiated or increased in retailers, oil and gas
companies, and healthcare firms. Exposure to electric utilities and financial
services companies was reduced.
U.S. Treasury bonds continue to represent the largest component of the Fund's
fixed-income portfolio. However, additions to the portfolio in 2000 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 U.S. Agency bonds now represent about 41% 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 5.7 years up slightly from 5.6
years a year ago. Maturities or likely calls are spread mostly over the next 10
years.
It looks as if the S&P 500 Index may generate a negative return in the calendar
year 2000. To put this in historical perspective, in the 30 year period from
1970-1999, the S&P 500 Index generated negative returns in 5 years. Four of
these years occurred prior to 1982, during the difficult economic period of the
1970s and early 1980s which was characterized by two severe recessions, rapidly
escalating oil prices and significant inflation. The other negative year for the
index was in 1990 when Iraq invaded Kuwait, which induced a brief and mild
economic recession.
12
<PAGE>
STATE FARM BALANCED FUND, INC.
This review of stock market history suggests two important points:
1) The U.S. has enjoyed a period of enormous economic prosperity since 1982,
which has been reflected in common stock prices. The period from 1995-1999
produced the strongest common stock returns as measured by the S&P 500
Index of any 5 year period since the rebound from the Great Depression of
the 1930s.
2) It has been a very long time since investors have seen a prolonged bear
market. A person would have to be at least 40 years old to have witnessed
as an adult the last difficult stock market period of the 1970s and early
1980s.
Economic conditions in the U.S. appear to be weakening from the strong levels of
the past few years. Our conversations with executives from several firms suggest
that a business slowdown may have begun. However, there is no compelling
evidence at this point which suggests an economic recession is underway or
forthcoming. Rather, the rate of economic growth appears to be moderating.
A softer period for the economy and the stock market may be constructive for
investors for the following reasons:
1) Such a period could bring stock market valuation metrics (price/earnings
ratios, price/cash flow ratios, etc.) back to lower levels, which are more
in line with the longer-term historical experience.
2) Investors' expectations for long term stock market performance could be
moderated following the unsustainably high returns from 1995-99.
3) Remember that your Fund invests for the long term in well-managed firms
in essential businesses. A softer economic period often presents
opportunities for these companies to enhance their competitive positions.
In the past couple of years, the stock market has experienced a major
speculative boom and bust cycle with firms associated with the Internet. Your
Fund did not buy internet high flyers. The Balanced Fund owns shares of several
well-managed and highly profitable major technology, media, telecommunications
and telecommunications equipment firms which are well positioned to benefit from
the development of the Internet.
Through the equity component of the Fund's portfolio, we encourage shareholders
of the Balanced Fund to view themselves as owners of a selected list of
high-quality companies rather than as participants in a fluctuating stock
market. The tradition and spirit of innovation and entrepreneurship continue in
the companies unfettered by stock market activity. From ExxonMobil's work to
develop deepwater oil fields offshore Angola, to Pfizer's discovery of a
chemical compound which is undergoing early stage clinical trials to raise the
level of "good" HDL cholesterol, to Disney's efforts to make children smile, the
spirit of innovation continues.
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.
The directors have declared a semi-annual income dividend of $.73 per Balanced
Fund share which was paid on December 18, 2000. It was used to purchase
additional shares for your account unless you have elected to receive payments
directly by check.
Sincerely,
<TABLE>
<S> <C>
[/S/ PAUL N. ECKLEY] [/S/ KURT G. MOSER]
Paul N. Eckley Kurt G. Moser
Sr. Vice President Sr. Vice President
</TABLE>
13
<PAGE>
STATE FARM BALANCED FUND, INC.
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 2000
<TABLE>
<CAPTION>
SHARES VALUE
----------- ------------
<C> <S> <C> <C> <C>
COMMON STOCKS (68.5%)
AGRICULTURE, FOODS, & BEVERAGE (3.5%)
895,773 Archer-Daniels-Midland Company $ 11,421,106
26,000 Campbell Soup Company 867,750
310,000 Kellogg Company 7,633,750
58,000 Sara Lee Corporation 1,392,000
190,000 The Coca-Cola Company 11,898,750
------------
33,213,356
------------
BANKS (5.2%)
51,785 ABN Amro Holding NV 1,088,272
52,312 AmSouth Bancorporation 778,141
44,900 Bank of America Corporation 1,793,194
184,100 Bank One Corporation 6,593,081
10,900 JP Morgan & Co. Incorporated 1,469,456
19,000 M&T Bank Corporation 1,040,440
41,000 Northern Trust Corporation 3,531,125
180,960 Pacific Century Financial
Corporation 2,691,780
166,924 Popular Inc. 4,204,398
99,000 SouthTrust Corporation 3,341,250
21,400 SunTrust Banks Inc. 1,087,387
75,700 Wachovia Corporation 3,789,731
373,800 Wells Fargo & Company 17,732,137
------------
49,140,392
------------
BUILDING MATERIALS & CONSTRUCTION (.7%)
160,200 Vulcan Materials Company 6,868,575
------------
CHEMICALS (3.2%)
230,000 Air Products & Chemicals Inc. 7,920,625
108,705 EI du Pont de Nemours and
Company 4,599,580
141,400 Great Lakes Chemical Corp. 4,940,162
120,000 International Flavors &
Fragrances Inc. 2,242,500
245,500 Sigma-Aldrich Corporation 8,776,625
69,000 The Dow Chemical Company 2,108,813
------------
30,588,305
------------
COMPUTER SOFTWARE AND SERVICES (2.5%)
143,787 Agilent Technologies Inc.(a) 7,503,884
135,400 Cisco Systems Inc.(a) 6,482,275
168,600 Microsoft Corporation(a) 9,673,425
------------
23,659,584
------------
COMPUTERS (3.9%)
754,000 Hewlett-Packard Company 23,845,250
137,200 International Business
Machines Corporation 12,828,200
------------
36,673,450
------------
CONSUMER & MARKETING (4.3%)
22,200 Clorox Co. 992,063
160,000 HON Industries Inc. 3,890,000
177,937 Kimberly Clark Corp. 12,444,469
96,700 McDonald's Corporation 3,082,313
</TABLE>
14
<PAGE>
STATE FARM BALANCED FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 2000
<TABLE>
<CAPTION>
SHARES VALUE
----------- ------------
<C> <S> <C> <C> <C>
CONSUMER & MARKETING (CONTINUED)
136,218 Newell Rubbermaid Inc. $ 2,647,737
300,000 The Gillette Company 10,162,500
81,600 The Procter & Gamble Company 6,109,800
22,857 Unilever NV ADR 1,418,563
------------
40,747,445
------------
ELECTRONIC/ELECTRICAL MFG. (5.6%)
57,200 Applied Materials Inc.(a) 2,313,025
31,200 Emerson Electric Co. 2,273,700
479,700 General Electric Company 23,775,131
502,800 Intel Corporation 19,137,825
37,400 KLA Tencor Corporation(a) 1,028,500
81,600 Linear Technology Corp. 3,860,700
6,300 Texas Instruments Inc. 235,069
------------
52,623,950
------------
FINANCIAL SERVICES (1.1%)
89,000 Citigroup Inc. 4,433,313
160,650 MBNA Corporation 5,733,197
------------
10,166,510
------------
HEALTH CARE (13.4%)
77,400 Allergan Inc. 7,183,688
607,500 Biomet Inc. 22,477,500
36,100 Bristol-Myers Squibb Company 2,502,181
212,000 Eli Lilly & Co. 19,861,750
198,000 Johnson & Johnson 19,800,000
21,600 Medtronic Inc. 1,150,200
123,400 Merck & Co. Inc. 11,437,638
960,000 Pfizer Inc. 42,540,000
------------
126,952,957
------------
MACHINERY & MANUFACTURING (3.7%)
45,900 AptarGroup Inc. 1,147,500
100,000 Caterpillar Inc. 3,931,250
372,300 Corning Incorporated 21,779,550
14,700 Deere & Company 598,106
44,600 Honeywell International Inc. 2,174,250
20,000 Illinois Tool Works Inc. 1,126,250
47,700 Minnesota Mining &
Manufacturing Co. 4,764,038
------------
35,520,944
------------
MEDIA & BROADCASTING (4.9%)
42,000 Lee Enterprises Incorporated 1,173,375
42,000 Lee Enterprises Incorporated
Class B 1,173,375
173,333 Reuters Group PLC ADR 15,361,637
993,495 The Walt Disney Company 28,749,262
------------
46,457,649
------------
MINING & METALS (.8%)
29,200 Newmont Mining Corporation 456,250
109,200 Nucor Corporation 3,794,700
</TABLE>
15
<PAGE>
STATE FARM BALANCED FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 2000
<TABLE>
<CAPTION>
SHARES VALUE
----------- ------------
<C> <S> <C> <C> <C>
MINING & METALS (CONTINUED)
50,000 Rio Tinto PLC ADR $ 3,068,750
18,750 Steel Dynamics Inc.(a) 187,500
------------
7,507,200
------------
OIL & GAS (4.7%)
89,986 BP Amoco PLC ADR 4,268,711
144,000 Chevron Corporation 11,790,000
29,185 Devon Energy Corporation 1,437,361
171,600 Exxon Mobil Corporation 15,100,800
65,220 Pennzoil-Quaker State Company 770,411
188,700 Royal Dutch Petroleum Company
ADR 11,263,031
------------
44,630,314
------------
RETAILERS (1.0%)
32,800 Home Depot Inc. 1,285,350
149,600 Wal-Mart Stores Inc. 7,807,250
------------
9,092,600
------------
TELECOM & TELECOM EQUIPMENT (9.3%)
1,032,800 ADC Telecommunications Inc.(a) 20,849,650
255,000 AT&T Corp. 5,004,375
18,364 Avaya Inc.(a) 214,629
544,000 LM Ericsson Telephone Company
ADR 6,188,000
220,376 Lucent Technologies Inc. 3,429,602
192,000 Motorola Inc. 3,852,000
88,400 Nokia Corporation ADR 3,779,100
178,400 Nortel Networks Corp. 6,734,600
39,947 Qwest Communications
International Inc.(a) 1,507,999
470,024 SBC Communications Inc. 25,821,944
60,000 Vodafone Group PLC ADR 2,055,000
486,985 WorldCom Inc.(a) 7,274,338
59,600 XO Communications
Incorporated(a) 886,550
------------
87,597,787
------------
UTILITIES & ENERGY (.7%)
36,000 Duke Energy Corporation 3,237,750
60,400 The AES Corporation(a) 3,133,250
------------
6,371,000
------------
TOTAL COMMON STOCKS
(cost $259,336,596) 647,812,018
</TABLE>
16
<PAGE>
STATE FARM BALANCED FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 2000
<TABLE>
<CAPTION>
PRINCIPAL COUPON MATURITY
AMOUNT RATE DATE VALUE
----------- -------- ------------------------------ ------------
<C> <S> <C> <C> <C>
CORPORATE BONDS (12.3%)
AGRICULTURE, FOODS, & BEVERAGE (.9%)
$ 3,000,000 Pioneer Hi-Bred International
Inc. 5.750% January 15, 2009 $ 2,796,360
3,000,000 Dean Foods Company 6.625% May 15, 2009 2,723,820
2,950,000 Archer-Daniels-Midland Company 5.870% November 15, 2010 2,644,940
------------
8,165,120
------------
AUTOMOTIVE (.6%)
3,000,000 Daimler Chrysler North America 6.900% September 1, 2004 2,959,800
3,000,000 General Motors Acceptance
Corp. 7.750% January 19, 2010 3,014,460
------------
5,974,260
------------
BUILDING MATERIALS & CONSTRUCTION (.6%)
3,000,000 Leggett & Platt Inc. 7.650% February 15, 2005 3,095,340
3,000,000 Vulcan Materials Company 6.000% April 1, 2009 2,741,490
------------
5,836,830
------------
CHEMICALS (.7%)
3,000,000 PPG Industries Inc. 6.750% August 15, 2004 2,978,310
3,250,000 EI du Pont de Nemours and
Company 6.750% October 15, 2004 3,282,175
------------
6,260,485
------------
COMPUTERS (.3%)
3,000,000 International Business
Machines Corporation 5.375% February 1, 2009 2,686,290
------------
CONSUMER & MARKETING (1.2%)
2,000,000 Hasbro Inc. 5.600% November 1, 2005 1,704,760
3,000,000 Kimberly Clark Corp. 7.100% August 1, 2007 3,099,090
3,000,000 The Procter & Gamble Company 6.875% September 15, 2009 3,041,250
3,000,000 Unilever Capital Corporation 7.125% November 1, 2010 3,031,740
------------
10,876,840
------------
CONTAINERS & PACKAGING (.5%)
5,000,000 Avery Dennison Corp. 5.900% December 1, 2008 4,577,900
------------
ELECTRONIC/ELECTRICAL MFG. (.3%)
3,000,000 Emerson Electric Co. 5.850% March 15, 2009 2,822,670
------------
FINANCIAL SERVICES (1.1%)
3,000,000 Household Finance Corp. 7.200% July 15, 2006 2,978,430
3,000,000 Ford Motor Credit Company 5.800% January 12, 2009 2,651,970
2,000,000 General Electric Capital Corp. 7.375% January 19, 2010 2,097,300
3,000,000 BellSouth Capital Funding
Corp. 7.750% February 15, 2010 3,088,080
------------
10,815,780
------------
HEALTH CARE (.6%)
3,000,000 Johnson & Johnson 6.625% September 1, 2009 3,003,840
3,000,000 Becton Dickinson & Co. 7.150% October 1, 2009 2,966,190
------------
5,970,030
------------
MACHINERY & MANUFACTURING (1.6%)
3,000,000 United Technologies Corp. 7.000% September 15, 2006 3,034,410
</TABLE>
17
<PAGE>
STATE FARM BALANCED FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 2000
<TABLE>
<CAPTION>
PRINCIPAL COUPON MATURITY
AMOUNT RATE DATE VALUE
----------- -------- ------------------------------ ------------
<C> <S> <C> <C> <C>
MACHINERY & MANUFACTURING (CONTINUED)
$ 3,000,000 Illinois Tool Works Inc. 5.750% March 1, 2009 $ 2,784,960
3,000,000 Caterpillar Inc. 7.250% September 15, 2009 2,970,180
3,000,000 Honeywell International Inc. 7.500% March 1, 2010 3,126,540
3,000,000 Deere & Company 7.850% May 15, 2010 3,110,280
------------
15,026,370
------------
MEDIA & BROADCASTING (.3%)
3,000,000 The Washington Post Company 5.500% February 15, 2009 2,725,500
------------
OIL & GAS (.3%)
3,000,000 Texaco Capital 5.500% January 15, 2009 2,762,580
------------
RETAILERS (.6%)
3,000,000 Albertsons Inc. 6.950% August 1, 2009 2,847,840
3,000,000 Wal-Mart Stores Inc. 6.875% August 10, 2009 3,037,020
------------
5,884,860
------------
TELECOM & TELECOM EQUIPMENT (2.1%)
3,000,000 Vodafone Group PLC 7.625% February 15, 2005 3,061,980
3,000,000 Deutsche Telekom International
Financial 7.750% June 15, 2005 3,051,990
3,000,000 WorldCom Inc. 7.750% April 1, 2007 3,043,740
5,000,000 US West Communications 5.625% November 15, 2008 4,459,000
3,000,000 AT&T Corp. 6.000% March 15, 2009 2,674,170
1,000,000 New England Telephone &
Telegraph Co. 5.875% April 15, 2009 917,530
3,000,000 Motorola Inc. 7.625% November 15, 2010 3,065,010
------------
20,273,420
------------
UTILITIES & ENERGY (.6%)
3,000,000 Alabama Power Company 7.125% August 15, 2004 3,031,650
3,000,000 Duke Energy Corporation 7.375% March 1, 2010 3,064,200
------------
6,095,850
------------
TOTAL CORPORATE BONDS
(cost $119,553,225) 116,754,785
U.S. TREASURY OBLIGATIONS (16.5%)
1,200,000 U.S. Treasury Notes 7.750% February 15, 2001 1,203,312
5,000,000 U.S. Treasury Notes 6.375% March 31, 2001 5,000,800
625,000 U.S. Treasury Bonds 13.125% May 15, 2001 644,313
2,000,000 U.S. Treasury Notes 8.000% May 15, 2001 2,016,040
680,000 U.S. Treasury Bonds 13.375% August 15, 2001 713,354
2,500,000 U.S. Treasury Notes 7.500% November 15, 2001 2,532,575
1,000,000 U.S. Treasury Bonds 14.250% February 15, 2002 1,095,180
2,000,000 U.S. Treasury Notes 7.500% May 15, 2002 2,046,620
5,000,000 U.S. Treasury Notes 6.000% July 31, 2002 5,021,050
7,500,000 U.S. Treasury Notes 6.375% August 15, 2002 7,579,725
2,570,000 U.S. Treasury Bonds 11.625% November 15, 2002 2,847,714
5,000,000 U.S. Treasury Notes 6.250% February 15, 2003 5,063,650
3,000,000 U.S. Treasury Bonds 10.750% May 15, 2003 3,345,720
9,000,000 U.S. Treasury Notes 5.750% August 15, 2003 9,042,930
5,500,000 U.S. Treasury Bonds 11.875% November 15, 2003 6,422,735
2,000,000 U.S. Treasury Notes 5.875% February 15, 2004 2,018,640
9,000,000 U.S. Treasury Notes 7.250% May 15, 2004 9,468,900
</TABLE>
18
<PAGE>
STATE FARM BALANCED FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 2000
<TABLE>
<CAPTION>
PRINCIPAL COUPON MATURITY
AMOUNT RATE DATE VALUE
----------- -------- ------------------------------ ------------
<C> <S> <C> <C> <C>
U.S. TREASURY OBLIGATIONS (CONTINUED)
$ 6,000,000 U.S. Treasury Notes 7.250% August 15, 2004 $ 6,341,280
1,500,000 U.S. Treasury Bonds 11.625% November 15, 2004 1,817,970
5,000,000 U.S. Treasury Notes 7.500% February 15, 2005 5,364,350
4,500,000 U.S. Treasury Notes 6.500% May 15, 2005 4,679,640
6,000,000 U.S. Treasury Notes 5.875% November 15, 2005 6,100,200
11,500,000 U.S. Treasury Bonds 9.375% February 15, 2006 13,481,565
6,000,000 U.S. Treasury Notes 6.875% May 15, 2006 6,383,160
3,000,000 U.S. Treasury Notes 7.000% July 15, 2006 3,212,430
4,000,000 U.S. Treasury Notes 6.500% October 15, 2006 4,195,200
10,000,000 U.S. Treasury Notes 6.250% February 15, 2007 10,388,700
8,000,000 U.S. Treasury Notes 6.625% May 15, 2007 8,487,040
10,000,000 U.S. Treasury Notes 5.500% February 15, 2008 10,007,500
1,000,000 U.S. Treasury Bonds 10.375% November 15, 2009 1,162,020
7,000,000 U.S. Treasury Bonds 10.000% May 15, 2010 8,165,010
------------
TOTAL U.S. TREASURY OBLIGATIONS
(cost $155,688,573) 155,849,323
GOVERNMENT AGENCY SECURITIES (1.6%)
5,000,000 Federal Home Loan Mortgage
Corp. 7.375% May 15, 2003 5,138,700
10,000,000 Federal National Mortgage
Association 6.000% May 15, 2008 9,760,500
------------
TOTAL GOVERNMENT AGENCY SECURITIES
(cost $14,515,087) 14,899,200
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT
-----------
<C> <S> <C> <C> <C>
SHORT-TERM INVESTMENTS (.6%)
3,000,000 Ford Motor Credit Company,
6.507%, December, 2000 3,000,000
2,737,536 Chase Vista Treasury Plus
Money Market Fund 2,737,536
------------
TOTAL SHORT-TERM INVESTMENTS
(cost $5,737,536) 5,737,536
------------
TOTAL INVESTMENTS (99.5%)
(cost $554,831,017) 941,052,862
CASH AND OTHER ASSETS, NET OF LIABILITIES (0.5%) 4,732,286
------------
NET ASSETS (100.0%) $945,785,148
============
</TABLE>
Notes:
(a) Non-income producing security.
At November 30, 2000, net unrealized appreciation of $386,221,845 consisted of
gross unrealized appreciation of $402,885,161 and gross unrealized depreciation
of $16,663,316 based on cost of $554,831,017 for federal income tax purposes.
See accompanying notes to financial statements.
19
<PAGE>
STATE FARM BALANCED FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 2000
<TABLE>
<S> <C> <C>
ASSETS
Investments, at value (cost $554,831,017) $941,052,862
Receivable for:
Dividends and interest $ 5,025,753
Shares of the Fund sold 131,193 5,156,946
------------
Prepaid expenses 18,436
------------
Total assets 946,228,244
------------
LIABILITIES AND NET ASSETS
Payable for:
Shares of the Fund redeemed 91,050
Manager 323,139 414,189
------------
Accrued liabilities 28,907
------------
Total liabilities 443,096
------------
Net assets applicable to 18,454,945 shares
outstanding of
$1.00 par value common stock (40,000,000
shares authorized) $945,785,148
============
Net asset value, offering price and
redemption price per share $ 51.25
============
ANALYSIS OF NET ASSETS
Excess of amounts received from sales of
shares over amounts paid on redemptions
of shares on account of capital $539,004,175
Accumulated net realized loss on sales of
investments (4,256,235)
Net unrealized appreciation of investments 386,221,845
Undistributed net investment income 24,815,363
------------
Net assets applicable to shares outstanding $945,785,148
============
</TABLE>
See accompanying notes to financial statements.
20
<PAGE>
STATE FARM BALANCED FUND, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
------------------------
2000 1999
------------ ----------
<S> <C> <C>
INVESTMENT INCOME:
Dividends $ 8,607,496 8,844,759
Interest 20,286,207 21,001,785
------------ ----------
28,893,703 29,846,544
Less: foreign withholding taxes 116,756 144,691
------------ ----------
Total investment income 28,776,947 29,701,853
EXPENSES:
Investment advisory and management
fees 1,157,544 1,113,753
Professional fees 24,755 61,649
ICI dues 19,087 23,365
Registration fees -- 8,879
Fidelity bond expense 6,126 5,377
Directors' fees 6,750 7,200
Reports to shareowners 35,579 32,580
Security evaluation fees 5,537 4,571
Franchise taxes 17,593 17,600
Custodian fees 11,769 17,895
Other -- 131
------------ ----------
Total expenses 1,284,740 1,293,000
------------ ----------
Net investment income 27,492,207 28,408,853
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized gain (loss) on sales of
investments (4,256,235) 10,843,298
Change in net unrealized appreciation
or depreciation (11,987,371) 48,274,008
------------ ----------
Net realized and unrealized gain (loss)
on investments (16,243,606) 59,117,306
------------ ----------
Net change in net assets resulting from
operations $ 11,248,601 87,526,159
============ ==========
</TABLE>
See accompanying notes to financial statements.
21
<PAGE>
STATE FARM BALANCED FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-------------------------
2000 1999
------------ -----------
<S> <C> <C>
FROM OPERATIONS:
Net investment income $ 27,492,207 28,408,853
Net realized gain (loss) on sales of
investments (4,256,235) 10,843,298
Change in net unrealized appreciation
or depreciation (11,987,371) 48,274,008
------------ -----------
Net change in net assets resulting from
operations 11,248,601 87,526,159
Undistributed net investment income
(loss) included in the price of shares
issued and redeemed (252,185) 270,649
DISTRIBUTIONS TO SHAREOWNERS FROM:
Net investment income (29,063,033) (27,062,617)
Net realized gain (10,500,732) (382,353)
------------ -----------
Total distributions to shareowners (39,563,765) (27,444,970)
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold 159,716,297 112,775,656
Reinvestment of ordinary income
dividends and capital gain
distributions 37,839,726 26,064,784
------------ -----------
197,556,023 138,840,440
Less payments for shares redeemed 213,927,428 101,669,744
------------ -----------
Net increase (decrease) in net assets
from Fund share transactions (16,371,405) 37,170,696
------------ -----------
Total increase (decrease) in net assets (44,938,754) 97,522,534
NET ASSETS:
Beginning of year 990,723,902 893,201,368
------------ -----------
End of year (including undistributed
net investment income of $24,815,363
in 2000, and $26,295,808 in 1999) $945,785,148 990,723,902
============ ===========
</TABLE>
See accompanying notes to financial statements.
22
<PAGE>
STATE FARM BALANCED FUND, INC.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the financial
performance of the Fund for the past ten years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Fund (assuming reinvestment of all dividends and distributions).
PER SHARE INCOME AND CAPITAL CHANGES (For a share outstanding throughout each
year):
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-----------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995 1994 1993 1992 1991
------ ------ ------ ------ ------ ---------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year $52.79 49.54 46.09 42.04 37.76 31.12 30.88 31.24 27.98 22.72
INCOME FROM INVESTMENT OPERATIONS
Net investment income 1.50 1.51 1.54 1.40 1.39 1.25 1.03 0.98 0.98 0.94
Net gain (loss) on investments
(both realized and unrealized) (0.91) 3.23 4.14 5.45 4.38 6.77 0.17 (0.09) 3.29 5.81
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment operations 0.59 4.74 5.68 6.85 5.77 8.02 1.20 0.89 4.27 6.75
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS
Net investment income (1.56) (1.47) (1.54) (1.47) (1.30) (1.19) (0.89) (1.01) (0.89) (1.03)
Net realized gain (0.57) (0.02) (0.69) (1.33) (0.19) (0.19) (0.07) (0.24) (0.12) (0.46)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions (2.13) (1.49) (2.23) (2.80) (1.49) (1.38) (0.96) (1.25) (1.01) (1.49)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of year $51.25 52.79 49.54 46.09 42.04 37.76 31.12 30.88 31.24 27.98
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN 0.97% 9.72% 12.72% 17.33% 15.78% 26.53% 3.98% 2.91% 15.43% 31.09%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (millions) $945.8 990.7 893.2 762.3 626.1 499.7 370.5 327.8 259.7 173.5
Ratio of expenses to average net
assets 0.13% 0.13% 0.14% 0.14% 0.15% 0.17%(a) 0.17% 0.19% 0.22% 0.26%
Ratio of net investment income to
average net assets 2.74% 2.96% 3.34% 3.42% 3.63% 3.66% 3.36% 3.20% 3.29% 3.66%
Portfolio turnover rate 5% 5% 2% 6% 9% 6% 4% 4% 4% 1%
</TABLE>
----------
(a) The ratio based on net custodian expenses would have been .16% in 1995.
23
<PAGE>
STATE FARM INTERIM FUND, INC.
Dear Shareowner:
Interest rates have been falling since the middle of the year. Yields on the
U.S. Treasury securities which dominate the investments of your Fund now stand
at levels that are about 55 basis points (a basis point is .01%) below those
which existed a year ago. Consequently values of investments held by the Fund
have increased, and its net asset value has risen over the past twelve months.
The Fund's total return, which includes the reinvestment of dividends and
increase in net asset value, for the year was 7.70%.
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
INTERIM FUND 1-5 YEAR TREASURY INDEX
<S> <C> <C>
1990 $10,000 $10,000
1991 $11,151 $11,228
1992 $11,943 $12,055
1993 $12,869 $12,852
1994 $12,758 $12,772
1995 $14,274 $14,303
1996 $15,051 $15,120
1997 $15,949 $16,036
1998 $17,275 $17,349
1999 $17,510 $17,749
2000 $18,857 $19,053
</TABLE>
<TABLE>
<CAPTION>
FUND'S AVERAGE ANNUAL TOTAL RETURN
1 YEAR 5 YEARS 10 YEARS
<S> <C> <C>
7.70% 5.73% 6.55%
</TABLE>
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.
* The Lehman Brothers 1-5 Year U.S. Treasury Index presently contains
approximately 60 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 pace of general economic growth in the U.S. slowed during the third quarter.
Real GDP growth for the third quarter is now estimated at 2.4% compared to 4.8%
and 5.6% in the first and second quarters, respectively. Recent reports covering
the general economy suggest that U.S. economic activity is now more sluggish
than we have become accustomed to in recent years. Consumers and businesses seem
to be holding back as they react to volatility on the downside in stock markets,
higher energy prices and interest rates. It also looks like a slowdown in
economic growth is occurring globally. Foreign economies are reacting to
pervasive central bank tightenings over the past year or so, higher energy
prices and spillover from the U.S. slowdown.
Conditions in money and credit markets have changed significantly over the
course of the Fund's fiscal year. One year ago the Federal Reserve Board was in
the middle of a monetary tightening cycle that eventually increased short-term
interest rates 175 basis points cumulatively on six different occasions. The
tightening cycle began in June 1999 and perhaps ended in May 2000.
The Federal Reserve Board has resisted further interest rate increases since
May, and at its recent December meeting announced a change in its policy bias.
Policymakers at the central bank now appear to be indicating that concerns about
a possible recession outweigh those related to prospects for rising inflation.
Prior to the December meeting, the potential for rising inflation was its main
worry. Investors are anticipating that the slowing economy will reduce
inflationary wage pressures sufficiently so that further tightening of official
monetary policy will not be required. Yields on bonds with different maturities
and pricing in the federal funds futures market currently suggest reductions in
short-term interest rates are expected before too long.
24
<PAGE>
STATE FARM INTERIM FUND, INC.
The general composition of the Fund's portfolio changed very little over the
year with primary investments consisting of U.S. Treasury issues which mature
regularly over the next six years. The weighted average maturity of the
portfolio presently stands at three years, which is unchanged from a year ago.
The relatively short maturity structure of the portfolio tends to mitigate
fluctuations in the Fund's net asset value. The high quality investments provide
a dependable flow of dividend income.
As you know the Fund declares a dividend each day from its net investment income
which is payable on the last day of the calendar quarter. All dividends are
automatically invested in shares of the Fund unless you have advised State Farm
Investment Management Corp. otherwise in writing.
Sincerely,
<TABLE>
<S> <C>
[/S/ KURT G. MOSER] [/S/ DONALD E. HELTNER]
Kurt G. Moser Donald E. Heltner
Sr. Vice President Vice President
</TABLE>
25
<PAGE>
STATE FARM INTERIM FUND, INC.
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 2000
<TABLE>
<CAPTION>
PRINCIPAL COUPON
AMOUNT RATE MATURITY DATE VALUE
---------- ------ ------------------------------ ------------
<C> <S> <C> <C> <C>
U.S. TREASURY OBLIGATIONS (98.0%)
$3,000,000 U.S. Treasury Notes 5.500% December 31, 2000 $ 2,997,150
1,000,000 U.S. Treasury Notes 5.250% January 31, 2001 998,180
1,500,000 U.S. Treasury Notes 7.750% February 15, 2001 1,504,140
4,000,000 U.S. Treasury Notes 5.625% February 28, 2001 3,994,240
5,000,000 U.S. Treasury Notes 8.000% May 15, 2001 5,040,100
1,000,000 U.S. Treasury Notes 7.875% August 15, 2001 1,011,720
3,000,000 U.S. Treasury Notes 6.375% September 30, 2001 3,005,550
4,000,000 U.S. Treasury Notes 7.500% November 15, 2001 4,052,120
4,000,000 U.S. Treasury Notes 7.500% May 15, 2002 4,093,240
8,000,000 U.S. Treasury Notes 6.375% August 15, 2002 8,085,040
5,000,000 U.S. Treasury Notes 5.750% November 30, 2002 5,013,150
6,000,000 U.S. Treasury Notes 6.250% February 15, 2003 6,076,380
5,000,000 U.S. Treasury Notes 5.750% April 30, 2003 5,017,100
7,000,000 U.S. Treasury Notes 5.750% August 15, 2003 7,033,390
8,000,000 U.S. Treasury Notes 7.250% May 15, 2004 8,416,800
5,000,000 U.S. Treasury Notes 7.250% August 15, 2004 5,284,400
4,000,000 U.S. Treasury Notes 7.875% November 15, 2004 4,324,720
4,000,000 U.S. Treasury Notes 7.500% February 15, 2005 4,291,480
4,000,000 U.S. Treasury Notes 6.500% May 15, 2005 4,159,680
8,000,000 U.S. Treasury Notes 6.500% August 15, 2005 8,327,200
4,000,000 U.S. Treasury Notes 5.875% November 15, 2005 4,066,800
8,000,000 U.S. Treasury Notes 5.625% February 15, 2006 8,048,080
7,000,000 U.S. Treasury Notes 6.500% October 15, 2006 7,341,600
------------
TOTAL U.S. TREASURY OBLIGATIONS
(cost $114,437,500) 112,182,260
<CAPTION>
SHARES
----------
<C> <S> <C> <C> <C>
SHORT-TERM INVESTMENTS (2.0%)
2,204,470 Chase Vista Treasury Plus
Money Market Fund
(cost $2,204,470) 2,204,470
------------
TOTAL INVESTMENTS (100.0%)
(cost $116,641,970) 114,386,730
CASH AND OTHER ASSETS, NET OF LIABILITIES (0.0%) 54,491
------------
NET ASSETS (100.0%) $114,441,221
============
</TABLE>
Notes:
At November 30, 2000, net unrealized depreciation of $2,255,240 consisted of
gross unrealized appreciation of $496,861 and gross unrealized depreciation of
$2,752,101 based on cost of $116,641,970 for federal income tax purposes.
See accompanying notes to financial statements.
26
<PAGE>
STATE FARM INTERIM FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 2000
<TABLE>
<S> <C> <C>
ASSETS
Investments, at value
(cost $116,641,970) $ 114,386,730
Receivable for:
Interest $ 1,286,223
Shares of the Fund sold 90,176 1,376,399
-----------
Prepaid expenses 4,465
-------------
Total assets 115,767,594
-------------
LIABILITIES AND NET ASSETS
Dividends to shareowners 1,213,502
Payable for:
Shares of the Fund redeemed 37,573
Manager 52,680 90,253
-----------
Accrued liabilities 22,618
-------------
Total liabilities 1,326,373
-------------
Net assets applicable to 11,980,099
shares outstanding
of $1.00 par value common stock
(40,000,000 shares authorized) $ 114,441,221
=============
Net asset value, offering price and
redemption price per share $ 9.55
=============
ANALYSIS OF NET ASSETS
Excess of amounts received from sales
of shares over amounts paid on
redemptions of shares on account of
capital $ 124,500,544
Accumulated net realized loss on sales
of investments (7,804,083)
Net unrealized depreciation of
investments (2,255,240)
-------------
Net assets applicable to shares
outstanding $ 114,441,221
=============
</TABLE>
See accompanying notes to financial statements.
27
<PAGE>
STATE FARM INTERIM FUND, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-----------------------
2000 1999
----------- ----------
<S> <C> <C>
INVESTMENT INCOME:
Interest $ 8,625,992 10,570,203
EXPENSES:
Investment advisory and management
fees 200,660 230,126
Professional fees 21,017 41,759
ICI dues 2,992 6,174
Registration fees -- 145
Fidelity bond expense 2,941 2,709
Directors' fees 2,250 2,400
Reports to shareowners 5,045 5,533
Security evaluation fees 602 963
Franchise taxes 10,434 8,323
Custodian fees 5,092 10,256
Other -- 131
----------- ----------
Total expenses 251,033 308,519
----------- ----------
Net investment income 8,374,959 10,261,684
REALIZED AND UNREALIZED GAIN (LOSS): ON
INVESTMENTS:
Net realized loss on sales of
investments (3,819,121) (884,533)
Change in net unrealized appreciation
or depreciation 4,390,452 (7,167,018)
----------- ----------
Net realized and unrealized gain (loss)
on investments 571,331 (8,051,551)
----------- ----------
Net change in net assets resulting from
operations $ 8,946,290 2,210,133
=========== ==========
</TABLE>
See accompanying notes to financial statements.
28
<PAGE>
STATE FARM INTERIM FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-------------------------
2000 1999
------------ -----------
<S> <C> <C>
FROM OPERATIONS:
Net investment income $ 8,374,959 10,261,684
Net realized loss on sales of
investments (3,819,121) (884,533)
Change in net unrealized appreciation
or depreciation 4,390,452 (7,167,018)
------------ -----------
Net change in net assets resulting from
operations 8,946,290 2,210,133
DISTRIBUTIONS TO SHAREOWNERS FROM:
Net investment income (8,374,959) (10,261,684)
------------ -----------
Total distributions to shareowners (8,374,959) (10,261,684)
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold 47,661,071 75,116,757
Reinvestment of ordinary income
dividends and capital gain
distributions 7,856,803 9,326,141
------------ -----------
55,517,874 84,442,898
Less payments for shares redeemed 93,216,211 78,967,686
------------ -----------
Net increase (decrease) in net assets
from Fund share transactions (37,698,337) 5,475,212
------------ -----------
Total decrease in net assets (37,127,006) (2,576,339)
NET ASSETS:
Beginning of year 151,568,227 154,144,566
------------ -----------
End of year $114,441,221 151,568,227
============ ===========
</TABLE>
See accompanying notes to financial statements.
29
<PAGE>
STATE FARM INTERIM FUND, INC.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the financial
performance of the Fund for the past ten years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Fund (assuming reinvestment of all dividends and distributions).
PER SHARE INCOME AND CAPITAL CHANGES (For a share outstanding throughout each
year):
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995 1994 1993 1992 1991
------ ----- ----- ----- --------- --------- --------- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
year $ 9.47 9.98 9.85 9.98 10.15 9.72 10.52 10.46 10.50 10.16
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.63 0.64 0.68 0.69 0.70 0.70 0.71 0.74 0.78 0.78
Net gain (loss) on
investments (both realized
and unrealized) 0.08 (0.51) 0.13 (0.13) (0.17) 0.43 (0.80) 0.06 (0.04) 0.34
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Total from investment
operations 0.71 0.13 0.81 0.56 0.53 1.13 (0.09) 0.80 0.74 1.12
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
LESS DISTRIBUTIONS
Net investment income (0.63) (0.64) (0.68) (0.69) (0.70) (0.70) (0.71) (0.74) (0.78) (0.78)
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Total distributions (0.63) (0.64) (0.68) (0.69) (0.70) (0.70) (0.71) (0.74) (0.78) (0.78)
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Net asset value, end of year $ 9.55 9.47 9.98 9.85 9.98 10.15 9.72 10.52 10.46 10.50
====== ===== ===== ===== ===== ===== ===== ===== ===== =====
TOTAL RETURN 7.70% 1.35% 8.31% 5.87% 5.44% 11.91% (0.85)% 7.82% 7.19% 11.41%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year
(millions) $114.4 151.6 154.1 112.8 107.6 104.7 94.3 103.7 85.9 66.8
Ratio of expenses to average
net assets 0.20% 0.20% 0.21% 0.22% 0.23%(a) 0.25%(a) 0.22% 0.25% 0.27% 0.28%
Ratio of net investment income
to average net assets 6.66% 6.63% 6.80% 7.03% 7.03% 7.00% 7.00% 7.00% 7.30% 7.65%
Portfolio turnover rate 12% 12% 14% 15% 17% 17% 15% 15% 15% 14%
</TABLE>
----------
(a) The ratio based on net custodian expenses would have been .22% in 1996 and
.24% in 1995.
30
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.
Dear Shareowner:
Interest rates have been falling since the middle of the year. Yields on the
municipal bonds owned by your Fund now stand at levels that are about 20 basis
points (a basis point is .01%) below those which existed a year ago.
Consequently values of investments held by the Fund have increased, and its net
asset value has risen over the past twelve months. The Fund's total return,
which includes the reinvestment of dividends and increase in net asset value,
for the year was 6.87%.
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
THOUSANDS
<TABLE>
<CAPTION>
MUNICIPAL LEHMAN BROTHERS
BOND FUND MUNI BOND INDEX
<S> <C> <C>
1990 $10,000 $10,000
1991 $10,924 $11,026
1992 $11,905 $12,132
1993 $12,994 $13,477
1994 $12,660 $12,770
1995 $14,459 $15,183
1996 $15,203 $16,076
1997 $16,075 $17,301
1998 $17,170 $18,644
1999 $17,176 $18,444
2000 $18,357 $19,953
</TABLE>
<TABLE>
<CAPTION>
FUND'S AVERAGE ANNUAL TOTAL RETURN
1 YEAR 5 YEARS 10 YEARS
<S> <C> <C>
6.87% 4.91% 6.27%
</TABLE>
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.
* 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 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 pace of general economic growth in the U.S. slowed during the third quarter.
Real GDP growth for the third quarter is now estimated at 2.4% compared to 4.8%
and 5.6% in the first and second quarters, respectively. Recent reports covering
the general economy suggest that U.S. economic activity is now more sluggish
than we have become accustomed to in recent years. Consumers and businesses seem
to be holding back as they react to volatility on the downside in stock markets,
higher energy prices and interest rates. It also looks like a slowdown in
economic growth is occurring globally. Foreign economies are reacting to
pervasive central bank tightenings over the past year or so, the higher energy
prices and spillover from the U.S. slowdown.
Conditions in money and credit markets have changed significantly over the
course of the Fund's fiscal year. One year ago the Federal Reserve Board was in
the middle of a monetary tightening cycle that eventually increased short-term
interest rates 175 basis points cumulatively on six different occasions. The
tightening cycle began in June 1999 and perhaps ended in May 2000.
The Federal Reserve Board has resisted further interest rate increases since
May. At its recent December meeting, the central bank announced a change in its
policy bias and appeared to indicate that it is now more concerned about a
possible recession than the prospects for rising inflation. Prior to the
December meeting, the potential for rising inflation was its main worry.
Yields on good quality bonds, including municipal securities, have fallen in
reaction to the Federal Reserve being "on hold". Investors are anticipating that
the slowing economy will reduce inflationary wage pressures sufficiently so that
further tightening of official monetary policy will not be required. Yields on
bonds with different maturities and pricing in the federal funds futures market
currently suggest reductions in short-term interest rates are expected before
too long.
31
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.
The financial positions of most municipalities, including those whose
obligations are owned by your Fund, are now the strongest that we have observed
throughout our investment careers. Municipalities have benefited from strong
governmental revenues that have accompanied the present business expansion,
which is the longest in U.S. history.
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 10-13 years. The average
weighted maturity of the Fund's present portfolio is approximately 8 years,
which is virtually the same as one year ago, with all maturities spread over the
next 16 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>
[/S/ KURT G. MOSER] [/S/ JULIAN R. BUCHER]
Kurt G. Moser Julian R. Bucher
Sr. Vice President Vice President
</TABLE>
32
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 2000
<TABLE>
<CAPTION>
RATING (A)
PRINCIPAL COUPON MATURITY (MOODY'S
AMOUNT RATE DATE OR S&P) VALUE
------------ ------- ------------------- ---------- -------------
<C> <S> <C> <C> <C> <C>
LONG-TERM MUNICIPAL BONDS (97.5%)
ALABAMA (1.9%)
$ 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 $ 2,252,668
2,165,000 Huntsville, Alabama, General
Obligation Warrants,
Series 1998A 4.600% November 1, 2013 Aa2 2,013,320
2,465,000 Limestone County Board of
Education, Alabama, Capital
Outlay Tax Antic Warrants,
Series 1998 4.900% July 1, 2015 Aaa 2,348,751
------------
6,614,739
------------
ALASKA (2.0%)
1,505,000 Anchorage, Alaska, General
Obligation General Purpose
Refunding Bonds 4.600% February 1, 2003 Aaa 1,507,679
1,500,000 Municipality of Anchorage,
Alaska, 1993 General
Obligation Refunding School
Bonds, Series B 4.900% September 1, 2003 Aaa 1,514,490
1,100,000 Municipality of Anchorage,
Alaska, 1994 General
Obligation School Bonds 5.400% July 1, 2005 Aaa 1,135,046
1,500,000 Municipality of Anchorage,
Alaska, 2000 General
Obligation General Purpose
Bonds, Series A 5.625% September 1, 2013 Aaa 1,559,790
1,565,000 Matanuska-Susitna Borough,
Alaska, General Obligation
School Bonds, 1999 Series A 5.000% March 1, 2015 Aaa 1,513,762
------------
7,230,767
------------
ARIZONA (5.5%)
1,000,000 Pima County, Arizona, General
Obligation Refunding Bonds,
Series 1992 6.300% July 1, 2002 A1 1,028,600
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+ 3,055,650
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 2,041,560
1,000,000 Maricopa County, Arizona,
Unified School District No.
69, Paradise Valley School
Improvement Bonds,
Series 1990A 7.100% July 1, 2004 A1 1,081,730
2,340,000 City of Phoenix, Arizona,
General Obligation Refunding
Bonds, Series 1993 A 5.300% July 1, 2006 Aa1 2,430,301
1,000,000 Maricopa County, Arizona,
Unified School District No.
69, Paradise Valley School
Improvement Bonds,
Series 1994A 7.100% July 1, 2008 A1 1,149,550
1,200,000 Maricopa County, Arizona,
Unified School District No.
69, Paradise Valley School
Improvement Bonds,
Series 1994A 7.000% July 1, 2009 A1 1,386,660
2,500,000 Maricopa County, Arizona,
Unified School District No.
69, Paradise Valley School
Improvement Bonds,
Series 1994A 7.000% July 1, 2010 A1 2,918,500
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 4,254,590
------------
19,347,141
------------
CALIFORNIA (3.3%)
400,000 State of California, General
Obligation Veterans Bonds,
Series AL 9.600% April 1, 2001 Aa2 407,372
1,400,000 San Diego County, California,
Water Authority Water
Revenue Certificates of
Participation, Series 1991A 6.000% May 1, 2001 Aa3 1,412,558
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 3,068,250
2,000,000 State of California, Various
Purpose General Obligation
Bonds 6.000% October 1, 2006 Aa2 2,179,100
2,830,000 Sacramento County, California,
Sanitary District Financing
Authority Revenue Bonds,
1995 5.000% December 1, 2007 Aaa 2,973,141
</TABLE>
33
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 2000
<TABLE>
<CAPTION>
RATING (A)
PRINCIPAL COUPON MATURITY (MOODY'S
AMOUNT RATE DATE OR S&P) VALUE
------------ ------- ------------------- ---------- -------------
<C> <S> <C> <C> <C> <C>
CALIFORNIA (CONTINUED)
$ 1,500,000 Sacramento County, California,
Sanitary District Financing
Authority Revenue Bonds,
1995 (Prerefunded to
12-1-2007 @ 100) 5.000% December 1, 2008 Aaa $ 1,575,870
------------
11,616,291
------------
COLORADO (4.7%)
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 Aa1 2,648,846
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 2,070,020
2,000,000 Arapahoe County School
District # 6, Colorado,
Littleton Public Schools
General Obligation
Improvement Bonds,
Series 1995A 5.000% December 1, 2007 Aa2 2,051,040
2,000,000 Cherry Creek School District
No. 5 (Arapahoe County,
Colorado), General
Obligation Bonds,
Series 1999 5.500% December 15, 2009 Aa1 2,115,200
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 2,616,302
3,135,000 St. Vrain School District #
R3-1J, Colorado, General
Obligation, Series 1997 5.000% December 15, 2012 Aaa 3,136,975
1,855,000 City of Boulder, Colorado,
Open Space Acquisition
Refunding Bonds,
Series 1999 5.000% August 15, 2013 Aa1 1,847,951
------------
16,486,334
------------
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 Aaa 1,186,189
1,125,000 The State of Delaware, General
Obligation Bonds,
Series 1994B (Prerefunded to
12-1-2004 @ 100) 6.000% December 1, 2012 Aaa 1,186,189
------------
2,372,378
------------
FLORIDA (1.9%)
2,000,000 School District of Leon
County, Florida, General
Obligation Refunding Bonds,
Series 1991 5.850% July 1, 2001 A1 2,017,440
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 2,047,020
3,000,000 State of Florida, State Board
of Education Capital Outlay,
1999 Series A 4.750% January 1, 2015 Aa2 2,817,690
------------
6,882,150
------------
GEORGIA (7.8%)
1,500,000 Municipal Electric Authority
of Georgia, General Power
Revenue Bonds, Series 1993A
(Escrowed to maturity) 5.000% January 1, 2004 A3 1,519,170
1,205,000 DeKalb County School District,
Georgia, General Obligation
Refunding Bonds,
Series 1993 5.100% July 1, 2004 Aa2 1,229,449
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 3,338,488
3,590,000 State of Georgia, General
Obligation Bonds,
Series 1996C 6.250% August 1, 2009 Aaa 3,993,013
2,000,000 State of Georgia, General
Obligation Bonds,
Series 1995C 5.700% July 1, 2011 Aaa 2,151,380
4,000,000 Gwinnett County Water & Sewer
Authority, Georgia, Revenue
Series 1998 5.000% August 1, 2011 Aaa 4,054,880
3,000,000 State of Georgia, General
Obligation Bonds,
Series 1995B 5.750% March 1, 2012 Aaa 3,231,780
3,000,000 State of Georgia, General
Obligation Bonds,
Series 1997A 6.250% April 1, 2012 Aaa 3,365,490
1,055,000 Columbia County, Georgia,
General Obligation Bonds
(Courthouse/Detention Center
Projects), Series 1998 4.700% Feburary 1, 2013 A+ 992,544
</TABLE>
34
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 2000
<TABLE>
<CAPTION>
RATING (A)
PRINCIPAL COUPON MATURITY (MOODY'S
AMOUNT RATE DATE OR S&P) VALUE
------------ ------- ------------------- ---------- -------------
<C> <S> <C> <C> <C> <C>
GEORGIA (CONTINUED)
$ 1,195,000 Columbia County, Georgia,
General Obligation Bonds
(Courthouse/Detention Center
Projects), Series 1998 4.800% February 1, 2014 A+ $ 1,126,670
2,500,000 Fayette County School
District, Georgia, General
Obligation Refunding School
Bonds, Series 1999 4.750% March 1, 2015 Aa3 2,388,275
------------
27,391,139
------------
HAWAII (2.8%)
2,200,000 City and County of Honolulu,
Hawaii, General Obligation
Refunding Bonds, Series 1 5.600% June 1, 2001 Aa3 2,213,200
1,775,000 City and County of Honolulu,
Hawaii, General Obligation
Bonds, 1996 Series A 5.400% September 1, 2009 Aaa 1,847,793
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 2,332,423
3,000,000 State of Hawaii, General
Obligation Bonds of 1992,
Series BW 6.375% March 1, 2011 Aa3 3,338,940
------------
9,732,356
------------
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 1,563,593
------------
ILLINOIS (5.3%)
2,000,000 Lake County, Illinois, Forest
Preserve District General
Obligation Refunding Bonds,
Series 1992B 5.700% February 1, 2003 Aa1 2,048,940
2,000,000 State of Illinois, General
Obligation Refunding Bonds,
Series of June 1993 5.000% June 1, 2003 Aa2 2,022,140
2,025,000 County of DuPage, Illinois,
General Obligation Refunding
Bonds (Alternate Rev. Source
- Stormwater Project) 5.100% January 1, 2004 Aaa 2,054,909
4,000,000 State of Illinois, General
Obligation Bonds,
Series September 1996 5.450% September 1, 2009 Aaa 4,174,240
2,500,000 Forest Preserve District of
Kane County, Kane County,
Illinois, General Obligation
Bonds, Series 1999 5.000% December 30, 2011 Aa3 2,507,125
3,785,000 DuPage County Forest Preserve
District, Illinois, General
Obligation, Series 1997 4.900% October 1, 2013 Aaa 3,683,486
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 2,142,561
------------
18,633,401
------------
INDIANA (2.3%)
900,000 Monroe County Jail, Indiana,
First Mortgage Refunding
Bonds, Series 1993 4.900% January 1, 2002 A1 904,212
925,000 Monroe County Jail, Indiana,
First Mortgage Refunding
Bonds, Series 1993 4.900% July 1, 2002 A1 930,568
2,000,000 Indianapolis, Indiana, Local
Public Improvement Bond
Bank, Series 1993A Bonds 5.250% January 10, 2004 Aaa 2,040,660
2,125,000 Southwest Allen, Indiana, High
School Building Corp., 1st
Mortgage Refunding Bonds,
Series 1996B 4.850% July 15, 2006 Aaa 2,141,532
2,325,000 Eagle-Union Community Schools
Building Corporation, Boone
County, Indiana, 1st
Mortgage Refunding Bonds,
Series 1999 4.875% July 5, 2015 Aaa 2,178,130
------------
8,195,102
------------
IOWA (1.2%)
2,000,000 City of Des Moines, Iowa,
Sewer Revenue Bonds,
Series 1992D 6.000% June 1, 2003 Aaa 2,041,760
</TABLE>
35
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 2000
<TABLE>
<CAPTION>
RATING (A)
PRINCIPAL COUPON MATURITY (MOODY'S
AMOUNT RATE DATE OR S&P) VALUE
------------ ------- ------------------- ---------- -------------
<C> <S> <C> <C> <C> <C>
IOWA (CONTINUED)
$ 2,045,000 City of Iowa City, Johnson
County, Iowa, Sewer Revenue
Bonds 5.875% July 1, 2004 Aaa $ 2,083,098
------------
4,124,858
------------
KANSAS (.1%)
220,000 Johnson County Water District
No. 1, Kansas, Water
Revenue, Series 1982A
(Escrowed to maturity) 10.250% August 1, 2002 Aaa 233,798
------------
KENTUCKY (1.7%)
2,720,000 Louisville and Jefferson
County Metropolitan Sewer
District (Commonwealth of
Kentucky), Sewer and
Drainage System Revenue
Bonds, Series 1999A 5.500% May 15, 2009 Aaa 2,860,678
1,665,000 Jefferson County, Kentucky,
General Obligation Refunding
Bonds, Series 1998A 4.600% December 1, 2013 Aa2 1,554,111
1,745,000 Jefferson County, Kentucky,
General Obligation Refunding
Bonds, Series 1998A 4.700% December 1, 2014 Aa2 1,637,002
------------
6,051,791
------------
LOUISIANA (1.5%)
5,000,000 State of Louisiana, General
Obligation Bonds,
Series 1997A 5.375% April 15, 2011 Aaa 5,154,300
------------
MARYLAND (2.2%)
2,000,000 Howard County, Maryland,
Consolidated Public
Improvement Refunding Bonds,
Series 1991B 5.800% August 15, 2001 Aaa 2,020,920
5,750,000 Montgomery County, Maryland,
General Obligation
Consolidated Public
Improvement, 1998 Series A 4.875% May 1, 2013 Aaa 5,701,700
------------
7,722,620
------------
MICHIGAN (4.2%)
3,140,000 State of Michigan, General
Obligation Bonds, Clean
Michigan Initiative Program,
Series 1999A 5.500% November 1, 2009 Aaa 3,337,632
2,500,000 Lake Orion Community School
District, County of Oakland,
State of Michigan, 2000
School Building and Site
Bonds, (General Obligation -
Unlimited Tax), Series A (a) 5.550% May 1, 2011 Aaa 2,621,325
3,800,000 Northville Public Schools,
Michigan, 1997 General
Obligation School Building &
Site & Refunding 5.100% May 1, 2011 Aaa 3,840,850
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 2,416,637
1,400,000 Avondale School District,
Oakland County, Michigan,
1999 Refunding Bonds
(Unlimited Tax General
Obligation) 4.850% May 1, 2015 Aaa 1,320,536
1,400,000 Avondale School District,
Oakland County, Michigan,
1999 Refunding Bonds
(Unlimited Tax General
Obligation) 4.900% May 1, 2016 Aaa 1,321,432
------------
14,858,412
------------
MINNESOTA (2.7%)
1,885,000 Anoka County, Minnesota,
General Obligation Capital
Improvement Refunding Bonds,
Series 1992C 5.200% February 1, 2001 A1 1,887,450
1,500,000 County of Ramsey, Minnesota,
General Obligation Capital
Improvement Refunding Bonds,
Series 1992C 5.400% December 1, 2002 Aaa 1,529,325
3,215,000 State of Minnesota, General
Obligation State Refunding
Bonds of 1983 5.125% August 1, 2004 Aaa 3,267,244
</TABLE>
36
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 2000
<TABLE>
<CAPTION>
RATING (A)
PRINCIPAL COUPON MATURITY (MOODY'S
AMOUNT RATE DATE OR S&P) VALUE
------------ ------- ------------------- ---------- -------------
<C> <S> <C> <C> <C> <C>
MINNESOTA (CONTINUED)
$ 3,000,000 Wayzata Independent School
District #284, Minnesota,
General Obligation School
Building Refunding,
Series 1998A 5.000% February 1, 2012 Aa1 $ 3,007,770
------------
9,691,789
------------
MISSISSIPPI (1.2%)
2,100,000 Jackson Public School
District, Mississippi,
General Obligation School
Bonds, Series 1992 5.800% July 1, 2002 A1 2,142,546
2,000,000 City of Jackson, Mississippi,
Water and Sewer System
Revenue Refunding Bonds,
Series 1993-A 4.850% September 1, 2004 Aaa 2,018,280
------------
4,160,826
------------
MISSOURI (.4%)
1,375,000 The School District of St.
Joseph, (St. Joseph,
Missouri), General
Obligation School Building
Bonds, Series 2000,
(Missouri Direct Deposit
Program) 5.450% March 1, 2011 AA+ 1,444,328
------------
NEBRASKA (2.9%)
2,000,000 City of Lincoln, Nebraska,
Water Revenue and Refunding
Bonds, Series 1993 4.900% August 15, 2003 Aa2 2,022,080
1,500,000 Omaha, Nebraska, Public Power
District Electric System
Revenue Bonds, 1993
Series B 5.100% February 1, 2005 Aa2 1,528,635
6,000,000 Omaha Public Power District,
Nebraska, Electric System
Revenue Bonds, 1992
Series B (Escrowed to
maturity) 6.150% February 1, 2012 Aa2 6,582,480
------------
10,133,195
------------
NEVADA (.6%)
2,110,000 State of Nevada, General
Obligation (Limited Tax)
Hoover Uprating Refunding
Bonds, Series 1992 6.000% October 1, 2001 Aa2 2,138,232
------------
NEW YORK (.4%)
1,250,000 State of New York, Power
Authority General Purpose
Bonds, Series Z (Escrowed
to maturity) 6.000% January 1, 2001 Aaa 1,251,638
------------
NORTH CAROLINA (3.3%)
1,600,000 County of Buncombe, North
Carolina, Refunding Bonds,
Series 1993 5.100% March 1, 2004 Aa2 1,632,512
1,325,000 Winston-Salem, North Carolina,
Water and Sewer System
Revenue Bonds, Series 1995B 5.000% June 1, 2007 Aa2 1,352,255
1,665,000 Winston-Salem, North Carolina,
Water and Sewer System
Revenue Bonds, Series 1995B 5.100% June 1, 2008 Aa2 1,703,811
4,000,000 County of Wake, North
Carolina, General Obligation
School Bonds, Series 1997 4.900% March 1, 2009 Aaa 4,074,200
3,000,000 State of North Carolina,
Public School Building
Bonds, General Obligation,
Series 1999 4.600% April 1, 2016 Aaa 2,749,320
------------
11,512,098
------------
NORTH DAKOTA (.6%)
2,000,000 Fargo, North Dakota, Water
Revenue of 1993 (Escrowed to
maturity) 5.000% January 1, 2004 Aaa 2,028,440
------------
OHIO (3.6%)
1,535,000 Columbus, Ohio, Sewer
Improvement No. 27 Refunding
Bonds,
Series 1991(Unlimited Tax
General Obligation Bonds) 5.900% February 15, 2002 Aaa 1,563,121
2,000,000 Hilliard City School District,
Ohio, General Obligation
(Unlimited Tax) School
Improvement Bonds,
Series 2000 5.300% December 1, 2010 Aa2 2,078,700
</TABLE>
37
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 2000
<TABLE>
<CAPTION>
RATING (A)
PRINCIPAL COUPON MATURITY (MOODY'S
AMOUNT RATE DATE OR S&P) VALUE
------------ ------- ------------------- ---------- -------------
<C> <S> <C> <C> <C> <C>
OHIO (CONTINUED)
$ 2,000,000 State of Ohio, Higher
Education Capital
Facilities, General
Obligation Bonds,
Series 2000A 5.250% February 1, 2011 Aa1 $ 2,063,000
5,000,000 State of Ohio, Full Faith &
Credit General Obligation
Infrastructure Improvement
Bonds, Series 1997 5.350% August 1, 2012 Aa1 5,138,850
1,970,000 Delaware County, Ohio, General
Obligation, Limited Tax,
Sewer District Improvement
Bonds, Series 1999 4.900% December 1, 2015 Aaa 1,885,211
------------
12,728,882
------------
OKLAHOMA (2.1%)
1,500,000 City of Tulsa, Oklahoma,
General Obligation Refunding
Bonds of 1993 5.050% June 1, 2002 Aa2 1,514,250
1,050,000 Oklahoma City, Oklahoma,
General Obligation Bonds,
Series 1993 5.150% May 1, 2003 Aa2 1,065,677
1,050,000 Oklahoma City, Oklahoma,
General Obligation Bonds,
Series 1993 5.250% May 1, 2004 Aa2 1,066,380
2,000,000 Oklahoma City, Oklahoma,
General Obligation Refunding
Bonds, Series 1993 5.300% August 1, 2005 Aa2 2,058,100
1,680,000 City of Tulsa, Oklahoma,
General Obligation Bonds,
Series 1999 5.250% December 1, 2009 Aa2 1,740,950
------------
7,445,357
------------
OREGON (1.7%)
4,000,000 Portland, Oregon, Sewer System
Revenue Refunding Bonds,
1997 Series A 5.000% June 1, 2011 Aaa 4,037,560
2,000,000 Washington and Clackamas
Counties School District
#23J (Tigard-Tualatin),
Oregon, General Obligation
Bonds, Series 1995 5.550% June 1, 2011 A1 2,064,960
------------
6,102,520
------------
PENNSYLVANIA (1.2%)
1,645,000 City of Lancaster, Lancaster
County, Pennsylvania,
General Obligation Bonds,
Series A of 1998 4.650% May 1, 2013 Aaa 1,546,547
2,695,000 City of Lancaster, Lancaster
County, Pennsylvania,
General Obligation Bonds,
Series A of 1998 4.750% May 1, 2014 Aaa 2,537,531
------------
4,084,078
------------
SOUTH CAROLINA (2.8%)
1,625,000 Charleston County, South
Carolina, General Obligation
Bonds of 1994 (ULT)
(Escrowed to maturity) 5.400% June 1, 2005 Aa3 1,680,673
1,700,000 State of South Carolina,
General Obligation State
Highway Bonds, Series 1995 5.100% August 1, 2008 Aaa 1,749,215
1,700,000 State of South Carolina,
General Obligation State
Highway Bonds, Series 1995 5.250% August 1, 2009 Aaa 1,758,786
2,675,000 City of Columbia, South
Carolina, Waterworks and
Sewer System Revenue Bonds,
Series 1999 5.500% February 1, 2010 Aa3 2,814,421
1,800,000 School District No. 1 of
Richland County, South
Carolina, General Obligation
Bonds, Series 1999 5.500% March 1, 2010 Aa1 1,904,130
------------
9,907,225
------------
TENNESSEE (4.0%)
1,200,000 Shelby County, Tennessee,
General Obligation Refunding
Bonds, 1992 Series B 5.200% March 1, 2001 Aa3 1,202,472
1,000,000 Williamson County, Tennessee,
Public Works Refunding
Bonds, Series 1992 5.650% March 1, 2002 Aa1 1,015,410
2,000,000 Nashville & Davidson County,
Tennessee, Electric System
Revenue Bonds, 1992
Series B 5.500% May 15, 2002 Aa3 2,030,420
2,000,000 Nashville & Davidson County,
Tennessee, General
Obligation Refunding Bonds
of 1993 5.000% May 15, 2003 Aa2 2,025,300
1,500,000 Nashville & Davidson County,
Tennessee, Water and Sewer
Revenue Refunding Bonds,
Series 1993 4.900% January 1, 2004 Aaa 1,515,330
</TABLE>
38
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 2000
<TABLE>
<CAPTION>
RATING (A)
PRINCIPAL COUPON MATURITY (MOODY'S
AMOUNT RATE DATE OR S&P) VALUE
------------ ------- ------------------- ---------- -------------
<C> <S> <C> <C> <C> <C>
TENNESSEE (CONTINUED)
$ 1,800,000 Nashville & Davidson County,
Tennessee, General
Obligation Refunding Bonds
of 1993 5.000% May 15, 2005 Aa2 $ 1,832,310
4,500,000 Nashville & Davidson County,
Tennessee, Water and Sewer
Revenue Refunding Bonds,
Series 1996 5.250% January 1, 2008 Aaa 4,644,765
------------
14,266,007
------------
TEXAS (6.4%)
2,000,000 Texas Public Finance
Authority, State of Texas,
General Obligation Refunding
Bonds, Series 1992A 5.700% October 1, 2003 Aa1 2,064,720
2,000,000 City of Dallas, Texas,
Waterworks and Sewer System
Revenue Refunding Bonds,
Series 1993 4.900% April 1, 2004 Aa2 2,014,780
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 2,407,587
1,000,000 Carrollton-Farmers Branch
Independent School District
(Dallas County, Texas)
School Building Unlimited
Tax Bonds, Series 1999 5.375% February 15, 2008 Aaa 1,040,170
3,000,000 State of Texas, Public Finance
Authority, General
Obligation Refunding Bonds,
Series 1996B 5.400% October 1, 2008 Aa1 3,105,900
2,455,000 Carrollton-Farmers Branch
Independent School District
(Dallas County, Texas)
School Building Unlimited
Tax Bonds, Series 1999 5.500% February 15, 2009 Aaa 2,577,063
3,000,000 Fort Worth Independent School
District (Tarrant County,
Texas), School Building
Unlimited Tax Bonds,
Series 2000 5.500% February 15, 2010 Aaa 3,152,310
2,115,000 McKinney Independent School
District (Collin County,
Texas), School Building
Unlimited Tax Bonds,
Series 2000 5.125% February 15, 2012 Aaa 2,126,400
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 1,896,911
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 2,086,155
------------
22,471,996
------------
UTAH (1.2%)
2,780,000 Salt Lake County, Utah,
General Obligation Jail
Bonds, Series 1995 5.000% December 15, 2007 Aaa 2,826,982
1,300,000 City of Provo, Utah County,
Utah, General Obligation
Library Bonds, Series 1999 5.250% March 1, 2009 Aaa 1,344,746
------------
4,171,728
------------
VIRGINIA (.8%)
2,885,000 Virginia Housing Development
Authority, Commonwealth
Mortgage Bonds 5.350% January 1, 2013 Aa1 2,886,154
------------
WASHINGTON (6.8%)
1,000,000 Washington Public Power Supply
System Nuclear Project No.
1, Revenue Refunding Bonds,
Series 1990C 7.700% July 1, 2002 Aa1 1,047,510
2,000,000 Washington Public Power Supply
System Nuclear Project No.
3, Refunding Revenue Bonds,
Series 1993C 4.800% July 1, 2003 Aa1 2,009,580
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 2,573,248
2,000,000 City of Seattle, Washington,
Unlimited Tax General
Obligation Refunding Bonds
of 1993 4.800% December 1, 2004 Aaa 2,009,460
2,035,000 Lakewood School District No.
306, Snohomish County,
Washington, Unlimited Tax
General Obligation Bonds,
2000 5.550% December 1, 2010 Aa1 2,141,899
4,500,000 State of Washington, General
Obligation Bonds,
Series 1993A 5.750% October 1, 2012 Aa1 4,819,230
</TABLE>
39
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 2000
<TABLE>
<CAPTION>
RATING (A)
PRINCIPAL COUPON MATURITY (MOODY'S
AMOUNT RATE DATE OR S&P) VALUE
------------ ------- ------------------- ---------- -------------
<C> <S> <C> <C> <C> <C>
WASHINGTON (CONTINUED)
$ 2,000,000 City of Vancouver, Washington,
Water and Sewer Revenue
Refunding Bonds, 1998 4.600% June 1, 2013 Aaa $ 1,849,380
2,495,000 Seattle, Washington, Water
System Revenue 1998 5.000% October 1, 2013 Aa2 2,459,995
2,605,000 City of Vancouver, Washington,
Water and Sewer Revenue
Refunding Bonds, 1998 4.650% June 1, 2014 Aaa 2,395,897
3,000,000 State of Washington, Variable
Purpose General Obligation
Refunding Bonds,
Series R-99A 4.750% January 1, 2015 Aa1 2,811,480
------------
24,117,679
------------
WEST VIRGINIA (.7%)
2,540,000 State of West Virginia, State
Road General Obligation
Bonds, Series 1998 5.000% June 1, 2013 Aaa 2,519,045
------------
WISCONSIN (4.1%)
3,500,000 Milwaukee, Wisconsin,
Metropolitan Sewerage
District General Obligation
Capital Purpose Bonds,
Series 1990A (Escrowed to
maturity) 6.700% October 1, 2002 Aa1 3,638,985
2,000,000 State of Wisconsin, General
Obligation Refunding Bonds
of 1993, Series 1 5.300% November 1, 2003 Aa2 2,044,880
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 2,116,480
2,500,000 State of Wisconsin, General
Obligation Refunding Bonds
of 1993, Series 2 5.125% November 1, 2010 Aa2 2,563,425
2,180,000 Dane County, Wisconsin,
General Obligation Refunding
Bonds, Series 1998B 4.800% March 1, 2012 Aaa 2,132,018
2,220,000 Dane County, Wisconsin,
General Obligation Refunding
Bonds, Series 1998B 4.800% March 1, 2013 Aaa 2,145,563
------------
14,641,351
------------
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 1,649,760
------------
TOTAL LONG-TERM MUNICIPAL BONDS
(cost $336,374,422) 343,563,498
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT
------------
<C> <S> <C> <C> <C> <C>
SHORT-TERM INVESTMENTS (1.8%)
4,000,000 U.S. Treasury Bills, 5.965%
and 6.185%, December, 2000 and
January, 2001 3,974,680
2,303,912 Chase Vista Treasury Plus
Money Market Fund 2,303,912
------------
TOTAL SHORT-TERM INVESTMENTS
(cost $6,277,845) 6,278,592
------------
TOTAL INVESTMENTS (99.3%)
(cost $342,652,267) 349,842,090
OTHER ASSETS, NET OF LIABILITIES (0.7%) 2,624,146
------------
NET ASSETS (100.0%) $352,466,236
============
</TABLE>
Notes:
(a) Ratings are unaudited.
At November 30, 2000, net unrealized appreciation of $7,189,823 consisted of
gross unrealized appreciation of $9,761,745 and gross unrealized depreciation of
$2,571,922 based on cost of $342,652,267 for federal income tax purposes.
See accompanying notes to financial statements.
40
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 2000
<TABLE>
<S> <C> <C>
ASSETS
Investments, at value (cost
$342,652,267) $349,842,090
Receivable for:
Interest $5,903,014
Shares of the Fund sold 21,808 5,924,822
----------
Prepaid expenses 9,494
------------
Total assets 355,776,406
LIABILITIES AND NET ASSETS
Dividends to shareowners 3,033,215
Payable for:
Shares of the Fund redeemed 127,469
Manager 121,015 248,484
----------
Accrued liabilities 28,471
------------
Total liabilities 3,310,170
------------
Net assets applicable to 42,750,826
shares outstanding of
$1.00 par value common stock
(100,000,000 shares authorized) $352,466,236
============
Net asset value, offering price and
redemption price per share $ 8.24
============
ANALYSIS OF NET ASSETS
Excess of amounts received from sales
of shares over amounts paid on
redemptions of shares on account of
capital $345,355,033
Accumulated net realized loss on sales
of investments (78,620)
Net unrealized appreciation of
investments 7,189,823
------------
Net assets applicable to shares
outstanding $352,466,236
============
</TABLE>
See accompanying notes to financial statements.
41
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
------------------------
2000 1999
----------- -----------
<S> <C> <C>
INVESTMENT INCOME:
Taxable interest $ 359,851 458,646
Tax-exempt interest 18,308,857 19,158,717
----------- -----------
Total investment income 18,668,708 19,617,363
EXPENSES:
Investment advisory and management
fees 421,888 442,211
Professional fees 24,921 54,134
ICI dues 7,176 12,972
Registration fees -- 2,879
Fidelity bond expense 3,678 3,453
Directors' fees 4,500 4,800
Reports to shareowners 5,762 6,310
Security evaluation fees 18,799 21,288
Franchise taxes 18,023 17,420
Custodian fees 8,163 12,456
Other -- 131
----------- -----------
Total expenses 512,910 578,054
----------- -----------
Net investment income 18,155,798 19,039,309
REALIZED AND UNREALIZED GAIN (LOSS): ON
INVESTMENTS:
Net realized gain (loss) on sales of
investments (37,244) 21,485
Change in net unrealized appreciation
or depreciation 5,219,530 (19,471,906)
----------- -----------
Net realized and unrealized gain (loss)
on investments 5,182,286 (19,450,421)
----------- -----------
Net change in net assets resulting from
operations $23,338,084 (411,112)
=========== ===========
</TABLE>
See accompanying notes to financial statements.
42
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-------------------------
2000 1999
------------ -----------
<S> <C> <C>
FROM OPERATIONS:
Net investment income $ 18,155,798 19,039,309
Net realized gain (loss) on sales of
investments (37,244) 21,485
Change in net unrealized appreciation
or depreciation 5,219,530 (19,471,906)
------------ -----------
Net change in net assets resulting from
operations 23,338,084 (411,112)
DISTRIBUTIONS TO SHAREOWNERS FROM:
Net investment income (18,155,798) (19,039,309)
------------ -----------
Total distributions to shareowners (18,155,798) (19,039,309)
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold 25,998,924 39,488,742
Reinvestment of ordinary income
dividends and capital gain
distributions 13,655,464 14,382,411
------------ -----------
39,654,388 53,871,153
Less payments for shares redeemed 50,924,135 38,958,604
------------ -----------
Net increase (decrease) in net assets
from Fund share transactions (11,269,747) 14,912,549
------------ -----------
Total decrease in net assets (6,087,461) (4,537,872)
NET ASSETS:
Beginning of year 358,553,697 363,091,569
------------ -----------
End of year $352,466,236 358,553,697
============ ===========
</TABLE>
See accompanying notes to financial statements.
43
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the financial
performance of the Fund for the past ten years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Fund (assuming reinvestment of all dividends and distributions).
PER SHARE INCOME AND CAPITAL CHANGES (For a share outstanding throughout each
year):
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-----------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995 1994 1993 1992 1991
------ ----- ----- ------ ------ ---------- -------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
year $ 8.12 8.55 8.43 8.44 8.50 7.88 8.59 8.34 8.15 7.98
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.42 0.43 0.45 0.47 0.48 0.48 0.48 0.50 0.53 0.54
Net gain (loss) on
investments (both realized
and unrealized) 0.12 (0.43) 0.12 (0.01) (0.06) 0.62 (0.69) 0.25 0.19 0.17
------ ----- ----- ------ ------ ------ ------ ------ ------ ------
Total from investment
operations 0.54 -- 0.57 0.46 0.42 1.10 (0.21) 0.75 0.72 0.71
------ ----- ----- ------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS
Net investment income (0.42) (0.43) (0.45) (0.47) (0.48) (0.48) (0.48) (0.50) (0.53) (0.54)
Net realized gain (a) -- -- -- -- -- -- (0.02) -- -- --
------ ----- ----- ------ ------ ------ ------ ------ ------ ------
Total distributions (0.42) (0.43) (0.45) (0.47) (0.48) (0.48) (0.50) (0.50) (0.53) (0.54)
------ ----- ----- ------ ------ ------ ------ ------ ------ ------
Net asset value, end of year $ 8.24 8.12 8.55 8.43 8.44 8.50 7.88 8.59 8.34 8.15
====== ===== ===== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN 6.87% 0.04% 6.82% 5.68% 5.21% 14.25% (2.55)% 9.17% 9.05% 9.17%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year
(millions) $352.5 358.6 363.1 336.4 321.1 307.4 269.9 276.4 211.3 167.2
Ratio of expenses to average
net assets 0.15% 0.16% 0.15% 0.15% 0.16% 0.17%(b) 0.16% 0.18% 0.19% 0.21%
Ratio of net investment income
to average net assets 5.23% 5.20% 5.29% 5.61% 5.76% 5.80% 5.80% 5.84% 6.36% 6.75%
Portfolio turnover rate 7% 10% 6% 6% 6% 7% 8% 5% 4% 2%
</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.
44
<PAGE>
STATE FARM MUTUAL FUNDS
NOTES TO FINANCIAL STATEMENTS
1. OBJECTIVE
The investment objective of the STATE FARM GROWTH FUND, INC. (GROWTH FUND) is
long-term growth of capital and income. The Fund seeks to achieve this objective
by investing most of its assets in 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
accounting principles generally accepted in the United States.
2. SIGNIFICANT ACCOUNTING POLICIES
SECURITIES VALUATION
Investments are stated at value. Stocks traded on domestic or foreign 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 on the
exchange in which the security is traded most extensively 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.
INCOME RECOGNITION
In November 2000, the American Institute of Certified Public Accountants (AICPA)
issued a revised version of the AICPA Audit and Accounting Guide requiring all
Investment Companies to amortize premiums and discounts on fixed income
securities, effective with the fiscal year beginning after December 15, 2000.
The Balanced and Interim Funds currently do not amortize premiums and discounts
on fixed income securities. Therefore, to comply with generally accepted
accounting principles, these Funds will be required to amortize premiums and
discounts on fixed income securities beginning December 1, 2001 and record a
cumulative effect adjustment for the change in accounting. Had these Funds been
required to institute this change on November 30, 2000, the cumulative effect
would have reduced net investment income and increased unrealized appreciation
on securities by $2,289,647 and $4,209,173 for the Interim and Balanced Funds,
respectively. These reclassifications would not impact the Funds' total net
assets or net asset values.
SECURITIES PURCHASED ON A 'WHEN-ISSUED' BASIS
The Municipal Bond Fund may purchase municipal bonds on a 'when-issued' basis.
Delivery and payment for these securities may be a month or more after the
purchase date, during which time such securities are subject to market
fluctuations. It is possible that the securities will never be issued and the
commitment cancelled.
FUND SHARE VALUATION
Fund shares are sold and redeemed on a continuous basis at net asset value. The
net asset value per share is determined daily on each 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 are determined as of the close of
45
<PAGE>
STATE FARM MUTUAL FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
regular session trading on the New York Stock Exchange (usually 3:00 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.
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.
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax regulations
which may differ from generally accepted accounting principles. As a result, net
investment income and net realized gain on investment transactions for a
reporting period may differ from distributions during such period. Accordingly,
each Fund may periodically make reclassifications among certain of its capital
accounts without impacting the net asset value of the respective Fund.
On December 15, 2000, the Growth Fund declared an ordinary income dividend of
$.315 per share and a capital gain distribution of $.15 to shareowners of record
on December 15, 2000 (reinvestment date December 18, 2000).
On December 15, 2000, the Balanced Fund declared an ordinary income dividend of
$.73 per share to shareowners of record on December 15, 2000 (reinvestment date
December 18, 2000).
At November 30, 2000, the following Funds had unused capital loss carryforwards
available for federal income tax purposes to be applied against future capital
gains, if any. If not applied, the carryforwards will expire as follows:
<TABLE>
<CAPTION>
STATE FARM STATE FARM STATE FARM
EXPIRATION BALANCED INTERIM MUNICIPAL
YEAR FUND, INC. FUND, INC. BOND FUND, INC.
---------- ------------ ------------ ---------------
<S> <C> <C> <C> <C>
2001 $ -- 162,716 --
2002 -- 335,277 --
2003 -- 321,293 --
2004 -- 363,957 --
2005 -- 922,190 --
2006 -- 994,996 41,376
2007 -- 884,533 --
2008 4,256,235 3,819,121 37,244
---------- ---------- ---------- -----------
Total $4,256,235 7,804,083 78,620
</TABLE>
The Interim Fund had a capital loss carryover of $22,669 expire in 2000 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 redemption
of shares on account of capital on the Statement of Assets and Liabilities.
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.
FOREIGN CURRENCY TRANSLATION
Investment securities and other assets and liabilities denominated in a foreign
currency are translated into U.S. dollars at the prevailing rates at period end.
Purchases and sales of investment securities, income and expenses are translated
into U.S. dollars at the prevailing exchange rates on the respective dates of
transactions. That portion of both realized and unrealized gains and losses on
investments that results from fluctuations in foreign currency exchange rates is
not separately disclosed but is included with net realized and unrealized gains
and losses on investment securities.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States 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.
46
<PAGE>
STATE FARM MUTUAL FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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>
2000 1999
---------- ----------
<S> <C> <C>
State Farm Growth Fund, Inc. $3,177,953 2,740,037
State Farm Balanced Fund, Inc. 1,157,544 1,113,753
State Farm Interim Fund, Inc. 200,660 230,126
State Farm Municipal Bond Fund, Inc. 421,888 442,211
</TABLE>
The Funds do not pay any discount, commission or other compensation for transfer
agent or underwriting services provided by the Manager.
Certain officers and/or directors of each Fund are also officers and/or
directors of the Manager. The Funds made no payments to 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>
2000 1999
------- -------
<S> <C> <C>
State Farm Growth Fund, Inc. $13,500 14,400
State Farm Balanced Fund, Inc. 6,750 7,200
State Farm Interim Fund, Inc. 2,250 2,400
State Farm Municipal Bond Fund, Inc. 4,500 4,800
</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>
2000 1999
------------ ------------
<S> <C> <C>
STATE FARM GROWTH FUND, INC.
Purchases $160,503,816 166,759,514
Proceeds from sales 90,010,936 50,948,078
STATE FARM BALANCED FUND, INC.
Purchases 48,767,099 121,270,812
Proceeds from sales 74,382,336 42,344,646
STATE FARM INTERIM FUND, INC.
Purchases 15,123,281 26,673,672
Proceeds from sales 51,593,613 17,750,000
STATE FARM MUNICIPAL BOND FUND, INC.
Purchases 24,318,973 48,533,279
Proceeds from sales 36,912,396 35,579,660
</TABLE>
47
<PAGE>
STATE FARM MUTUAL FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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>
2000 1999
----------- ----------
<S> <C> <C>
STATE FARM GROWTH FUND, INC.
Shares sold 10,621,413 6,423,670
Shares issued in reinvestment of
ordinary
income dividends and capital gain
distributions 841,549 666,008
----------- ----------
11,462,962 7,089,678
Less shares redeemed 8,825,806 4,646,586
----------- ----------
Net increase in shares outstanding 2,637,156 2,443,092
=========== ==========
STATE FARM BALANCED FUND, INC.
Shares sold 3,003,616 2,212,658
Shares issued in reinvestment of
ordinary
income dividends and capital gain
distributions 705,906 518,187
----------- ----------
3,709,522 2,730,845
Less shares redeemed 4,021,390 1,992,292
----------- ----------
Net increase (decrease) in shares
outstanding (311,868) 738,553
=========== ==========
STATE FARM INTERIM FUND, INC.
Shares sold 5,071,077 7,721,510
Shares issued in reinvestment of
ordinary
income dividends 834,715 959,304
----------- ----------
5,905,792 8,680,814
Less shares redeemed 9,924,760 8,132,727
----------- ----------
Net increase (decrease) in shares
outstanding (4,018,968) 548,087
=========== ==========
STATE FARM MUNICIPAL BOND FUND, INC.
Shares sold 3,202,250 4,692,572
Shares issued in reinvestment of
ordinary
income dividends 1,682,684 1,721,081
----------- ----------
4,884,934 6,413,653
Less shares redeemed 6,305,824 4,685,530
----------- ----------
Net increase (decrease) in shares
outstanding (1,420,890) 1,728,123
=========== ==========
</TABLE>
48
<PAGE>
TAX INFORMATION
STATE FARM GROWTH FUND, INC.
The Fund paid ordinary income dividends of $.32 per share in June 2000 and $.315
per share in December 2000. Of these dividends, 82% qualifies for the 70%
deduction for dividends received by corporations as provided by the Internal
Revenue Code.
In December 2000 the Fund made a capital gain distribution of $.15 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 $.77 per share in June 2000 and $.73
per share in December 2000. Of these dividends, 26% qualifies for the 70%
deduction for dividends received by corporations as provided by the Internal
Revenue Code.
STATE FARM INTERIM FUND, INC.
The Fund paid ordinary income dividends in March, June, September, and December.
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, 99% in March, 99% in June, 97% in September and 98% in
December are designated as exempt-interest dividends. 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.
The dividends paid to you will be included on the Form 1099-DIV to be sent in
January 2001.
<PAGE>
State Farm Mutual Funds PRESORTED
Three State Farm Plaza, R-4 STANDARD
Bloomington, IL 61791-0001 U.S. POSTAGE
FORWARDING SERVICE REQUESTED PAID
PERMIT 439
ELK GROVE, IL
[STATE FARM INSURANCE LOGO]
MUTUAL FUNDS-TM-
1-309-766-2029 1-800-447-0740
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190-4049.2-CH REV.01-2001 Printed in U.S.A.
