<PAGE>
As filed with the Securities and Exchange Commission on January 29, 1999
Securities Act Registration No. 2-27769
Investment Company Act File No. 811-1520
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
- --------------------------------------------------------------------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 39
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 20
STATE FARM BALANCED FUND, INC.
--------------------------------------------------------------
(Exact name of Registrant as Specified in Charter)
One State Farm Plaza, Bloomington, Illinois 61710
- ---------------------------------------------------------- -------------
(Address of Principal Executive Offices (Zip Code)
Registrant's Telephone Number, including Area Code (309) 766-2029
Janet Olsen
Bell Boyd & Lloyd
Roger Joslin Three First National Plaza
One State Farm Plaza 70 West Madison St., Suite 3300
Bloomington, Illinois 61710 Chicago, Illinois 60602
- --------------------------------------------------------------------------------
(Names and addresses of agents for service)
-----------------------------------------------------------
Amending Parts A, B and C, and filing exhibits
------------------------------------------------------------
It is proposed that this filing will become effective:
[ ] immediately upon filing pursuant to rule 485(b)
[ ] on __________pursuant to rule 485(b)
[ ] 60 days after filing pursuant to rule 485(a)(1)
[X] on April 1, 1999 pursuant to rule 485(a)(1)
[ ] 75 days after filing pursuant to rule 485(a)(2)
[ ] on ___________ pursuant to rule 485(a)(2)
<PAGE>
[LOGO]
STATE FARM MUTUAL FUNDS
STATE FARM GROWTH FUND, INC.
STATE FARM BALANCED FUND, INC.
STATE FARM INTERIM FUND, INC.
STATE FARM MUNICIPAL BOND FUND, INC.
ONE STATE FARM PLAZA
BLOOMINGTON, ILLINOIS 61710-0001
OFFERED TO THE AGENTS AND EMPLOYEES OF THE STATE FARM INSURANCE
COMPANIES AND THEIR FAMILIES
---------------------
The Securities and Exchange Commission has not approved or disapproved these
securities or determined if this prospectus is accurate or complete. Any
representation to the contrary is a criminal offense.
PROSPECTUS--APRIL 1, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
INVESTMENTS, RISKS AND PERFORMANCE......................................................................... 2
State Farm Growth Fund............................................................................. 2
State Farm Balanced Fund........................................................................... 4
State Farm Interim Fund............................................................................ 6
State Farm Municipal Bond Fund..................................................................... 8
HOW THE FUNDS INVEST....................................................................................... 10
Growth Fund........................................................................................ 10
Balanced Fund...................................................................................... 10
Interim Fund....................................................................................... 11
Municipal Bond Fund................................................................................ 12
RISKS...................................................................................................... 12
HOW TO BUY FUND SHARES..................................................................................... 14
Who May Invest..................................................................................... 14
Minimum Investments................................................................................ 14
How to Buy......................................................................................... 14
Share Price........................................................................................ 16
HOW TO REDEEM FUND SHARES.................................................................................. 16
Signature Guarantee................................................................................ 19
RETIREMENT PLANS........................................................................................... 20
MANAGEMENT OF THE FUNDS.................................................................................... 21
DIVIDENDS, DISTRIBUTIONS AND TAXES......................................................................... 22
FINANCIAL HIGHLIGHTS....................................................................................... 24
</TABLE>
<PAGE>
INVESTMENTS, RISKS AND PERFORMANCE
- --------------------------------------------------------------------------------
STATE FARM GROWTH FUND
WHAT IS GROWTH FUND'S INVESTMENT OBJECTIVE AND STRATEGY?
OBJECTIVE. Growth Fund seeks long-term growth of capital and income.
STRATEGY. Growth Fund invests most of its assets in income-producing equity
securities. State Farm Investment Management Corp. (the "Manager"), investment
adviser to the State Farm Mutual Funds, chooses stocks for the Fund's portfolio
for their long-term potential to generate capital gains, or growth in income, or
both. Although there is no restriction on the size of the companies in which the
Fund invests, ordinarily most of the Fund's investments are in large companies.
The Fund generally keeps stocks as long as the Manager believes that they
still have the potential, over the long-term, to generate capital gain or growth
in income.
The Fund may invest up to 25% of its assets in securities of foreign
companies.
WHAT ARE THE RISKS OF INVESTING IN GROWTH FUND?
The Fund invests mostly in common stocks, which represent an equity interest
(ownership) in a corporation and are subject to MARKET RISK. Stock prices may
fluctuate widely over short or even extended periods in response to company,
market, or economic news. Stock markets also tend to move in cycles, with
periods of rising stock prices and periods of falling stock prices. An
investment in the Fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. You can lose money by investing in the Fund.
The Fund's investments in foreign securities present risks which in some
ways may be greater than in U.S. investments, including currency exchange rate
fluctuation; less available public information about issuers; less stringent
regulatory standards; lack of uniform accounting, auditing and financial
reporting standards; and country risks including less liquidity, high inflation
rates, unfavorable market practices and political instability.
IS GROWTH FUND AN APPROPRIATE INVESTMENT FOR ME?
Because of the variable nature of the stock market, Growth Fund should be
considered a long-term investment, designed to provide the best results when
held for several years or more. The Fund may not be suitable for you if you have
a short-term investment horizon or are unwilling to accept fluctuations in share
price, including significant declines over a given period.
HOW HAS GROWTH FUND PERFORMED?
The following bar chart and table illustrate certain risks of investing in
the Fund. As you can see, the bar chart shows the changes in the Fund's returns
year by year. The table compares the Fund's average annual total returns for the
periods listed to a market index. This information is intended to help you
assess the variability of Fund returns over the periods listed (and
consequently, the potential rewards and risks of a Fund investment). Of course,
the Fund's past
2
<PAGE>
performance doesn't necessarily indicate how it will perform in the future.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
1989 31.94
<S> <C>
1990 4.33
1991 41.88
1992 2.12
1993 0.55
1994 6.02
1995 30.69
1996 17.16
1997 31.11
1998 20.34
Total Return
</TABLE>
The Fund's best and worst quarters during the last 10 years were:
Best quarter: 19.82%,
during the fourth quarter of 1998.
Worst quarter: -11.90%,
during the third quarter of 1990.
The following table shows the Average Annual Total Return on a $10,000
investment in the Fund compared to changes in the Standard & Poor's 500 Stock
Index for the 1-, 5- and 10-year periods ended December 31, 1998:
<TABLE>
<CAPTION>
GROWTH FUND S&P 500 INDEX*
--------------- -----------------
<S> <C> <C>
1 year 20.34% 28.58%
5 years 20.70% 24.06%
10 years 17.78% 19.19%
</TABLE>
- ------------------------
* The S&P 500 Index is a capitalization-weighted measure of the common stocks
of 500 large U.S. companies. The S&P 500 Index represents an unmanaged group
of stocks that differs from the composition of Growth Fund. Returns do not
reflect expenses.
WHAT ARE THE COSTS OF INVESTING IN GROWTH FUND?
Below are the fees and expenses that you would pay if you purchased shares of
the Fund.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Maximum sales charge None
Redemption fee None
Exchange fee None
</TABLE>
The table below shows the annual operating expenses that are deducted from Fund
assets:
FUND OPERATING EXPENSES
<TABLE>
<S> <C>
Management fee .11%
12b-1 fee None
Other expenses .01%
---------
Total Operating Expenses .12%
</TABLE>
EXAMPLE. This example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds. The example assumes
you invest $10,000 for the time periods indicated, earn a 5% return each year,
and that operating expenses remain constant. Your actual returns and costs may
be higher or lower than those shown, but based on these assumptions, your
expenses would be:
<TABLE>
<S> <C>
After 1 year $ 12
After 3 years $ 39
After 5 years $ 68
After 10 years $ 154
</TABLE>
3
<PAGE>
STATE FARM BALANCED FUND
WHAT IS BALANCED FUND'S INVESTMENT OBJECTIVE AND STRATEGY?
OBJECTIVE. Balanced Fund seeks income and some long-term growth of both
principal and income.
STRATEGY. Balanced Fund invests in common stocks, preferred stocks and
bonds in varying proportions according to prevailing market conditions and the
judgment of the Manager.
The Fund invests approximately 60% of its assets in common stocks, and
ordinarily limits its common stock investments to no more than 75% of total
assets. The Fund invests in common stocks that the Manager believes have the
potential for long-term capital gain. The income provided by common stocks is
usually incidental to their selection. Although there is no restriction on the
size of companies in which the Fund may invest, ordinarily most of the Fund's
common stock investments are in large companies.
Balanced Fund invests in bonds and preferred stocks to provide relative
stability of principal and income. Under most circumstances, the Fund's
investments in bonds are in longer-term investment grade securities. Although
usually the majority of the Fund's assets are invested in common stocks, the
Fund may for a time choose to invest as much as 75% of its total assets in fixed
income securities, including short-term securities.
The Fund generally keeps its investments as long as the Manager believes
that they still are generating appropriate income (for bonds) or have the
potential, over the long-term, to generate capital gain (for common stocks).
WHAT ARE THE RISKS OF INVESTING IN BALANCED FUND?
The Fund usually invests a majority of its assets in common stocks which are
subject to MARKET RISK. Stock prices may fluctuate widely over short or even
extended periods in response to company, market, or economic news. Stock markets
also tend to move in cycles, with periods of rising stock prices and periods of
falling stock prices. An investment in the Fund is not a deposit of a bank and
is not insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency. You can lose money by investing in the Fund.
The Fund's investments in bonds are subject to INTEREST RATE RISK and CREDIT
RISK. Interest rate risk is the risk that bonds will decline in value because of
changes in interest rates. Generally, bonds decrease in value when interest
rates rise and increase in value when interest rates fall. Credit risk is the
risk that an issuer of a bond may become unable to meet its obligation to pay
interest on the bond, or repay principal.
IS BALANCED FUND AN APPROPRIATE INVESTMENT FOR ME?
The Fund might be appropriate for you if you are seeking:
- - long-term growth potential;
- - a substantial measure of downside protection; and
- - the convenience of a balanced portfolio in a single investment.
Because the Fund usually invests the majority of its assets in common
stocks, the Fund should be considered a long-term investment. The Fund is not an
appropriate investment for you if you have a short-term
4
<PAGE>
investment horizon and are unwilling to accept share price fluctuations.
HOW HAS BALANCED FUND PERFORMED?
The following bar chart and table illustrate certain risks of investing in
the Fund. As you can see, the bar chart shows the changes in the Fund's returns
year by year. The table compares the Fund's average annual total returns for the
periods listed to a market index. This information is intended to help you
assess the variability of Fund returns over the periods listed (and
consequently, the potential rewards and risks of a Fund investment). Of course,
the Fund's past performance doesn't necessarily indicate how it will perform in
the future.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
1989 25.7
<S> <C>
1990 9.99
1991 39.21
1992 5.38
1993 3.3
1994 5.01
1995 25.07
1996 13.07
1997 22.16
1998 13.49
Total Return
</TABLE>
The Fund's best and worst quarters during the last 10 years were:
Best quarter: 14.66%,
during the first quarter of 1991.
Worst quarter: -7.74%,
during the third quarter of 1990.
The following table shows the Average Annual Total Return on a $10,000
investment in the Fund compared to a market index for the 1-, 5-and 10-year
periods ended December 31, 1998:
<TABLE>
<CAPTION>
LEHMAN
BALANCED S&P 500 INTERMED.
FUND INDEX* INDEX**
----------- ----------- -------------
<S> <C> <C> <C>
1 year 13.49% 28.58% 6.73%
5 years 15.54% 24.06% 6.08%
10 years 15.74% 19.19% 8.14%
</TABLE>
- ------------------------
* The S&P 500 Index is a capitalization-weighted measure of 500 widely held
common stocks listed on the New York and American Stock Exchanges and traded
in the over-the-counter market. The S&P 500 Index represents an unmanaged
group of stocks that differs from the composition of the common stock
investments of Balanced Fund.
** The Lehman Brothers Intermediate Treasury Index contains approximately 130
U.S. Treasury securities with maturities ranging from one to ten years.
Returns do not reflect expenses.
WHAT ARE THE COSTS OF INVESTING IN BALANCED FUND?
Below are the fees and expenses that you would pay if you purchased shares of
the Fund.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Maximum sales charge None
Redemption fee None
Exchange fee None
</TABLE>
The table below shows the annual operating expenses that are deducted from Fund
assets:
FUND OPERATING EXPENSES
<TABLE>
<S> <C>
Management fee .12%
12b-1 fee None
Other expenses .01%
---------
Total Operating Expenses .13%
</TABLE>
EXAMPLE. This example is intended to help you compare the cost of investing in
the Fund with that of investing in other mutual funds. The example assumes you
invest $10,000 for the time periods indicated, earn a 5% return each year, and
that operating expenses remain constant. Your actual returns and costs may be
higher or lower than those shown, but based on these assumptions, your expenses
would be:
<TABLE>
<S> <C>
After 1 year $ 13
After 3 years $ 42
After 5 years $ 73
After 10 years $ 166
</TABLE>
5
<PAGE>
STATE FARM INTERIM FUND
WHAT IS INTERIM FUND'S INVESTMENT OBJECTIVE AND STRATEGY?
OBJECTIVE. Interim Fund Seeks the realization over a period of years of the
highest yield consistent with relative price stability (relatively low
volatility).
STRATEGY. The Fund invests in high quality debt securities with short-and
intermediate-term maturities, including:
- - U.S. government obligations,
- - high quality corporate obligations, and
- - high quality commercial paper and other money market instruments.
The Fund's investments are typically distributed in varying amounts among
securities maturing in up to six or seven years from the time of purchase, but
occasionally may extend to securities maturing in no more than 15 years. The
Fund buys securities with shorter maturities, even though they tend to produce
less income, because they generally also have less volatile prices. The Fund
usually holds the securities in which it invests until they mature, but it may
sell them earlier.
WHAT ARE THE RISKS OF INVESTING IN INTERIM FUND?
The chief risks of investing in Interim Fund are INTEREST RATE RISK, CREDIT
RISK and INFLATION RISK, and you can lose money by investing in the Fund.
Interest rate risk is the risk that the Fund's investments will decline in
value because of changes in interest rates. Generally, debt securities decrease
in value when interest rates rise and increase in value when interest rates
fall.
Credit risk is the risk that an issuer of a bond may become unable to meet
its obligation to pay interest on the bond, or repay principal. The Fund tries
to limit credit risk by investing in high quality securities.
Inflation risk is the risk that the value of assets or income from an
investment will be worth less in the future as inflation decreases the value of
money.
An investment in the Fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
IS AN INVESTMENT IN INTERIM FUND APPROPRIATE FOR ME?
Interim Fund might be appropriate for you if you are seeking a temporary
investment while you look for longer term investment alternatives or other uses
for your money, or you want income from your investment with relative price
stability.
The Fund is not an appropriate investment for you if you are seeking long
term growth of capital.
HOW HAS INTERIM FUND PERFORMED?
The following bar chart and table illustrate certain risks of investing in
the Fund. As you can see, the bar chart shows the changes in the Fund's returns
year by year. The table compares the Fund's average annual total returns for the
periods listed to a market index. This information is intended to help you
assess the variability of Fund returns over the periods indicated (and
consequently, the potential rewards and risks of a Fund investment. Of course,
the Fund's past
6
<PAGE>
performance doesn't necessarily indicate how it will perform in the future.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
1989 12.02
<S> <C>
1990 9.36
1991 12.23
1992 6.29
1993 6.84
1994 -0.78
1995 12.51
1996 4.17
1997 7.08
1998 7.84
Total Return
</TABLE>
The Fund's best and worst quarters during the last 10 years were:
Best quarter: 6.33%,
during the second quarter of 1989.
Worst quarter: -1.20%,
during the first quarter of 1994.
The table below shows the Average Annual Total Return on a $10,000
investment in the Fund compared to a market index for the 1-, 5- and 10-year
periods ended December 31, 1998:
<TABLE>
<CAPTION>
LEHMAN
1-5 YEAR
INTERIM FUND U.S. TREASURY INDEX
--------------- ---------------------
<S> <C> <C>
1 year 7.84% 7.75%
5 years 6.07% 6.17%
10 years 7.68% 7.73%
</TABLE>
- ------------------------
* The Lehman Brothers 1-5 Year U.S. Treasury Index presently contains
approximately 87 U.S. Treasury Securities with maturities ranging from one
to five years. In preceding years, performance of the Interim Fund was
compared to a Lehman Brothers Intermediate Treasury Index, which contains
approximately 130 U.S. Treasury Securities with maturities ranging from one
to ten years. The Lehman 1-5 Year Index more closely approximates the
weighted average maturity of Interim Fund's portfolio. For the 12 months
ended December 31, 1998, the Lehman Intermediate Index showed an increase of
6.73% and the 1-5 Year Index showed an increase of 7.75%, compared to
Interim Fund's total return of 7.84% for the same period. The Lehman
Brothers 1-5 Year U.S. Treasury Index represents an unmanaged group of bonds
that differs from the composition of the Interim Fund. Unlike an investment
in the Interim Fund, a theoretical investment in the Index does not reflect
any expenses.
WHAT ARE THE COSTS OF INVESTING IN INTERIM FUND?
Below are the fees and expenses that you would pay if you purchased shares
of the Fund.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Maximum sales charge None
Redemption fee None
Exchange fee None
</TABLE>
The table below shows the annual operating expenses that are deducted from Fund
assets:
FUND OPERATING EXPENSES
<TABLE>
<S> <C>
Management fee .15%
12b-1 fee None
Other expenses .04%
---------
Total Operating Expenses .19%
</TABLE>
EXAMPLE. This example is intended to help you compare the cost of investing in
the Fund with that of investing in other mutual funds. The example assumes you
invest $10,000 for the time periods indicated, earn a 5% return each year, and
that operating expenses remain constant. Your actual returns and costs may be
higher or lower than those shown, but based on these assumptions, your expenses
would be:
<TABLE>
<S> <C>
After 1 year $ 19
After 3 years $ 61
After 5 years $ 107
After 10 years $ 243
</TABLE>
7
<PAGE>
STATE FARM MUNICIPAL BOND FUND
WHAT IS MUNICIPAL BOND FUND'S INVESTMENT OBJECTIVE AND STRATEGY?
OBJECTIVE. Municipal Bond Fund seeks as high a rate of income exempt from
federal income taxes as is consistent with prudent investment management.
STRATEGY. Municipal Bond Fund normally invests so that either (1) at least
80% of the Fund's net investment income is exempt from regular federal income
tax or (2) at least 80% of the Fund's net assets are invested in securities that
produce income exempt from regular federal income tax.
The Fund invests primarily in a diversified selection of municipal bonds
with maturities of one to seventeen years, although from time to time the
Manager may purchase issues with longer maturities. A majority of the Fund's
investments are in issues with maturities longer than five years.
The Fund normally invests at least 70% of its total assets in municipal
bonds rated A or better by Moody's Investors Service, Inc. ("Moody's") or
Standard & Poor's Corporation ("S&P"), meaning that up to 30% of the Fund's
total assets may be invested in medium and lower-quality bonds.
The Fund usually holds its municipal bonds until they mature or are called.
The Fund may sell a bond when the proportion of bonds with longer maturities is
reduced in anticipation of a bond market decline (a result of rising interest
rates), or increased in anticipation of a bond market rise (resulting from a
decline in interest rates). A bond also may be sold if its credit risk increases
significantly.
WHAT ARE THE RISKS OF INVESTING IN MUNICIPAL BOND FUND?
The chief risks of investing in Municipal Bond Fund are INTEREST RATE RISK,
CREDIT RISK, and INFLATION RISK, and you can lose money by investing in the
Fund.
Interest rate risk is the risk that the Fund's investments will decline in
value because of changes in interest rates. Generally, debt securities decrease
in value when interest rates rise and increase in value when interest rates
fall.
Credit risk is the risk that an issuer of a bond may become unable to meet
its obligation to pay interest on the bond, or repay principal. The Fund tries
to limit credit risk by investing most of its assets in high-quality municipal
bonds, but may invest up to 30% of its total assets in medium and lower-quality
bonds.
Inflation risk is the risk that the value of assets or income from an
investment will be worth less in the future as inflation decreases the value of
money.
An investment in the Fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
IS AN INVESTMENT IN MUNICIPAL BOND FUND APPROPRIATE FOR ME?
Municipal Bond Fund may be an appropriate investment for you if you want
regular tax-free dividends, or to reduce taxes on your investment income.
The Fund is not an appropriate investment for you if you are seeking
long-term capital growth, or if you are investing through an IRA, 401(k) plan or
some other kind of tax-deferred account.
8
<PAGE>
HOW HAS MUNICIPAL BOND FUND PERFORMED?
The following bar chart and table illustrate certain risks of investing in
the Fund. As you can see, the bar chart shows the changes in the Fund's returns
year by year. The table compares the Fund's average annual total returns for the
periods listed to a market index. This information is intended to help you
assess the variability of Fund returns over the periods listed (and
consequently, the potential rewards and risks of a Fund investment). Of course,
the Fund's past performance doesn't necessarily indicate how it will perform in
the future.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
1989 10.26
<S> <C>
1990 7.13
1991 11.05
1992 7.78
1993 9.79
1994 -2.54
1995 13.37
1996 4.24
1997 7.27
1998 6.05
Total Return
</TABLE>
The Fund's best and worst quarters during the last 10 years were:
Best quarter: 5.69%,
during the second quarter of 1989.
Worst quarter: -3.23%,
during the first quarter of 1994.
The following table shows the Average Annual Total Return on a $10,000
investment in the Fund compared to a market index for the 1-, 5- and 10-year
periods ended December 31, 1998:
<TABLE>
<CAPTION>
MUNICIPAL LEHMAN MUNI
BOND FUND BOND INDEX*
------------- -----------------
<S> <C> <C>
1 year 6.05% x.xx%
5 years 5.55% x.xx%
10 years 7.36% x.xx%
</TABLE>
- ------------------------
* The Lehman Brothers Municipal Bond Index includes approximately 47,000
municipal bonds that 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 within the last five years; and have a
maturity of at least one year. Returns do not reflect expenses.
WHAT ARE THE COSTS OF INVESTING IN MUNICIPAL BOND FUND?
Below are the fees and expenses that you would pay if you purchased shares of
the Fund.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Maximum sales charge None
Redemption fee None
Exchange fee None
</TABLE>
The table below shows the annual operating expenses that are deducted from Fund
assets:
FUND OPERATING EXPENSES
<TABLE>
<S> <C>
Management fee .12%
12b-1 fee None
Other expenses .03%
---------
Total Operating Expenses .15%
</TABLE>
EXAMPLE. This example is intended to help you compare the cost of investing in
the Fund with that of investing in other mutual funds. The example assumes you
invest $10,000 for the time periods indicated, earn a 5% return each year, and
that operating expenses remain constant. Your actual returns and costs may be
higher or lower than those shown, but based on these assumptions, your expenses
would be:
<TABLE>
<S> <C>
After 1 year $ 15
After 3 years $ 48
After 5 years $ 85
After 10 years $ 192
</TABLE>
9
<PAGE>
HOW THE FUNDS INVEST
- --------------------------------------------------------------------------------
GROWTH FUND
COMMON STOCKS. Growth Fund invests most of its assets in income-producing
equity securities. The Manager chooses stocks for the Fund for their long-term
potential to generate capital gains, or growth in income, or both. Although
there is no restriction on the size of the companies in which Growth Fund may
invest, ordinarily most of the Fund's investments are in large companies.
SHORT-TERM INVESTMENTS. Under ordinary circumstances, the Fund is
substantially fully invested in common stocks. The Fund may sometimes also
invest in fixed income investments such as United States government obligations,
investment grade bonds and preferred stocks. If the Manager determines that
market or economic conditions warrant a temporary defensive position, the Fund
may hold up to 100% of its assets in cash, cash equivalents or other temporary
investments such as short-term government or corporate obligations. During those
periods, the Fund's assets may not be invested in accordance with its strategy
and the Fund may not achieve its investment objective.
FOREIGN STOCKS. Growth Fund may invest up to 25% of its assets in foreign
securities not publicly traded in the United States. Foreign investing provides
opportunities different from those available in the U.S. and risks which in some
ways may be greater than in U.S. investments.
BALANCED FUND
Balanced Fund invests in common stocks, preferred stocks and bonds in
varying proportions according to prevailing market conditions and the judgment
of the Manager.
COMMON STOCKS. The Fund invests approximately 60% of its assets in common
stocks, and ordinarily limits its common stock investments to no more than 75%
of total assets. The Fund invests in common stocks that the Manager believes
have the potential for long-term capital gain. The income provided by common
stocks is usually incidental to their selection. Although there is no
restriction on the size of companies in which the Fund may invest, ordinarily
most of the Fund's common stock investments are in large companies.
BONDS. Balanced Fund invests in bonds and preferred stocks to provide
relative stability of principal and income. Under most circumstances, the Fund's
investments in bonds are in longer-term investment grade securities. Although
usually the majority of the Fund's assets are invested in common stocks, the
Fund may for a time choose to invest as much as 75% of its total assets in fixed
income securities, including short-term securities.
In choosing bonds for the portfolio, the Manager looks for issuers that it
believes will be able to meet their obligations promptly even under adverse
business conditions, and whose issues have an attractive combination of yield,
maturity and liquidity.
The Fund invests in debt securities rated within the four highest grades
(AAA/ Aaa to BBB/Bbb) assigned by Moody's or S&P or, if unrated, determined by
the Manager to be of comparable quality. For more information, see "Description
of Bond Ratings" in the SAI.
FOREIGN STOCKS. Like Growth Fund, Balanced Fund may invest up to 25% of its
assets in foreign securities not publicly traded in the United States. Foreign
10
<PAGE>
investing provides opportunities different from those available in the U.S. and
risks which in some ways may be greater than in U.S. investments.
The Fund generally keeps its investments as long as the Manager believes
that they still are generating appropriate income or meet credit standards (for
bonds) or have the potential, over the long-term, to generate capital gain (for
common stocks).
The Fund may be a complete investment program in that the Fund's investments
are balanced among common stocks, convertible securities and both short-term and
long-term fixed income investments.
INTERIM FUND
Interim Fund invests in high quality debt securities with short- and
intermediate-term maturities.
QUALITY. The Fund invests in the following types of securities:
- - Obligations of or guaranteed by the U.S. government, its agencies or
instrumentalities that may be supported by the full faith and credit of the
U.S. Treasury or may be supported only by the credit of the particular agency
or instrumentality.
- - Corporate debt securities that Moody's or S&P rates A or better or, if
unrated, that the Manager considers to be of comparable quality.
- - Commercial paper and other money market instruments that Moody's rates
Prime-1, Prime-2 or Prime-3 or that the Manager considers to be of comparable
quality.
One of the risks of investing in an investment grade debt security is that
the security might lose its rating, or its rating might be reduced to below
investment grade. If either of those occurs, the Fund is not required to sell
the security, but the Manager considers the reasons for the loss or change of
the rating in determining whether or not to sell that security.
MATURITY. Interim Fund's investments are typically distributed in varying
amounts among securities maturing in up to six or seven years from the time of
purchase, but occasionally may extend to securities maturing in no more than 15
years. The Manager from time to time may change the average maturity of the
Fund's holdings, generally based on the prospective yields and price changes
among securities of different qualities, interest rates and maturities.
The yields on securities that are generally of the same quality are usually
(but not always) higher for issues with longer maturities than those with
shorter maturities. The Fund often buys securities with shorter maturities, even
though they tend to produce less income, because they generally also have less
volatile prices.
At certain times, yields available from securities with shorter maturities
may exceed those on securities of comparable quality but longer maturities. When
these bond market conditions prevail, the Manager may choose to forego the
higher yield and greater price stability of short-term securities if in its
judgment a higher average yield over time will result from investing in issues
with longer maturities.
The Fund usually holds the securities in which it invests until they mature,
but it may sell them earlier.
SHORT-TERM INVESTMENTS. Interim Fund may invest in short-term government or
corporate obligations and hold cash on behalf of the Fund in an interest-bearing
demand bank savings account or mutual fund money market account as a temporary
11
<PAGE>
measure pending investment in securities. During those periods, the Fund's
assets may not be invested in accordance with its strategy and the Fund might
not achieve its investment objective.
MUNICIPAL BOND FUND
Municipal Bond Fund invests primarily in a diversified selection of
municipal bonds.
States, territories, local governments and municipalities issue municipal
bonds to raise money for various purposes (for example, to pay for a road
construction project, or to build an airport). Municipal Bond Fund may purchase
municipal bonds that represent lease obligations. These carry special risks
because the issuer of the bonds may not be obligated to appropriate money
annually to make payments under the lease. In order to reduce this risk, the
Fund will only purchase these bonds if the Manager believes the issuer has a
strong incentive to continue making appropriations until maturity. The interest
on a municipal bond is generally exempt from federal income tax, but may be
subject to the federal alternative minimum tax.
Municipal Bond Fund normally invests so that either (1) at least 80% of the
Fund's net investment income is exempt from regular federal income tax or (2) at
least 80% of the Fund's net assets are invested in securities that produce
income exempt from regular federal income tax.
The Fund usually holds its municipal bonds until they mature or are called.
The Fund may sell a bond when the proportion of bonds with longer maturities is
reduced in anticipation of a bond market decline (a result of rising interest
rates), or increased in anticipation of a bond market rise (resulting from a
decline in interest rates). A bond also may be sold if its credit risk increases
significantly.
QUALITY. Under ordinary circumstances at least 70% of the Fund's total
assets will consist of municipal bonds rated A or better by Moody's or S&P,
money market securities and cash. Up to 30% of the Fund's total assets may be
invested in municipal bonds that are unrated or rated less than A by Moody's or
by S&P.
Lower-rated municipal bonds generally carry a greater degree of risk than
higher-rated municipal bonds.
MATURITY. The Fund invests primarily in a diversified selection of
municipal bonds with maturities of one to seventeen years, although from time to
time the Manager may purchase issues with longer maturities. A majority of the
Fund's investments are in issues with maturities longer than five years.
SHORT-TERM INVESTMENTS. Assets that the Fund does not invest in municipal
bonds it will hold as cash or invest in interest-bearing demand notes, bank
savings accounts and high-quality money market securities or U.S. Treasury
securities. As a temporary defensive measure or to meet redemptions, the Fund
may hold more than 20% of its assets in cash or money market securities. During
those periods, the Fund's assets may not be invested in accordance with its
strategy, and the Fund may not achieve its investment objective.
RISKS
- --------------------------------------------------------------------------------
Risk is inherent in all investing. Investing in a mutual fund--even the most
conservative--involves risk, including the risk that you may receive little or
no return on your investment or even that you may lose some or all of the money
you invested. Before you invest, you should carefully
12
<PAGE>
consider the risks that you assume when you invest in the funds.
MARKET RISK. Growth Fund and Balanced Fund are subject to the market risk
that always comes with investments in common stocks. Stock prices may fluctuate
widely over short or even extended periods in response to company, market, or
economic news. Stock markets also tend to move in cycles, with periods of rising
stock prices and periods of falling stock prices.
FOREIGN INVESTING. Growth Fund and Balanced Fund have the ability to invest
up to 25% of their total assets in foreign securities. Some risks of investing
in foreign securities include: fluctuations in exchange rates of foreign
currencies; imposition of exchange control regulations or currency restrictions;
less public information with respect to issuers of securities; less governmental
supervision of stock exchanges, securities brokers, and issuers of securities;
lack of uniform accounting, auditing, and financial reporting standards,
settlement periods and trading practices; less liquidity, frequently greater
price volatility, and higher transaction costs; possible imposition of foreign
taxes; and sometimes less advantageous legal, operational, and financial
protections applicable to foreign sub-custodial arrangements.
Investing in countries outside the U.S. also involves political risk. A
foreign government might restrict investments by foreigners, expropriate assets,
seize or nationalize foreign bank deposits or other assets, establish exchange
controls, or enact other policies that could affect investment in these nations.
Economies in individual markets may differ favorably or unfavorably from the
U.S. economy in such respects as growth of gross domestic product, rates of
inflation, currency depreciation, capital reinvestment, resource
self-sufficiency, and balance of payments positions.
INTEREST RATE RISK. An investment in Interim Fund or Municipal Bond Fund is
subject to interest rate risk, as is an investment in Balanced Fund to the
extent of its investments in bonds. Bond prices (of both taxable bonds and
municipal bonds) generally move in the opposite direction of interest rates.
Interest rate risk is the risk that the value of the Fund's portfolio will
decline because of rising market interest rates. The longer the average maturity
(duration) of a Fund's portfolio, the greater its interest rate risk.
CREDIT RISK. The bond investments of Interim Fund, Municipal Bond Fund and
Balanced Fund are subject to credit risk-- the risk that an issuer of a bond is
unable to meet its obligation to make interest and principal payments due to
changing market conditions.
Generally, lower rated bonds provide higher current income but involve
greater risk of issuer default or bankruptcy.
INCOME RISK. Income risk is the risk that the income from a Fund's bond
investments will decline because of falling market interest rates. This risk
applies to investments in Balanced Fund, Interim Fund and Municipal Bond Fund.
Income risk can result when a Fund invests the proceeds from new share sales, or
from matured or called bonds, at market interest rates that are below the
portfolio's current earnings rate.
INFLATION RISK. Inflation risk is the risk that the value of assets or
income from investments will be less in the future as inflation decreases the
value of money. As inflation increases, the value of a Fund's assets can decline
as can the value of the Fund's distributions. Inflation risk applies
particularly to fixed-income investments, like those of Interim Fund, Municipal
Bond Fund and the bond component of Balanced Fund.
13
<PAGE>
YEAR 2000 RISK. Some of today's computer systems cannot process
date-related information, because they are not programmed to distinguish between
the year 2000 and the year 1900 (commonly referred to as the Year 2000 or "Y2K"
problem). The Manager is working to ensure the proper functioning of the
computer systems on which the Funds depend for smooth operation. Based on review
of internal and external systems to date, the Manager does not anticipate any
material impact due to the Year 2000 problem on the delivery of services to the
Funds. There can be no assurance, however, that the steps taken by the Manager
will be sufficient to avoid any impact on the Funds.
In addition, Year 2000 issues may affect the business results and prospects
of issuers of stocks held by the Funds, or the ability of issuers of bonds held
by the Funds to meet their interest and principal payment obligations to their
bond holders.
HOW TO BUY FUND SHARES
- --------------------------------------------------------------------------------
WHO MAY INVEST
Shares of the Fund may be purchased by current and retired agents and
employees of the State Farm Insurance Companies and their spouses, and by family
members of current agents and current employees.
MINIMUM INVESTMENTS
<TABLE>
<CAPTION>
ALL FUNDS
EXCEPT
MUNICIPAL MUNICIPAL
BOND FUND BOND FUND
--------------- -----------
<S> <C> <C>
To open an account by check: $ 50 $ 1000
To open an account by payroll
deduction: $ 20 $ 1000
Subsequent investments by
check: $ 50 $ 500
Subsequent investments by
payroll deduction: $ 20 $ 100
</TABLE>
HOW TO BUY
You may buy shares of any of the State Farm Funds by sending a written
order, by exchanging from another of the State Farm Funds in writing or by
telephone, or by payroll deduction if you are a State Farm employee or agent.
You may make subsequent investments at any time by mailing a check to the
Manager along with the detachable investment slip found at the top of your
confirmation statement. You may also send a letter of instruction indicating
your account registration, account number and the Fund name.
IN WRITING. To open a new account in writing, complete and sign the
Application and mail it to the Manager together with a check made payable to
"State Farm Investment Management Corp.," a payroll deduction form, or both.
BY PAYROLL DEDUCTION. If you are a State Farm agent or an employee, you may
authorize a payroll deduction through the State Farm Insurance Companies by
completing the Compensation Deduction Authorization section of the Application.
You may authorize, change or cancel your payroll deduction by completing and
signing the reverse side of the detachable investment slip and mailing it to the
Manager. The Funds will also accept instructions to change a payroll deduction
by letter or fax as long as you provide clear instructions and indicate your
account registration, account number and the Fund name.
14
<PAGE>
BY EXCHANGE. You may buy shares of any of the State Farm Mutual Funds by
redeeming part or all of the shares in another State Farm Mutual Fund, without
charge. You have to meet the minimum investment requirements of the Fund into
which you are exchanging, and the written or telephone redemption requirements
described in this prospectus.
An exchange is a sale and purchase of shares for federal tax purposes, and
may result in capital gain or loss. Before making an exchange, obtain the
prospectus for the Fund to be purchased from the Manager at One State Farm
Plaza, Bloomington, Illinois 61710, and read it carefully.
A written exchange request must be signed by all of the owners of the
account, must be sent to the address in the preceding sentence, and must clearly
indicate your account number, account registration and the Fund names.
BY TELEPHONE EXCHANGE. Before you can make an exchange by telephone, you
must sign up for the Telephone Exchange Privilege. To sign up, choose the
Telephone Exchange Privilege option on the account application or call the
Manager for a separate Authorization Form.
Once the Telephone Exchange Privilege has been established, you may call the
Manager and request an exchange for any amount that meets or exceeds the
applicable minimum investment of the Fund being purchased. You must identify the
existing account by giving the Fund's name, registration of the account and
account number, and must specify the dollar amount or number of shares to be
exchanged and the Fund to which the exchange should be made. The registration of
the account to which an exchange is made must be exactly the same as that of the
Fund account from which an exchange is made.
The Manager and the Fund will employ reasonable procedures, including tape
recording of telephone instructions and providing written confirmation of each
resulting transaction, to confirm that telephonic instructions are genuine. If
the Manager and the Fund fail to employ such procedures, they may be liable for
any losses due to unauthorized or fraudulent instructions. However, the Funds,
the Manager, and their respective officers, directors, employees and agents will
not be liable for acting upon instructions given by any person under the
Telephone Exchange Privilege when reasonably believed to be genuine. In such
case, the shareowner will bear the risk of loss in the event of a fraudulent
telephone exchange transaction. To reduce the risk of loss, the registration of
the account into which shares are exchanged must be identical with the
registration of the originating account.
The Telephone Exchange Privilege is not available for shares represented by
a certificate or if good payment for shares being redeemed has not been
received. (The other funds into which exchanges may be made have adopted similar
policies.)
During periods of volatile economic and market conditions, a shareowner may
have difficulty making an exchange request by telephone, in which case exchange
requests would have to be made in writing or by facsimile.
The Fund reserves the right at any time to suspend, limit, modify or
terminate the telephone exchange privilege, but will not do so without giving
shareowners at least 30 days' prior written notice.
GENERAL POLICIES ON BUYING SHARES
- - Each Fund will invest the entire dollar amount of each purchase in full and
fractional shares at the Fund's net asset
15
<PAGE>
value next determined after the Manager receives your purchase order.
- - Unless you instruct otherwise, all of your income dividends and capital gain
distributions will be reinvested in your account. You may, however, request at
any time to have your income dividends and capital gain distributions paid to
you in cash.
- - Stock certificates will not be issued unless you so request in writing.
Certificates will be issued for full shares only.
- - The Manager will send to you by mail a confirmation of each transaction, other
than purchases by payroll deduction. You will receive confirmation of your
purchases by payroll deduction promptly after the end of each calendar
quarter.
- - Each Fund reserves the right, in its sole discretion, to reject purchases
when, in the judgment of the Manager, the purchase would not be in the best
interest of the Fund. No order to purchase shares is binding on a Fund until
it has been confirmed in writing and the Fund has received payment.
SHARE PRICE
Each Fund buys and sells its shares each day at the net asset value per
share. A Fund's net asset value per share is the value of a single share. It is
computed by totaling the Fund's investments, cash, and other assets, subtracting
its liabilities, then dividing the result by the number of shares outstanding.
The net asset value is computed daily at the close of regular session trading on
the New York Stock Exchange ("NYSE"). The close of trading is usually 3:00 p.m.
Central time, but is sometimes earlier. Shares will not be priced on days when
the NYSE is closed and on certain local holidays when the Funds are not open for
business. The days on which the NYSE is open, but the Funds are not open for
business include November 26 and December 23, December 24 and December 31, 1999.
Fund securities and assets are valued chiefly by quotations from the primary
market in which they are traded. If quotations are not readily available, they
are valued by a method that the board of directors believes reflects a fair
value.
Values of foreign securities are translated from local currencies into U.S.
dollars using current exchange rates. With respect to foreign securities--traded
primarily on foreign exchanges--a Fund's share price may change on days when the
Fund is not open for purchase or sale.
HOW TO REDEEM FUND SHARES
- --------------------------------------------------------------------------------
You may redeem shares of any of the State Farm Mutual Funds by sending a
written request, by telephone, by fax, by using our systematic withdrawal
program, or by exchanging into another State Farm Mutual Fund.
BY WRITTEN REQUEST. You may redeem all or any portion of your shares by
sending a written request to the Manager:
State Farm Investment Management Corp.
One State Farm Plaza Bloomington,
Illinois 61710-0001
Your redemption request must clearly identify the exact name(s) in which
your account is registered, your account number,
16
<PAGE>
the Fund name and the number of shares or dollar amount you wish to redeem.
If you have any stock certificates representing the shares to be redeemed,
you must return them in proper form for cancellation, along with your redemption
request. For your protection, you should send your stock certificates by
certified mail, return receipt requested.
All shareholders of record must sign the redemption request, including each
joint holder of a joint account. The Fund reserves the right to require further
documentation in order to verify the authority of the person seeking to redeem.
If you request a redemption of $50,000 or more, your signature, and the
signatures of any joint owners of your account, must be guaranteed as described
below under "Signature Guarantee," unless the proceeds are to be electronically
transferred to a pre-designated bank account.
Redemption proceeds you request in writing normally will be sent by check to
your address of record. If you give specific instructions in your redemption
request, however, you may have the proceeds sent to another payee or to an
address other than the address of record.
BY TELEPHONE. You can redeem shares by telephone by calling the Manager at
(309) 766-2029 or (800) 447-0740. You may redeem shares by telephone up to
$50,000 if the proceeds are to be sent to the address of record, or the entire
value of your account if the proceeds are to be electronically transferred to a
pre-designated bank account.
You cannot redeem shares by telephone if you hold stock certificates for
those shares. You generally may not use telephone redemption unless you have
elected this option on your account application or until you have completed an
Authorization Form for Telephone Redemption and Exchange Privileges. Your
signature on the Authorization Form must be guaranteed (see "Signature
Guarantee"). Further documentation may be required from corporations,
partnerships, trusts and other entities. Telephone redemption is not available
for IRA accounts.
You may elect to have the proceeds of telephone redemptions electronically
transferred to a pre-designated bank account. Your bank may charge you a fee for
this service. To change the bank or account designated to receive your
redemption proceeds, send a written request to State Farm Investment Management
Corp., One State Farm Plaza, Bloomington, Illinois 61710. Any such requests must
be signed by each shareowner, with each signature guaranteed as described under
"Signature Guarantee."
During periods of volatile economic and market conditions, you may have
difficulty making a redemption request by telephone, in which case you should
consider sending in your request by letter or by fax.
Although the Authorization Form authorizes the Fund and the Manager to
tape-record all telephone instructions, the Fund may not honor telephone
instructions unless permission to record is confirmed by the caller.
By electing the Telephone Redemption Privilege, you authorize the Manager to
act upon an instruction by telephone to redeem shares from any account for which
such services have been elected. The Manager and the Fund will employ reasonable
procedures, including tape recording of telephone instructions and providing
written confirmation of each resulting transaction, to confirm that telephone
instructions are genuine. If the Manager and the Fund fail to employ such
procedures, they may be
17
<PAGE>
liable for any losses due to unauthorized or fraudulent instructions. However,
the Fund, the Manager and their respective officers, directors, employees and
agents will not be liable for acting upon instructions given under the
authorization when reasonably believed to be genuine. In such case, the
shareowner will bear the risk of loss in the event of a fraudulent telephone
redemption transaction. To reduce that risk, proceeds of telephone redemptions
will be sent only by check payable to the shareowner of record to the
shareowner's address of record or electronically transferred to a pre-designated
bank account.
BY FAX. You can also request a redemption by faxing your request to the
Manager at (309) 766-2579. You may request a redemption by fax of up to $50,000
if the proceeds are to be sent to the address of record, or you can redeem up to
the entire value of your account if the proceeds are to be electronically
transferred to a pre-designated bank account.
A redemption request sent by fax must clearly identify the exact name(s) in
which the account is registered, the account number, the Fund name and the
number of shares or dollar amount to be redeemed, and must include the
signature(s) of the registered shareowner(s). You cannot redeem shares by fax if
you hold stock certificates for those shares. Fax redemption is not available
for IRA accounts.
Unless you request electronic transfer, redemption proceeds requested by fax
(up to $50,000) will be sent by check to the registered shareowner(s) at the
address of record. However, upon specific written instruction (which may not be
sent by fax) received at least one day prior to the redemption, redemption
proceeds may be sent to another payee or to another address other than the
address of record.
You may elect to have the proceeds of fax redemptions electronically
transferred to a bank previously designated in writing in a document on file
with the Manager. Your bank may charge you a fee for this service. In order to
change the bank or account designated to receive the proceeds, send a written
request (your request may not be sent by fax), signed by each shareowner with
each signature guaranteed as described in this prospectus under "Signature
Guarantee" to:
State Farm Investment Management Corp.
One State Farm Plaza
Bloomington, IL 61710-0001
SYSTEMATIC WITHDRAWAL PROGRAM. If you own $5,000 or more of a Fund's shares
at the current net asset value, you may have a specified dollar amount withdrawn
from your account, payable to you or to another designated payee on a monthly,
quarterly or annual basis.
You will not be permitted to purchase shares by payroll deduction if you are
participating in the systematic withdrawal program. The Funds reserve the right
to amend the systematic withdrawal program on 30 days' notice. The program may
be terminated at any time by a shareowner or by a Fund. For more information
contact the Manager at the address shown above.
GENERAL REDEMPTION POLICIES:
- - Each Fund will redeem shares at the Fund's net asset value next determined
after receipt by the Fund of a proper request for redemption.
- - The Fund generally will redeem shares in cash (by check or electronic
transfer). Redemptions of more than $500,000 during any 90-day period by one
shareowner will normally be paid in cash, but may be paid wholly or partly by
a distribution in kind of securities. If a redemption is paid in kind, the
redeeming
18
<PAGE>
shareowner may incur brokerage fees in selling the securities received.
- - Payment for shares redeemed will be mailed or electronically transferred
within seven days after the Fund receives a redemption request, either in
writing, by facsimile, or by telephone, in proper form (including stock
certificates, if any). However, if the Fund is requested to redeem shares
within several days after they have been purchased, the Fund may delay sending
the redemption proceeds until it can verify that payment of the purchase price
for the shares has been, or will be, collected. If you request payment by
electronic transfer, your bank may charge you a fee for the incoming transfer.
- - Each Fund may suspend the right of redemption or postpone a redemption payment
more than seven days during any period when (a) the NYSE is closed for other
than customary weekend and holiday closings, (b) trading on the NYSE is
restricted, (c) an emergency exists making disposal of securities owned by the
Fund or valuation of its assets not reasonably practicable, or (d) the
Securities and Exchange Commission has by order permitted such suspension for
the protection of shareowners of the Fund; provided that applicable rules and
regulations of the Securities and Exchange Commission shall govern as to
whether any condition prescribed in (b) through (d) exists.
- - Although it is not anticipated that the Funds will impose a redemption fee,
the Funds reserve the right to charge a redemption fee not to exceed one
percent of the redemption price.
SIGNATURE GUARANTEE
A signature guarantee is a written representation, signed by an officer or
authorized employee of the guarantor, that the signature of the shareowner is
genuine. The guarantor must be an institution authorized to guarantee signatures
by applicable state law. Such institutions include banks, broker-dealers,
savings and loan associations and credit unions. A notary public cannot provide
a signature guarantee.
The signature guarantee must appear, together with the signature of each
registered owner, either:
- - on the written request for redemption, which clearly identifies the exact
name(s) in which the account is registered, the account number, the Fund name
and the number of shares or the dollar amount to be redeemed;
- - on a separate "stock power," an instrument of assignment which should specify
the total number of shares to be redeemed (this stock power may be obtained
from most banks and stockbrokers);
- - on the back of each stock certificate tendered for redemption; or
- - on the Authorization Form for Telephone Redemption and Exchange Privileges.
19
<PAGE>
RETIREMENT PLANS
- --------------------------------------------------------------------------------
Retirement plans allow individuals to shelter investment income and capital
gains from current taxes. Contributions to these accounts may be tax-deductible.
MUNICIPAL BOND FUND DOES NOT ACCEPT INVESTMENTS BY RETIREMENT PLANS.
- - TRADITIONAL IRAS allow anyone under 70 1/2 years of age with earned income to
save up to $2,000 per year. If your spouse has less than $2,000 in earned
income, he or she may still contribute up to $2,000 to an IRA, as long as you
and your spouse's combined earned income is at least $4,000.
- - ROLLOVER IRAS retain special tax advantages for certain distributions from
employer-sponsored retirement plans.
- - ROTH IRAS allow single taxpayers with earned income up to $95,000 per year,
and married couples with earned income up to $150,000 per year, to contribute
up to $2,000, or $4,000, respectively, per year. Contributions to Roth IRAs
are not tax-deductible, but withdrawals are not taxable if the Roth IRA has
been held at least five years, and you are at least 59 1/2, disabled, or use
the proceeds (up to $10,000) to purchase a first home.
- - SIMPLIFIED EMPLOYEE PENSION PLANS (SEP-IRAS) allow small business owners or
those with self-employment income to make tax-deductible contributions of up
to 15% of the first $160,000 of compensation per year for themselves and any
eligible employees. If you are a State Farm agent, you can open SEP-IRA
accounts for your employees with the Funds.
- - EDUCATION IRAS may be established on behalf of a beneficiary under age 18 to
save for his or her education. Distributions from an Education IRA are
tax-free as long as the proceeds are used to pay for "qualified higher
education expenses." Single taxpayers with annual income up to $95,000, and
married couples with annual income up to $150,000, are allowed to contribute
up to $500 per year per beneficiary. The $500 annual maximum contribution is
subject to reduction if the contributor's income exceeds those amounts.
- - OTHER RETIREMENT PLANS--The Funds may be used as investments in other kinds of
retirement plans, including Keogh or corporate profit-sharing and money
purchase plans, 403(b) plans, and 401(k) plans. All of these accounts need to
be established by the trustee of the plan. The Funds do not offer prototypes
of these plans.
For more information about the tax advantages and consequences of investing
in any of these plans, please consult your tax adviser.
20
<PAGE>
MANAGEMENT OF THE FUNDS
- --------------------------------------------------------------------------------
State Farm Investment Management Corp., One State Farm Plaza, Bloomington,
Illinois 61710-0001, is the investment adviser to the Funds and manages each
Fund's business and affairs, subject to the overall supervision of each Fund's
Board of Directors. Since 1967, the Manager's sole business has been to act as
investment adviser, principal underwriter, transfer agent and dividend
disbursing agent for the Funds. The Manager is wholly-owned by State Farm Mutual
Automobile Insurance Company.
For its services, the Manager receives a fee, calculated as a percentage of
each Fund's average daily net assets. For the fiscal year ended November 30,
1998, the management fees paid by the Funds were:
<TABLE>
<S> <C>
Growth Fund .11%
Balanced Fund .12%
Interim Fund .16%
Municipal Bond Fund .12%
</TABLE>
Each Fund employs a team approach to management. GROWTH FUND's portfolio is
managed by a team consisting of Paul Eckley, Steve Miller, James Freytag and
John Concklin. BALANCED FUND is managed by a team consisting of Mr. Concklin,
Mr. Eckley, Mr. Freytag, Mr. Miller, Kurt Moser and Donald Heltner. Mr. Moser
and Mr. Heltner together manage INTERIM FUND, and Mr. Moser manages MUNICIPAL
BOND FUND along with Julian Bucher.
JULIAN BUCHER is an Investment Officer of the Manager, and Vice President of
MUNICIPAL BOND FUND. In addition, he has held the following positions within the
last five years: Vice President--Municipal Securities and Assistant
Secretary-Treasurer, State Farm Mutual Automobile Insurance Company State Farm
Fire and Casualty Company, State Farm Life Insurance Company, State Farm Life
and Accident Assurance Company, State Farm Annuity and Life Insurance Company,
and State Farm General Insurance Company, since 1997; Vice President--Municipal
Securities, State Farm Indemnity Company and State Farm Lloyds, Inc., since
1997; prior to 1997, Investment Officer.
JOHN CONCKLIN is an Investment Officer of the Manager, and Vice President of
GROWTH FUND, BALANCED FUND, and INTERIM FUND. In addition to his office with the
Manager, Mr. Concklin has also held the following positions during the last five
years: Vice President--Common Stocks and Assistant Secretary-Treasurer, State
Farm Mutual Automobile Insurance Company, State Farm Fire and Casualty Company,
State Farm Life Insurance Company, State Farm Life and Accident Assurance
Company, State Farm Annuity and Life Insurance Company and State Farm General
Insurance Company, since 1997; Vice President--Common Stocks, State Farm
Indemnity Company and State Farm Lloyds, Inc., since 1997; 1995-1997, Vice
President--Fixed Income; prior to 1995, Investment Officer.
PAUL ECKLEY is a Senior Vice President of the Manager, and Vice President of
GROWTH FUND and BALANCED FUND. During the last five years, Mr. Eckley has also
held the following positions: Senior Vice President--Investments and Assistant
Secretary-Treasurer, State Farm Mutual Automobile Insurance Company, State Farm
Fire and Casualty Company, State Farm Life Insurance Company, State Farm Life
and Accident Assurance Company, State Farm Annuity and Life Insurance Company,
and State Farm General Insurance Company, since 1998; Senior Vice
President--Investments, State Farm Indemnity Company and State Farm
21
<PAGE>
Lloyds, Inc. since 1998; 1995-1998 Vice President--Common Stocks; prior to 1995,
Investment Officer.
JAMES FREYTAG is an Investment Officer of the Manager, and Vice President of
GROWTH FUND and BALANCED FUND. In addition, Mr. Freytag has also held the
following positions during the last five years: Vice President--Common Stocks
and Assistant Secretary-Treasurer, State Farm Mutual Automobile Insurance
Company, State Farm Fire and Casualty Company, State Farm Life Insurance
Company, State Farm Life and Accident Assurance Company, State Farm Annuity and
Life Insurance Company, and State Farm General Insurance Company, since 1997;
Vice President--Common Stocks, State Farm Indemnity Company and State Farm
Lloyds, Inc., since 1997; prior to 1997, Investment Officer.
DONALD HELTNER is an Investment Officer of the Manager and Vice President of
BALANCED FUND and INTERIM FUND. During the past five years, Mr. Heltner has also
held the following positions: Vice President-- Fixed Income and Assistant
Secretary-Treasurer, State Farm Life Insurance Company, State Farm Life and
Accident Assurance Company, and State Farm Annuity and Life Insurance Company,
since 1998; Vice President--Fixed Income, State Farm Mutual Automobile Insurance
Company, State Farm Fire and Casualty Company, State Farm General Insurance
Company, State Farm Indemnity Company, and State Farm Lloyds, Inc., since 1998;
prior to 1998, Vice President, Century Investment Management Co.
STEVE MILLER is an Investment Officer of the Manager, becoming a member of
the portfolio management team for GROWTH FUND and BALANCED FUND in 1991. In
addition to his office with the Manager, Mr. Miller has also held the following
positions during the past five years: Senior Investment Officer of State Farm
Mutual Automobile Insurance Company, State Farm Fire and Casualty Company, State
Farm Life Insurance Company, State Farm Life and Accident Assurance Company,
State Farm Annuity and Life Insurance Company, State Farm General Insurance
Company, State Farm Indemnity Company and State Farm Lloyds, Inc. since 1997;
prior to 1997, Investment Officer.
KURT MOSER is a Director and Senior Vice President of the Manager and Vice
President of all the State Farm Mutual Funds. During the last five years, Mr.
Moser has held the following positions: Senior Vice President-Investments and
Director, State Farm Life Insurance Company, State Farm Fire and Casualty
Company, State Farm Life and Accident Assurance Company, and State Farm Annuity
and Life Insurance Company, since 1998; Senior Vice President-Investments, State
Farm Mutual Automobile Insurance Company, State Farm General Insurance Company,
State Farm Indemnity Company, State Farm Lloyds, Inc., since 1998; prior to
1998, Vice President-Investments.
DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
Each Fund intends to distribute substantially all of its net investment
income and any net capital gain realized from sales of its portfolio securities.
Growth Fund and Balanced Fund ordinarily pay dividends semi-annually in June
and December, and capital gain distributions, if any, annually in December.
22
<PAGE>
Interim Fund and Municipal Bond Fund declare dividends daily and pay them
quarterly. Shares of Interim Fund and Municipal Bond Fund begin to earn
dividends on the day after they are purchased. Interim Fund and Municipal Bond
Fund distribute any net realized capital gain, if any, annually in December.
All dividends and capital gain distributions from a Fund are automatically
reinvested in shares of that Fund on the reinvestment date, unless you have
previously elected to receive dividends and distributions in cash.
TAXES ON DISTRIBUTIONS. Distributions are generally subject to federal
income tax, and may be subject to state or local taxes. If you are a U.S.
citizen residing outside the United States, your distributions may also be taxed
by the country in which you reside.
Your distributions are taxable when they are paid, whether you take them in
cash or reinvest them in additional shares. However, distributions declared in
October, November or December of the prior year and paid in January are taxable
as if you received them on December 31.
For federal tax purposes, a Fund's income and short-term capital gain
distributions are taxed as dividends; long-term capital gain distributions are
taxed as long-term capital gains. The tax rate of a capital gain depends on the
length of time that the Fund held the asset it sold.
Every January, each of your Funds will send you and the IRS a
statement--called Form 1099--showing the amount of every taxable distribution
you received in the previous calendar year.
TAXES ON TRANSACTIONS. When you redeem shares, you will experience a
capital gain or loss if there is a difference between the cost of your shares
and the price you receive when you sell them. You may be subject to tax.
Whenever you sell shares of a Fund, you will receive a confirmation
statement showing how many shares you sold and at what price. You also will
receive a year-end statement every January. This will allow you or your tax
preparer to determine the tax consequences of each redemption. However, be sure
to keep your regular account statements; their information will be essential in
verifying the amount of your capital gains or losses.
A redemption is treated as a sale for federal income tax purposes. Your
redemption proceeds may be more or less than your cost depending upon the net
asset value at the time of the redemption and, as a result, you may realize a
capital gain or loss. Gain or loss is computed on the difference between the
fair market value of the shares redeemed and their cost basis.
To invest in any of the State Farm Mutual Funds, you must be a U.S. resident
with a social security or taxpayer identification number. When you sign your
account application, you must certify that your social security or taxpayer
identification number is correct and that you are not subject to backup
withholding for failing to report income to the IRS. If you fail to comply with
this procedure, the IRS can require the Fund to withhold 31% of your taxable
distributions and redemptions.
23
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the financial
performance of each Fund for the past five 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). This
information has been audited by Ernst & Young, LLP, whose report, along with
each Fund's financial statements, is included in the November 30, 1998 annual
report. The annual report may be obtained from the Funds upon request without
charge.
PER SHARE INCOME AND CAPITAL CHANGES (FOR A SHARE OUTSTANDING THROUGHOUT
EACH YEAR):
GROWTH FUND
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
-------- ------- ------- ------- -----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 39.48 34.55 29.40 22.63 22.21
Income from Investment Operations:
Net investment income .61 .62 .63 .50 .44
Net gain or loss on investments
(both realized and unrealized) 6.33 7.23 5.17 6.97 .43
-------- ------- ------- ------- -----
Total from investment operations 6.94 7.85 5.80 7.47 .87
Less distributions:
Net investment income (.64) (.61) (.53) (.52) (.45)
Capital gain (1.13) (2.31) (.12) (.18) --
-------- ------- ------- ------- -----
Total distributions (1.77) (2.92) (.65) (.70) (.45)
Net asset value, end of year $ 44.65 39.48 34.55 29.40 22.63
-------- ------- ------- ------- -----
-------- ------- ------- ------- -----
Total return 18.17% 24.80% 20.09% 33.67% 4.02%
Ratios/supplemental data:
Net assets, end of year (millions) $2,285.5 1,821.1 1,362.9 1,068.6 771.7
Ratio of expenses to average net assets .12% .12% .13% .14%(a) .14%
Ratio of net investment income to average net assets 1.47% 1.78% 1.88% 1.95% 2.00%
Portfolio turnover rate 1% 6% 16% 3% 3%
</TABLE>
Note: (a) The ratio based on net custodian expenses would have been .13% in
1995.
24
<PAGE>
BALANCED FUND
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $46.09. 42.04 37.76 31.12 30.88
Income from Investment Operations:
Net investment income 1.54 1.40 1.39 1.25 1.03
Net gain or loss on investments
(both realized and unrealized) 4.14 5.45 4.38 6.77 .17
------- ------ ------ ------ ------
Total from investment operations 5.68 6.85 5.77 8.02 1.20
Less distributions:
Net investment income (1.54) (1.47) (1.30) (1.19) (.89)
Capital gain (.69) (1.33) (.19) (.19) (.07)
------- ------ ------ ------ ------
Total distributions (2.23) (2.80) (1.49) (1.38) (.96)
Net asset value, end of year $ 49.54 46.09 42.04 37.76 31.12
------- ------ ------ ------ ------
------- ------ ------ ------ ------
Total return 12.72% 17.33% 15.78% 26.53% 3.98%
Ratios/supplemental data:
Net assets, end of year
(millions) 893.2 762.3 626.1 499.7 370.5
Ratio of expenses to average net assets .14% .14% .15% .17%(a) .17%
Ratio of net investment income to average net assets 3.34% 3.42% 3.63% 3.66% 3.36%
Portfolio turnover rate 2% 6% 9% 6% 4%
</TABLE>
Note: (a) The ratio based on net custodian expenses would have been .16% in
1995.
25
<PAGE>
INTERIM FUND
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
------ ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 9.85 9.98 10.15 9.72 10.52
Income from Investment Operations:
Net investment income .68 .69 .70 .70 .71
Net gain or loss on investments
(both realized and unrealized) .13 (.13) (.17) .43 (.80)
------ ----- ----- ----- -----
Total from investment operations .81 .56 .53 1.13 (.09)
Less distributions:
Net investment income (.68) (.69) (.70) (.70) (.71)
Total distributions (.68) (.69) (.70) (.70) (.71)
Net asset value, end of year $ 9.98 9.85 9.98 10.15 9.72
------ ----- ----- ----- -----
------ ----- ----- ----- -----
Total return 8.31% 5.87% 5.44% 11.91% (.85%)
Ratios/supplemental data:
Net assets, end of year
(millions) $154.1 112.8 107.6 104.7 94.3
Ratio of expenses to average net assets .21% .22% .23%(a) .25%(a) .22%
Ratio of net investment income to average net assets 6.80% 7.03% 7.03% 7.00% 7.00%
Portfolio turnover rate 14% 15% 17% 17% 15%
</TABLE>
Note: (a) The ratio based on net custodian expenses would have been .22% in
1996 and .24% in 1995.
26
<PAGE>
MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
------ ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 8.43 8.44 8.50 7.88 8.59
Income from Investment Operations:
Net investment income .45 .47 .48 .48 .48
Net gain or loss on investments
(both realized and unrealized) .12 (.01) (.06) .62 (.69)
------ ----- ----- ----- -----
Total from investment operations .57 .46 .42 1.10 (.21)
Net investment income (.45) (.47) (.48) (.48) (.48)
Capital gain(a) -- -- -- -- (.07)
------ ----- ----- ----- -----
Total distributions (.45) (.47) (.48) (.48) (.50)
Net asset value, end of year $ 8.55 8.43 8.44 8.50 7.88
------ ----- ----- ----- -----
------ ----- ----- ----- -----
Total return 6.82% 5.68% 5.21% 14.25% (2.55%)
Ratios/supplemental data:
Net assets, end of year
(millions) $363.1 336.4 321.1 307.4 269.9
Ratio of expenses to average net assets .15% .15% .16% .17%(b) .16%
Ratio of net investment income to average net assets 5.29% 5.61% 5.76% 5.80% 5.80%
Portfolio turnover rate 6% 6% 6% 7% 8%
</TABLE>
Notes: (a) Distributions representing less than $.01 were made in 1997 and
1996.
(b) The ratio based on net custodian expenses would have been .16%
in 1995.
27
<PAGE>
You can obtain more information about each Fund's investments in its
semiannual and annual reports to shareowners. Those reports discuss the market
conditions and investment strategies that significantly affected each Fund's
performance during their last fiscal year.
You may wish to read the Statement of Additional Information (SAI) for more
information about the Funds. The SAI is incorporated into this prospectus, which
means that it is considered to be part of this prospectus and your are deemed to
have been told of its contents.
You can obtain free copies of the Funds' semiannual and annual reports and
the SAI, request other information, and discuss your questions about the Funds
by writing or calling:
STATE FARM MUTUAL FUNDS
ONE STATE FARM PLAZA
BLOOMINGTON, ILLINOIS 61710-0001
(309) 766-2029
(800) 447-0740
Text-only versions of all Fund documents can be viewed online or downloaded
from the SEC at http://www.sec.gov. You can also obtain copies by visiting the
SEC's Public Reference Room in Washington, DC, by calling 800-SEC-0330, or by
sending your request and the appropriate fee to the SEC's Public Reference
Section, 450 5(th) Street, N.W., Washington, DC 20549-6009.
<TABLE>
<S> <C> <C>
STATE FARM GROWTH FUND, INC. 811-1519
STATE FARM BALANCED FUND, INC. 811-1520
STATE FARM INTERIM FUND, INC. 811-2726
STATE FARM MUNICIPAL BOND FUND, INC. 811-2727
</TABLE>
28
<PAGE>
STATE FARM MUTUAL FUNDS
STATE FARM GROWTH FUND, INC.
STATE FARM BALANCED FUND, INC.
STATE FARM INTERIM FUND, INC.
STATE FARM MUNICIPAL BOND FUND, INC.
ONE STATE FARM PLAZA, BLOOMINGTON, ILLINOIS 61710-0001
(309)766-2029 (800)447-0740
STATEMENT OF ADDITIONAL INFORMATION -- APRIL 1, 1999
This Statement of Additional Information is not a prospectus but should be
read in conjunction with the prospectus of State Farm Growth Fund, Inc., State
Farm Balanced Fund, Inc., State Farm Interim Fund, Inc. and State Farm Municipal
Bond Fund, Inc. (each, a "Fund," and collectively, the "Funds") dated April 1,
1999. The prospectus contains information you should know before investing in a
Fund, and may be obtained without charge by contacting the Funds at the address
or telephone numbers shown above.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Information About the Funds................................................................................ 2
Investment Techniques and Risks............................................................................ 2
Investment Policies and Restrictions....................................................................... 6
Purchase and Redemption of Fund Shares..................................................................... 9
Investment Advisory and Other Services..................................................................... 10
Management Services Agreement.............................................................................. 10
Service Agreement.......................................................................................... 11
Underwriting Agreement..................................................................................... 12
Transfer Agent Agreement................................................................................... 12
Performance Information.................................................................................... 12
Portfolio Transactions..................................................................................... 13
Additional Tax Considerations.............................................................................. 14
Directors and Officers..................................................................................... 16
General Information........................................................................................ 22
Description of Bond Ratings................................................................................ 23
Financial Statements....................................................................................... 26
Growth Fund..............................................................................................
Balanced Fund............................................................................................
Interim Fund.............................................................................................
Municipal Bond Fund......................................................................................
</TABLE>
<PAGE>
INFORMATION ABOUT THE FUNDS
Each Fund is a diversified open-end management investment company organized
as a corporation under the laws of the State of Maryland. The dates of each
Fund's organization are: Growth Fund and Balanced Fund, May 26, 1967; Interim
Fund, November 8, 1976; and Municipal Bond Fund, December 2, 1976. Each share of
a Fund's capital stock is entitled to share pro rata in any dividends and other
distributions on shares declared by the Board of Directors, to one vote per
share in elections of directors and other matters presented to shareowners, and
to equal rights per share in the event of liquidation. As separate legal
entities, each Fund files a separate registration statement with the Securities
and Exchange Commission. There is the possibility that one Fund may be liable
for any statements, inaccuracy, or incomplete disclosure in the prospectus
concerning another Fund.
INVESTMENT TECHNIQUES AND RISKS
COMMON STOCKS
Growth Fund and Balanced Fund invest in common stocks, which represent an
equity interest (ownership) in a corporation. This ownership interest often
gives the Funds the right to vote on measures affecting the company's
organization and operations. The Funds also invest in other types of equity
securities, including preferred stocks and securities convertible into common
stocks. Over time, common stocks have historically provided superior long-term
capital growth potential. However, stock prices may decline over short or even
extended periods. Stock markets tend to move in cycles, with periods of rising
stock prices and periods of falling stock prices. As a result, the Funds should
be considered long-term investments, designed to provide the best results when
held for several years or more. The Funds may not be suitable investments if you
have a short-term investment horizon or are unwilling to accept fluctuations in
share price, including significant declines over a given period.
FOREIGN SECURITIES
Each of Growth Fund and Balanced Fund may invest up to 25% of its assets in
foreign securities not publicly traded in the United States. The Funds'
investments in foreign securities may include American Depository Receipts
(ADRs), European Depositary Receipts (EDRs) or Global Depositary Receipts
(GDRs). ADRs are receipts typically issued by an American bank or trust company
evidencing ownership of the underlying securities. EDRs are European receipts
evidencing a similar arrangement. GDRs are receipts that may trade in U.S. or
non-U.S. markets. The Fund may invest in sponsored or unsponsored ADRs, EDRs or
GDRs. In the case of an unsponsored depositary receipt, a Fund is likely to bear
its proportionate share of the expenses of the depository and it may have
greater difficulty in receiving shareowner communications than it would have
with a sponsored depositary receipt. Neither Fund intends to invest more than 5%
of its net assets in unsponsored depositary receipts.
With respect to portfolio securities that are issued by foreign issuers or
denominated in foreign currencies, the Fund's investment performance is affected
by the strength or weakness of the U.S. dollar against those currencies. For
example, if the dollar falls in value relative to the Japanese yen, the dollar
value of a yen-denominated stock held in the portfolio will rise even though the
price of the stock remains unchanged. Conversely, if the dollar rises in value
relative to the yen, the dollar value of the yen-denominated stock will fall.
Shareowners should understand and consider carefully the risks involved in
foreign investing. Investments in foreign securities are generally denominated
in foreign currencies and involve certain considerations comprising both risk
and opportunity not typically associated with investing in U.S. securities.
These considerations include: fluctuations in exchange rates of foreign
currencies; possible imposition of exchange control regulation or currency
restrictions that would prevent cash from being brought back into the United
States; less public information with respect to issuers of securities; less
governmental supervision of stock exchanges, securities brokers, and issuers of
securities; lack of uniform accounting, auditing,
2
<PAGE>
and financial reporting standards; lack of uniform settlement periods and
trading practices; less liquidity and frequently greater price volatility in
foreign markets than in the United States; possible imposition of foreign taxes;
possible investment in securities of companies in developing as well as
developed countries; and sometimes less advantageous legal, operational, and
financial protections applicable to foreign sub-custodial arrangements.
Although Growth Fund and Balanced Fund try to invest in companies and
governments of countries having stable political environments, there is the
possibility of expropriation or confiscatory taxation, seizure or
nationalization of foreign bank deposits or other assets, establishment of
exchange controls, the adoption of foreign government restrictions, or other
adverse political, social or diplomatic developments that could affect
investment in these nations.
EUROPEAN CURRENCY UNIFICATION. Effective January 1, 1999, eleven of the
fifteen member countries of the European Union adopted a single European
currency, the euro. The countries participating in the Economic and Monetary
Union ("EMU") are Austria, Belgium, Finland, France, Germany, Ireland, Italy,
Luxembourg, the Netherlands, Portugal and Spain. The four European Union
countries not currently participating in the EMU are Great Britain, Denmark,
Sweden and Greece. A new European Central Bank manages the monetary policy of
the new unified region, and the exchange rates among the EMU member countries
are permanently fixed. National currencies will continue to circulate until they
are replaced by euro coins and bank notes by the middle of 2002.
This change is likely to significantly impact the European capital markets
in which Growth Fund and Balanced Fund may invest their assets. The euro
conversion could have potential adverse effects on the Funds' ability to value
their portfolio holdings in foreign securities, and could increase the costs
associated with the Funds' operations. The Manager is working with the providers
of services to the Funds in the areas of clearance and settlement of trades in
an effort to avoid any material impact on the Funds due to the euro conversion;
there can be no assurance, however, that the steps taken by the Manager will be
sufficient to avoid any adverse impact on the Funds.
DEBT SECURITIES
In pursuing its investment objective, a Fund may invest in debt securities
of corporate and governmental issuers. The risks inherent in debt securities
depend primarily on the term and quality of the obligations in a Fund's
portfolio as well as on market conditions. A decline in the prevailing levels of
interest rates generally increases the value of debt securities, while an
increase in rates usually reduces the value of those securities.
Balanced Fund invests in fixed income securities that are "investment
grade"-- that is, within the four highest grades assigned by Moody's Investors
Service, Inc. or Standard & Poor's Corporation or, if unrated, deemed to be of
comparable quality by the Manager. Interim Fund usually invests in U.S.
government securities, but may also invest in corporate debt securities rated in
one of the three highest grades by S&P or Moody's or, if unrated, considered by
the Manager to be of comparable quality. Municipal Bond Fund invests at least
70% of its total assets in municipal bonds rated in one of the three highest
grades by Moody's or S&P, and may invest up to 30% of its total assets in bonds
that are unrated or rated less than A. If the rating of a security held by the
Fund is lost or reduced, the Fund is not required to sell the security, but the
Manager will consider that fact in determining whether the Fund should continue
to hold the security. See "Description of Bond Ratings."
Debt securities in the fourth highest grade may possess speculative
characteristics, and changes in economic conditions are more likely to affect
the issuer's capacity to pay interest and repay principal. Securities that are
rated below investment grade (that is, BB or lower) are considered predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal according to the terms of the obligation and therefore carry greater
investment risk, including the possibility of issuer default and bankruptcy.
3
<PAGE>
CONVERTIBLE SECURITIES
Convertible securities include any corporate debt security or preferred
stock that may be converted into underlying shares of common stock. The common
stock underlying convertible securities may be issued by a different entity than
the issuer of the convertible securities. Convertible securities entitle the
holder to receive interest payments paid on corporate debt securities or the
dividend preference on a preferred stock until such time as the convertible
security matures or is redeemed or until the holder elects to exercise the
conversion privilege.
The value of convertible securities is influenced by both the yield of
non-convertible securities of comparable issuers and by the value of a
convertible security viewed without regard to its conversion feature (i.e.,
strictly on the basis of its yield). The estimated price at which a convertible
security would be valued by the marketplace if it had no conversion feature is
sometimes referred to as its "investment value." The investment value of the
convertible security will typically fluctuate inversely with changes in
prevailing interest rates. However, at the same time, the convertible security
will be influenced by its "conversion value," which is the market value of the
underlying common stock that would be obtained if the convertible security were
converted. Conversion value fluctuates directly with the price of the underlying
common stock.
By investing in convertible securities, a Fund obtains the right to benefit
from the capital appreciation potential in the underlying stock upon exercise of
the conversion right, while earning higher current income than would be
available if the stock were purchased directly. In determining whether to
purchase a convertible security, the Manager will consider the same criteria
that would be considered in purchasing the underlying stock. Although
convertible securities purchased by a Fund are frequently rated investment
grade, the Fund also may purchase unrated securities or securities rated below
investment grade if the securities meet the Manager's other investment criteria.
Convertible securities rated below investment grade (a) tend to be more
sensitive to interest rate and economic changes, (b) may be obligations of
issuers who are less creditworthy than issuers of higher quality convertible
securities, and (c) may be more thinly traded due to such securities being less
well known to investors than either common stock or conventional debt
securities. As a result, the Manager's own investment research and analysis
tends to be more important in the purchase of such securities than other
factors.
MUNICIPAL BONDS
Municipal Bond Fund invests primarily in a diversified selection of
municipal bonds (as defined in the prospectus) with maturities of one to 17
years, although issues with longer maturities may be purchased from time to
time. A majority of the Fund's investments will usually be in issues with
maturities longer than five years. There can be no assurance that current income
will be sufficient to offset decreases in the net asset value per share that
will result if prevailing interest rates rise in relation to the rates of
interest on municipal bonds in the Fund's portfolio.
Assets not invested in municipal bonds will be held in cash or invested in
money market securities and U.S. treasury securities. Money market securities
include short-term obligations of the U.S. government and its agencies and
instrumentalities and other money market instruments such as domestic bank
certificates of deposit, bankers' acceptances and corporate commercial paper
rated in the highest grade. From time to time more than 20% of the Fund's assets
may be invested in money market securities or held as cash for defensive reasons
in anticipation of a decline in the market values of debt securities, or pending
the investment of proceeds from the sale of Fund shares or from the sale of
portfolio securities, or in order to have highly liquid securities available to
meet possible redemptions.
The obligations of municipal bond issuers are subject to the laws of
bankruptcy, insolvency and other laws affecting the rights and remedies of
creditors. In addition, the obligations of such issuers may become subject to
the laws enacted in the future by Congress, state legislatures or referenda
extending the time of payment of principal and/or interest, or imposing other
constraints upon enforcement of such obligations
4
<PAGE>
or upon municipalities to levy taxes. There is also the possibility that, as a
result of legislation or other conditions, the power or ability of any issuer to
pay, when due, the principal and interest on its municipal obligations may be
materially affected.
DEFENSIVE INVESTMENTS
Under normal conditions, each Fund is substantially fully invested, although
each Fund may invest without limit in corporate or government obligations or
hold cash or cash equivalents if the Manager determines that a temporary
defensive position is advisable. During those periods, a Fund's assets may not
be invested in accordance with its strategy and the Fund may not achieve its
investment objective.
REPURCHASE AGREEMENTS
Repurchase agreements are transactions in which a Fund purchases a security
from a bank or recognized securities dealer and simultaneously commits to resell
that security to the bank or dealer at an agreed-upon price, date, and market
rate of interest unrelated to the coupon rate or maturity of the purchased
security. Although repurchase agreements carry certain risks not associated with
direct investments in securities, a Fund will enter into repurchase agreements
only with banks and dealers the Manager believes present minimum credit risks in
accordance with guidelines approved by the Board of Directors. The Manager will
review and monitor the creditworthiness of such institutions, and will consider
the capitalization of the institution, the Manager's prior dealings with the
institution, any rating of the institution's senior long-term debt by
independent rating agencies, and other relevant factors.
A Fund will invest only in repurchase agreements collateralized at all times
in an amount at least equal to the repurchase price plus accrued interest. To
the extent that the proceeds from any sale of such collateral upon a default in
the obligation to repurchase were less than the repurchase price, the Fund would
suffer a loss. If the financial institution which is party to the repurchase
agreement petitions for bankruptcy or otherwise becomes subject to bankruptcy or
other liquidation proceedings there may be restrictions on a Fund's ability to
sell the collateral and the Fund could suffer a loss. However, with respect to
financial institutions whose bankruptcy or liquidation proceedings are subject
to the U.S. Bankruptcy Code, each Fund intends to comply with provisions under
such Code that would allow it immediately to resell such collateral. None of the
Funds intends to invest more than 5% of its total assets in repurchase
agreements.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES; REVERSE REPURCHASE AGREEMENTS
A Fund may purchase securities on a when-issued or delayed delivery basis.
Although the payment and interest terms of these securities are established at
the time the Fund enters into the commitment, the securities may be delivered
and paid for a month or more after the date of purchase, when their value may
have changed. A Fund makes such commitments only with the intention of actually
acquiring the securities, but may sell the securities before the settlement date
if the Manager deems it advisable for investment reasons.
A Fund may enter into reverse repurchase agreements with banks and
securities dealers. A reverse repurchase agreement is a repurchase agreement in
which the Fund is the seller of, rather than the investor in, securities and
agrees to repurchase them at an agreed-upon time and price. Use of a reverse
repurchase agreement may be preferable to a regular sale and later repurchase of
securities because it avoids certain market risks and transaction costs.
At the time a Fund enters into a binding obligation to purchase securities
on a when-issued basis or enters into a reverse repurchase agreement, assets of
the Fund having a value at least as great as the purchase price of the
securities to be purchased will be segregated on the books of the Fund and held
by the custodian throughout the period of the obligation. The use of these
investment strategies, as well as any borrowing by a Fund, may increase NAV
fluctuation. None of the Funds has any present intention of investing more than
5% of its total assets in reverse repurchase agreements.
5
<PAGE>
PORTFOLIO TURNOVER
None of the Funds intends to invest with the objective of obtaining
short-term trading profits. Accordingly, neither Growth Fund nor Balanced Fund
expect that its annual portfolio turnover rate will be higher than 50%. A 50%
turnover rate might occur, for example, if securities representing half of the
average value of the Fund's portfolio were replaced in a period of one year.
Interim Fund expects that its annual portfolio turnover rate will usually be
less than 100%, but the rate of turnover will not be a limiting factor when the
Manager considers it advisable to sell or purchase securities. The annual
portfolio turnover rate would be 100%, for example, if an amount of securities
equal to the average value of all portfolio securities during the year were sold
and reinvested, exclusive in both cases of all securities with maturities at
time of acquisition of one year or less.
In periods of relatively stable interest rate levels, Municipal Bond Fund
does not expect its annual portfolio turnover rate to exceed 50% for issues with
maturities longer than one year at the time of purchase. In years of sharp
fluctuations in interest rates, however, the annual portfolio turnover rate may
exceed 50%. Most of the sales in the Fund's portfolio will occur when the
proportion of securities owned with longer term maturities is reduced in
anticipation of a bond market decline (rise in interest rates), or increased in
anticipation of a bond market rise (decline in interest rates). The rate of
portfolio turnover will not be a limiting factor and, accordingly, will always
be incidental to transactions undertaken with the view of achieving the Fund's
investment objective.
Historical portfolio turnover rate information is set forth in the Funds'
prospectus in the Financial Highlights table.
DIVERSIFICATION
As diversified investment companies, it is the policy of each Fund to
diversify its investments among both issuers and industries. Accordingly, no
Fund will invest more than 5% of its assets (valued at the time of investment)
in the securities of any one issuer (other than obligations of the U.S.
Government), except that it may invest an aggregate of up to 25% of its assets
(valued at time of investment) without subjection to that restriction, nor will
it purchase more than 10% of the securities of any class of any issuer. Further,
no Fund intends to concentrate its investments in any particular industry and
will not purchase a security if, as a result of such purchase, more than 25% of
its assets taken at market value would be invested in a particular industry.
INVESTMENT POLICIES AND RESTRICTIONS
The investment objective and certain fundamental investment policies of each
Fund are described in the Funds' prospectus. Each Fund is also subject to
certain restrictions upon its investments which provide that, without the
approval of a majority of the Fund's shareowners, the Fund may not:
GROWTH FUND AND BALANCED FUND ONLY:
(1) Invest more than 5% of the market value of its assets (valued at the
time of investment) in the securities of any one issuer, except that it may
invest an aggregate of up to 25% of its assets (valued at time of investment)
without subjection to that restriction, and excluding from such restriction
investments in obligations of the U.S. government, and may not purchase more
than 10% of the voting securities, more than 10% of the aggregate long-term
debt, or more than 10% of any other class of security, of any issuer;
(2) Invest more than 5% of the market value of its total assets (at the time
of the investment) in securities of companies with records of less than three
years continuous operation, including that of predecessors;
(3) Make loans except by the purchase of bonds or other obligations of types
commonly distributed publicly or privately to financial institutions;
6
<PAGE>
(4) Borrow money from any source in excess of 10% of its gross assets (taken
at cost), and then only as a temporary measure for extraordinary or emergency
purposes; or mortgage, pledge or hypothecate in excess of 15% of its gross
assets (taken at cost). [Neither Fund has never borrowed and has no present
intention to do so. However, if any such borrowings were made by either Fund,
the Fund would be required by the Investment Company Act of 1940 to maintain
300% asset coverage.];
(5) Purchase or retain the securities of any issuer if those officers and
directors of the Fund or the investment adviser owning individually more than
1/2 of 1% of the securities of such issuer together own more than 5% of the
securities of such issuer;
(6) Purchase securities on margin, sell securities short, or engage in puts
or calls or any combination thereof;
(7) Act as a securities underwriter or invest in real estate, commodities or
commodity contracts;
(8) Purchase the securities of any other investment company or investment
trust, except by purchases in the open market involving no commission or profit
(other than the customary broker's commission) to a sponsor or dealer, or except
as a part of a plan of merger or consolidation;
(9) Invest in the securities of a company for the purpose of exercising
management or control; or
(10) Concentrate its investments in any one industry. [However, the
proportions of the Fund's assets invested in a particular industry or group of
industries may shift from time to time depending upon management's appraisal of
market and business conditions. Each Fund considers investment of 25% or more of
the value of its total assets in any one industry to be concentration.]
The preceding investment restrictions have been adopted by Growth Fund and
Balanced Fund and, except for the bracketed language, which is explanatory, may
not be changed as to a Fund without the consent of the shareowners holding a
majority of the Fund's shares. A majority of the shares, as used in this
Statement of Additional Information, means the vote of (i) 67% or more of the
shares present and entitled to vote at a meeting, if the owners of more than 50%
of the shares are present or represented by proxy, or (ii) more than 50% of the
shares, whichever is less.
Each of Growth Fund and Balanced Fund has also adopted the following
investment restrictions which, while there is no present intention to do so, may
be changed without approval of the shareowners. Under these restrictions each
Fund may not:
(a) Invest in restricted securities or in securities for which a quoted
price is not readily available;
(b) Invest more than 25% of the market value of its total assets (at the
time of the investment) in foreign securities which are not publicly traded in
the United States;
(c) Invest in oil, gas or other mineral exploration or development programs,
provided, however, this shall not prohibit the Fund from purchasing publicly
traded securities of companies engaging in whole or in part in such activities;
or
(d) Mortgage, pledge or hypothecate in excess of 10% of its net assets
(taken at market value).
In addition, each Fund has agreed that as long as Fund shares are qualified
for sale in Texas, the Fund will not invest in excess of 5% of its net assets in
warrants, nor more than 2% of its net assets in warrants not listed on a
recognized stock exchange (taken at the lower of cost or market value).
Other than for purposes of restriction (d) above, if a percentage
restriction is not violated at the time of investment or borrowing, a change in
the value of the Fund's net assets or in the outstanding securities of an issuer
will not result in a violation of the restriction.
7
<PAGE>
INTERIM FUND AND MUNICIPAL BOND FUND ONLY:
(1) Invest more than 5% of the Fund's total assets in securities of any one
issuer except securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities, which may be purchased without limitation;
(2) Borrow money, except from banks for temporary or emergency procedures
and not for investment purposes, and then only in an amount not exceeding 5% of
the value of the Fund's total assets at the time of borrowing;
(3) Pledge, mortgage or hypothecate the Fund's assets, except that, to
secure borrowings permitted by subparagraph (2) above, the Fund may pledge
securities having a market value not exceeding 10% of the Fund's net asset
value;
(4) Underwrite any securities issued by other persons;
(5) INTERIM FUND. Purchase or sell real estate, but the Fund may invest in
securities secured by real estate or interests therein;
MUNICIPAL BOND FUND. Purchase or sell real estate, but the Fund may
invest in municipal bonds or money market instruments secured by real estate or
interests therein;
(6) Purchase or sell commodities or commodities contracts, or interests in
oil, gas or other mineral exploration or development programs;
(7) INTERIM FUND. Make loans to others (except to the extent that the
purchase of debt securities may be deemed the making of a loan);
MUNICIPAL BOND FUND. Make loans to others (except to the extent that the
purchase of municipal bonds, money market instruments or U.S. treasury
securities may be deemed the making of a loan);
(8) Make short sales of securities or purchase any securities on margin,
except for such short-term credits as are necessary for the clearance of
transactions, or purchase or sell any put or call options or combinations
thereof;
(9) Purchase or retain for the portfolio of the Fund the securities of any
issuer, if, to the Fund's knowledge, those directors and officers of the Fund
who individually own more than 1/2 of 1% of the outstanding securities of such
issuer together own more than 5% of such outstanding securities;
(10) Purchase more than 10% of any class of securities of any one issuer (for
this purpose all indebtedness of an issuer shall be deemed a single class)
except U.S. government obligations;
(11) Purchase securities subject to restrictions on disposition under the
Securities Act of 1933;
(12) Purchase securities of other investment companies or investment trusts,
except by purchases in the open market involving no commission or profit (other
than the customary broker's commission) to a sponsor or dealer, and then only in
an amount up to 5% of the value of the Fund's total assets, or except as a part
of a plan of merger or consolidation;
(13) Invest in the securities of a company for the purpose of exercising
management or control;
(14) Invest more than 5% of the market value of the Fund's total assets (at
the time of the investment) in securities of companies with records of less than
three years' continuous operation, including that of predecessors;
(15) Invest more than 25% of the value of the Fund's total assets in any one
industry except that the Fund may invest more than 25% of the value of the
Fund's total assets in certificates of deposit or bankers' acceptances of U.S.
commercial banks when deemed advisable in view of yield differentials and money
market conditions (this restriction is not applicable to municipal bonds and
securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities).
8
<PAGE>
For purposes of restrictions numbered 1, 9 and 10 above, the Funds will
classify the issuer or issuers of a security according to the entity or entities
which constitute the source of payment of interest and principal on the
security.
Other than for purposes of restriction number 3 above, if a percentage
restriction is not violated at the time of investment or borrowing, a change in
the value of the Fund's net assets or in the outstanding securities of an issuer
will not result in a violation of the restriction.
The preceding investment restrictions have been adopted by Interim Fund and
Municipal Bond Fund and, except for the bracketed language, which is
explanatory, may not be changed as to a Fund without the consent of the
shareowners holding a majority of the Fund's shares. A majority of the shares,
as used in this Statement of Additional Information, means the vote of (i) 67%
or more of the shares present and entitled to vote at a meeting, if the owners
of more than 50% of the shares are present or represented by proxy, or (ii) more
than 50% of the shares, whichever is less.
PURCHASE AND REDEMPTION OF FUND SHARES
Purchases and redemptions of Fund shares are discussed fully in the
prospectus under the headings "How to Buy Fund Shares" and "How to Redeem Fund
Shares." Determination of net asset value is set forth in the prospectus under
the heading "How to Buy Fund Shares -- Share Price."
Share purchase and redemption orders will be priced at a Fund's net asset
value ("NAV") next computed after such orders are received by the Fund's
transfer agent. The net asset value of each Fund is determined as of the time of
the close of regular session trading on the New York Stock Exchange ("NYSE"),
(currently at 4:00 p.m., New York City time) on each day when the NYSE is open
except as noted below. The NYSE is scheduled to be open Monday through Friday
throughout the year, except for certain federal and other holidays. The net
asset value of each Fund will not be calculated on November 26, 1999, December
23, 1999, December 24, 1999 or December 31, 1999. The net asset value per share
of each Fund is computed by dividing the difference between the value of the
Fund's assets and liabilities by the number of shares outstanding. Interest
earned on portfolio securities and expenses, including fees payable to the
Manager, are accrued daily.
Computation of NAV (and the sale and redemption of fund shares) may be
suspended or postponed during any period when (a) trading on the NYSE is
restricted, as determined by the Securities and Exchange Commission ("SEC"), or
the NYSE is closed for other than customary weekend and holiday closings, (b)
the SEC has by order permitted such suspension, or (c) an emergency, as
determined by the SEC, exists making disposal of portfolio securities or
valuation of the net assets of the funds not reasonably practicable.
Equity securities (including common stocks, preferred stocks, convertible
securities and warrants) and call options written on all portfolio securities,
listed or traded on a national exchange are valued at their last sale price on
that exchange prior to the time when assets are valued. In the absence of any
exchange sales on that day and for unlisted equity securities, such securities
are valued at the last sale price on the NASDAQ (National Association of
Securities Dealers Automated Quotations) National Market. In the absence of any
National Market sales on that day, equity securities are valued at the last
reported bid price.
Debt securities traded on a national exchange are valued at their last sale
price on that exchange prior to the time when assets are valued, or, lacking any
sales, at the last reported bid price. Debt securities other than money market
instruments traded in the over-the-counter market are valued at the last
reported bid price or at yield equivalent as obtained from one or more dealers
that make markets in the securities.
If the market quotations described above are not available, debt securities,
other than short-term debt securities, may be valued at fair value as determined
by one or more independent pricing services (each, a "Service"). The Service may
use available market quotations and employ electronic data processing
9
<PAGE>
techniques and/or a matrix system to determine valuations. Each Service's
procedures are reviewed by the officers of each Fund under the general
supervision of the Board of Directors.
Debt instruments held with a remaining maturity of 60 days or less (other
than U.S. Treasury bills) are generally valued on an amortized cost basis. Under
the amortized cost basis method of valuation, the security is initially valued
at its purchase price (or in the case of securities purchased with more than 60
days remaining to maturity, the market value on the 61st day prior to maturity),
and thereafter by amortizing any premium or discount uniformly to maturity. If
for any reason the Board of Directors believes the amortized cost method of
valuation does not fairly reflect the fair value of any security, fair value
will be determined in good faith by or under the direction of the Board of
Directors as in the case of securities having a maturity of more than 60 days.
Trading in the foreign securities of a Fund's portfolio may take place in
various foreign markets at certain times and on certain days (such as Saturday)
when the NYSE is not open for business and the Funds do not calculate their
NAVs. Conversely, trading in a Fund's foreign securities may not occur at times
and on days when the NYSE is open. Because of the different trading hours in
various foreign markets, the calculation of NAV does not take place
contemporaneously with the determinations of the prices of many of the foreign
securities in a Fund's portfolio. Those timing differences may have a
significant effect on the Fund's NAV.
INVESTMENT ADVISORY AND OTHER SERVICES
Each Fund has an Investment Advisory and Management Services Agreement, a
Transfer Agent Agreement and an Underwriting Agreement with State Farm
Investment Management Corp. (the "Manager"). There is a separate Service
Agreement among each Fund, the Manager and State Farm Mutual Automobile
Insurance Company ("Auto Company"). Each of these four agreements may be
continued beyond its current term only so long as such continuance is
specifically approved at least annually by the Board of Directors of each Fund
including a majority of the directors who are not interested persons of any
party to such agreement or by vote of a majority of the outstanding shares of
the Fund and, in either case, by vote of a majority of the directors who are not
interested persons of any party to such agreement, except in their capacity as
directors of the Fund, cast in person at a meeting called for the purpose of
voting on such approval. Each agreement may be terminated upon 60 days' written
notice by any of the parties to the agreement, or by a majority vote of the
outstanding shares, and will terminate automatically upon its assignment by any
party.
Since its inception in 1967, the Manager's sole business has been to act as
investment adviser, principal underwriter, transfer agent and dividend
disbursing agent for the State Farm Mutual Funds. The Manager is wholly-owned by
State Farm Mutual Automobile Insurance Company, which is an Illinois mutual
insurance company.
MANAGEMENT SERVICES AGREEMENT
Pursuant to the Investment Advisory and Management Services Agreements, the
Manager: (1) acts as each Fund's investment adviser; (2) manages each Fund's
investments; (3) administers each Fund's business affairs; (4) provides clerical
personnel, suitable office space, necessary facilities and equipment and
administrative services; and (5) permits its officers and employees to serve as
directors, officers and agents of a Fund, without compensation from the Fund, if
duly elected or appointed.
Each agreement requires a Fund to pay: (1) the fees and expenses of
independent auditors, legal counsel, the custodian, the transfer agent, the
registrar, the dividend disbursing agent and directors who are not affiliated
with the Manager; and (2) the cost of preparing and distributing stock
certificates, reports, notices and proxy materials to shareowners, brokerage
commissions, interest, taxes, federal securities registration fees and
membership dues in the Investment Company Institute or any similar organization.
The Manager is required to pay all other Fund expenses.
10
<PAGE>
As compensation for the services and facilities furnished, each Fund pays a
management fee (computed on a daily basis and paid quarterly) at the annual
rates shown below:
GROWTH FUND AND BALANCED FUND:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS RATE OF FEE
- -------------------------------------------------------------- -------------
<S> <C>
First $100 million............................................ 0.20%
$100 million to $200 million.................................. 0.15%
In excess of $200 million..................................... 0.10%
</TABLE>
INTERIM FUND AND MUNICIPAL BOND FUND:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS RATE OF FEE
- -------------------------------------------------------------- -------------
<S> <C>
First $50 million............................................. 0.20%
$50 million to $100 million................................... 0.15%
In excess of $100 million..................................... 0.10%
</TABLE>
The management fee will be reduced, or the Manager will reimburse a Fund, by
any amount necessary to prevent a Fund's total expenses (excluding taxes,
interest, extraordinary litigation expenses, brokerage commissions and other
portfolio transaction costs) from exceeding 0.40% of the average net assets of
the Fund on an annual basis.
For the fiscal years ended November 30, 1998, 1997 and 1996, the Manager
earned $2,221,492, $1,705,166 and $1,325,421, respectively, for its services as
investment adviser to Growth Fund. For its services to Balanced Fund, the
Manager earned $980,972, $829,724 and $699,356, respectively; for its services
to Interim Fund, the Manager earned $199,209, $184,551 and $177,555,
respectively; and for its services to Municipal Bond Fund, the Manager earned
$425,519, $400,859 and $385,258. Neither the Manager nor any affiliated company
receives any brokerage commissions from the Fund as such business is transacted
with non-affiliated broker-dealers.
Some affiliated companies of the Manager (including Auto Company) and the
other State Farm funds managed by the Manager carry on extensive investment
programs. Securities considered as investments for a Fund may also be
appropriate for the accounts of one or more of such companies. Although
investment decisions for a particular Fund are made independently from those for
such other companies, securities of the same issuer may be acquired, held or
disposed of by the Fund and one or more of such other companies at or about the
same time, if consistent with the investment objectives and policies of the
respective parties. When both the Fund and one or more of such other companies
are concurrently engaged in the purchase or sale of the same securities, the
transactions are allocated as to amount and price in a manner considered
equitable to the Fund. In some cases this procedure may affect the price or
amount of the securities as far as each party is concerned. It is the opinion of
the Board of Directors of each Fund, however, that the benefits available to a
Fund outweigh any possible disadvantages that may arise from such concurrent
transactions.
The obligation of performance under the management agreement between the
Manager and a Fund is solely that of the Manager, for which the Auto Company
assumes no responsibility.
SERVICE AGREEMENT
Under the Service Agreement, the Auto Company makes available to the Manager
the services, on a part-time basis, of employees of the Auto Company engaged in
its investment operations, and also certain other personnel, services and
facilities to enable the Manager to perform its obligations to the Funds. The
Manager reimburses the Auto Company for such costs, direct and indirect, as are
fairly attributable to the
11
<PAGE>
services performed and the facilities provided by the Auto Company under the
Service Agreement. Accordingly, the Funds make no payment to the Auto Company
under the Service Agreement.
UNDERWRITING AGREEMENT
Pursuant to the Underwriting Agreements between each Fund and the Manager,
the Manager: (1) is the principal underwriter of the Fund's shares; (2) acts as
agent of the Fund in the continuous sale of its shares; (3) prepares and
distributes literature relating to the Fund and its investment performance; (4)
distributes and pays for the printing of the Funds' Prospectus; (5) circulates
advertising and public relations materials; and (6) pays the cost of qualifying
and maintaining the qualification of the Fund's shares for sale under the
securities laws of the various states. The Manager receives no discount,
commission or other compensation as underwriter.
TRANSFER AGENT AGREEMENT
The Transfer Agent Agreements between each Fund and the Manager appoint the
Manager as the Fund's transfer agent and dividend disbursing agent. Under the
terms of the agreement, the Manager: (1) maintains all shareowner account
records; (2) prepares and mails transaction confirmations, annual records of
investments and tax information statements; (3) effects transfers of Fund
shares; (4) arranges for the issuance and cancellation of stock certificates;
(5) prepares annual shareowner meeting lists; (6) prepares, mails and tabulates
proxies; (7) mails shareowner reports; and (8) disburses dividend and capital
gains distributions. These services are performed by the Manager at no charge to
the Funds.
PERFORMANCE INFORMATION
Each of Growth Fund and Balanced Fund provides information on its "Average
Annual Total Return" in its annual reports to shareowners and in advertising and
sales literature. "Average Annual Total Return" is the average annual compounded
rate of change in value represented by the percentage change in value during a
period of an investment in shares of the Fund, including the value of shares
acquired through reinvestment of all dividends and capital gains distributions
for the period. Average Annual Total Return is computed as follows:
P (1 + T)to the power of n = ERV
Where: P = the amount of an assumed initial
investment in shares of the Fund;
T = average annual total return;
n = number of years from initial investment
to the end of the period; and
ERV = ending redeemable value of shares held
at the end of the period.
For example, as of November 30, 1998 the Average Annual Total Return on a
$1,000 investment in each Fund for the following periods was:
<TABLE>
<CAPTION>
GROWTH FUND BALANCED FUND INTERIM FUND MUNICIPAL BOND FUND
-------------- --------------- --------------- -----------------------
<S> <C> <C> <C> <C>
1 Year........................................ 18.17% 12.72% 8.31% 6.82%
5 Years....................................... 19.75% 15.04% 6.06% 5.75%
10 Years...................................... 17.44% 15.57% 7.65% 7.42%
</TABLE>
Interim Fund and Municipal Bond Fund may also show their performance in the
form of "yield" or "taxable equivalent yield." In accordance with a standardized
method prescribed by rules of the SEC, yield is computed by dividing the net
investment income per share earned during the specified one month or
12
<PAGE>
30-day period by the maximum offering price per share on the last day of the
period, according to the following formula:
Yield = 2 [ ( a-b + 1 ) to the power of 6 - 1 ]
--
cd
Where: a = Dividends and interest earned during the
period;
b = Expenses accrued for the period (net of
reimbursements);
c = The average daily number of shares
outstanding during the period that were
entitled to receive dividends; and
d = The maximum offering price per share on
the last day of the period.
In computing yield, the Funds follow certain standardized accounting
practices specified by SEC rules. These practices are not necessarily consistent
with those that the Funds use to prepare their annual and interim financial
statements (in conformity with generally accepted accounting principles). Thus,
yield may not equal the income paid to shareholders or the income reported in a
Fund's financial statements.
Taxable equivalent yield is computed by dividing that portion of the yield
that is tax-exempt by the remainder of one minus the stated federal income tax
rate, taking into account the deductibility of state taxes for federal income
tax purposes, and adding the quotient to that portion, if any, of the yield that
is not tax exempt.
The Funds impose no sales charges and pay no distribution expenses. Income
taxes are not taken into account. Performance figures quoted by a Fund are not
necessarily indicative of future results. Each Fund's performance is a function
of conditions in the securities markets, portfolio management and operating
expenses. Although information about past performance is useful in reviewing a
Fund's performance and in providing some basis for comparison with other
investment alternatives, it should not be used for comparison with other
investments using different reinvestment assumptions or time periods. The
performance of a Fund may be compared to mutual fund industry indexes or
averages, such as the S&P 500 Index.
A Fund may also cite its rating, recognition or other mention by
Morningstar, Inc. ("Morningstar"), Lipper, Inc. ("Lipper") or another entity.
Morningstar's rating system is based on risk-adjusted total return performance
and is expressed in a star-rating format. The risk-adjusted number is computed
by subtracting a Fund's risk score (which is a function of the Fund's monthly
returns less the 90-day Treasury bill return) from the Fund's load-adjusted
total return score. This numerical score is then translated into rating
categories, with the top 10% labeled five star, the next 22.5% labeled four
star, the next 35% labeled three star, the next 22.5% labeled two star and the
bottom 10% one star. A high rating reflects either above-average returns or
below-average risk, or both.
The Lipper and Morningstar averages are unweighted averages of total return
performance of mutual funds as classified, calculated and published by these
independent services that monitor the performance of mutual funds. The Funds
also may use comparative performance as computed in a ranking by Lipper or
category averages and rankings provided by another independent service. Should
Lipper or another service reclassify a Fund to a different category or develop
(and place that Fund into) a new category, the Fund may compare its performance
or ranking against other funds in the newly assigned category, as published by
the service. A Fund may also compare its performance or ranking against all
funds tracked by Lipper or another independent service.
PORTFOLIO TRANSACTIONS
Each Fund's portfolio purchases and sales are placed by the Manager with
securities brokers and dealers that the Manager believes will provide the best
values to the Fund in transaction and information
13
<PAGE>
services. In evaluating the quality of transaction services, the dominant
consideration is a broker-dealer's skill in executing transactions, of which the
major determinant is the best price to the Fund (highest net proceeds of sale or
lowest overall cost of purchase) rather than the lowest commission or
transaction charge considered in isolation. Many of a Fund's transactions may be
fairly large, and may require special attention and careful timing and handling
to minimize the impact of the transactions upon market prices. The willingness
of a broker-dealer to devise a trading tactic for the transaction in
consultation with the Manager, to expend time and effort, to overcome
difficulties and to assume risks, are characteristics of high quality execution.
A broker-dealer's knowledge of particular companies, industries, regions and
markets is important in the skillful trading of many securities. The Manager is
convinced that the net prices obtainable in skillful executions by
broker-dealers justify the payment of higher transaction costs than those
charged by others. Other considerations are the breadth of the broker-dealer's
financially-related services that are useful to the Fund, the reliability of its
clearing, settlement and operational services, and its reputation and financial
condition. Selection of a broker-dealer for a particular transaction requires a
largely qualitative judgment by the Manager, including retrospective evaluation
of the quality of execution of past transactions by the broker-dealers under
consideration.
A wide variety of useful investment research and analysis, economic,
financial and statistical data, and other information, are available from many
brokers. The Manager gives recognition to the value of such information in
placing a Fund's portfolio transactions, and may cause the Fund to pay to a
broker commissions that are higher than those obtainable from other brokers.
When specific recommendations or information provided by a broker result in
securities transactions by a Fund, the Manager places the transactions through
that broker if the Manager believes that the broker can provide good execution.
The Manager and the Auto Company perform extensive investment research,
which is used in making investment decisions for the Funds and for other State
Farm companies. The availability of additional information from a diversity of
sources, some of which have in-depth knowledge of specialized subjects, and have
proven insight and acumen in economic, financial, political and investment
matters, may tend to reduce the Manager's costs by some indeterminable amount,
but more importantly is believed to provide a quantity and range of information
greater than could be generated solely within a single advisory organization,
even for a larger advisory fee. Each Fund benefits from information obtained for
the other Funds' transactions and for the transactions of other State Farm
companies. Adequate compensation of broker-dealers for their transaction and
information services is considered important to assure good execution of
transactions and the continuing receipt of information in the future.
When a Fund purchases or sells a security over-the-counter, the transaction
takes place directly with a principal market-maker, without the use of a broker,
except in those circumstances where, in the opinion of the Manager, better price
or execution can be achieved through the use of a broker.
During the fiscal years ended November 30, 1998, 1997 and 1996, brokerage
commissions paid by Growth Fund totaled $241,371, $195,621 and $342,724,
respectively, and for Balanced Fund, brokerage commissions totaled $36,881,
$57,525 and $93,836, respectively, in each case paid to brokers that provided
research and other information to the Funds. During those same periods, neither
Interim Fund nor Municipal Bond Fund paid any brokerage commissions.
ADDITIONAL TAX CONSIDERATIONS
Each Fund intends to continue to qualify as a "regulated investment company"
under Subchapter M of the Internal Revenue Code (the "Code"). A 4% excise tax is
imposed on the excess of the required distribution for a calendar year over the
distributed amount for such calendar year. Generally, the required distribution
is the sum of 98% of a Fund's net investment income for the calendar year plus
98% of its capital gain net income for the one year period ending November 30.
Each Fund intends to declare or distribute dividends during the calendar year in
an amount sufficient to prevent imposition of the 4% excise tax.
14
<PAGE>
A portion of each of Growth Fund's and Balanced Fund's ordinary dividends
may be eligible for the 70% corporate dividends received deduction.
Because capital gain distributions reduce net asset value, if you purchase
shares of Growth Fund, Balanced Fund or Interim Fund shortly before a record
date for such a distribution you will, in effect, receive a return of a portion
of your investment although the distribution will be taxable to you. This is
true even if the net asset value of your shares was reduced below your cost.
However, for federal income tax purposes your original cost would continue as
your tax basis. Any loss recognized on the disposition of Fund shares acquired
which have been held by the shareowner for six months or less will be treated as
long-term capital loss to the extent the shareowner received a long-term capital
gain distribution with respect to those Fund shares.
Distributions of long-term capital gains are generally taxable to
shareowners as long-term capital gains, whether received in cash or additional
shares and regardless of the period of time the shares have been held. Dividends
and capital gains may be taxed to shareowners at different rates. Also, the
distinction between ordinary income or loss and capital gain or loss is
important for certain tax purposes, such as a taxpayer's ability to offset
losses against income.
Under the Code, interest on indebtedness incurred or continued to purchase
or carry Fund shares is not deductible for federal income tax purposes. Even
though borrowed funds are not directly traceable to the purchase of shares, the
IRS may determine, depending on circumstances, that the indebtedness is incurred
for such a purpose. Because of tax implications, persons who are "substantial
users" (or persons related thereto) of facilities financed by industrial
development bonds should consult their tax advisors before purchasing shares of
Municipal Bond Fund.
Pursuant to the Tax Reform Act of 1986, interest on certain municipal
obligations issued by "nonessential governmental issuers" are subject to federal
income taxation for those investors subject to the alternative minimum tax.
Municipal Bond Fund does not currently intend to purchase municipal obligations
whose interest is a tax preference item for purposes of the alternative minimum
tax. For its fiscal year ending November 30, 1999, Interim Fund has a capital
loss carry-forward of $3,215,248, and $92,150 of this carry-forward will expire
if there are no capital gains to offset the loss against during the fiscal year
ending November 30, 1999.
15
<PAGE>
DIRECTORS AND OFFICERS
The Board of Directors has overall responsibility for the conduct of the
Funds' affairs. The Funds are not required to hold annual meetings of
shareowners and do not intend to do so. Maryland law permits shareowners to
remove directors under certain circumstances and requires each Fund to assist in
shareowner communications.
The directors and officers of the Funds, their principal occupations for the
last five years and their affiliations, if any, with State Farm Investment
Management Corp., the Funds' investment adviser and principal underwriter, are
listed below. Unless otherwise noted, the address of each is One State Farm
Plaza, Bloomington, Illinois 61710-0001.
<TABLE>
<CAPTION>
POSITION(S) HELD WITH THE
NAME, AGE AND ADDRESS FUNDS PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
- --------------------------- ----------------------------- -----------------------------------------------------
<S> <C> <C>
Edward B. Rust, Jr.*, Age Director and President, State CHAIRMAN OF THE BOARD, PRESIDENT, CEO, AND DIRECTOR
48 Farm Growth Fund, Inc., -- State Farm Mutual Automobile Insurance Company;
State Farm Balanced Fund, PRESIDENT, CEO, AND DIRECTOR -- State Farm Life
Inc., State Farm Interim Insurance Company, State Farm Life and Accident
Fund, Inc., and State Farm Assurance Company, State Farm Annuity and Life
Municipal Bond Fund, Inc. Insurance Company, State Farm General Insurance
Company, State Farm Fire and Casualty Company, State
Farm Investment Management Corp., TRUSTEE, CHAIRMAN
OF THE BOARD AND PRESIDENT, State Farm Variable
Product Trust (since 1997); PRESIDENT, CEO, AND
DIRECTOR (SINCE 1997) -- State Farm VP Management
Corp.; PRESIDENT -- State Farm County Mutual
Insurance Company of Texas; DIRECTOR -- State Farm
Lloyds, Inc., State Farm International Services,
Inc.; CHAIRMAN OF THE BOARD, PRESIDENT, AND TREASURER
-- State Farm Companies Foundation
Roger S. Joslin*, Director, Vice President and VICE CHAIRMAN, CHIEF FINANCIAL OFFICER, SENIOR VICE
Age 62 Treasurer, State Farm PRESIDENT, TREASURER, AND DIRECTOR -- State Farm
Growth Fund, Inc., State Mutual Automobile Insurance Company; DIRECTOR --
Farm Balanced Fund, Inc., State Farm Life Insurance Company, State Farm Life
State Farm Interim Fund, and Accident Assurance Company, State Farm Annuity
Inc., and State Farm and Life Insurance Company; DIRECTOR, VICE PRESIDENT,
Municipal Bond Fund, Inc. AND TREASURER -- State Farm General Insurance
Company, State Farm Lloyds, Inc., State Farm
Investment Management Corp., State Farm International
Services, Inc.; TRUSTEE, VICE PRESIDENT AND TREASURER
(SINCE 1997), State Farm Variable Product Trust;
DIRECTOR, VICE PRESIDENT, AND TREASURER (SINCE 1997)
-- State Farm VP Management Corp.; CHAIRMAN OF THE
BOARD, TREASURER, AND DIRECTOR -- State Farm Fire and
Casualty Company; TREASURER -- State Farm County
Mutual Insurance Company of Texas; ASSISTANT
TREASURER -- State Farm Companies Foundation
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
POSITION(S) HELD WITH THE
NAME, AGE AND ADDRESS FUNDS PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
- --------------------------- ----------------------------- -----------------------------------------------------
<S> <C> <C>
Albert H. Hoopes, Director, State Farm Growth ATTORNEY; TRUSTEE -- State Farm Variable Product
Age 84 Fund, Inc., State Farm Trust (since 1997).
1001 North Main Street Balanced Fund, Inc., State
Bloomington, IL 61701 Farm Interim Fund, Inc.,
and State Farm Municipal
Bond Fund, Inc.
Thomas M. Mengler, Director, State Farm Growth DEAN, UNIVERSITY OF ILLINOIS COLLEGE OF LAW (SINCE
Age 45 Fund, Inc., State Farm 1993); TRUSTEE -- State Farm Variable Product Trust
Swanland Building Balanced Fund, Inc., State (since 1997).
601 E. John St. Farm Interim Fund, Inc.,
Champaign, IL 61820 and State Farm Municipal
Bond Fund, Inc.
Davis U. Merwin, Director, State Farm Growth INVESTOR; TRUSTEE -- State Farm Variable Product
Age 70 Fund, Inc., State Farm Trust (since 1997).
P.O. Box 1665 Balanced Fund, Inc., State
Bloomington, IL 61702 Farm Interim Fund, Inc.,
and State Farm Municipal
Bond Fund, Inc.
James A. Shirk, Director, State Farm Growth DIRECTOR AND PRESIDENT -- BEER NUTS, INC.; TRUSTEE --
Age 55 Fund, Inc., State Farm State Farm Variable Product Trust (since 1997).
103 North Robinson Balanced Fund, Inc., State
Bloomington, IL 61701 Farm Interim Fund, Inc.,
and State Farm Municipal
Bond Fund, Inc.
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
POSITION(S) HELD WITH THE
NAME, AGE AND ADDRESS FUNDS PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
- --------------------------- ----------------------------- -----------------------------------------------------
<S> <C> <C>
Kurt G. Moser, Vice President, State Farm SENIOR VICE PRESIDENT -- INVESTMENTS (SINCE 1998)
Age 54 Growth Fund, Inc., State VICE PRESIDENT -- INVESTMENTS -- State Farm Mutual
Farm Balanced Fund, Inc., Automobile Insurance Company, State Farm County
State Farm Interim Fund, Mutual Insurance Company of Texas, State Farm Lloyds,
Inc., and State Farm Inc.; SENIOR VICE PRESIDENT -- INVESTMENTS (SINCE
Municipal Bond Fund, Inc. 1998), VICE PRESIDENT -- INVESTMENTS, AND DIRECTOR --
State Farm Life Insurance Company, State Farm Life
and Accident Assurance Company, State Farm Annuity
and Life Insurance Company, State Farm Fire and
Casualty Company, State Farm General Insurance
Company; SENIOR VICE PRESIDENT -- INVESTMENTS (SINCE
1998), INVESTMENT OFFICER -- State Farm Indemnity
Company; SENIOR VICE PRESIDENT (SINCE 1997), VICE
PRESIDENT, AND DIRECTOR (PRIOR TO 1997) -- State Farm
Investment Management Corp.; VICE PRESIDENT (SINCE
1997) -- State Farm Variable Product Trust; DIRECTOR
(SINCE 1997) -- State Farm VP Management Corp.; VICE
PRESIDENT -- INVESTMENTS -- State Farm International
Services, Inc.; UNDERWRITER -- State Farm Lloyds,
Inc.
Paul N. Eckley, Vice President, State Farm SENIOR VICE PRESIDENT -- INVESTMENTS AND ASSISTANT
Age 44 Growth Fund, Inc. and State SECRETARY-TREASURER (SINCE 1998), VICE PRESIDENT --
Farm Balanced Fund, Inc. COMMON STOCKS (SINCE 1995), AND INVESTMENT OFFICER
(PRIOR TO 1995) -- State Farm Mutual Automobile
Insurance Company, State Farm Fire and Casualty
Company; SENIOR VICE PRESIDENT -- INVESTMENTS AND
ASSISTANT SECRETARY-TREASURER (SINCE 1998) -- State
Farm General Insurance Company, State Farm Life
Insurance Company, State Farm Life and Accident
Assurance Company, State Farm Annuity and Life
Insurance Company, State Farm Indemnity Company,
State Farm County Mutual Insurance Company of Texas,
State Farm Lloyds, Inc.; SENIOR VICE PRESIDENT (SINCE
1997), AND INVESTMENT OFFICER (PRIOR TO 1997) --
State Farm Investment Management Corp.; VICE
PRESIDENT (SINCE 1997) -- State Farm Variable Product
Trust
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
POSITION(S) HELD WITH THE
NAME, AGE AND ADDRESS FUNDS PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
- --------------------------- ----------------------------- -----------------------------------------------------
<S> <C> <C>
John S. Concklin, Vice President, State Farm VICE PRESIDENT -- COMMON STOCKS AND ASSISTANT
Age 52 Growth Fund, Inc. and State SECRETARY-TREASURER (SINCE 1997), VICE PRESIDENT --
Farm Balanced Fund, Inc., FIXED INCOME (1995-1997), AND INVESTMENT OFFICER
and State Farm Interim (PRIOR TO 1995) -- State Farm Mutual Automobile
Fund, Inc. Insurance Company, State Farm Life Insurance Company,
State Farm Fire and Casualty Company, State Farm Life
and Accident Assurance Company, State Farm Annuity
and Life Insurance Company, State Farm General
Insurance Company, VICE PRESIDENT -- COMMON STOCKS
(SINCE 1997), State Farm Indemnity Company, State
Farm Lloyds, Inc.; INVESTMENT OFFICER (SINCE 1995) --
State Farm Investment Management Corp.; VICE
PRESIDENT (SINCE 1997) -- State Farm Variable Product
Trust
David R. Grimes, Assistant Vice President and ASSISTANT VICE PRESIDENT OF ACCOUNTING -- State Farm
Age 56 Secretary, State Farm Mutual Automobile Insurance Company; ASSISTANT VICE
Growth Fund, Inc., State PRESIDENT AND SECRETARY (SINCE 1994) -- State Farm
Farm Balanced Fund, Inc., Investment Management Corp., State Farm Growth Fund,
State Farm Interim Fund, Inc., State Farm Balanced Fund, Inc., State Farm
Inc., and State Farm Interim Fund, Inc., State Farm Municipal Bond Fund,
Municipal Bond Fund, Inc. Inc.; ASSISTANT VICE PRESIDENT AND SECRETARY (SINCE
1997) -- State Farm VP Management Corp.
Jerel S. Chevalier, Assistant Secretary -- DIRECTOR OF MUTUAL FUND PROJECT (SINCE 1998);
Age 60 Treasurer, State Farm DIRECTOR OF MUTUAL FUNDS (1992-1998) -- State Farm
Growth Fund, Inc., State Mutual Automobile Insurance Company; ASSISTANT
Farm Balanced Fund, Inc., SECRETARY -- TREASURER (SINCE 1994) -- State Farm
State Farm Interim Fund, Investment Management Corp.; ASSISTANT
Inc., and State Farm SECRETARY-TREASURER (SINCE 1997), State Farm Variable
Municipal Bond Fund, Inc. Product Trust
Howard A. Thomas, Assistant Secretary- DIRECTOR OF MUTUAL FUNDS (SINCE 1998) -- State Farm
Age 51 Treasurer, State Farm Mutual Automobile Insurance Company; MANAGER OF
Growth Fund, Inc., State ACCOUNTING BENEFITS (1988-1998) -- State Farm Mutual
Farm Balanced Fund, Inc., Automobile Insurance Company; ASSISTANT
State Farm Interim Fund, SECRETARY-TREASURER (SINCE 1998) -- State Farm
Inc., and State Farm Investment Management Corp., State Farm Variable
Municipal Bond Fund, Inc. Product Trust
Donald O. Jaynes, Assistant Secretary, State ASSOCIATE GENERAL COUNSEL (SINCE 1993), State Farm
Age 50 Farm Growth Fund, Inc., Mutual Automobile Insurance Company; ASSISTANT
State Farm Balanced Fund, SECRETARY (SINCE 1998) -- State Farm Investment
Inc., State Farm Interim Management Corp., State Farm Variable Product Trust
Fund, Inc., and State Farm
Municipal Bond Fund, Inc.
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
POSITION(S) HELD WITH THE
NAME, AGE AND ADDRESS FUNDS PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
- --------------------------- ----------------------------- -----------------------------------------------------
<S> <C> <C>
Michael L. Tipsord, Assistant Secretary, State VICE PRESIDENT AND ASSISTANT TREASURER (SINCE 1998),
Age 39 Farm Growth Fund, Inc., EXECUTIVE ASSISTANT -- OPERATIONS (SINCE 1997),
State Farm Balanced Fund, ASSISTANT CONTROLLER (1996-1997), DIRECTOR OF
Inc., State Farm Interim ACCOUNTING (1995-1996), AND STAFF ASSOCIATE
Fund, Inc., and State Farm (1991-1995) -- State Farm Mutual Automobile Insurance
Municipal Bond Fund, Inc. Company; ASSISTANT SECRETARY -- State Farm Investment
Management Corp., ASSISTANT SECRETARY (SINCE 1997) --
State Farm Variable Product Trust; TREASURER (SINCE
1996) -- Insurance Placement Services, Inc.
Donald E. Heltner, Vice President, State Farm VICE PRESIDENT (SINCE 1998) -- State Farm Variable
Age 51 Balanced Fund, Inc. and Product Trust; VICE PRESIDENT -- FIXED INCOME AND
State Farm Interim Fund, ASSISTANT SECRETARY-TREASURER, State Farm Life
Inc. Insurance Company, State Farm Life and Accident
Assurance Company, and State Farm Annuity and Life
Insurance Company (since 1998); VICE PRESIDENT --
FIXED INCOME, State Farm Mutual Automobile Insurance
Company, State Farm Fire and Casualty Company, State
Farm General Insurance Company, State Farm Indemnity
Company, and State Farm Lloyds, Inc. (since 1998);
prior to 1998, VICE PRESIDENT, Century Investment
Management Co.
Julian R. Bucher, Vice President, State Farm VICE PRESIDENT -- MUNICIPAL SECURITIES AND ASSISTANT
Age 56 Municipal Bond Fund, Inc. SECRETARY-TREASURER, State Farm Mutual Automobile
Insurance Company, State Farm Fire and Casualty
Company, State Farm Life Insurance Company, State
Farm Life and Accident Assurance Company, and State
Farm General Insurance Company (since 1997); VICE
PRESIDENT -- MUNICIPAL SECURITIES, State Farm
Indemnity Company and State Farm Lloyds, Inc. (since
1997); prior to 1997, INVESTMENT OFFICER, State Farm
Investment Management Corp.
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
POSITION(S) HELD WITH THE
NAME, AGE AND ADDRESS FUNDS PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
- --------------------------- ----------------------------- -----------------------------------------------------
<S> <C> <C>
James E. Freytag, Vice President, State Farm VICE PRESIDENT -- COMMON STOCKS AND ASSISTANT
Age 63 Growth Fund, Inc. and State SECRETARY-TREASURER, State Farm Mutual Automobile
Farm Balanced Fund, Inc. Insurance Company, State Farm Fire and Casualty
Company, State Farm Life Insurance Company, State
Farm Life and Accident Assurance Company, State Farm
Annuity and Life Insurance Company, and State Farm
General Insurance Company (since 1997); VICE
PRESIDENT -- COMMON STOCKS, State Farm Indemnity
Company and State Farm Lloyds, Inc. (since 1997);
prior to 1997, INVESTMENT OFFICER, State Farm
Investment Management Corp.
</TABLE>
- ------------------------
* Director who is an "interested person" of a Fund or of the Manager, as
defined in the Investment Company Act of 1940.
The directors and officers as a group owned less than one percent of the
Fund's outstanding shares on December 31, 1998.
Directors or officers who are interested persons do not receive any
compensation from any Fund for their services to the Fund. The Directors who are
not interested persons of any Fund received a fee of $900 for each meeting of
the Board of Directors attended during the year ended November 30, 1998.
<TABLE>
<CAPTION>
TOTAL
COMPENSATION
MUNICIPAL FROM ALL FUNDS
GROWTH BALANCED INTERIM BOND AND FUND
NAME OF DIRECTOR FUND FUND FUND FUND COMPLEX(8)*
- ---------------------------------------- --------- ----------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Edward B. Rust, Jr...................... $ 0 $ 0 $ 0 $ 0 $ 0
Albert H. Hoopes........................ 4,500 2,250 750 1,500 18,000
Roger S. Joslin......................... 0 0 0 0 0
Thomas M. Mengler....................... 1,800 900 300 600 7,200
Davis U. Merwin......................... 4,500 2,250 750 1,500 18,000
James A. Shirk.......................... 4,500 2,250 750 1,500 18,000
</TABLE>
- ------------------------
* Includes State Farm Variable Product Trust.
Directors and officers of the Fund do not receive any benefits from the Fund
upon retirement nor does the Fund accrue any expenses for pension or retirement
benefits.
21
<PAGE>
GENERAL INFORMATION
OWNERSHIP OF SHARES
As of December 31, 1998, Continental Trust Company, 231 South LaSalle
Street, Chicago, Illinois 60692, as trustee for numerous trusts created in
connection with Self-Employed Individuals Retirement Plans for State Farm
Independent Contractor Agents, owned of record in the aggregate the following
number of shares, as to which it has sole right to vote and shared right of
disposition:
<TABLE>
<CAPTION>
PERCENTAGE OF
FUND SHARES
FUND SHARES OWNED OUTSTANDING
- ---------------------------------------- ------------- -----------------
<S> <C> <C>
Growth Fund............................. 7,087,425 13.73%
Balanced Fund........................... 2,371,667 12.88%
Interim Fund............................ 2,498,831 16.18%
</TABLE>
CUSTODY OF ASSETS
The securities and cash of the Funds are held by The Chase Manhattan Bank
("Chase"), 3 Chase Metro Tech Center, Brooklyn, New York 11245, as custodian.
Chase delivers and receives payment for securities sold, receives and pays for
securities purchased, collects income from investments and performs other
duties, all as directed by persons duly authorized by the Board of Directors.
Cash of the Funds is also held by Commerce Bank ("Commerce"), 120 S. Center
Street, Bloomington, Illinois 61701, as custodian. Commerce receives payments
from the Manager for sale of the Funds' shares and performs other duties, as
directed by persons duly authorized by the Board of Directors.
INDEPENDENT AUDITORS
The Funds' independent auditors are Ernst & Young LLP, 233 South Wacker
Drive, Chicago, Illinois 60606. The firm audits each Fund's annual financial
statements, reviews certain regulatory reports and each Fund's federal income
tax returns, and performs other professional accounting, auditing, tax and
advisory services when engaged to do so by the Funds.
CODE OF ETHICS
The Manager intends that: all of its activities function exclusively for the
benefit of the owners or beneficiaries of the assets it manages; assets under
management or knowledge as to current or prospective transactions in managed
assets are not utilized for personal advantage or for the advantage of anyone
other than the owners or beneficiaries of those assets; persons associated with
the Manager and the Funds avoid situations involving actual or potential
conflicts of interest with the owners or beneficiaries of managed assets; and,
situations appearing to involve actual or potential conflicts of interest or
impairment of objectivity are avoided whenever doing so does not run counter to
the interests of the owners or beneficiaries of the managed assets. The Board of
Directors of each Fund has adopted a Code of Ethics which imposes certain
prohibitions, restrictions, preclearance requirements and reporting rules on the
personal securities transactions of subscribers to the Code, who include each
Fund's officers and directors and employees of the Manager. The Boards of
Directors believe that the provisions of the Code are reasonably designed to
prevent subscribers from engaging in conduct that violates these principles.
YEAR 2000 INFORMATION
Like other mutual funds, financial and business organizations and
individuals around the world, the Funds could be adversely affected if the
computer systems used by the Manager and other service providers do not properly
process and calculate date-related information from and after January 1, 2000.
The Manager is taking steps that it believes are reasonably designed to address
this problem in the computer systems that it uses and to obtain satisfactory
assurances that comparable steps are being taken
22
<PAGE>
by each of the Funds' other major service providers. At this time, however,
there can be no assurance that these steps will be sufficient to avoid any
adverse impact on the Funds.
DESCRIPTION OF BOND RATINGS
A rating of a rating service represents the service's opinion as to the
credit quality of the security being rated. However, the ratings are general and
are not absolute standards of quality or guarantees as to the creditworthiness
of an issuer. Consequently, the Manager believes that the quality of debt
securities in which a Fund invests should be continuously re-viewed and that
individual analysts give different weightings to the various factors involved in
credit analysis. A rating is not a recommendation to purchase, sell or hold a
security, because it does not take into account market value or suitability for
a particular investor. When a security has received a rating from more than one
service, each rating should be evaluated inde-pendently. Ratings are based on
current information furnished by the issuer or obtained by the ratings services
from other sources which they consider reliable. Ratings may be changed,
suspended or withdrawn as a result of changes in or unavailability of such
information, or for other reasons.
The following is a description of the characteristics of rating used by
Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's Corporation
("S&P").
RATINGS BY MOODY'S
Aaa--Bonds rated Aaa are judged to be the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt-edge."
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. Although the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such bonds.
Aa--Bonds rated Aa are judged to be high quality by all standards. Together
with the Aaa group they comprise what are generally known as high grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large as in Aaa bonds or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the long
term risk appear somewhat larger than in Aaa bonds.
A--Bonds rated A possess many favorable investment attributes and are to be
considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa--Bonds rated Baa are considered as medium grade obligations, i.e., they
are neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba--Bonds rated Ba are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B--Bonds rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
Caa--Bonds rated Caa are of poor standing. Such bonds may be in default or
there may be present elements of danger with respect to principal or interest.
23
<PAGE>
Ca--Bonds rated Ca represent obligations which are speculative in a high
degree. Such bonds are often in default or have other marked shortcomings.
C--Bonds rated C are the lowest rated class of bonds, and issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.
Conditional Ratings. The designation "Con." followed by a rating indicated
bonds for which the security depends upon the completion of some act or the
fulfillment of some condition. These are bonds secured by (a) earnings of
projects under construction, (b) earnings of projects unseasoned in operating
experience, (c) rentals which begin when facilities are completed, or (d)
payments to which some other limiting condition attaches. Parenthetical rating
denotes probable credit stature upon completion of construction or elimination
of basis of condition.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's believes
possess the strongest investment attributes are designated by the symbols Aa 1,
A 1, Baa 1, Ba 1, and B 1.
MUNICIPAL NOTES:
MIG 1. This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG 2. This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
MIG 3. This designation denotes favorable quality. All security elements
are accounted for but there is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
COMMERCIAL PAPER:
Moody's employs the following three designations, all judged to be
investment grade, to indicate the relative repayment capacity of rated issuers:
Prime-1 Highest Quality
Prime-2 Higher Quality
Prime-3 High Quality
If an issuer represents to Moody's that its commercial paper obligations are
supported by the credit of another entity or entities, Moody's, in assigning
ratings to such issuers, evaluates the financial strength of the indicated
affiliated corporations, commercial banks, insurance companies, foreign
governments, or other entities, but only as one factor in the total rating
assessment.
S&P RATINGS
AAA--Bonds rated AAA have the highest rating. Capacity to pay principal and
interest is extremely strong.
AA--Bonds rated AA have a very strong capacity to pay principal and interest
and differ from AAA bonds only in small degree.
A--Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher rated categories.
24
<PAGE>
BBB--Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay principal and interest for bonds in this capacity
than for bonds in higher rated categories.
BB--B--CCC--CC--Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB indicates
the lowest degree of speculation among such bonds and CC the highest degree of
speculation. Although such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
C--The rating C is reserved for income bonds on which no interest is being
paid.
In order to provide more detailed indications of credit quality, S&P's bond
letter ratings described above (except for AAA category) may be modified by the
addition of a plus or a minus sign to show relative standing within the rating
category.
Provisional Ratings. The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of the
project being financed by the debt being rated and indicates that payment of
debt service requirements is largely or entirely dependent upon the successful
and timely completion of the project. This rating, however, although addressing
credit quality subsequent to completion of the project, makes no comment on the
likelihood of, or the risk of default upon the failure of, such completion. The
investor should exercise his own judgment with respect to such likelihood and
risk.
MUNICIPAL NOTES:
SP-1. Notes rates SP-1 have very strong capacity to pay principal and
interest. Those issues determined to possess overwhelming safety characteristics
are designated SP-1+.
SP-2. Notes rated SP-2 have satisfactory capacity to pay principal and
interest.
Notes due in three years or less normally receive a note rating. Notes
maturing beyond three years normally receive a bond rating, although the
following criteria are used in making that assessment:
- Amortization schedule (the larger the final maturity relative to other
maturities, the more likely the issue will be rated as a note).
- Source of payment (the more dependent the issue is on the market for its
refinancing, the more likely it will be rated as a note).
COMMERCIAL PAPER:
A. Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are further refined with
the designations 1, 2 and 3 to indicate the relative degree of safety.
A-1. This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are designated A-1+.
25
<PAGE>
FINANCIAL STATEMENTS
26
<PAGE>
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS AND SHAREOWNERS
STATE FARM GROWTH FUND, INC.
STATE FARM BALANCED FUND, INC.
STATE FARM INTERIM FUND, INC.
STATE FARM MUNICIPAL BOND FUND, INC.
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments, of State Farm Growth Fund, Inc., State Farm
Balanced Fund, Inc., State Farm Interim Fund, Inc., and State Farm Municipal
Bond Fund, Inc. as of November 30, 1998, the related statements of operations
and changes in net assets for each of the two years in the period then ended,
and the financial highlights for each of the fiscal years since 1989. These
financial statements and financial highlights are the responsibility of the
Funds' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
November 30, 1998, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of State
Farm Growth Fund, Inc., State Farm Balanced Fund Inc., State Farm Interim Fund,
Inc., and State Farm Municipal Bond Fund, Inc. at November 30, 1998, the results
of their operations and changes in their net assets for each of the two years in
the period then ended, and the financial highlights for each of the fiscal years
since 1989, in conformity with generally accepted accounting principles.
[SIG]
Chicago, Illinois
December 18, 1998
- ---------
2
<PAGE>
STATE FARM GROWTH FUND, INC.
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1998
<TABLE>
<CAPTION>
SHARES VALUE
- ----------- --------------
<C> <S> <C>
COMMON STOCKS (98.2%)
AGRICULTURE, FOODS, & BEVERAGE (7.1%)
3,003,997 Archer-Daniels-Midland Company $ 55,198,445
92,000 Campbell Soup Company 5,255,500
930,000 Kellogg Company 34,061,250
291,000 Pioneer Hi-Bred International 8,711,812
104,000 Sara Lee Corp. 6,071,000
81,600 Sysco Corp. 2,198,100
573,800 The Coca-Cola Company 40,201,862
140,500 Unilever NV 10,862,406
9,200 Vlasic Foods International Inc. (a) 198,950
--------------
162,759,325
--------------
BANKS (10.0%)
172,361 ABN Amro Holding NV 3,558,491
120,825 AmSouth Bancorporation 5,104,856
715,322 Bank One Corporation 36,704,960
168,268 BankAmerica Corp. 10,968,970
90,000 First Security Corporation 1,811,250
43,500 First Virginia Banks Inc. 1,952,062
61,300 Golden West Financial 5,804,344
135,000 J P Morgan & Co. Inc. 14,428,125
6,200 M&T Bank Corp. 3,090,700
809,800 National Commerce Bancorporation 14,677,625
72,000 Northern Trust Co. 5,814,000
640,074 Pacific Century Financial Corp. 13,681,582
830,316 Popular Inc. 24,701,901
345,000 Southtrust Corp. 12,678,750
74,900 Suntrust Banks Inc. 5,228,956
62,000 TCF Financial 1,499,625
238,900 Wachovia Corporation 20,858,956
1,220,000 Wells Fargo 43,920,000
67,950 U.S. Bancorp 2,501,409
--------------
228,986,562
--------------
BUILDING MATERIALS & CONSTRUCTION (1.9%)
346,400 Vulcan Materials Company 43,429,900
--------------
CHEMICALS (7.0%)
830,000 Air Products & Chemicals Inc. 31,643,750
81,000 Dow Chemical 7,887,375
331,900 E.I. du Pont de Nemours & Co. 19,499,125
588,300 Great Lakes Chemical Corp. 23,495,231
561,000 International Flavors & Fragrances 23,491,875
45,200 Praxair Inc. 1,726,075
203,600 Raychem Corporation 6,935,125
1,410,300 Sigma-Aldrich Corporation 45,305,887
--------------
159,984,443
--------------
COMMERCIAL SERVICE/SUPPLY (.1%)
38,500 FDX Corp. (a) 2,497,687
--------------
</TABLE>
5 -------
<PAGE>
STATE FARM GROWTH FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 1998
<TABLE>
<CAPTION>
SHARES VALUE
- ----------- --------------
<C> <S> <C>
COMPUTER SOFTWARE AND SERVICES (3.6%)
62,000 Automatic Data Processing Inc. $ 4,774,000
30,800 Electronic Data Systems Corp. 1,201,200
567,800 Microsoft Corporation (a) 69,271,600
229,800 Oracle Corp. (a) 7,870,650
--------------
83,117,450
--------------
COMPUTERS (6.2%)
322,200 Compaq Computer Corp. 10,471,500
1,437,000 Hewlett-Packard Company 90,171,750
248,200 International Business Machines Corp. 40,953,000
--------------
141,596,250
--------------
CONSUMER & MARKETING (5.5%)
91,900 Colgate Palmolive Co. 7,868,937
1,439,200 Hon Industries Inc. 34,181,000
43,728 Jostens Inc. 1,024,875
142,200 McDonald's Corporation 9,962,887
339,400 Procter & Gamble Co. 29,739,925
589,000 Rubbermaid Incorporated 19,473,812
62,600 Steelcase Inc. 1,115,063
500,000 The Gillette Company 22,968,750
--------------
126,335,249
--------------
ELECTRONIC/ELECTRICAL MFG. (6.4%)
91,900 Diebold Inc. 3,159,063
109,400 Emerson Electric Co. 7,111,000
771,200 General Electric Company 69,793,600
483,600 Intel Corporation 52,047,450
52,700 KLA-Tencor Corp. (a) 1,795,094
175,800 Linear Technology Corp. 12,316,988
--------------
146,223,195
--------------
ENGINEERING & CONSTRUCTION (.1%)
14,600 ABB AB Sponsored ADR 1,547,600
14,000 ABB AG Sponsored ADR 1,743,476
--------------
3,291,076
--------------
FINANCIAL SERVICES (.6%)
36,400 Finova Group Inc. 1,922,375
558,450 MBNA Corporation 12,669,834
--------------
14,592,209
--------------
HEALTH CARE (17.9%)
105,600 Abbott Laboratories 5,068,800
716,100 Ballard Medical Products 15,575,175
1,550,000 Biomet Inc. 59,287,500
29,800 Boston Scientific Corp. (a) 1,475,100
107,050 Covance Inc. (a) 2,676,250
947,200 Eli Lilly & Co. 84,952,000
1,240,800 Johnson & Johnson 100,815,000
40,000 Medtronic Inc. 2,707,500
182,000 Merck & Co. Inc. 28,187,250
</TABLE>
- ---------
6
<PAGE>
STATE FARM GROWTH FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 1998
<TABLE>
<CAPTION>
SHARES VALUE
- ----------- --------------
<C> <S> <C>
960,000 Pfizer Inc. $ 107,160,000
53,525 Quest Diagnostics Inc. (a) 956,759
--------------
408,861,334
--------------
MACHINERY & MANUFACTURING (3.3%)
133,800 Allied Signal Inc. 5,887,200
370,000 Caterpillar Inc. 18,291,875
428,200 Corning Incorporated 17,181,525
57,800 Deere & Company 2,019,388
70,000 Illinois Tool Works 4,449,375
173,200 Minnesota Mining & Manufacturing 13,910,125
337,500 Osmonics Inc. (a) 3,543,750
425,000 Pall Corporation 9,881,250
--------------
75,164,488
--------------
MEDIA & BROADCASTING (4.5%)
155,433 Reuters Group PLC ADR 8,937,398
360,181 Scandinavian Broadcasting System SA (a) 9,454,751
2,619,540 The Walt Disney Company 84,316,444
--------------
102,708,593
--------------
MINING & METALS (.8%)
36,700 Newmont Mining Corp. 729,413
195,000 Nucor Corporation 8,190,000
185,000 Rio Tinto PLC ADR 8,880,000
81,250 Steel Dynamics Inc. (a) 1,107,031
--------------
18,906,444
--------------
OIL, GAS, & OTHER ENERGY (6.7%)
244,000 Amoco Corp. 14,380,750
440,400 Barrett Resources Corp. (a) 10,762,275
530,000 Chevron Corporation 44,321,250
612,200 Exxon Corporation 45,953,263
77,800 KN Energy Inc. 3,403,750
237,100 Pennzoil Company 8,802,338
516,300 Royal Dutch Petroleum Company 24,266,100
--------------
151,889,726
--------------
RETAILERS (1.8%)
531,600 Wal-Mart Stores Inc. 40,036,125
--------------
TELECOM & TELECOM EQUIPMENT (12.6%)
450,000 ADC Telecommunications Inc. (a) 13,443,750
86,000 Airtouch Communications Inc. (a) 4,918,125
232,000 Ameritech Corp. 12,557,000
400,000 AT&T Corp. 24,925,000
338,100 Cisco Systems Inc. (a) 25,484,288
290,200 Deutsche Telekom ADR 8,216,288
575,000 LM Ericsson Telephone Co. ADR 15,884,375
259,266 Lucent Technologies Inc. 22,313,080
1,023,729 MCI Worldcom Inc. (a) 60,400,011
264,000 Motorola Inc. 16,368,000
57,700 Nextlink Communication (Class A) (a) 1,745,425
</TABLE>
7 -------
<PAGE>
STATE FARM GROWTH FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 1998
<TABLE>
<CAPTION>
SHARES VALUE
- ----------- --------------
<C> <S> <C>
64,900 Nokia Corporation ADR $ 6,360,200
173,300 Northern Telecom Ltd. 8,090,944
1,192,200 SBC Communications 57,151,088
173,700 Tele Danmark AS ADR 9,629,494
--------------
287,487,068
--------------
UTILITIES & ENERGY (2.1%)
74,900 CMS Energy Corporation 3,651,375
132,000 Duke Energy Corp. 8,258,250
88,500 FPL Group Inc. 5,420,625
390,900 Pacificorp 7,329,375
288,000 Southern Co. 8,496,000
166,000 Teco Energy Inc. 4,461,250
98,500 Texas Utilities Co. Holding Co. 4,389,406
112,400 The AES Corp. (a) 5,142,300
--------------
47,148,581
--------------
TOTAL COMMON STOCKS
(cost $974,503,078) 2,245,015,705
--------------
<CAPTION>
PRINCIPAL
AMOUNT
- -----------
<C> <S> <C>
SHORT-TERM INVESTMENTS (1.8%)
$13,215,000 General Motors Acceptance Corp., 4.860%,
December, 1998 13,227,500
1,350,000 General Electric Capital Corp., 5.350%,
December, 1998 1,350,201
27,000,000 U.S. Treasury Bills, 3.600%, January,
1999 26,883,630
--------------
TOTAL SHORT-TERM INVESTMENTS
(cost $41,477,259) 41,461,331
--------------
TOTAL INVESTMENTS (100.0%)
(cost $1,015,980,337) 2,286,477,036
LIABILITIES, LESS CASH AND OTHER ASSETS (0.0%) (988,284)
--------------
NET ASSETS (100.0%) $2,285,488,752
--------------
--------------
</TABLE>
Notes:
(a) Non-income producing security.
(b) At November 30, 1998, net unrealized appreciation of $1,270,496,699
consisted of gross unrealized appreciation of $1,285,409,124 and gross
unrealized depreciation of $14,912,425 based on cost of $1,015,980,337 for
federal income tax purposes.
See accompanying notes to financial statements.
- ---------
8
<PAGE>
STATE FARM GROWTH FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1998
<TABLE>
<S> <C> <C>
ASSETS
Investments, at value (cost
$1,015,980,337) $2,286,477,036
Cash 900,142
Receivable for:
Dividends and interest $3,510,228
Shares of the Fund sold 832,238
Sundry 8,859 4,351,325
----------
Prepaid expenses 51,953
--------------
Total assets 2,291,780,456
--------------
LIABILITIES AND NET ASSETS
Payable for:
Shares of the Fund redeemed 4,287,916
Securities purchased 1,350,000
Other (including $576,147 to
Manager) 653,788
----------
6,291,704
--------------
Total liabilities 6,291,704
--------------
Net assets applicable to 51,183,621
shares outstanding of
$0.50 par value common stock
(100,000,000 shares authorized) $2,285,488,752
--------------
--------------
Net asset value, offering price and
redemption price per share $ 44.65
--------------
--------------
ANALYSIS OF NET ASSETS
Excess of amounts received from sales
of shares over amounts paid on
redemptions of shares on account of
capital $ 993,097,815
Accumulated net realized gain on sales
of investments 2,197,936
Net unrealized appreciation of
investments 1,270,496,699
Undistributed net investment income 19,696,302
--------------
Net assets applicable to shares
outstanding $2,285,488,752
--------------
--------------
</TABLE>
See accompanying notes to financial statements.
9 -------
<PAGE>
STATE FARM GROWTH FUND, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-------------------------
1998 1997
------------ -----------
<S> <C> <C>
INVESTMENT INCOME:
Dividends $ 29,997,754 24,033,712
Interest 3,413,231 5,877,994
------------ -----------
33,410,985 29,911,706
Less: foreign withholding taxes 297,805 205,192
------------ -----------
Total investment income 33,113,180 29,706,514
EXPENSES:
Investment advisory and management
fees 2,221,492 1,705,166
Professional fees 55,382 37,364
ICI dues 44,841 48,215
Registration fees 61,281 65,847
Fidelity bond expense 8,367 6,932
Directors' fees 16,259 9,900
Reports to shareowners 21,287 19,799
Security evaluation fees 3,237 3,463
Franchise taxes 17,495 15,568
Custodian fees 26,161 23,607
Proxy and related expense 31,777 --
Other 10,745 --
------------ -----------
Total expenses 2,518,324 1,935,861
------------ -----------
Net investment income 30,594,856 27,770,653
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS:
Net realized gain on sales of
investments 2,197,936 52,537,716
Change in net unrealized appreciation 306,511,650 270,232,368
------------ -----------
Net realized and unrealized gain on
investments 308,709,586 322,770,084
------------ -----------
Net change in net assets resulting from
operations $339,304,442 350,540,737
------------ -----------
------------ -----------
</TABLE>
See accompanying notes to financial statements.
- ---------
10
<PAGE>
STATE FARM GROWTH FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-----------------------------
1998 1997
-------------- -------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income $ 30,594,856 27,770,653
Net realized gain on sales of
investments 2,197,936 52,537,716
Change in net unrealized appreciation 306,511,650 270,232,368
-------------- -------------
Net change in net assets resulting from
operations 339,304,442 350,540,737
Undistributed net investment income
included in price of shares issued and
redeemed 789,317 1,240,326
DISTRIBUTION TO SHAREOWNERS FROM:
Net investment income (per share $.64
in 1998, and $.61 in 1997) (31,134,862) (25,616,492)
Net realized gain (per share $1.13 in
1998, and $2.31 in 1997) (52,131,683) (90,788,938)
-------------- -------------
Total distributions to shareowners (83,266,545) (116,405,430)
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold 334,952,191 252,636,657
Reinvestment of ordinary income
dividends and capital gain
distributions 80,862,911 113,414,471
-------------- -------------
415,815,102 366,051,128
Less payments for shares redeemed 208,248,185 143,241,394
-------------- -------------
Net increase in net assets from Fund
share transactions 207,566,917 222,809,734
-------------- -------------
Total increase in net assets 464,394,131 458,185,367
-------------- -------------
NET ASSETS:
Beginning of year 1,821,094,621 1,362,909,254
-------------- -------------
End of year (including undistributed
net investment income of $19,696,302
in 1998, and $19,446,991 in 1997) $2,285,488,752 1,821,094,621
-------------- -------------
-------------- -------------
</TABLE>
See accompanying notes to financial statements.
11-------
<PAGE>
STATE FARM GROWTH FUND, INC.
FINANCIAL HIGHLIGHTS
PER SHARE INCOME AND CAPITAL CHANGES (For a share outstanding throughout each
year)
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
---------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
--------- --------- --------- --------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $ 39.48 34.55 29.40 22.63 22.21 23.05 20.33 16.77 16.90 13.34
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.61 0.62 0.63 0.50 0.44 0.45 0.43 0.42 0.47 0.41
Net gain or loss on
investments (both
realized and
unrealized) 6.33 7.23 5.17 6.97 0.43 (0.60) 2.70 4.32 0.26 3.57
--------- --------- --------- --------- ------- ------- ------- ------- ------- -------
Total from investment
operations 6.94 7.85 5.80 7.47 0.87 (0.15) 3.13 4.74 0.73 3.98
--------- --------- --------- --------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS
Net investment income (0.64) (0.61) (0.53) (0.52) (0.45) (0.45) (0.41) (0.54) (0.40) (0.42)
Capital gains (1.13) (2.31) (0.12) (0.18) -- (0.24) -- (0.64) (0.46) --
--------- --------- --------- --------- ------- ------- ------- ------- ------- -------
Total distributions (1.77) (2.92) (0.65) (0.70) (0.45) (0.69) (0.41) (1.18) (0.86) (0.42)
--------- --------- --------- --------- ------- ------- ------- ------- ------- -------
Net asset value, end of
year $ 44.65 39.48 34.55 29.40 22.63 22.21 23.05 20.33 16.77 16.90
--------- --------- --------- --------- ------- ------- ------- ------- ------- -------
--------- --------- --------- --------- ------- ------- ------- ------- ------- -------
TOTAL RETURN 18.17% 24.80% 20.09% 33.67% 4.02% (0.65)% 15.42% 29.79% 4.27% 30.51%
RATIOS/SUPPLEMENTAL
DATA
Net assets, end of year
(millions) $ 2,285.5 1,821.1 1,362.9 1,068.6 771.7 725.1 696.1 558.4 414.3 383.0
Ratio of expenses to
average net assets 0.12% 0.12% 0.13% 0.14%(a) 0.14% 0.14% 0.16% 0.19% 0.21% 0.21%
Ratio of net investment
income to average net
assets 1.47% 1.78% 1.88% 1.95% 2.00% 2.05% 1.99% 2.22% 2.84% 2.69%
Portfolio turnover rate 1% 6% 16% 3% 3% 2% 2% 1% 16% 9%
</TABLE>
- ----------
(a) The ratio based on net custodian expenses would have been .13% in 1995.
- ---------
12
<PAGE>
STATE FARM BALANCED FUND, INC.
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1998
<TABLE>
<CAPTION>
SHARES VALUE
- ----------- ------------
<C> <S> <C> <C> <C>
COMMON STOCKS (65.8%)
AGRICULTURE, FOODS, & BEVERAGE (5.3%)
812,494 Archer-Daniels-Midland Company $ 14,929,577
26,000 Campbell Soup Company 1,485,250
310,000 Kellogg Company 11,353,750
81,000 Pioneer Hi-Bred International 2,424,937
29,000 Sara Lee Corp. 1,692,875
190,000 The Coca-Cola Company 13,311,875
25,600 Unilever NV 1,979,200
Vlasic Foods International
2,600 Inc. (a) 56,225
------------
47,233,689
------------
BANKS (6.3%)
48,666 ABN Amro Holding NV 1,004,737
34,875 AmSouth Bancorporation 1,473,469
184,100 Bank One Corporation 9,446,631
25,650 First Security Corporation 516,206
12,300 First Virginia Banks Inc. 551,962
17,700 Golden West Financial 1,675,969
38,400 J P Morgan & Co. Inc. 4,104,000
1,900 M&T Bank Corp. 947,150
20,500 Northern Trust Co. 1,655,375
Pacific Century Financial
180,960 Corp. 3,868,020
166,924 Popular Inc. 4,965,989
99,000 Southtrust Corp. 3,638,250
21,400 Suntrust Banks Inc. 1,493,987
17,600 TCF Financial 425,700
19,251 U.S. Bancorp 708,677
75,700 Wachovia Corporation 6,609,556
373,800 Wells Fargo 13,456,800
------------
56,542,478
------------
BUILDING MATERIALS & CONSTRUCTION (.7%)
53,400 Vulcan Materials Company 6,695,025
------------
CHEMICALS (4.6%)
230,000 Air Products & Chemicals Inc. 8,768,750
23,000 Dow Chemical 2,239,625
63,000 E.I. du Pont de Nemours & Co. 3,701,250
141,400 Great Lakes Chemical Corp. 5,647,162
International Flavors &
120,000 Fragrances 5,025,000
11,800 Praxair Inc. 450,612
220,000 Raychem Corporation 7,493,750
245,500 Sigma-Aldrich Corporation 7,886,687
------------
41,212,836
------------
COMMERCIAL SERVICE/SUPPLY (.1%)
9,900 FDX Corp. (a) 642,262
------------
COMPUTER SOFTWARE AND SERVICES (.9%)
8,800 Electronic Data Systems Corp. 343,200
63,000 Microsoft Corporation (a) 7,686,000
------------
8,029,200
------------
</TABLE>
15-------
<PAGE>
STATE FARM BALANCED FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 1998
<TABLE>
<CAPTION>
SHARES VALUE
- ----------- ------------
<C> <S> <C> <C> <C>
COMPUTERS (3.9%)
377,000 Hewlett-Packard Company $ 23,656,750
International Business
68,600 Machines Corp. 11,319,000
------------
34,975,750
------------
CONSUMER & MARKETING (3.5%)
160,000 Hon Industries Inc. 3,800,000
27,100 Jostens Inc. 635,156
16,900 McDonald's Corporation 1,184,056
68,000 Procter & Gamble Co. 5,958,500
172,800 Rubbermaid Incorporated 5,713,200
17,800 Steelcase Inc. 317,062
300,000 The Gillette Company 13,781,250
------------
31,389,224
------------
ELECTRONIC/ELECTRICAL MFG. (3.6%)
10,100 Diebold Inc. 347,188
31,200 Emerson Electric Co. 2,028,000
159,900 General Electric Company 14,470,950
125,700 Intel Corporation 13,528,463
20,400 Linear Technology Corp. 1,429,275
------------
31,803,876
------------
FINANCIAL SERVICES (.5%)
9,900 Finova Group Inc. 522,844
160,650 MBNA Corporation 3,644,747
------------
4,167,591
------------
HEALTH CARE (12.0%)
38,700 Allergan Inc. 2,355,863
400,851 Ballard Medical Products 8,718,509
405,000 Biomet Inc. 15,491,250
31,025 Covance Inc. (a) 775,625
212,000 Eli Lilly & Co. 19,013,750
198,000 Johnson & Johnson 16,087,500
10,800 Medtronic Inc. 731,025
50,000 Merck & Co. Inc. 7,743,750
320,000 Pfizer Inc. 35,720,000
15,512 Quest Diagnostics Inc. (a) 277,277
------------
106,914,549
------------
MACHINERY & MANUFACTURING (2.0%)
34,600 Allied Signal Inc. 1,522,400
100,000 Caterpillar Inc. 4,943,750
124,100 Corning Incorporated 4,979,513
14,700 Deere & Company 513,581
20,000 Illinois Tool Works 1,271,250
Minnesota Mining &
47,700 Manufacturing 3,830,906
84,375 Osmonics Inc. (a) 885,938
------------
17,947,338
------------
</TABLE>
- ---------
16
<PAGE>
STATE FARM BALANCED FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 1998
<TABLE>
<CAPTION>
SHARES VALUE
- ----------- ------------
<C> <S> <C> <C> <C>
MEDIA & BROADCASTING (5.0%)
42,000 Lee Enterprises $ 1,176,000
42,000 Lee Enterprises (Class B) 1,176,000
173,333 Reuters Group PLC ADR 9,966,648
993,495 The Walt Disney Company 31,978,120
------------
44,296,768
------------
MINING & METALS (1.1%)
29,200 Newmont Mining Corp. 580,350
160,000 Nucor Corporation 6,720,000
50,000 Rio Tinto PLC ADR 2,400,000
18,750 Steel Dynamics Inc. (a) 255,469
------------
9,955,819
------------
OIL, GAS, & OTHER ENERGY (5.2%)
68,000 Amoco Corp. 4,007,750
144,000 Chevron Corporation 12,042,000
152,000 Exxon Corporation 11,409,500
180,000 KN Energy Inc. 7,875,000
65,220 Pennzoil Company 2,421,293
188,700 Royal Dutch Petroleum Company 8,868,900
------------
46,624,443
------------
RETAILERS (.4%)
47,000 Wal-Mart Stores Inc. 3,539,688
------------
TELECOM & TELECOM EQUIPMENT (9.3%)
ADC Telecommunications Inc.
258,200 (a) 7,713,725
Airtouch Communications Inc.
24,000 (a) 1,372,500
64,000 Ameritech Corp. 3,464,000
170,000 AT&T Corp. 10,593,125
83,000 Deutsche Telekom ADR 2,349,938
136,000 LM Ericsson Telephone Co. ADR 3,757,000
110,188 Lucent Technologies Inc. 9,483,055
324,657 MCI Worldcom Inc. (a) 19,154,763
64,000 Motorola Inc. 3,968,000
Nextlink Communication (Class
14,900 A) (a) 450,725
44,600 Northern Telecom Ltd. 2,082,263
385,800 SBC Communications 18,494,288
------------
82,883,382
------------
UTILITIES & ENERGY (1.4%)
20,800 CMS Energy Corporation 1,014,000
36,000 Duke Energy Corp. 2,252,250
25,200 FPL Group Inc. 1,543,500
85,000 Pacificorp 1,593,750
80,000 Southern Co. 2,360,000
47,300 Teco Energy Inc. 1,271,188
Texas Utilities Co. Holding
28,000 Co. 1,247,750
30,200 The AES Corp. (a) 1,381,650
------------
12,664,088
------------
TOTAL COMMON STOCKS
(cost $248,178,937) 587,518,006
------------
</TABLE>
17-------
<PAGE>
STATE FARM BALANCED FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 1998
<TABLE>
<CAPTION>
PRINCIPAL COUPON MATURITY
AMOUNT RATE DATE VALUE
- ----------- ------- ------------------- ------------
CORPORATE BONDS (1.5%)
<C> <S> <C> <C> <C>
AGRICULTURE, FOODS, & BEVERAGE (.3%)
$2,950,000 Archer-Daniels-Midland Company 5.870% November 15, 2010 $ 2,875,778
------------
CONSUMER & MARKETING (.6%)
5,000,000 Avery Dennison 5.900% December 1, 2008 5,000,000
------------
TELECOM & TELECOM EQUIPMENT (.6%)
5,000,000 US West Communications 5.625% November 15, 2008 5,034,300
------------
TOTAL CORPORATE BONDS
(cost $12,887,460) 12,910,078
------------
LONG-TERM U.S. TREASURY OBLIGATIONS (26.7%)
625,000 U.S. Treasury Bonds 13.125% May 15, 2001 747,319
680,000 U.S. Treasury Bonds 13.375% August 15, 2001 830,375
U.S. Treasury Bonds (principal
5,000,000 only) 14.250% February 15, 2002 6,409,700
2,570,000 U.S. Treasury Bonds 11.625% November 15, 2002 3,202,991
3,000,000 U.S. Treasury Bonds 10.750% May 15, 2003 3,717,450
5,500,000 U.S. Treasury Bonds 11.875% November 15, 2003 7,207,585
1,500,000 U.S. Treasury Bonds 11.625% November 15, 2004 2,025,975
1,785,000 U.S. Treasury Bonds 8.250% May 15, 2005 1,870,251
4,800,000 U.S. Treasury Bonds 10.750% August 15, 2005 6,417,504
11,500,000 U.S. Treasury Bonds 9.375% February 15, 2006 14,695,045
1,000,000 U.S. Treasury Bonds 10.375% November 15, 2009 1,281,920
7,000,000 U.S. Treasury Bonds 10.000% May 15, 2010 8,952,720
3,000,000 U.S. Treasury Notes 8.875% February 15, 1999 3,025,530
2,000,000 U.S. Treasury Notes 7.000% April 15, 1999 2,017,220
2,000,000 U.S. Treasury Notes 9.125% May 15, 1999 2,039,480
3,000,000 U.S. Treasury Notes 6.375% July 15, 1999 3,030,450
3,000,000 U.S. Treasury Notes 7.125% September 30, 1999 3,058,680
1,500,000 U.S. Treasury Notes 6.000% October 15, 1999 1,516,815
2,500,000 U.S. Treasury Notes 7.875% November 15, 1999 2,574,250
3,000,000 U.S. Treasury Notes 6.375% January 15, 2000 3,054,870
2,000,000 U.S. Treasury Notes 8.500% February 15, 2000 2,088,780
3,000,000 U.S. Treasury Notes 6.875% March 31, 2000 3,084,810
3,000,000 U.S. Treasury Notes 5.500% April 15, 2000 3,033,750
5,000,000 U.S. Treasury Notes 6.250% May 31, 2000 5,115,150
3,000,000 U.S. Treasury Notes 8.750% August 15, 2000 3,199,530
3,000,000 U.S. Treasury Notes 8.500% November 15, 2000 3,215,460
4,200,000 U.S. Treasury Notes 7.750% February 15, 2001 4,473,420
5,000,000 U.S. Treasury Notes 6.375% March 31, 2001 5,191,350
2,000,000 U.S. Treasury Notes 8.000% May 15, 2001 2,155,360
4,000,000 U.S. Treasury Notes 7.875% August 15, 2001 4,327,000
5,500,000 U.S. Treasury Notes 7.500% November 15, 2001 5,932,135
2,000,000 U.S. Treasury Notes 7.500% May 15, 2002 2,180,140
5,000,000 U.S. Treasury Notes 6.000% July 31, 2002 5,227,750
7,500,000 U.S. Treasury Notes 6.375% August 15, 2002 7,933,875
5,000,000 U.S. Treasury Notes 6.250% February 15, 2003 5,299,400
9,000,000 U.S. Treasury Notes 5.750% August 15, 2003 9,412,830
9,000,000 U.S. Treasury Notes 5.875% February 15, 2004 9,532,260
9,000,000 U.S. Treasury Notes 7.250% May 15, 2004 10,092,420
6,000,000 U.S. Treasury Notes 7.250% August 15, 2004 6,751,740
5,000,000 U.S. Treasury Notes 7.500% February 15, 2005 5,730,300
7,500,000 U.S. Treasury Notes 6.500% May 15, 2005 8,237,925
6,000,000 U.S. Treasury Notes 5.875% November 15, 2005 6,413,460
6,000,000 U.S. Treasury Notes 6.875% May 15, 2006 6,775,440
</TABLE>
- ---------
18
<PAGE>
STATE FARM BALANCED FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 1998
<TABLE>
<CAPTION>
PRINCIPAL COUPON MATURITY
AMOUNT RATE DATE VALUE
- ----------- ------- ------------------- ------------
<C> <S> <C> <C> <C>
$3,000,000 U.S. Treasury Notes 7.000% July 15, 2006 $ 3,412,680
4,000,000 U.S. Treasury Notes 6.500% October 15, 2006 4,435,120
10,000,000 U.S. Treasury Notes 6.250% February 15, 2007 10,972,900
11,000,000 U.S. Treasury Notes 6.625% May 15, 2007 12,349,370
4,000,000 U.S. Treasury Notes 6.125% August 15, 2007 4,361,120
------------
TOTAL LONG-TERM U.S. TREASURY OBLIGATIONS
(cost $228,033,881) 238,611,605
------------
SHORT-TERM INVESTMENTS (5.7%)
Ford Motor Credit Co., 4.88%
11,695,000 to 5.160%, December, 1998 11,697,813
General Electric Capital
Corp., 5.350%, December,
13,625,000 1998 13,627,025
U.S. Treasury Bills, 3.600% to
4.760%, December, 1998 to
26,000,000 February, 1999 25,891,900
------------
TOTAL SHORT-TERM INVESTMENTS
(cost $51,220,941) 51,216,738
------------
TOTAL INVESTMENTS (99.7%)
(cost $540,321,219) 890,256,427
CASH AND OTHER ASSETS, LESS LIABILITIES (0.3%) 2,944,941
------------
NET ASSETS (100.0%) $893,201,368
------------
------------
</TABLE>
Notes:
(a) Non-income producing security.
(b) At November 30, 1998, net unrealized appreciation of $349,935,208 consisted
of gross unrealized appreciation of $355,039,754 and gross unrealized
depreciation of $5,104,546 based on cost of $540,321,219 for federal income
tax purposes.
See accompanying notes to financial statements.
19-------
<PAGE>
STATE FARM BALANCED FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1998
<TABLE>
<S> <C> <C>
ASSETS
Investments, at value (cost
$540,321,219) $890,256,427
Cash 339,980
Receivable for:
Dividends and interest $ 4,083,723
Shares of the Fund sold 571,633
Securities sold 22,912,757
Sundry 4,725 27,572,838
-----------
Prepaid expenses 24,332
------------
Total assets 918,193,577
------------
LIABILITIES AND NET ASSETS
Payable for:
Shares of the Fund redeemed 1,079,750
Securities purchased 23,625,000
Other (including $256,675 to
Manager) 287,459
-----------
24,992,209
------------
Total liabilities 24,992,209
------------
Net assets applicable to 18,028,260
shares outstanding of
$1.00 par value common stock
(40,000,000 shares authorized) $893,201,368
------------
------------
Net asset value, offering price and
redemption price per share $ 49.54
------------
------------
ANALYSIS OF NET ASSETS
Excess of amounts received from sales
of shares over amounts paid on
redemptions of shares on account of
capital $518,204,884
Accumulated net realized gain on sales
of investments 446,940
Net unrealized appreciation of
investments 349,935,208
Undistributed net investment income 24,614,336
------------
Net assets applicable to shares
outstanding $893,201,368
------------
------------
</TABLE>
See accompanying notes to financial statements.
- ---------
20
<PAGE>
STATE FARM BALANCED FUND, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
------------------------
1998 1997
----------- -----------
<S> <C> <C>
INVESTMENT INCOME:
Dividends $ 9,838,359 7,013,356
Interest 19,172,814 17,286,259
----------- -----------
29,011,173 24,299,615
Less: foreign withholding taxes 113,470 83,157
----------- -----------
Total investment income 28,897,703 24,216,458
EXPENSES:
Investment advisory and management
fees 980,972 829,724
Professional fees 33,191 25,413
ICI dues 20,048 21,227
Registration fees 20,140 17,826
Fidelity bond expense 4,827 4,990
Directors' fees 8,129 4,950
Reports to shareowners 11,907 12,077
Security evaluation fees 4,893 5,475
Franchise taxes 17,229 15,667
Custodian fees 17,454 22,820
Proxy and related expense 14,077 --
Other 140 103
----------- -----------
Total expenses 1,133,007 960,272
----------- -----------
Net investment income 27,764,696 23,256,186
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS:
Net realized gain on sales of
investments 446,940 11,354,841
Change in net unrealized appreciation 70,040,582 77,000,826
----------- -----------
Net realized and unrealized gain on
investments 70,487,522 88,355,667
----------- -----------
Net change in net assets resulting from
operations $98,252,218 111,611,853
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to financial statements.
21-------
<PAGE>
STATE FARM BALANCED FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-------------------------
1998 1997
------------ -----------
<S> <C> <C>
FROM OPERATIONS:
Net investment income $ 27,764,696 23,256,186
Net realized gain on sales of
investments 446,940 11,354,841
Change in net unrealized appreciation 70,040,582 77,000,826
------------ -----------
Net change in net assets resulting from
operations 98,252,218 111,611,853
Undistributed net investment income
included in price of shares issued and
redeemed 714,370 728,764
DISTRIBUTIONS TO SHAREOWNERS FROM:
Net investment income (per share $1.54
in 1998, and $1.47 in 1997) (26,507,020) (22,824,265)
Net realized gain (per share $.69 in
1998, and $1.33 in 1997) (11,354,841) (19,696,852)
------------ -----------
Total distributions to shareowners (37,861,861) (42,521,117)
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold 143,691,069 107,496,503
Reinvestment of ordinary income
dividends and capital gain
distributions 36,429,240 41,061,305
------------ -----------
180,120,309 148,557,808
Less payments for shares redeemed 110,302,865 82,191,577
------------ -----------
Net increase in net assets from Fund
share transactions 69,817,444 66,366,231
------------ -----------
Total increase in net assets 130,922,171 136,185,731
------------ -----------
NET ASSETS:
Beginning of year 762,279,197 626,093,466
------------ -----------
End of year (including undistributed
net investment income of $24,614,336
in 1998, and $22,642,290 in 1997) $893,201,368 762,279,197
------------ -----------
------------ -----------
</TABLE>
See accompanying notes to financial statements.
- ---------
22
<PAGE>
STATE FARM BALANCED FUND, INC.
FINANCIAL HIGHLIGHTS
PER SHARE INCOME AND CAPITAL CHANGES (For a share outstanding throughout each
year)
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
---------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
year $ 46.09 42.04 37.76 31.12 30.88 31.24 27.98 22.72 22.27 18.81
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 1.54 1.40 1.39 1.25 1.03 0.98 0.98 0.94 1.06 0.92
Net gain or loss on
investments (both realized
and unrealized) 4.14 5.45 4.38 6.77 0.17 (0.09) 3.29 5.81 0.74 3.61
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total from investment
operations 5.68 6.85 5.77 8.02 1.20 0.89 4.27 6.75 1.80 4.53
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS
Net investment income (1.54) (1.47) (1.30) (1.19) (0.89) (1.01) (0.89) (1.03) (0.92) (0.86)
Capital gains (0.69) (1.33) (0.19) (0.19) (0.07) (0.24) (0.12) (0.46) (0.43) (0.21)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total distributions (2.23) (2.80) (1.49) (1.38) (0.96) (1.25) (1.01) (1.49) (1.35) (1.07)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net asset value, end of year $ 49.54 46.09 42.04 37.76 31.12 30.88 31.24 27.98 22.72 22.27
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
TOTAL RETURN 12.72% 17.33% 15.78% 26.53% 3.98% 2.91% 15.43% 31.09% 8.29% 25.09%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year
(millions) $ 893.2 762.3 626.1 499.7 370.5 327.8 259.7 173.5 108.8 88.7
Ratio of expenses to average
net assets 0.14% 0.14% 0.15% 0.17%(a) 0.17% 0.19% 0.22% 0.26% 0.27% 0.29%
Ratio of net investment income
to average net assets 3.34% 3.42% 3.63% 3.66% 3.36% 3.20% 3.29% 3.66% 4.87% 4.50%
Portfolio turnover rate 2% 6% 9% 6% 4% 4% 4% 1% 10% 10%
</TABLE>
- ----------
(a) The ratio based on net custodian expenses would have been .16% in 1995.
23-------
<PAGE>
STATE FARM INTERIM FUND, INC.
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1998
<TABLE>
<CAPTION>
PRINCIPAL COUPON MATURITY
AMOUNT RATE DATE VALUE
- ----------- ------- ------------------- ------------
<C> <S> <C> <C> <C>
LONG-TERM U.S. TREASURY OBLIGATIONS (95.5%)
U.S. Treasury Bonds (principal
$4,000,000 only) 14.250% February 15, 2002 $ 5,127,760
4,000,000 U.S. Treasury Bonds 11.625% November 15, 2002 4,985,200
2,000,000 U.S. Treasury Bonds 10.750% May 15, 2003 2,478,300
2,000,000 U.S. Treasury Bonds 11.125% August 15, 2003 2,531,760
1,000,000 U.S. Treasury Bonds 11.875% November 15, 2003 1,310,470
4,000,000 U.S. Treasury Notes 6.375% January 15, 1999 4,009,240
1,000,000 U.S. Treasury Notes 5.875% March 31, 1999 1,004,360
3,750,000 U.S. Treasury Notes 7.000% April 15, 1999 3,782,287
4,000,000 U.S. Treasury Notes 6.375% July 15, 1999 4,040,600
1,000,000 U.S. Treasury Notes 5.750% September 30, 1999 1,008,580
4,000,000 U.S. Treasury Notes 6.000% October 15, 1999 4,044,840
2,000,000 U.S. Treasury Notes 6.375% January 15, 2000 2,036,580
2,000,000 U.S. Treasury Notes 8.500% February 15, 2000 2,088,780
1,000,000 U.S. Treasury Notes 6.875% March 31, 2000 1,028,270
6,250,000 U.S. Treasury Notes 5.500% April 15, 2000 6,320,313
1,000,000 U.S. Treasury Notes 6.750% April 30, 2000 1,028,280
1,000,000 U.S. Treasury Notes 8.875% May 15, 2000 1,058,990
1,000,000 U.S. Treasury Notes 6.250% May 31, 2000 1,023,030
4,000,000 U.S. Treasury Notes 8.750% August 15, 2000 4,266,040
3,750,000 U.S. Treasury Notes 8.500% November 15, 2000 4,019,325
3,000,000 U.S. Treasury Notes 5.500% December 31, 2000 3,052,020
1,000,000 U.S. Treasury Notes 5.250% January 31, 2001 1,013,180
4,000,000 U.S. Treasury Notes 7.750% February 15, 2001 4,260,400
4,000,000 U.S. Treasury Notes 5.625% February 28, 2001 4,086,720
5,000,000 U.S. Treasury Notes 8.000% May 15, 2001 5,388,400
4,000,000 U.S. Treasury Notes 7.875% August 15, 2001 4,327,000
3,000,000 U.S. Treasury Notes 6.375% September 30, 2001 3,138,300
4,000,000 U.S. Treasury Notes 7.500% November 15, 2001 4,314,280
4,000,000 U.S. Treasury Notes 7.500% May 15, 2002 4,360,280
8,000,000 U.S. Treasury Notes 6.375% August 15, 2002 8,462,800
5,000,000 U.S. Treasury Notes 5.750% November 30, 2002 5,195,800
6,000,000 U.S. Treasury Notes 6.250% February 15, 2003 6,359,280
7,000,000 U.S. Treasury Notes 5.750% April 30, 2003 7,305,340
7,000,000 U.S. Treasury Notes 5.750% August 15, 2003 7,321,090
3,000,000 U.S. Treasury Notes 5.875% February 15, 2004 3,177,420
8,000,000 U.S. Treasury Notes 7.250% May 15, 2004 8,971,040
8,000,000 U.S. Treasury Notes 7.875% November 15, 2004 9,283,520
------------
TOTAL LONG-TERM U.S. TREASURY OBLIGATIONS
(cost $146,688,555) 147,209,875
------------
SHORT-TERM INVESTMENTS (4.2%)
Ford Motor Credit Co., 4.880%,
4,480,000 December, 1998 4,483,647
U.S. Treasury Bills, 4.410%,
2,000,000 February, 1999 1,982,320
------------
TOTAL SHORT-TERM INVESTMENTS
(cost $6,465,961) 6,465,967
------------
TOTAL INVESTMENTS (99.7%)
(cost $153,154,516) 153,675,842
CASH AND OTHER ASSETS, LESS LIABILITIES (0.3%) 468,724
------------
NET ASSETS (100.0%) $154,144,566
------------
------------
</TABLE>
Notes:
(a) At November 30, 1998, net unrealized appreciation of $521,326 consisted of
gross unrealized appreciation of $2,120,931 and gross unrealized
depreciation of $1,599,605 based on cost of $153,154,516 for federal income
tax purposes.
See accompanying notes to financial statements.
- ---------
26
<PAGE>
STATE FARM INTERIM FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1998
<TABLE>
<S> <C> <C>
ASSETS
Investments, at value (cost
$153,154,516) $153,675,842
Cash 603,260
Receivable for:
Interest $1,923,326
Shares of the Fund sold 20,000
Sundry 3,544 1,946,870
----------
Prepaid expenses 8,286
------------
Total assets 156,234,258
LIABILITIES AND NET ASSETS
Dividends payable to shareowners 1,581,531
Payable for:
Shares of the Fund redeemed 427,582
Other (including $60,844 to Manager) 80,579
----------
508,161
------------
Total liabilities 2,089,692
------------
Net assets applicable to 15,450,980
shares outstanding of
$1.00 par value common stock
(40,000,000 shares authorized) $154,144,566
------------
------------
Net asset value, offering price and
redemption price per share $ 9.98
------------
------------
ANALYSIS OF NET ASSETS
Excess of amounts received from sales
of shares over amounts paid on
redemptions of shares on account of
capital $156,838,488
Accumulated net realized loss on sales
of investments (3,215,248)
Net unrealized appreciation of
investments 521,326
------------
Net assets applicable to shares
outstanding $154,144,566
------------
------------
</TABLE>
See accompanying notes to financial statements.
27-------
<PAGE>
STATE FARM INTERIM FUND, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER
30,
----------------------
1998 1997
---------- ----------
<S> <C> <C>
INVESTMENT INCOME:
Interest $8,742,391 7,939,168
EXPENSES:
Investment advisory and management
fees 199,209 184,551
Professional fees 19,501 17,993
ICI dues 3,283 4,053
Registration fees 12,266 2,577
Fidelity bond expense 2,638 2,912
Directors' fees 2,709 1,650
Reports to shareowners 2,713 2,207
Security evaluation fees 1,862 2,094
Franchise taxes 12,547 9,391
Custodian fees 6,112 10,745
Proxy and related expense 2,950 --
Other 140 122
---------- ----------
Total expenses 265,930 238,295
---------- ----------
Net investment income 8,476,461 7,700,873
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized loss on sales of
investments (994,996) (922,190)
Change in net unrealized appreciation
or depreciation 2,484,327 (453,800)
---------- ----------
Net realized and unrealized gain (loss)
on investments 1,489,331 (1,375,990)
---------- ----------
Net change in net assets resulting from
operations $9,965,792 6,324,883
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to financial statements.
- ---------
28
<PAGE>
STATE FARM INTERIM FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-------------------------
1998 1997
------------ -----------
<S> <C> <C>
FROM OPERATIONS:
Net investment income $ 8,476,461 7,700,873
Net realized loss on sales of
investments (994,996) (922,190)
Change in net unrealized appreciation
or depreciation 2,484,327 (453,800)
------------ -----------
Net change in net assets resulting from
operations 9,965,792 6,324,883
DISTRIBUTIONS TO SHAREOWNERS FROM:
Net investment income (per share $.68
in 1998, and $.69 in 1997) (8,476,461) (7,700,873)
------------ -----------
Total distributions to shareowners (8,476,461) (7,700,873)
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold 100,294,008 57,531,569
Reinvestment of ordinary income
dividends 7,418,955 7,150,343
------------ -----------
107,712,963 64,681,912
Less payments for shares redeemed 67,903,936 58,104,026
------------ -----------
Net increase in net assets from Fund
share transactions 39,809,027 6,577,886
------------ -----------
Total increase in net assets 41,298,358 5,201,896
------------ -----------
NET ASSETS:
Beginning of year 112,846,208 107,644,312
------------ -----------
End of year $154,144,566 112,846,208
------------ -----------
------------ -----------
</TABLE>
See accompanying notes to financial statements.
29-------
<PAGE>
STATE FARM INTERIM FUND, INC.
FINANCIAL HIGHLIGHTS
PER SHARE INCOME AND CAPITAL CHANGES (For a share outstanding throughout each
year)
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-----------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $ 9.85 9.98 10.15 9.72 10.52 10.46 10.50 10.16 10.17 9.86
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.68 0.69 0.70 0.70 0.71 0.74 0.78 0.78 0.82 0.81
Net gain or loss on
investments (both
realized and
unrealized) 0.13 (0.13) (0.17) 0.43 (0.80) 0.06 (0.04) 0.34 (0.01) 0.31
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total from investment
operations 0.81 0.56 0.53 1.13 (0.09) 0.80 0.74 1.12 0.81 1.12
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS
Net investment income (0.68) (0.69) (0.70) (0.70) (0.71) (0.74) (0.78) (0.78) (0.82) (0.81)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total distributions (0.68) (0.69) (0.70) (0.70) (0.71) (0.74) (0.78) (0.78) (0.82) (0.81)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net asset value, end of
year $ 9.98 9.85 9.98 10.15 9.72 10.52 10.46 10.50 10.16 10.17
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
TOTAL RETURN 8.31% 5.87% 5.44% 11.91% (0.85)% 7.82% 7.19% 11.41% 8.27% 11.82%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year
(millions) $ 154.1 112.8 107.6 104.7 94.3 103.7 85.9 66.8 52.7 42.2
Ratio of expenses to
average net assets 0.21% 0.22% 0.23%(a) 0.25%(a) 0.22% 0.25% 0.27% 0.28% 0.30% 0.31%
Ratio of net investment
income to average net
assets 6.80% 7.03% 7.03% 7.00% 7.00% 7.00% 7.30% 7.65% 8.12% 8.16%
Portfolio turnover rate 14% 15% 17% 17% 15% 15% 15% 14% 14% 17%
</TABLE>
- ----------
(a) The ratio based on net custodian expenses would have been .22% in 1996 and
.24% in 1995.
- ---------
30
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1998
<TABLE>
<CAPTION>
RATING
(MOODY'S
PRINCIPAL COUPON MATURITY OR
AMOUNT RATE DATE S&P) VALUE
- ----------- ------- ------------------- ----- ------------
<C> <S> <C> <C> <C> <C>
LONG-TERM MUNICIPAL BONDS (98.3%)
ALABAMA (1.3%)
$2,465,000 Limestone County Board of Education,
Alabama, Capital Outlay Tax Antic
Warrants, Series 1998 4.900% July 1, 2015 Aaa $ 2,458,246
2,200,000 The Water Works and Sewer Board,
Birmingham, Alabama, Water and Sewer
Revenue Bonds, Series 1994 4.750% January 1, 2005 Aa 2,284,656
------------
4,742,902
------------
ALASKA (1.2%)
1,505,000 Anchorage, Alaska, General Obligation
General Purpose Refunding Bonds 4.600% February 1, 2003 Aaa 1,546,448
1,500,000 Municipality of Anchorage, Alaska, 1993
General Obligation Refunding School
Bonds, Series B 4.900% September 1, 2003 Aaa 1,564,410
1,100,000 Municipality of Anchorage, Alaska, 1994
General Obligation School Bonds 5.400% July 1, 2005 Aaa 1,184,392
------------
4,295,250
------------
ARIZONA (6.2%)
2,340,000 City of Phoenix, Arizona, General
Obligation Refunding Bonds, Ser. 1993
A 5.300% July 1, 2006 Aa1 2,534,080
2,000,000 Deer Valley Unified School District No.
97 of Maricopa County, Arizona, School
Improvement Bonds, Project of 1992,
Series A (1993) 5.125% July 1, 2004 Aaa 2,120,820
1,000,000 Maricopa County, Arizona, Unified School
District No. 69, Paradise Valley
School Improvement Bonds, Ser. 1990A 7.100% July 1, 2004 A1 1,154,510
1,000,000 Maricopa County, Arizona, Unified School
District No. 69, Paradise Valley
School Improvement Bonds, Ser. 1994A 7.100% July 1, 2008 A1 1,215,220
1,200,000 Maricopa County, Arizona, Unified School
District No. 69, Paradise Valley
School Improvement Bonds, Ser. 1994A 7.000% July 1, 2009 A1 1,462,860
2,500,000 Maricopa County, Arizona, Unified School
District No. 69, Paradise Valley
School Improvement Bonds, Ser. 1994A 7.000% July 1, 2010 A1 3,074,675
4,250,000 Mesa Unified School District No. 4 of
Maricopa County, Arizona, School
Improvement Bonds, Project of 1995,
Series D (1997) 4.750% July 1, 2010 Aaa 4,358,332
1,000,000 Pima County, Arizona, General Obligation
Refunding Bonds, Ser. 1992 6.300% July 1, 2002 A1 1,085,060
2,250,000 Pima County, Arizona, Unified School
District No. 1, Tucson School
Improvement Bonds, Ser. 1990 B
(Prerefunded to 7-1-2000 @ 101) 6.900% July 1, 2002 A 2,390,535
3,000,000 Tempe Union High School District No.
213, Maricopa County, Arizona, School
Improvement General Obligation Bonds,
Project of 1989, Ser. 1992B
(Prerefunded to 7-1-2001 @ 101) 5.875% July 1, 2002 A+ 3,192,060
------------
22,588,152
------------
CALIFORNIA (5.3%)
3,000,000 City of Los Angeles, California,
Department of Water and Power,
Electric Plant Refunding Revenue
Bonds, Second Issue of 1993 4.800% November 15, 2004 Aa3 3,153,030
3,500,000 City of Los Angeles, California,
Wastewater System Rev. Bonds, Ser.
1990 B (Prerefunded to 6-1-2000 @ 102) 6.900% June 1, 2004 Aaa 3,752,420
2,830,000 Sacramento County, California, Sanitary
District Financing Authority Revenue
Bonds, 1995 5.000% December 1, 2007 Aa3 3,039,986
1,500,000 Sacramento County, California, Sanitary
District Financing Authority Revenue
Bonds, 1995 5.000% December 1, 2008 Aa3 1,600,770
1,400,000 San Diego County, California, Water
Authority Water Rev. Certificates of
Participation, Ser. 1991A 6.000% May 1, 2001 Aa3 1,482,040
400,000 State of California, General Obligation
Veterans Bonds, Series AL 9.600% April 1, 2001 Aa3 453,856
400,000 State of California, Variable Purpose
General Obligation Bonds 9.000% April 1, 1999 Aa3 407,996
3,000,000 State of California, Various Purpose
General Obligation Bonds 5.900% February 1, 2000 Aa3 3,094,020
</TABLE>
33-------
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 1998
<TABLE>
<CAPTION>
RATING
(MOODY'S
PRINCIPAL COUPON MATURITY OR
AMOUNT RATE DATE S&P) VALUE
- ----------- ------- ------------------- ----- ------------
<C> <S> <C> <C> <C> <C>
$2,000,000 State of California, Various Purpose
General Obligation Bonds 6.000% October 1, 2006 Aa3 $ 2,271,000
------------
19,255,118
------------
COLORADO (3.6%)
2,000,000 Arapahoe County School District # 6,
Colorado, Littleton Public Schools
General Obligation Improvement Bonds,
Series 1995A 5.000% December 1, 2007 Aa2 2,137,480
2,620,000 Cherry Creek School District No. 5,
Arapahoe County, Colorado, General
Obligation Improvement Bonds, Ser.
1990 (Prerefunded to 12-15-2000 @ 101) 7.000% December 15, 2003 Aa2 2,825,801
2,000,000 Jefferson County, Colorado, School
District No. R-1 General Obligation
Bonds, Ser. 1992 (Prerefunded to
12-15-2002 @ 101) 5.750% December 15, 2003 Aaa 2,169,020
2,540,000 Mesa County Valley School District No.
51, County of Mesa, State of Colorado,
General Obligation Bonds, Series 1996 5.300% December 1, 2010 Aaa 2,708,021
3,135,000 St. Vrain School District # R3-1J,
Colorado, General Obligation, Ser.
1997 5.000% December 15, 2012 Aaa 3,234,881
------------
13,075,203
------------
DELAWARE (.7%)
1,125,000 The State of Delaware, General
Obligation Bonds, Series 1994B
(Prerefunded to 12-1-2004 @ 100) 6.000% December 1, 2011 Aa1 1,248,446
1,125,000 The State of Delaware, General
Obligation Bonds, Series 1994B
(Prerefunded to 12-1-2004 @ 100) 6.000% December 1, 2012 Aa1 1,248,446
------------
2,496,892
------------
FLORIDA (2.7%)
2,000,000 Alachua County School District, Alachua
County, Florida, General Obligation
Refunding Bonds, Series 1994 4.500% July 1, 2004 Aaa 2,066,760
3,000,000 City of Lakeland, Florida, Electric and
Water Rev., Ser. 1989 (Prerefunded to
10-1-1999 @ 102) 6.900% October 1, 2003 A1 3,151,770
500,000 Orlando Utilities Commission, Florida,
Water and Electric Rev., Ser. 1983
(Escrowed to maturity) 9.600% October 1, 1999 Aaa 526,705
2,000,000 School District of Leon County, Florida,
General Obligation Refunding Bonds,
Ser. 1991 5.850% July 1, 2001 A1 2,105,860
2,000,000 State of Florida, State Board of
Education, Public Education Capital
Outlay Refunding Bonds, 1995 Series C 5.125% June 1, 2008 Aa2 2,125,940
------------
9,977,035
------------
GEORGIA (7.8%)
2,100,000 Cherokee County School Systems, Georgia,
General Obligation School, Series 1993 4.900% February 1, 2004 A2 2,194,353
1,055,000 Columbia County, Georgia, General
Obligation Bonds (Courthouse/Detention
Center Projects), Series 1998 4.700% February 1, 2013 A+ 1,045,674
1,195,000 Columbia County, Georgia, General
Obligation Bonds (Courthouse/Detention
Center Projects), Series 1998 4.800% February 1, 2014 A+ 1,188,559
1,205,000 DeKalb County School District, Georgia,
General Obligation Refunding Bonds,
Series 1993 5.100% July 1, 2004 Aa 1,277,529
3,215,000 Forsyth County School District, Georgia,
General Obligation Bonds, Series 1995
(Prerefunded to 7-1-2005 @ 102) 5.050% July 1, 2007 Aaa 3,462,073
4,000,000 Gwinnett County Water & Sewer Authority,
Georgia, Revenue Series 1998 5.000% August 1, 2011 Aaa 4,209,520
1,500,000 Municipal Electric Authority of Georgia,
General Power Rev. Bonds, 1993A Series 5.000% January 1, 2004 A3 1,559,955
3,590,000 State of Georgia, General Obligation
Bonds, 1996 C 6.250% August 1, 2009 Aaa 4,207,265
3,000,000 State of Georgia, General Obligation
Bonds, Series 1994B 6.250% April 1, 2012 Aaa 3,528,570
3,000,000 State of Georgia, General Obligation
Bonds, Series 1995B 5.750% March 1, 2012 Aaa 3,377,460
</TABLE>
- ---------
34
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 1998
<TABLE>
<CAPTION>
RATING
(MOODY'S
PRINCIPAL COUPON MATURITY OR
AMOUNT RATE DATE S&P) VALUE
- ----------- ------- ------------------- ----- ------------
<C> <S> <C> <C> <C> <C>
$2,000,000 State of Georgia, General Obligation
Bonds, Series 1995C 5.700% July 1, 2011 Aaa $ 2,249,140
------------
28,300,098
------------
HAWAII (2.8%)
4,000,000 City and County of Honolulu, Hawaii,
General Obligation Bonds, Series 1996A 5.400% September 1, 2009 Aaa 4,320,720
2,200,000 City and County of Honolulu, Hawaii,
General Obligation Refunding Bonds,
Ser. 1 5.600% June 1, 2001 Aa2 2,297,812
3,000,000 State of Hawaii, General Obligation
Bonds of 1992, Series BW 6.375% March 1, 2011 A1 3,500,430
------------
10,118,962
------------
IDAHO (.4%)
1,540,000 Joint School District No. 2, Ada &
Canyon Counties, Idaho, General
Obligation School Bonds, Series 1994 5.000% July 30, 2004 Aa2 1,627,703
------------
ILLINOIS (4.8%)
200,000 Charleston, Illinois, Water Works
Improvement Bonds 8.000% January 1, 2000 A 209,390
2,025,000 County of DuPage, Illinois, General
Obligation Refunding Bonds (Alternate
Rev. Source - Stormwater Project) 5.100% January 1, 2004 Aaa 2,131,292
3,785,000 DuPage County Forest Preserve District,
Illinois, General Obligation, Ser.
1997 4.900% October 1, 2013 Aaa 3,854,001
2,500,000 DuPage Water Commission, Illinois,
General Obligation Water Refunding
Bonds, Ser. 1992 5.850% March 1, 2000 Aaa 2,574,700
2,000,000 Lake County, Illinois, Forest Preserve
District General Obligation Refunding
Bonds, Ser. 1992B 5.700% February 1, 2003 Aa2 2,141,400
4,000,000 State of Illinois, General Obligation
Bonds, Series September 1996 5.450% September 1, 2009 Aaa 4,341,200
2,000,000 State of Illinois, General Obligation
Refunding Bonds, Series of June 1993 5.000% June 1, 2003 Aa2 2,090,880
------------
17,342,863
------------
INDIANA (2.4%)
2,300,000 Indianapolis, Indiana, Local Public
Improvement Bond Bank Refunding Bonds,
Series 1993 B 4.700% February 15, 2004 Aaa 2,381,673
2,000,000 Indianapolis, Indiana, Local Public
Improvement Bond Bank, Series 1993A
Bonds 5.250% January 10, 2004 Aaa 2,122,040
900,000 Monroe County Jail, Indiana, First
Mortgage Refunding Bonds, Series 1993 4.900% January 1, 2002 A1 927,225
925,000 Monroe County Jail, Indiana, First
Mortgage Refunding Bonds, Series 1993 4.900% July 1, 2002 A1 955,645
2,125,000 Southwest Allen, Indiana, High School
Building Corp., 1st Mortgage Refunding
Bonds, Series 1996B 4.850% July 15, 2006 Aaa 2,225,534
------------
8,612,117
------------
IOWA (1.2%)
2,000,000 City of Des Moines, Iowa, Sewer Rev.
Bonds, Ser. 1992D 6.000% June 1, 2003 Aaa 2,137,620
2,045,000 City of Iowa City, Johnson County, Iowa,
Sewer Rev. Bonds 5.875% July 1, 2004 Aaa 2,175,348
------------
4,312,968
------------
KANSAS (.1%)
400,000 Johnson County Water District No. 1,
Kansas, Water Rev., Ser. 1982A
(Escrowed to maturity) 10.250% August 1, 2002 Aaa 446,416
------------
LOUISIANA (1.5%)
5,000,000 State of Louisiana, General Obligation
Bonds, Series 1997A 5.375% April 15, 2011 Aaa 5,354,950
------------
MARYLAND (3.8%)
2,000,000 Howard County, Maryland, Consolidated
Public Improvement Refunding Bonds,
Ser. 1991B 5.800% August 15, 2001 Aaa 2,113,520
</TABLE>
35-------
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 1998
<TABLE>
<CAPTION>
RATING
(MOODY'S
PRINCIPAL COUPON MATURITY OR
AMOUNT RATE DATE S&P) VALUE
- ----------- ------- ------------------- ----- ------------
<C> <S> <C> <C> <C> <C>
$5,750,000 Montgomery County, Maryland, General
Obligation Cons. Pub. Impt., 1998 Ser.
A 4.875% May 1, 2013 Aaa $ 5,883,917
2,840,000 Washington Suburban Sanitary District,
Maryland, General Obligation Bonds
(Prerefunded to 12-1-1998 @ 102) 7.000% December 1, 2001 Aaa 2,897,084
3,000,000 Washington Suburban Sanitary District,
Maryland, Water Supply Refunding Bonds
of 1991 6.000% November 1, 1999 Aa1 3,079,920
------------
13,974,441
------------
MICHIGAN (1.8%)
2,465,000 Clarkston Community Schools, Michigan,
General Obligation, 1998 Ref. 4.850% May 1, 2012 Aaa 2,502,172
3,800,000 Northville Public Schools, Michigan,
1997 Sch. Bldg. & Site & Ref. 5.100% May 1, 2011 Aaa 3,952,228
------------
6,454,400
------------
MINNESOTA (5.1%)
1,885,000 Anoka County, Minnesota, General
Obligation Capital Improvement
Refunding Bonds, Ser. 1992C 5.200% February 1, 2001 A1 1,946,903
3,000,000 Becker, Minnesota, Pollution Control
Rev. Refunding Bonds, Ser 1989A,
(Northern States Power Co. - Sherburne
Cnty. Gen. Sta. Units 1 & 2 Proj.) 6.800% April 1, 2007 A1 3,087,270
1,500,000 County of Ramsey, Minnesota, General
Obligation Capital Improvement
Refunding Bonds, Ser. 1992C 5.400% December 1, 2002 Aaa 1,593,495
2,300,000 Osseo Area Schools, Minnesota, General
Obligation Refunding Bonds, Series
1993 4.600% February 1, 2004 A1 2,375,256
1,710,000 Southern Minnesota Municipal Power
Agency, Power Supply System Revenue
Bonds, Series 1993 4.600% January 1, 2004 A2 1,748,047
3,215,000 State of Minnesota, General Obligation
State Refunding Bonds 5.125% August 1, 2004 Aaa 3,388,481
1,350,000 Stillwater, Minnesota, Independent
School District # 834, General
Obligation School Building Bonds, Ser.
1991 6.250% February 1, 1999 Aaa 1,357,236
3,000,000 Wayzata Independent School District
#284, Minnesota, General Obligation
School Building Ref., Ser. 1998A 5.000% February 1, 2012 Aa1 3,106,260
------------
18,602,948
------------
MISSISSIPPI (1.2%)
2,000,000 City of Jackson, Mississippi, Water and
Sewer System Rev. Refunding Bonds,
Series 1993-A 4.850% September 1, 2004 Aaa 2,091,920
2,100,000 Jackson Public School District,
Mississippi, General Obligation School
Bonds, Ser. 1992 5.800% July 1, 2002 A1 2,239,482
------------
4,331,402
------------
NEBRASKA (4.6%)
2,850,000 City of Lincoln, Nebraska, Electric
System Revenue Refunding Bonds, 1993
Series A 4.700% September 1, 2003 Aa2 2,950,633
2,000,000 City of Lincoln, Nebraska, Water Revenue
and Refunding Bonds, Series 1993 4.900% August 15, 2003 Aa2 2,090,400
3,000,000 Omaha Public Power District of Nebraska,
Electric Systems Rev., Ser. A
(Prerefunded to 2-1-2000 @ 101.5) 6.700% February 1, 2005 AA 3,158,340
6,000,000 Omaha Public Power District, Nebraska,
Electric System Revenue Bonds, 1992
Series B (Escrowed to maturity) 6.150% February 1, 2012 Aa2 6,892,260
1,500,000 Omaha, Nebraska, Public Power District
Electric System Rev. Bonds, 1993
Series B 5.100% February 1, 2005 Aa2 1,588,500
------------
16,680,133
------------
NEVADA (.6%)
2,110,000 State of Nevada, General Obligation
(Limited Tax) Hoover Uprating
Refunding Bonds, Ser 1992 6.000% October 1, 2001 Aa2 2,241,748
------------
</TABLE>
- ---------
36
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 1998
<TABLE>
<CAPTION>
RATING
(MOODY'S
PRINCIPAL COUPON MATURITY OR
AMOUNT RATE DATE S&P) VALUE
- ----------- ------- ------------------- ----- ------------
<C> <S> <C> <C> <C> <C>
NEW MEXICO (.7%)
$2,500,000 City of Albuquerque, New Mexico, Joint
Water and Sewer Refunding Rev. Bonds,
Ser. 1990B 7.000% July 1, 2003 Aa3 $ 2,676,250
------------
NEW YORK (.4%)
1,250,000 State of New York, Power Authority
General Purpose Bonds, Ser. Z
(Escrowed to maturity) 6.000% January 1, 2001 Aaa 1,309,725
------------
NORTH CAROLINA (2.5%)
1,600,000 County of Buncombe, North Carolina,
Refunding Bonds, Series 1993 5.100% March 1, 2004 Aa2 1,692,640
4,000,000 County of Wake, North Carolina, General
Obligation School Bonds, Series 1997 4.900% March 1, 2009 Aaa 4,214,280
1,325,000 Winston-Salem, North Carolina, Water and
Sewer System Revenue Bonds, Series
1995B 5.000% June 1, 2007 Aa2 1,413,801
1,665,000 Winston-Salem, North Carolina, Water and
Sewer System Revenue Bonds, Series
1995B 5.100% June 1, 2008 Aa2 1,774,890
------------
9,095,611
------------
NORTH DAKOTA (.6%)
2,000,000 Fargo, North Dakota, Water Revenue of
1993 (Escrowed to maturity) 5.000% January 1, 2004 Aaa 2,098,660
------------
OHIO (1.9%)
1,535,000 Columbus, Ohio, Sewer Improvement No. 27
Refunding Bonds, Ser. 1991 5.900% February 15, 2002 Aaa 1,638,152
5,000,000 State of Ohio, Full Faith & Credit
General Obligation Infrastructure
Improvement Bonds, Series 1997 5.350% August 1, 2012 Aa1 5,335,600
------------
6,973,752
------------
OKLAHOMA (1.6%)
1,500,000 City of Tulsa, Oklahoma, General
Obligation Refunding Bonds of 1993 5.050% June 1, 2002 Aa2 1,564,455
1,050,000 Oklahoma City, Oklahoma, General
Obligation Bonds, Series 1993 5.150% May 1, 2003 Aa2 1,105,388
1,050,000 Oklahoma City, Oklahoma, General
Obligation Bonds, Series 1993 5.250% May 1, 2004 Aa2 1,105,262
2,000,000 Oklahoma City, Oklahoma, General
Obligation Refunding Bonds, Series
1993 5.300% August 1, 2005 Aa2 2,148,340
------------
5,923,445
------------
OREGON (1.8%)
4,000,000 City of Portland, Oregon, Sewer System
Revenue Bonds, Series 1994A 5.000% June 1, 2011 Aaa 4,157,200
150,000 Oregon Veterans' Welfare General
Obligation Bonds, Ser. LXIV 9.000% April 1, 1999 Aa2 152,963
2,000,000 Washington and Clackamas Counties School
District #23J (Tigard-Tualatin),
Oregon, General Obligation Bonds,
Series 1995 5.550% June 1, 2011 A1 2,136,400
------------
6,446,563
------------
PENNSYLVANIA (1.2%)
1,645,000 City of Lancaster, Lancaster County,
Pennsylvania, General Obligation
Bonds, Series A of 1998 4.650% May 1, 2013 Aaa 1,639,473
2,695,000 City of Lancaster, Lancaster County,
Pennsylvania, General Obligation
Bonds, Series A of 1998 4.750% May 1, 2014 Aaa 2,694,892
------------
4,334,365
------------
SOUTH CAROLINA (1.8%)
1,625,000 Charleston County, South Carolina,
General Obligation Bonds of 1994 (ULT) 5.400% June 1, 2005 Aa3 1,756,073
1,080,000 Charleston, South Carolina, Waterworks
and Sewer Systems Rev. Refunding
Bonds, Ser. 1986A (Prerefunded to
1-1-1999 @ 100.5) 6.900% January 1, 2003 A1 1,088,813
1,700,000 State of South Carolina, General
Obligation State Highway Bonds, Series
1995 5.100% August 1, 2008 Aaa 1,821,601
</TABLE>
37-------
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 1998
<TABLE>
<CAPTION>
RATING
(MOODY'S
PRINCIPAL COUPON MATURITY OR
AMOUNT RATE DATE S&P) VALUE
- ----------- ------- ------------------- ----- ------------
<C> <S> <C> <C> <C> <C>
$1,700,000 State of South Carolina, General
Obligation State Highway Bonds, Series
1995 5.250% August 1, 2009 Aaa $ 1,827,211
------------
6,493,698
------------
TENNESSEE (4.1%)
2,000,000 Nashville & Davidson County, Tennessee,
Electric System Rev. Bonds, 1992
Series B 5.500% May 15, 2002 Aa3 2,112,500
2,000,000 Nashville & Davidson County, Tennessee,
General Obligation Refunding Bonds of
1993 5.000% May 15, 2003 Aa2 2,095,880
1,800,000 Nashville & Davidson County, Tennessee,
General Obligation Refunding Bonds of
1993 5.000% May 15, 2005 Aa2 1,903,626
1,500,000 Nashville & Davidson County, Tennessee,
Water and Sewer Revenue Refunding
Bonds, Series 1993 4.900% January 1, 2004 Aaa 1,566,435
4,500,000 Nashville & Davidson County, Tennessee,
Water and Sewer Revenue Refunding
Bonds, Series 1996 5.250% January 1, 2008 Aaa 4,843,125
1,200,000 Shelby County, Tennessee, General
Obligation Refunding Bonds, 1992 Ser.
B 5.200% March 1, 2001 Aa2 1,241,652
1,000,000 Williamson County, Tennessee, Public
Works Refunding Bonds, Ser. 1992 5.650% March 1, 2002 Aa1 1,058,550
------------
14,821,768
------------
TEXAS (6.4%)
2,500,000 Austin Independent School District,
Texas, Unlimited Tax Refunding Bonds,
Ser. 1991 6.200% August 1, 1999 Aaa 2,552,100
2,355,000 Carrollton-Farmers Branch Independent
School District (Dallas and Denton
Counties, Texas) School Building
Unlimited Tax Bonds, Series 1996 5.200% February 15, 2008 Aaa 2,489,518
2,000,000 City of Dallas, Texas, Waterworks and
Sewer System Rev. Refunding Bonds,
Series 1993 4.900% April 1, 2004 Aa2 2,074,120
1,840,000 City of Dallas, Texas, Waterworks and
Sewer System Revenue Bonds, Series
1994A 6.375% October 1, 2012 Aa2 1,986,390
1,900,000 Fort Worth Independent School District,
Texas, School Building Unlimited Tax
Bonds, Ser. 1989 (Prerefunded to
2-15-1999 @ 100) 6.750% February 15, 2006 AAA 1,914,250
2,000,000 Harris County, Texas, Road and Refunding
Bonds, Series 1993 4.700% October 1, 2004 Aa2 2,080,780
1,235,000 San Antonio, Texas, Water System Rev.
Refunding Bonds, Ser. 1992 5.800% May 15, 1999 Aaa 1,250,475
255,000 San Antonio, Texas, Water System Rev.
Refunding Bonds, Ser. 1992 (Escrowed
to maturity) 5.800% May 15, 1999 Aaa 258,162
1,000,000 State of Texas, Public Finance Authority
General Obligation Bonds, Ser 1990A
(Prerefunded to 10-1-1999 @ 100) 7.000% October 1, 2000 AA 1,031,890
1,000,000 State of Texas, Public Finance Authority
General Obligation Bonds, Ser. 1990A 7.000% October 1, 1999 Aa2 1,032,180
3,000,000 State of Texas, Public Finance
Authority, General Obligation
Refunding Bonds, Series 1996B 5.400% October 1, 2008 Aa2 3,236,010
1,000,000 State of Texas, Veterans' Land Board
General Obligation Bonds, Ser. 1984 9.000% December 1, 2000 Aa2 1,053,700
2,000,000 Texas Public Finance Authority, State of
Texas, General Obligation Refunding
Bonds, Ser. 1992A 5.700% October 1, 2003 Aa2 2,163,560
------------
23,123,135
------------
UTAH (1.4%)
2,000,000 Davis County School District, Davis
County, Utah, General Obligation
Refunding Bonds, Series 1993A 4.500% June 1, 2004 Aaa 2,055,920
2,780,000 Salt Lake County, Utah, General
Obligation Jail Bonds, Series 1995 5.000% December 15, 2007 Aaa 2,938,599
------------
4,994,519
------------
VIRGINIA (.5%)
1,685,000 Hampton Roads Sanitation District,
Virginia, Wastewater Refunding and
Capital Improvement Revenue Bonds,
Series 1993 4.700% October 1, 2004 Aa 1,753,057
------------
</TABLE>
- ---------
38
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 1998
<TABLE>
<CAPTION>
RATING
(MOODY'S
PRINCIPAL COUPON MATURITY OR
AMOUNT RATE DATE S&P) VALUE
- ----------- ------- ------------------- ----- ------------
<C> <S> <C> <C> <C> <C>
WASHINGTON (8.3%)
$2,000,000 City of Seattle, Washington, Unlimited
Tax General Obligation Refunding Bonds
of 1993 4.800% December 1, 2004 Aaa $ 2,066,860
2,000,000 City of Vancouver, Washington, Water and
Sewer Revenue Refunding Bonds, 1998 4.600% June 1, 2013 Aaa 1,977,480
2,605,000 City of Vancouver, Washington, Water and
Sewer Revenue Refunding Bonds, 1998 4.650% June 1, 2014 Aaa 2,569,338
2,520,000 Federal Way School District No. 210,
King County, Washington, Unlimited Tax
General Obligation and Refunding
Bonds, Series 1993 5.250% December 1, 2003 Aaa 2,679,163
2,500,000 King County, Washington, Health Care
Capital Improvement Bonds (Harborview
Project), Ser. 1988 B, (Prerefunded to
12-1-1998 @ 100) 7.300% December 1, 2005 NR 2,500,275
2,495,000 Seattle, Washington, Water System
Revenue 1998 5.000% October 1, 2013 Aa2 2,562,190
4,500,000 State of Washington, General Obligation
Bonds, Series 1993A 5.750% October 1, 2012 Aa1 5,054,580
2,000,000 State of Washington, Motor Vehicle Fuel
Tax General Obligation Bonds (State
Route 90), Ser CC-8 (Prerefunded to
3-1-1999 @ 100) 7.100% March 1, 2000 Aaa 2,019,960
2,600,000 Washington Public Power Supply System
Nuclear Project No. 1, Rev. Refunding
Bonds, Ser. 1989A (Prerefunded to
7-1-1999 @ 102) 7.500% July 1, 2007 Aaa 2,716,740
1,000,000 Washington Public Power Supply System
Nuclear Project No. 1, Rev. Refunding
Bonds, Ser. 1990C 7.700% July 1, 2002 Aa1 1,123,340
1,500,000 Washington Public Power Supply System
Nuclear Project No. 2, Rev. Refunding
Bonds, Ser. 1990A (Prerefunded to
7-1-2000 @ 102) 7.625% July 1, 2008 Aaa 1,622,985
1,250,000 Washington Public Power Supply System
Nuclear Project No. 3, Refunding Rev.
Bonds, Ser. 1991A 6.250% July 1, 2000 Aa1 1,299,400
2,000,000 Washington Public Power Supply System
Nuclear Project No. 3, Refunding
Revenue Bonds, Series 1993C 4.800% July 1, 2003 Aa1 2,064,680
------------
30,256,991
------------
WEST VIRGINIA (.7%)
2,540,000 State of West Virginia, State Road
General Obligation Bonds, Series 1998 5.000% June 1, 2013 Aaa 2,609,393
------------
WISCONSIN (4.8%)
2,180,000 Dane County, Wisconsin, General
Obligation Refunding Bonds, Series
1998B 4.800% March 1, 2012 Aaa 2,215,687
2,220,000 Dane County, Wisconsin, General
Obligation Refunding Bonds, Series
1998B 4.800% March 1, 2013 Aaa 2,241,334
3,500,000 Milwaukee, Wisconsin, Metropolitan
Sewerage District General Obligation
Capital Purpose Bonds, Ser. 1990A
(Escrowed to maturity) 6.700% October 1, 2002 Aa1 3,865,505
2,000,000 State of Wisconsin, General Obligation
Bonds of 1995, Series A (Prerefunded
to 5-1-2005 @ 100) 6.000% May 1, 2008 Aa2 2,222,020
2,000,000 State of Wisconsin, General Obligation
Refunding Bonds of 1993, Series 1 5.300% November 1, 2003 Aa2 2,128,780
2,500,000 State of Wisconsin, General Obligation
Refunding Bonds of 1993, Series 2 5.125% November 1, 2010 Aa2 2,673,825
2,000,000 State of Wisconsin, General Obligation
Refunding Bonds of 1993, Series 3 4.750% November 1, 2003 Aa2 2,080,820
------------
17,427,971
------------
WYOMING (.5%)
1,600,000 Natrona County, Wyoming, School District
No. 1 General Obligation Bonds, Ser
1994 5.450% July 1, 2006 Aaa 1,707,632
------------
TOTAL LONG-TERM MUNICIPAL BONDS
(cost $335,434,953) 356,878,236
------------
</TABLE>
39-------
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ------------
SHORT-TERM INVESTMENTS (3.3%)
<C> <S> <C> <C> <C> <C>
$6,180,000 General Motors Acceptance Corp., 4.860%,
December, 1998 $ 6,185,845
6,000,000 U.S. Treasury Bills, 3.600% to 4.760%,
December, 1998 to February, 1999 5,973,340
------------
TOTAL SHORT-TERM INVESTMENTS
(cost $12,160,269) 12,159,185
------------
TOTAL INVESTMENTS (101.6%)
(cost $347,595,222) 369,037,421
LIABILITIES, LESS CASH AND OTHER ASSETS (-1.6%) (5,945,852)
------------
NET ASSETS (100.0%) $363,091,569
------------
------------
</TABLE>
Notes:
(a) At November 30, 1998, net unrealized appreciation of $21,442,199 consisted
of gross unrealized appreciation of $21,495,741 and gross unrealized
depreciation of $53,542 based on cost of $347,595,222 for federal income
tax purposes.
(b) Ratings are unaudited. NR denotes no rating available.
See accompanying notes to financial statements.
- ---------
40
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1998
<TABLE>
<S> <C> <C>
ASSETS
Investments, at value (cost
$347,595,222) $369,037,421
Cash 463,300
Receivable for:
Interest $5,789,168
Shares of the Fund sold 26,800
Sundry 5,316 5,821,284
----------
Prepaid expenses 15,912
------------
Total assets 375,337,917
LIABILITIES AND NET ASSETS
Dividends payable to shareowners 3,110,719
Payable for:
Shares of the Fund redeemed 2,207,354
Securities purchased 6,795,478
Other (including $118,027 to
Manager) 132,797
----------
9,135,629
------------
Total liabilities 12,246,348
------------
Net assets applicable to 42,443,593
shares outstanding of
$1.00 par value common stock
(100,000,000 shares authorized) $363,091,569
------------
------------
Net asset value, offering price and
redemption price per share $ 8.55
------------
------------
ANALYSIS OF NET ASSETS
Excess of amounts received from sales
of shares over amounts paid on
redemptions of shares on account of
capital $341,712,231
Accumulated net realized loss on sales
of investments (62,861)
Net unrealized appreciation of
investments 21,442,199
------------
Net assets applicable to shares
outstanding $363,091,569
------------
------------
</TABLE>
See accompanying notes to financial statements.
41-------
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-----------------------
1998 1997
----------- ----------
<S> <C> <C>
INVESTMENT INCOME:
Taxable interest $ 548,684 450,856
Tax-exempt interest 18,524,272 18,341,212
----------- ----------
Total investment income 19,072,956 18,792,068
EXPENSES:
Investment advisory and management
fees 425,519 400,859
Professional fees 27,144 24,708
ICI dues 9,948 12,133
Registration fees 7,226 5,627
Fidelity bond expense 3,768 4,158
Directors' fees 5,420 3,300
Reports to shareowners 3,591 3,204
Security evaluation fees 19,711 18,314
Franchise taxes 19,353 17,859
Custodian fees 10,425 13,387
Proxy and related expense 3,710 --
Other 140 113
----------- ----------
Total expenses 535,955 503,662
----------- ----------
Net investment income 18,537,001 18,288,406
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized loss on sales of
investments (62,861) --
Change in net unrealized appreciation
or depreciation 5,100,703 (222,358)
----------- ----------
Net realized and unrealized gain (loss)
on investments 5,037,842 (222,358)
----------- ----------
Net change in net assets resulting from
operations $23,574,843 18,066,048
----------- ----------
----------- ----------
</TABLE>
See accompanying notes to financial statements.
- ---------
42
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-------------------------
1998 1997
------------ -----------
<S> <C> <C>
FROM OPERATIONS:
Net investment income $ 18,537,001 18,288,406
Net realized loss on sales of
investments (62,861) --
Change in net unrealized appreciation
or depreciation 5,100,703 (222,358)
------------ -----------
Net change in net assets resulting
from operations 23,574,843 18,066,048
DISTRIBUTIONS TO SHAREOWNERS FROM:
Net investment income (per share $.45
in 1998, and $.47 in 1997) (18,537,001) (18,288,406)
Net realized gain (per share $.003 in
1997) -- (121,825)
------------ -----------
Total distributions to shareowners (18,537,001) (18,410,231)
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold 38,871,460 27,490,904
Reinvestment of ordinary income
dividends and capital gain
distributions 13,564,060 14,256,886
------------ -----------
52,435,520 41,747,790
Less payments for shares redeemed 30,744,422 26,190,599
------------ -----------
Net increase in net assets from Fund
share transactions 21,691,098 15,557,191
------------ -----------
Total increase in net assets 26,728,940 15,213,008
------------ -----------
NET ASSETS:
Beginning of year 336,362,629 321,149,621
------------ -----------
End of year $363,091,569 336,362,629
------------ -----------
------------ -----------
</TABLE>
See accompanying notes to financial statements.
43-------
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.
FINANCIAL HIGHLIGHTS
PER SHARE INCOME AND CAPITAL CHANGES (For a share outstanding throughout each
year)
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
---------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
year $ 8.43 8.44 8.50 7.88 8.59 8.34 8.15 7.98 7.96 7.76
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.45 0.47 0.48 0.48 0.48 0.50 0.53 0.54 0.58 0.58
Net gain or loss on
investments (both realized
and unrealized) 0.12 (0.01) (0.06) 0.62 (0.69) 0.25 0.19 0.17 0.02 0.20
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total from investment
operations 0.57 0.46 0.42 1.10 (0.21) 0.75 0.72 0.71 0.60 0.78
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS
Net investment income (0.45) (0.47) (0.48) (0.48) (0.48) (0.50) (0.53) (0.54) (0.58) (0.58)
Capital gains (a) -- -- -- -- (0.02) -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total distributions (.45) (0.47) (0.48) (0.48) (0.50) (0.50) (0.53) (0.54) (0.58) (0.58)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net asset value, end of year $ 8.55 8.43 8.44 8.50 7.88 8.59 8.34 8.15 7.98 7.96
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
TOTAL RETURN 6.82% 5.68% 5.21% 14.25% (2.55)% 9.17% 9.05% 9.17% 7.78% 10.44%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year
(millions) $ 363.1 336.4 321.1 307.4 269.9 276.4 211.3 167.2 132.8 110.0
Ratio of expenses to average
net assets 0.15% 0.15% 0.16% 0.17%(b) 0.16% 0.18% 0.19% 0.21% 0.23% 0.25%
Ratio of net investment income
to average net assets 5.29% 5.61% 5.76% 5.80% 5.80% 5.84% 6.36% 6.75% 7.30% 7.42%
Portfolio turnover rate 6% 6% 6% 7% 8% 5% 4% 2% 8% 7%
</TABLE>
- ----------
(a) Distributions representing less than $.01 were made in 1997, 1996, 1993 and
1992.
(b) The ratio based on net custodian expenses would have been .16% in 1995.
- ---------
44
<PAGE>
STATE FARM MUTUAL FUNDS
NOTES TO FINANCIAL STATEMENTS
1. OBJECTIVE
The investment objective of the STATE FARM GROWTH FUND, INC. (GROWTH FUND) is
long-term growth of capital and income. The Fund seeks to achieve this objective
by investing most of its assets in income producing equity-type securities that
are believed collectively to have potential for long-term growth of capital and
income.
The investment objective of the STATE FARM BALANCED FUND, INC. (BALANCED FUND)
is to provide its shareowners income and some long-term growth of both principal
and income. The Fund seeks to achieve its objective by distributing its
investments among common stocks, preferred stocks and bonds in varying
proportions according to prevailing market conditions and the judgment of the
Manager.
The investment objective of the STATE FARM INTERIM FUND, INC. (INTERIM FUND) is
the realization over a period of years of the highest yield consistent with
relative price stability (relatively low volatility). The Fund seeks to achieve
its investment objective through investment in high quality debt securities with
primarily short-term (less than five years) and intermediate-term (five to
fifteen years) maturities.
The investment objective of the STATE FARM MUNICIPAL BOND FUND, INC. (MUNICIPAL
BOND FUND) is to provide its shareowners with as high a rate of income exempt
from federal income taxes as is consistent with prudent investment management.
The Fund seeks to achieve its investment objective through investment primarily
in a diversified portfolio of long-term Municipal Bonds, including industrial
revenue bonds.
The following is a summary of significant accounting policies followed by the
Funds in the preparation of their financial statements in accordance with
generally accepted accounting principles.
2. SIGNIFICANT ACCOUNTING POLICIES
SECURITIES VALUATION
Investments are stated at value. Stocks traded on securities exchanges, or in
the over-the-counter market in which transaction prices are reported, are valued
at the last sales prices on the day of valuation or, if there are no reported
sales on that day, at the last reported bid price for the day. Long-term debt
securities and U.S. Treasury bills are valued using quotations provided by an
independent pricing service. Short-term debt securities, other than U.S.
Treasury bills, are valued at amortized cost which approximates market value.
Any securities not valued as described above are valued at fair value as
determined in good faith by the Boards of Directors or their delegate.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME
Security transactions are accounted for on the trade date (date the order to buy
or sell is executed) and dividend income is recorded on the ex-dividend date.
Interest income is recorded on the accrual basis. Premiums and original issue
discounts on tax-exempt securities in the Municipal Bond Fund are amortized.
Realized gains and losses from security transactions are reported on an
identified cost basis.
SECURITIES PURCHASED ON A 'WHEN-ISSUED' BASIS
The Municipal Bond Fund may purchase municipal bonds on a 'when-issued' basis.
Delivery and payment for these securities may be a month or more after the
purchase date, during which time such securities are subject to market
fluctuations. It is possible that the securities will never be issued and the
commitment cancelled.
FUND SHARE VALUATION
Fund shares are sold and redeemed on a continuous basis at net asset value. The
net asset value per share is determined daily on each business day other than
weekend and holiday closings, except that a Fund need not compute a net asset
value on any day when no purchase or redemption order has been received by the
Fund. The net asset values for the Growth Fund, Balanced Fund, and Interim Fund
are determined as of 3:00 p.m. Bloomington, Illinois time. The net asset value
for the Municipal Bond Fund is determined as of 1:00 p.m. Bloomington, Illinois
time. The net asset value per share is computed by dividing the total value of a
Fund's investments and other assets, less liabilities, by the number of Fund
shares outstanding.
FEDERAL INCOME TAXES, DIVIDENDS AND DISTRIBUTIONS TO SHAREOWNERS
It is each Fund's policy to comply with the special provisions of the Internal
Revenue Code available to investment companies and, in the manner provided
therein, to distribute all taxable income, as well as any net realized gain on
sales of investments reportable for federal income tax purposes. Each Fund has
complied with this policy and, accordingly, no provision for federal income
taxes is required.
45-------
<PAGE>
STATE FARM MUTUAL FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The Interim Fund and Municipal Bond Fund declare dividends daily equal to each
Funds respective net investment income, and distributions of such amounts are
made at the end of each calendar quarter.
Net realized gains on sales of investments, if any, are distributed annually
after the close of a Fund's fiscal year. Dividends and distributions payable to
shareowners are recorded by the respective Fund on the ex-dividend date.
On December 18, 1998, the Growth Fund declared an ordinary income dividend of
$.28 per share and a capital gain distribution of $.045 per share to shareowners
of record on December 18, 1998 (reinvestment date December 21, 1998).
On December 18, 1998, the Balanced Fund declared an ordinary income dividend of
$.73 per share and a capital gain distribution of $.0225 per share to
shareowners of record on December 18, 1998 (reinvestment date December 21,
1998).
The accumulated net realized loss on sales of investments at November 30, 1998
for the Interim Fund, amounting to $3,215,248, is available to offset future
taxable gains. If not applied, the capital loss carryover expires as follows:
$92,150 in 1999, $22,669 in 2000, $162,716 in 2001, $335,277 in 2002, $321,293
in 2003, $363,957 in 2004, $922,190 in 2005, and $994,996 in 2006. A capital
loss carryover of $40,572 expired in 1998 and was re-classified from Accumulated
net realized loss on sales of investments to Excess of amounts received from
sales of shares over amounts paid on redemptions of shares on account of capital
on the Statement of Assets and Liabilities.
The accumulated net realized loss on sales of investments at November 30, 1998
for the Municipal Bond Fund, amounting to $62,861, is available to offset future
taxable gains. If not applied, the capital loss carryover expires in 2006.
EQUALIZATION ACCOUNTING
A portion of proceeds from sales and payments on redemptions of Fund shares is
credited or charged to undistributed net investment income for the Growth Fund
and Balanced Fund. As a result, undistributed net investment income per share is
unaffected by sales or redemptions of shares.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
3. TRANSACTIONS WITH AFFILIATES
Each Fund has an investment advisory and management services agreement with
State Farm Investment Management Corp. (Manager) pursuant to which each Fund
pays the Manager an annual fee (computed on a daily basis and paid quarterly) at
the following rates:
<TABLE>
<S> <C>
State Farm Growth Fund, Inc. .20% of the first $100 million of average net
assets
.15% of the next $100 million of average net
assets
.10% of the average net assets in excess of $200
million
State Farm Balanced Fund, Inc. .20% of the first $100 million of average net
assets
.15% of the next $100 million of average net
assets
.10% of the average net assets in excess of $200
million
State Farm Interim Fund, Inc. .20% of the first $50 million of average net
assets
.15% of the next $50 million of average net assets
.10% of the average net assets in excess of $100
million
State Farm Municipal Bond Fund, Inc. .20% of the first $50 million of average net
assets
.15% of the next $50 million of average net assets
.10% of the average net assets in excess of $100
million
</TABLE>
The Manager guarantees that all operating expenses of each Fund, including the
compensation of the Manager but excluding franchise taxes, interest,
extraordinary litigation expenses, brokerage commissions and other portfolio
transaction costs, shall not exceed .40% of each Fund's average net assets
annually.
- ---------
46
<PAGE>
STATE FARM MUTUAL FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Under the terms of these agreements, the Funds incurred the following fees for
the fiscal years ended November 30, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
---------- ---------
<S> <C> <C>
State Farm Growth Fund, Inc. $2,221,492 1,705,166
State Farm Balanced Fund, Inc. 980,972 829,724
State Farm Interim Fund, Inc. 199,209 184,551
State Farm Municipal Bond Fund, Inc. 425,519 400,859
</TABLE>
The Funds do not pay any discount, commission or other compensation for transfer
agent or underwriting services provided by the Manager.
Certain officers and/or directors of each Fund are also officers and/or
directors of the Manager. The Funds made no payments to its officers or
directors during the fiscal years ended November 30, 1998 and 1997, except for
the following directors fees paid to the Funds independent directors:
<TABLE>
<CAPTION>
1998 1997
------- -----
<S> <C> <C>
State Farm Growth Fund, Inc. $15,300 9,900
State Farm Balanced Fund, Inc. 7,650 4,950
State Farm Interim Fund, Inc. 2,550 1,650
State Farm Municipal Bond Fund, Inc. 5,100 3,300
</TABLE>
4. INVESTMENT TRANSACTIONS
Investment transactions (exclusive of short-term instruments, tax free
exchanges, and spin-offs) for each of the fiscal years ended November 30, were
as follows:
<TABLE>
<CAPTION>
1998 1997
------------ -----------
<S> <C> <C>
STATE FARM GROWTH FUND, INC.
Purchases $309,663,058 132,033,944
Proceeds from sales 14,874,459 89,316,149
STATE FARM BALANCED FUND, INC.
Purchases 92,615,420 69,819,614
Proceeds from sales 17,698,918 39,223,469
STATE FARM INTERIM FUND, INC.
Purchases 52,146,094 25,775,703
Proceeds from sales 16,756,328 15,750,000
STATE FARM MUNICIPAL BOND FUND, INC.
Purchases 48,047,861 28,925,145
Proceeds from sales 20,915,700 17,572,918
</TABLE>
5. FUND SHARE TRANSACTIONS
Proceeds and payments on Fund shares as shown in each Fund's statement of
changes in net assets are in respect of the following number of shares:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
STATE FARM GROWTH FUND, INC
Shares sold 8,122,332 7,264,071
Shares issued in reinvestment of
ordinary income dividends and
capital gain distributions 2,034,859 3,552,864
---------- ----------
10,157,191 10,816,935
Less shares redeemed 5,105,810 4,136,630
---------- ----------
Net increase in shares outstanding 5,051,381 6,680,305
---------- ----------
---------- ----------
STATE FARM BALANCED FUND, INC.
Shares sold 3,094,918 2,605,702
Shares issued in reinvestment of
ordinary income dividends and
capital gain distributions 785,967 1,017,327
---------- ----------
3,880,885 3,623,029
Less shares redeemed 2,390,819 1,979,036
---------- ----------
Net increase in shares outstanding 1,490,066 1,643,993
---------- ----------
---------- ----------
STATE FARM INTERIM FUND, INC.
Shares sold 10,094,227 5,855,197
Shares issued in reinvestment of
ordinary income dividends and
capital gain distributions 748,608 728,582
---------- ----------
10,842,835 6,583,779
Less shares redeemed 6,846,009 5,913,858
---------- ----------
Net increase in shares outstanding 3,996,826 669,921
---------- ----------
---------- ----------
STATE FARM MUNICIPAL BOND FUND, INC.
Shares sold 4,573,153 3,283,948
Shares issued in reinvestment of
ordinary income dividends and
capital gain distributions 1,593,850 1,706,790
---------- ----------
6,167,003 4,990,738
Less shares redeemed 3,616,812 3,132,346
---------- ----------
Net increase in shares outstanding 2,550,191 1,858,392
---------- ----------
---------- ----------
</TABLE>
47-------
<PAGE>
STATE FARM BALANCED FUND, INC.
PART C OF THE REGISTRATION STATEMENT
---------------------------------------------------------------
Item 23. Exhibits
Note: As used herein the term "Registration Statement" refers to
registration statement of registrant on Form S-5, N-1 or
N-1A no. 2-27769.
(a) Amended and restated articles of incorporation of
registrant*
(b) By-laws of registrant (as amended and restated June 12,
1998)
(c) Form of stock certificate*
(d) Investment advisory and management services agreement
between registrant and State Farm Investment Management
Corp. dated April 1, 1987*
(e) Underwriting agreement between registrant and State Farm
Investment Management Corp., dated April 1, 1972*
(f) None
(g)(i) Form of Custody agreement between registrant and Chase
Manhattan Bank dated July 7, 1998.
(g)(ii) Form of Global custody rider to custody agreement between
registrant and Chase Manhattan Bank dated _______________.
(g)(iii) Form of Special foreign custody manager agreement between
registrant and State Farm Investment Management Corp.
dated ________________.
(g)(iv) Custodian agreement between registrant and The Peoples
Bank dated October 1, 1991*
(h)(i) Service agreement among registrant, State Farm Investment
Management Corp. and State Farm Mutual Automobile Insurance
Company, as amended, dated March 17, 1976*
(h)(ii) Transfer agent agreement between registrant and State Farm
Investment Management Corp. dated April 1, 1992*
(i) Consent of Bell, Boyd & Lloyd
(j) Consent of Independent Auditors
(k) None
(l) None
(m) None
<PAGE>
(n) Financial Data Schedule
(o) None
*Incorporated by reference to post-effective amendment no. 36 to the
Registration Statement.
Item 24. Persons controlled by or under Common Control with Registrant
The registrant does not consider that there are any persons directly
or indirectly controlling, controlled by, or under common control
with, the registrant within the meaning of this item. The information
in the Statement of Additional Information under the caption
"Directors and Officers" and "General Information - Ownership of
Shares" and in the first two paragraphs under the caption "Investment
Advisory and Other Services" is incorporated herein by reference.
Item 25. Indemnification
Section 2-418 of the Maryland General Corporation Law authorizes the
registrant to indemnify its directors and officers under specified
circumstances.
Article XVII of the by-laws of the registrant, as amended, provides
that the registrant shall indemnify its directors and officers under
specified circumstances.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action suit or proceeding)
is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Item 26. Business and Other Connections of Investment Adviser
The information in the prospectus under the caption "Management of the
Fund" is incorporated herein by reference. Neither State Farm
Investment Management Corp., nor any of its directors or officers, has
at any time during the past two years engaged in any other business,
profession, vocation or employment of a
<PAGE>
substantial nature either for its own account or in the capacity of
director, officer, employee, partner or trustee.
Directors and Officers of Investment Adviser -
--------------------------------------------
Edward B. Rust, Jr., Director and President*
Roger Joslin, Director, Vice President and Treasurer*
Kurt Moser, Director and Senior Vice President*
John J. Killian, Director - Vice President and Controller, State Farm
Mutual Automobile Insurance Company and holds a similar position with
certain subsidiaries and affiliates.
Vincent J. Trosino, Director - President, Vice Chairman and Chief
Operating Officer State Farm
Mutual Automobile Insurance Company.
Paul N. Eckley, Senior Vice President*
David R. Grimes, Assistant Vice President and Secretary*
Michael L. Tipsord, Assistant Secretary*
Jerel S. Chevalier, Assistant Secretary-Treasurer*
Donald O. Jaynes, Assistant Secretary*
Howard A. Thomas, Assistant Secretary - Treasurer*
* Information in the Statement of Additional Information
under the caption "Directors and Officers" is
incorporated herein by reference.
Item 27. Principal Underwriters
(a) Information under the caption "Investment Advisory and Other
Services" in the Statement of Additional Information is
incorporated herein by reference.
(b) Registrant's principal underwriter is also registrant's
investment adviser. Accordingly, the information in Item 26
hereof is incorporated herein by reference.
(c) Not applicable.
Item 28. Location of Accounts and Records
Howard A. Thomas, State Farm Investment Management Corp., One State
Farm Plaza, Bloomington, Illinois 61710 maintains physical possession
of each
<PAGE>
account, book, or other document required to be maintained by Section
31(a) of the 1940 Act and the Rules promulgated thereunder.
Item 29. Management Services
None
Item 30. Undertakings
(a) Not applicable
(b) Not applicable
(c) Registrant undertakes to furnish each person to whom a prospectus
is delivered with a copy of the Registrant's latest annual report
to shareowners, upon request and without charge.
<PAGE>
SIGNATURES
-------------------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it has duly caused
this amendment to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Bloomington, and State of
Illinois on the 28th day of January, 1999.
STATE FARM BALANCED FUND, INC.
By: /s/ Edward B. Rust, Jr.
------------------------
Edward B. Rust, Jr., President
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the Registration Statement has been signed below by the following persons in
the capacities and on the date indicated.
/s/ Edward B. Rust, Jr. Director
- ---------------------------- and President
Edward B. Rust, Jr. (Principal Executive
Officer)
/s/ Roger Joslin Director, Vice President,
- ---------------------------- and Treasurer
Roger Joslin (Principal financial
and accounting officer)
/s/ Albert H. Hoopes Director January 28, 1999
- ---------------------------- ----------------
Albert H. Hoopes
/s/ Thomas M. Mengler Director
- ----------------------------
Thomas M. Mengler
/s/ Davis U. Merwin Director
- ----------------------------
Davis U. Merwin
/s/ James A. Shirk Director
- ----------------------------
James A. Shirk
<PAGE>
INDEX FOR EXHIBITS
FILED WITH THIS AMENDMENT
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
------------------ --------------------
<S> <C>
23(b) Amended and restated bylaws
23(g)(i) Custody Agreement
23(g)(ii) Global Custody Rider to Custody
Agreement
23(g)(iii) Special Foreign Custody Manager
Agreement
23(i) Consent of Bell, Boyd & Lloyd
23(j) Consent of Independent Auditors
23(n) Financial Data Schedule
</TABLE>
<PAGE>
BYLAWS
STATE FARM BALANCED FUND, INC.
(as amended and restated June 12, 1998)
ARTICLE I
OFFICES
SECTION 1.01. PRINCIPAL OFFICE. The principal office of the
corporation in the State of Maryland shall be located in the City of Baltimore.
SECTION 1.02. OTHER OFFICES. The corporation may also have offices
at such other places both within and without the State of Maryland as the board
of directors may from time to time determine or the business of the corporation
may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 2.01. PLACE OF MEETINGS. All meetings of the stockholders
shall be held in the City of Bloomington, State of Illinois, or at such other
place in the United States as shall be designated from time to time by the board
of directors, at such time and place as shall be stated in the notice of the
meeting or in a duly executed waiver of notice thereof.
SECTION 2.02. ANNUAL MEETING. As long as the corporation is
registered as an investment company under the Investment Company Act of 1940,
the corporation shall not be required to hold an annual meeting of stockholders
during any year in which none of the following is required to be acted on by
stockholders under that Act: (1) an election of directors; (2) approval of an
investment advisory agreement; (3) ratification of a selection of independent
public accountants; and (4) approval of a distribution agreement. If there is
to be an annual meeting, it shall be held on the first Friday after the second
Monday of March if not a legal holiday, and if a legal holiday, then on the next
secular day following, at 10:00 a.m., or at such other date and time as shall be
designated from time to time by the board of directors and stated in the notice
of the meeting, at which they shall elect a board of directors and transact such
other business as may properly be brought before the meeting.
<PAGE>
SECTION 2.03. SPECIAL MEETINGS. Special meetings of stockholders,
for any purpose or purposes, unless otherwise prescribed by statute or by the
articles of incorporation, may be called at any time by the president or the
board of directors. Special meetings of stockholders shall be called by the
secretary upon the written request of stockholders entitled to cast at least a
majority of all the votes entitled to be cast at such meeting, provided that (a)
such request shall state the purpose or purposes of the meeting and the matters
proposed to be acted on at it; and (b) the stockholders requesting the meeting
shall have paid to the corporation the reasonably estimated cost of preparing
and mailing the notice thereof, which the secretary shall determine and specify
to such stockholders. Upon payment of these costs to the corporation, the
secretary shall notify each stockholder entitled to notice of the meeting.
Unless requested by stockholders entitled to cast a majority of all the votes
entitled to be cast at the meeting, a special meeting need not be called to
consider any matter which is substantially the same as a matter voted on at any
special meeting of stockholders held during the preceding twelve months.
SECTION 2.04. STOCKHOLDERS ENTITLED TO VOTE; NUMBER OF VOTES. If a
record date has been fixed for the determination of stockholders entitled to
notice of or to vote at any meeting of stockholders, each stockholder of the
corporation shall be entitled to vote, in person or by proxy, each share of
stock (or fraction thereof) registered in his name on the books of the
corporation outstanding at the close of business on such record date, with one
vote (or fraction of a vote) for each share (or fraction thereof) so
outstanding.
SECTION 2.05. NOTICE OF MEETINGS. Written notice of each meeting of
stockholders stating the place, date and hour of the meeting and, in the case of
a special meeting or if otherwise required by law, the purpose or purposes for
which the meeting is called, shall be given, not less than 10 nor more than 90
days before the date of the meeting, to each stockholder entitled to vote at
such meeting.
SECTION 2.06. QUORUM; ADJOURNMENT. The holders of a majority of the
stock entitled to vote at a meeting of stockholders, present in person or
represented by proxy, shall constitute a quorum at the meeting for the
transaction of business except as otherwise provided by statute or by the
charter. If, however, such quorum shall not be present or represented at any
meeting of stockholders, the stockholders entitled to vote thereat present in
person or represented by proxy shall have the power to adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum shall be present or represented. At any adjourned meeting at which a
quorum shall be present or represented any business may be transacted which
might have been transacted at the meeting as originally notified. If the
adjournment is for more than 120 days, or if after the adjournment a new record
date is fixed for the adjourned meeting, a notice of the adjourned meeting shall
be given to each stockholder entitled to vote at the meeting.
SECTION 2.07. VOTING. When a quorum is present at any meeting, the
vote of the holders of a majority of the stock having voting power present in
person or represented by proxy and voting on the question shall decide any
question brought before such meeting, unless the question is one upon
<PAGE>
which, by express provision of any statute or the charter or these bylaws, a
different vote is required, in which case such express provision shall govern
and control the decision of such question.
SECTION 2.08. PROXIES. A stockholder may vote the stock the
stockholder owns of record either in person or by proxy. A stockholder may sign
a writing authorizing another person to act as proxy. Signing may be
accomplished by the stockholder or the stockholder's authorized agent signing
the writing or causing the stockholder's signature to be affixed to the writing
by any reasonable means, including facsimile signature. A stockholder may
authorize another person to act as proxy by transmitting, or authorizing the
transmission of, a telegram, cablegram, datagram, or other means of electronic
transmission to the person authorized to act as proxy or to a proxy solicitation
firm, proxy support service organization, or other person authorized by the
person who will act as proxy to receive the transmission. Unless a proxy
provides otherwise, it is not valid more than 11 months after its date. A proxy
is revocable by a stockholder at any time without condition or qualification
unless the proxy states that it is irrevocable and the proxy is coupled with an
interest. A proxy may be made irrevocable for so long as it is coupled with an
interest. The interest with which a proxy may be coupled includes an interest
in the stock to be voted under the proxy or another general interest in the
corporation or its assets or liabilities.
SECTION 2.09. ACTION WITHOUT MEETING. Any action required or
permitted to be taken at a meeting of stockholders may be taken without a
meeting if a unanimous written consent which sets forth the action is signed by
each stockholder entitled to vote on the matter and is filed with the record of
stockholders' meetings.
SECTION 2.10. STOCK LEDGER. The secretary of the corporation shall
cause an original or duplicate stock ledger to be maintained at the office of
the corporation's transfer agent. The stock ledger shall contain the name and
address of each stockholder and the number of shares of stock which the
stockholder holds.
SECTION 2.11. CONDUCT OF BUSINESS. Nominations of persons for
election to the board of directors and the proposal of business to be considered
by the stockholders may be made at an annual meeting of stockholders (a)
pursuant to the corporation's notice of meeting, (b) by or at the direction of
the board of directors or (c) by any stockholder of the corporation who was a
stockholder of record at the time of giving notice provided for in Section 2.13,
who is entitled to vote at the meeting and who complied with the notice
procedures set forth in Section 2.13. The chairman of the meeting shall have
the power and duty to determine whether a nomination or any business proposed to
be brought before the meeting was made in accordance with the procedures set
forth in this Section and Section 2.13 and, if any proposed nomination or
business is not in compliance with this Section and Section 2.13, to declare
that such defective nomination or proposal be disregarded.
<PAGE>
SECTION 2.12. CONDUCT OF VOTING. At all meetings of stockholders,
unless the voting is conducted by inspectors, the proxies and ballots shall be
received, and all questions touching the qualification of voters and the
validity of proxies, the acceptance or rejection of votes and procedures for the
conduct of business not otherwise specified by these Bylaws, the charter or law,
shall be decided or determined by the chairman of the meeting. If demanded by
stockholders, present in person or by proxy, entitled to cast 10 percent in
number of votes entitled to be cast, or if ordered by the chairman, the vote
upon any election or question shall be taken by ballot and, upon like demand or
order, the voting shall be conducted by two inspectors, in which event the
proxies and ballots shall be received, and all questions touching the
qualification of voters and the validity of proxies and the acceptance or
rejection of votes shall be decided, by such inspectors. Unless so demanded or
ordered, no vote need be by ballot and voting need not be conducted by
inspectors. The stockholders at any meeting may choose an inspector or
inspectors to act at such meeting, and in default of such election the chairman
of the meeting may appoint an inspector or inspectors. No candidate for
election as a director at a meeting shall serve as an inspector thereat.
SECTION 2.13. STOCKHOLDER PROPOSALS. For any stockholder proposal to
be presented in connection with an annual meeting of stockholders of the
corporation (other than proposals made under Rule 14a-8 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")), including any proposal
relating to the nomination of a director to be elected to the board of directors
of the corporation, the stockholders must have given timely notice thereof in
writing to the secretary of the corporation. To be timely, a stockholder's
notice shall be delivered to the secretary at the principal executive offices of
the corporation not later than 10 days following the day on which public
announcement of the date of such meeting is first made. Such stockholder's
notice shall set forth (a) as to each person whom the stockholder proposes to
nominate for election or reelection as a director all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Exchange Act (including such person's written consented
in the proxy statement as a nominee and to serving as a director if elected);
(b) as to any other business that the stockholder proposes to bring before the
meeting, a brief description of the business desired to be brought before the
meeting, the reasons for conducting such business at the meeting and any
material interest in such business of such stockholder and of the beneficial
owner, if any, on whose behalf the proposal is made; and (c) as to the
stockholder giving the notice and the beneficial owner, if any, on whose behalf
the nomination or proposal is made, (i) the name and address of such
stockholder, as they appear on the corporation's books, and of such beneficial
owner and (ii) the number of shares of stock of the corporation which are owned
beneficially and of record by such stockholders and such beneficial owner.
ARTICLE III
DIRECTORS AND COMMITTEES
SECTION 3.01. FUNCTION AND POWERS. The business and affairs of the
corporation shall be managed under the direction of its board of directors. All
powers of the corporation may be exercised by or under the authority of the
board of directors except as conferred on or reserved to the stockholders by
statute or the charter or these bylaws.
<PAGE>
SECTION 3.02. NUMBER. The number of directors which shall constitute
the entire board of directors shall be not less than three nor more than
fifteen. Within such limits the number of directors may be changed by
resolution, or by amendment to these bylaws, adopted by a majority of the entire
board of directors, but no such action shall affect the tenure of office of any
director.
SECTION 3.03. ELECTION AND TERM OF OFFICE. The directors shall be
elected at the annual meeting of the stockholders (if any such meeting is held),
except as provided in Section 3.04 of this article, and each director elected
shall hold office until his successor is elected and qualifies or until his
earlier resignation or removal. Directors need not be stockholders of the
corporation.
SECTION 3.04. VACANCIES. Any vacancy occurring in the board of
directors for any cause may be filled by a majority of the remaining members of
the board of directors, although such majority is less than a quorum; provided,
however, that no vacancy shall be so filled unless immediately thereafter at
least two-thirds of the directors then holding office shall have been elected to
such office by the stockholders, and provided further that if at any time less
than a majority of the directors holding office at that time were elected by the
stockholders, a meeting of the stockholders shall be held promptly and in any
event within 60 days for the purpose of electing directors to fill any existing
vacancy in the board of directors, unless the Securities and Exchange Commission
shall by order extend such period under the authority granted by section 16(a)
of the Investment Company Act of 1940. A director elected to fill a vacancy
shall be elected to hold office until the next annual meeting of stockholders or
until his successor is elected and qualifies.
SECTION 3.05. REGULAR MEETINGS. The board of directors from time to
time may provide for the holding of regular meetings of the board and fix their
time and place.
SECTION 3.06. SPECIAL MEETINGS. Special meetings of the board may be
called by the president on 24 hours notice to each director, either personally,
by mail, by telegram or by facsimile transmission. Special meetings shall be
called by the president or secretary in like manner and on like notice on the
written request of a majority of the directors or a majority of the members of
the executive committee.
SECTION 3.07. QUORUM AND VOTING. At all meetings of the board a
majority of the directors in office shall constitute a quorum for the
transaction of business, and the act of a majority of the directors present at
any meeting at which there is a quorum shall be the act of the board of
directors, except as may be otherwise specifically provided by statute or the
charter or these bylaws. If a quorum shall not be present at any meeting of the
board of directors, the directors present thereat may adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum shall be present.
<PAGE>
SECTION 3.08. TELEPHONE MEETINGS. Members of the board of directors
or any committee thereof may participate in a meeting of such board or committee
by means of a conference telephone or similar communications equipment by means
of which all persons participating in the meeting can hear each other at the
same time, and participation by such means shall constitute presence in person
at the meeting.
SECTION 3.09. ACTION WITHOUT MEETING. Unless otherwise restricted by
statute or the charter or these bylaws, any action required or permitted to be
taken at any meeting of the board of directors or of any committee thereof may
be taken without a meeting if a unanimous written consent which sets forth the
action is signed by each member of the board or committee, as the case may be,
and filed with the minutes of proceedings of the board or committee.
SECTION 3.10. COMMITTEES. The board of directors may, by resolution
passed by a majority of the entire board, designate an executive committee and
other committees, each committee to consist of one or more directors of the
corporation. In the absence of a member of a committee, the members thereof
present at any meeting, whether or not they constitute a quorum, may appoint
another member of the board of directors to act at the meeting in the place of
any such absent member.
SECTION 3.11. EXECUTIVE COMMITTEE. Unless otherwise provided by
resolution of the board of directors, the executive committee shall have and may
exercise all powers of the board of directors in the management of the business
and affairs of the corporation that may lawfully be exercised by an executive
committee, except the power to: (i) declare dividends or distributions on stock;
(ii) issue stock; (iii) recommend to the stockholders any action which requires
stockholder approval; (iv) amend the bylaws; or (v) approve any merger or share
exchange which does not require stockholder approval.
SECTION 3.12. OTHER COMMITTEES. To the extent provided by resolution
of the board of directors, other committees of the board shall have and may
exercise any of the powers that may lawfully be granted to the executive
committee.
SECTION 3.13. MINUTES OF COMMITTEE MEETINGS. Each committee shall
keep regular minutes of its meetings and report the same to the board of
directors when required.
SECTION 3.14. EXPENSES AND COMPENSATION OF DIRECTORS. Directors
shall not receive any stated salary for their services as directors, but, by
resolution of the board of directors, a fixed sum, and expenses of attendance,
if any, may be allowed to directors for attendance at each regular or special
<PAGE>
meeting of the board of directors, or of any committee thereof, but nothing
herein contained shall be construed to preclude any director from serving the
corporation in any other capacity and receiving compensation therefor.
ARTICLE IV
NOTICES
SECTION 4.01. TYPE OF NOTICE. Whenever, under the provisions of any
statute or the charter or these bylaws, notice is required to be given to any
director or stockholder, such notice may be given in writing, by personal
delivery, or by mail, addressed to such director or stockholder, at his or her
address as it appears on the records of the corporation, with postage thereon
prepaid, and such notice shall be deemed to be given at the time when the same
shall be deposited in the United States mail. Notice to directors may also be
given by telegram or by facsimile transmission.
SECTION 4.02. WAIVER OF NOTICE. Whenever the provisions of any
statute or the charter or these bylaws require notice of the time, place or
purpose of a meeting of the board of directors or a committee of the board, or
of stockholders, each person who is entitled to the notice waives notice if: (a)
before or after the meeting he or she signs a waiver of notice which is filed
with the records of the meeting; or (b) he or she is present at the meeting or,
in the case of a stockholders' meeting, is represented by proxy.
ARTICLE V
OFFICERS
SECTION 5.01. OFFICES. The officers of the corporation shall be
elected by the board of directors and shall be a president, one or more vice
presidents, a secretary and a treasurer. The board of directors may also
appoint a chairperson of the board, assistant secretaries and assistant
treasurers. Any number of offices may be held by the same person, unless the
charter or these bylaws otherwise provide, except that no one may serve
concurrently as both president and vice president. A person who holds more than
one office may not act in more than one capacity to execute, acknowledge or
verify an instrument required by law to be executed, acknowledged or verified by
more than one officer.
SECTION 5.02. ANNUAL ELECTION. The board of directors annually shall
elect a president, one or more vice presidents, a secretary and a treasurer.
The board of directors may elect one of its members to serve as chairperson of
the board.
<PAGE>
SECTION 5.03. OTHER OFFICERS AND AGENTS. The board of directors may
appoint such other officers and agents as it shall deem necessary, who shall
hold their offices for such terms and shall exercise such powers and perform
such duties as shall be determined from time to time by the board.
SECTION 5.04. TERM OF OFFICE; REMOVAL; VACANCIES. The officers of
the corporation shall hold office until their respective successors are chosen
and qualify. Any officer elected or appointed by the board of directors may be
removed at any time by the affirmative vote of a majority of the board of
directors, when the board in its judgment finds that the best interests of the
corporation will be served by such action. The removal of an officer or agent
does not prejudice his contract rights, if any. Any vacancy occurring in any
office of the corporation shall be filled by the board of directors.
SECTION 5.05. THE CHAIRPERSON OF THE BOARD OF DIRECTORS. The
chairperson of the board of directors, if one shall be elected, shall preside at
all meetings of the directors and stockholders, and shall perform such other
duties as the board of directors may prescribe.
SECTION 5.06. THE PRESIDENT. The president shall be the chief
executive officer of the corporation and shall have general management of the
business of the corporation, and shall see that all orders and resolutions of
the board of directors are carried into effect. In the absence of a chairperson
of the board of directors, or if a chairperson is not elected, the president
shall preside at all meetings of the directors and stockholders. The president
may execute bonds, mortgages and other contracts requiring a seal, under the
seal of the corporation, except where required or permitted by law to be
otherwise signed and executed and except where the signing and execution thereof
shall be expressly delegated by the board of directors to some other officer or
agent of the corporation.
SECTION 5.07. THE VICE PRESIDENTS. In the absence of the president
or in the event of the president's inability or refusal to act, the vice
president (or in the event there be more than one vice president, the vice
presidents in the order designated, or in the absence of any designation, then
in the order of their election) shall perform the duties of the president, and
when so acting shall have all the powers of and be subject to all the
restrictions upon the president. The vice presidents shall perform such other
duties and have such other powers as the board of directors may from time to
time prescribe.
SECTION 5.08. THE SECRETARY. The secretary shall record all votes
and proceedings of meetings of directors and stockholders in the corporation's
records. The secretary shall give, or cause to be given, notice of all meetings
of the stockholders and meetings of the board of directors when notice thereof
is required. The secretary shall have custody of the seal of the corporation
and may affix the same to any instrument requiring the corporate seal and attest
to the same with his or her signature. The secretary shall perform such other
duties as the board of directors may prescribe.
<PAGE>
SECTION 5.09. THE ASSISTANT SECRETARY. The assistant secretary, or
if there be more than one, the assistant secretaries in the order determined by
the board of directors (or if there be no such determination, then in the order
of their election), shall, in the absence of the secretary or in the event of
the secretary's inability or refusal to act, perform the duties and exercise the
powers of the secretary and shall perform such other duties and have such other
powers as the board of directors may from time to time prescribe.
SECTION 5.10. THE TREASURER. The treasurer: (a) shall keep full and
accurate accounts of receipts and disbursements in books belonging to the
corporation; (b) shall deposit with the corporation's custodian all moneys and
other valuable effects in the name and to the credit of the corporation; (c)
shall direct the custodian to make such disbursements of the funds of the
corporation as may be ordered by the board of directors, taking proper vouchers
for such disbursements; and (d) shall render to the president and the board of
directors, at its regular meetings, or when the board of directors so requires,
an account of all his or her transactions as treasurer and financial statements
of the corporation.
SECTION 5.11. THE ASSISTANT TREASURER. The assistant treasurer, or
if there shall be more than one, the assistant treasurers in the order
determined by the board of directors (or if there be no such determination, then
in the order of their election), shall, in the absence of the treasurer or in
the event of the treasurer's inability or refusal to act, perform the duties and
exercise the powers of the treasurer and shall perform such other duties and
have such other powers as the board of directors may from time to time
prescribe.
ARTICLE VI
CAPITAL STOCK
SECTION 6.01. CERTIFICATES OF STOCK. Every holder of stock in the
corporation shall be entitled, upon request, to have a certificate or
certificates, signed by, or in the name of the corporation by, the president or
a vice president and countersigned by the treasurer, an assistant treasurer, the
secretary or an assistant secretary of the corporation, certifying the number of
full shares owned by him in the corporation. No certificates shall be issued
for fractional shares. Where a certificate is countersigned by a transfer agent
other than the corporation or its employee, any other signature on the
certificate may be facsimile. In case any officer or transfer agent who has
signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be such officer or transfer agent before such certificate is
issued, it may be issued by the corporation with the same effect as if he were
such officer or transfer agent at the date of issue.
<PAGE>
SECTION 6.02. LOST CERTIFICATES. The board of directors may direct a
new certificate or certificates be issued in place of any certificate or
certificates previously issued by the corporation which are alleged to be lost,
mutilated or destroyed, upon such terms and upon such conditions as the board of
directors may prescribe.
SECTION 6.03. TRANSFERS OF STOCK. The shares of stock of the
corporation shall be transferable on the books of the corporation at the request
of the record holder thereof in person or by a duly authorized attorney, upon
presentation to the corporation or its transfer agent of a duly executed
assignment or authority to transfer, or proper evidence of succession, and, if
the shares are represented by a certificate, a duly endorsed certificate or
certificates of stock surrendered for cancellation, and with such proof of the
authenticity of the signatures as the corporation or its transfer agent may
reasonably require. The transfer shall be recorded on the books of the
corporation, the old certificates, if any, shall be cancelled, and the new
record holder, upon request, shall be entitled to a new certificate or
certificates.
SECTION 6.04. FIXING OF RECORD DATE. The board of directors may fix
in advance a date as a record date for the determination of the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or to express consent to corporate action in writing
without a meeting, or to receive payment of any dividend or other distribution
or allotment of any rights, or to exercise any rights in respect of any change,
conversion or exchange of stock, or for the purpose of any other lawful action,
provided that such record date shall not be a date more than 90 days (subject to
Section 2.06), and in the case of a meeting of stockholders not less than 10
days, prior to the date on which the particular action requiring such
determination of stockholders is to be taken. In such case only such
stockholders as shall be stockholders of record on the record date so fixed
shall be entitled to such notice of, and to vote at, such meeting or
adjournment, or to give such consent, or to receive payment of such dividend or
other distribution, or to receive such allotment of rights, or to exercise such
rights, or to take such other action, as the case may be, notwithstanding any
transfer of any shares on the books of the corporation after any such record
date.
SECTION 6.05. REGISTERED STOCKHOLDERS. The corporation shall be
entitled to treat the holder of record of shares as the holder in fact thereof
and, accordingly, shall not be bound to recognize any equitable or other claim
to or interest in such shares on the part of any other person, whether or not it
shall have express or other notice thereof, except as otherwise provided by
statute.
<PAGE>
ARTICLE VII
CUSTODIAN
SECTION 7.01. EMPLOYMENT OF CUSTODIAN. The corporation shall place
and maintain its securities and similar investments in the custody of one or
more custodians meeting the requirements of the Investment Company Act of 1940,
or may serve as its own custodian in accordance with such rules and regulations
or orders as the Securities and Exchange Commission may from time to time
prescribe for the protection of investors. Securities held by a custodian may
be registered in the name of the corporation or any such custodian, or the
nominee of either of them. Subject to such rules, regulations, and orders as
the Commission may adopt as necessary or appropriate for the protection of
investors, the corporation or any custodian, with the consent of the
corporation, may deposit all or any part of the securities owned by the
corporation in a system for the central handling of securities, pursuant to
which system all securities of a particular class or series of any issuer
deposited within the system are treated as fungible and may be transferred or
pledged by bookkeeping entry without physical delivery of such securities.
SECTION 7.02. NEGOTIABLE INSTRUMENTS. All checks and drafts for
the payment of money shall be signed in the name of the corporation by such
officer or officers or such other person or persons as the board of directors
may designate, and all requisitions or orders for the payment of money by the
custodian or for the issue of checks and drafts therefor, all promissory notes,
all assignments of shares or securities standing in the name of the corporation,
and all requisitions or orders for the assignment of shares or securities
standing in the name of the custodian or its nominee, or for the execution of
powers to transfer the same, shall be signed in the name of the corporation by
not less than two of its officers. Promissory notes, checks or drafts payable
to the corporation may be endorsed only to the order of the custodian or its
agent.
SECTION 7.03. ANNUAL STATEMENT OF AFFAIRS. The President or chief
accounting officer shall prepare annually a full and correct statement of the
affairs of the corporation, to include a balance sheet and a financial statement
of operations for the preceding fiscal year. The statement of affairs shall be
placed on file at the corporation's principal office within 120 days after the
end of the fiscal year.
ARTICLE VIII
INDEMNIFICATION
SECTION 8.01. INDEMNIFICATION. Each person who is or was a director
or officer of the corporation, and each person who serves or served at the
request of the corporation as a director or officer of another corporation (and
their respective heirs, executors and administrators), shall be indemnified by
the corporation in accordance with, and to the fullest extent authorized by, the
General Corporation Law
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of the State of Maryland as it may be in effect from time to time, provided that
(unless otherwise permitted by the Investment Company Act of 1940, the rules and
regulations thereunder or the Securities and Exchange Commission):
(a) this provision shall not protect any person against any liability
to the corporation or to its stockholders to which he would otherwise be subject
by reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office;
(b) if there is neither a final court determination on the merits
that the person seeking indemnification is not liable nor a court determination
that he was not guilty of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office, no
indemnification shall be permitted unless a determination that the person was
not guilty of any such misconduct has been made by (i) the vote of a majority of
a quorum of directors who are neither "interested persons" of the corporation as
defined in section 2(a)(19) of the Investment Company Act of 1940 nor parties to
the proceedings ("disinterested, non-party directors") or (ii) an independent
legal counsel (not including a counsel who does work for either the corporation,
its investment adviser or principal underwriter, or any person affiliated with
any of these persons); and
(c) before the final disposition of a proceeding, the corporation may
pay the expenses, including attorneys' fees, incurred by any such person in
defending a civil or criminal action, suit or proceeding, only if:
(i) authorized in the specific case, by a majority of the
disinterested, non-party directors, or if there are no disinterested, non-party
directors, by the board of directors;
(ii) any advances are limited to amounts used, or to be used,
for the preparation and/or presentation of a defense to the action (including
costs connected with preparation of a settlement);
(iii) any advances are accompanied by a written promise by, or on
behalf of, the recipient to repay that amount of the advance which exceeds the
amount which it is ultimately determined that the recipient is entitled to
receive from the corporation by reason of indemnification;
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(iv) such promise is secured by (1) a surety bond or other
security provided by the recipient of the advance or (2) other suitable
insurance, unless a majority of a quorum of the disinterested, non-party
directors, or an independent legal counsel in a written opinion, has determined,
based on a review of readily available facts, that there is reason to believe
that the recipient of the advance ultimately will be found entitled to
indemnification.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.01. DIVIDENDS.
(a) The board of directors, from time to time as they may deem
advisable, may declare and pay dividends in cash or other property of the
corporation, out of any source available for dividends, to the stockholders
according to their respective rights and interests and in accordance with the
applicable provisions of the charter.
(b) The board of directors may prescribe from time to time that
dividends declared are payable at the election of any of the stockholders,
either in cash or in shares of the corporation.
(c) The board of directors shall cause any dividend payment to be
accompanied by a written statement if paid wholly or partly from any source
other than:
(i) the corporation's accumulated undistributed net income
(determined in accordance with generally accepted accounting principles and the
rules and regulations of the Securities and Exchange Commission then in effect)
and not including profits or losses realized upon the sale of securities or
other properties; or
(ii) the corporation's net income so determined for the current
or preceding fiscal year.
Such statement shall adequately disclose the source or sources of such payment
and the basis of calculation, and shall be in such form as the Securities and
Exchange Commission may prescribe.
SECTION 9.02. FISCAL YEAR. The fiscal year of the corporation
shall end on November 30.
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SECTION 9.03. SEAL. The corporate seal shall have inscribed thereon
the name of the corporation and shall be in such form and contain such other
words and figures as the directors shall determine or the law require. The seal
may be used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or by placing the word "seal" adjacent to the signature of the
authorized officer of the corporation. Any officer or director of the
corporation shall have authority to affix the corporate seal of the corporation
to any document requiring the same.
ARTICLE X
AMENDMENTS
SECTION 10.01. GENERAL. These bylaws may be altered, amended or
repealed, and new bylaws may be adopted solely by the board of directors, at any
meeting of the board of directors.
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CUSTODY AGREEMENT
THIS IS A CUSTODY AGREEMENT, dated as of July 7, 1998, between The Chase
Manhattan Bank (herein called the "Custodian"), a New York banking
corporation, having its principal place of business in New York, New York and
State Farm Balanced Fund, Inc. (herein called the "Fund"), a Corporation
organized and doing business under the laws of the State of Maryland and an
investment company registered as such under the Investment Company Act of
1940, having its principal place of business at Bloomington, Illinois.
In consideration of the mutual premises and agreements herein contained,
the parties hereto agree as follows:
SECTION 1 DEFINITIONS.
"Agreement" means this Custody Agreement.
"Authorization Letter" or "Letter" means a writing from the Fund substantially
in the form of Exhibit A(1) or A(2) hereto, in respect of Financial Assets,
signed by any of two (2) persons of the Fund authorized to execute such
authorization pursuant to certain corporate resolutions of the Fund, and
instructing the Custodian to take action in respect of the Custody Account and
the Cash Account and such other action incidental thereto and to the Agreement.
Custodian may rely upon a Letter received by facsimile transmission.
"Cash Account" means the cash ledger of the Custody Account to which debits and
credits are made in respect of security transactions and other deposits to said
account and against which no withdrawal may be made by check or draft.
"Fund" means State Farm Balanced Fund, Inc., a Maryland Corporation and an
investment company registered as such under the Investment Company Act of 1940.
"Custodian" means The Chase Manhattan Bank, a New York banking corporation and
member of the Federal Reserve System.
"Custody Account" means a securities account for the Fund on Custodian's records
to which a Financial Asset is or may be credited pursuant to this Agreement.
"Depository" means DTC, PTC, and FRBNY and any other depository acceptable to
the Fund.
"DTC" means The Depository Trust Company, a New York limited purpose trust
company.
"Electronic Instruction" means an electronic instruction received by the
Custodian (i) through DTC's Institutional Delivery System ("IDS") or (ii)
through such other electronic delivery system accessed by password or other
security device and acceptable to the Fund and Custodian for the delivery of
instructions. Fund shall safeguard any testkeys, identification codes or other
security device made available by Custodian to Fund and Custodian may rely upon
any
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electronic instructions as being authorized by the Fund which is received using
the proper security device.
"Entitlement holder" means the person on the records of a securities
intermediary as the person having a security entitlement against the securities
intermediary.
"Financial Assets" means securities or other investments owned by the Fund. As
the context requires, a Financial Asset means either the interest itself or the
means by which a person's claim to it is evidenced, including a certificated or
uncertificated security, a security certificate, or a securities entitlement.
"FRBNY" means the Federal Reserve Bank of New York.
"Instructions" includes, without limitation, any instructions to sell, assign,
transfer, deliver, purchase or receive for the Custody Account, Financial Assets
or to transfer funds from the Custody Account or a Cash Account.
"PTC" means Participants Trust Company, a New York limited purpose trust
company.
"Securities" means stocks, bonds, rights, warrants and other negotiable and
non-negotiable paper issued in certificated ("certificated securities") or book
entry form ("uncertificated securities") and commonly traded or dealt in on
securities exchanges or financial markets, and other obligations of an issuer,
or shares, participations and interests in an issuer recognized in an area in
which it is issued or dealt in as a medium for investment and any other property
as shall be acceptable to Custodian for the Custody Account.
"Security entitlement" means the rights and property interest of an entitlement
holder with respect to a financial asset as specified in Part 5 of Article 8 of
the Uniform Commercial Code.
"Securities intermediary" means, Custodian, DTC, PTC, the FRBNY, and any other
Depository or financial institution acceptable to the Trust which in the
ordinary course of business maintains securities accounts for others and acts in
that capacity.
"Uniform Commercial Code" means the Uniform Commercial Code of the State of New
York.
SECTION 2 TERMS OF THE CUSTODY.
SECTION 2.1 CUSTODY ACCOUNT. The parties agree that there shall be a
Custody Account maintained for the Fund with the Custodian, at an office in New
York. The Custody Account shall be entitled as described on Schedule A.
SECTION 2.2 APPOINTMENT. The Fund authorizes The Chase Manhattan Bank
to serve as custodian for the Fund, and to act on its behalf solely to the
extent expressly provided herein, or in any Authorization Letter and to take
such other action as may be reasonably incidental thereto. Custodian shall not
use any securities intermediaries other than DTC, PTC and the FRBNY without
Fund's prior written consent.
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SECTION 2.3 DUTIES OF THE CUSTODIAN. It is the expressed understanding
of the parties that:
SECTION 2.3.1 ACCEPT, DELIVER AND EXCHANGE SECURITIES. Upon receipt of
and pursuant to an Authorization Letter, oral notice (hereinafter "Notice,")
from the Fund (such Notice to be followed by written confirmation in the form of
an Authorization Letter), or Electronic Instructions, the Custodian shall accept
and deliver Financial Assets for the Fund. From time to time, pursuant to a
Letter, Notice, such Notice to be followed by the Fund's written confirmation
thereof; or Electronic Instructions, the Custodian shall exercise or dispose of
subscriptions, rights and warrants of any Financial Assets held in the Custody
Account or to be received by the Custodian for deposit to the Custody Account.
In respect of a Notice, in the event that the written confirmation has not been
received prior to the time requested action must take place, the Custodian may
rely upon the Notice provided that, the Custodian has been able to orally
confirm such instruction with such other persons as the Fund shall designate
from time to time in writing to the Custodian as authorized to make such
confirmations. Except as otherwise advised in a Letter, Notice, or by
Electronic Instructions, in delivering Financial Assets, the Custodian shall do
so only against payment, or upon the receipt of other Financial Assets.
SECTION 2.3.2 PURCHASE OF SECURITIES. Upon receipt of a Letter, Notice
from the Fund (such Notice to be followed by written confirmation in the form of
an Authorization Letter), or Electronic Instruction, the Custodian shall
purchase for the Fund such Financial Assets in the amounts and maturing on the
dates therein described and charge the payment for such purchases to the Cash
Account. In the event that the written confirmation has not been received prior
to the time requested action must take place, the Custodian may rely upon the
Notice, provided that the Custodian has been able to orally confirm such
instruction with such other employee(s) of the Fund as the Fund shall designate
from time to time in writing to the Custodian as authorized to make such
confirmations. Unless and until otherwise instructed by the Fund pursuant to
the terms herein contained, the Custodian shall deposit any and all Financial
Assets purchased hereunder into the Fund's Custody Account as soon as reasonably
feasible following its receipt thereof. Except as otherwise advised in a
Letter, Notice, or by Electronic Instructions, the Custodian shall make payment
for Financial Assets purchased only at the time of delivery of such Financial
Assets to the Custodian.
SECTION 2.3.3 PAYMENT OF MONIES. From time to time, the Custodian shall
upon its receipt of a Letter or Notice, such Notice to be followed by written
confirmation in the form of a Transfer Letter (as used herein the term "Transfer
Letter" shall mean the Fund's transfer letter, substantially in the form of
Exhibit B attached hereto) or Electronic Instruction, transfer monies from the
Custody Account; PROVIDED THAT: the Custodian complies with the requirements of
The Chase Manhattan Bank Funds Transfer Service Security Procedure Agreement
(Exhibit C).
From time to time, the Fund shall notify Custodian of deposits for its
accounts. Upon receipt of funds identifying the Fund by account number as
beneficiary, the Custodian shall credit such funds to the account identified and
notify the Fund.
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SECTION 2.3.4 SALE OF SECURITIES. Upon the receipt of a Letter, Notice
(such Notice to be followed by written confirmation in the form of a Letter), or
Electronic Instruction, the Custodian shall use its reasonable best efforts,
subject to the terms and conditions herein contained, to present for sale in the
amount and on the dates therein stated such Financial Assets of the Fund as
therein described, and held in the Custody Account and cause the proceeds
generated by such sale(s), to be deposited into the Cash Account. In the event
that the written confirmation has not been received prior to the time the
requested action must take place, the Custodian may rely upon the Notice,
provided that the Custodian has been able to orally confirm such instruction
with such other person(s) as the Fund shall designate from time to time in
writing to the Custodian as authorized to make such confirmations.
In the event that it shall be impracticable for the Custodian, in
accordance with such Letter, Notice, or Electronic Instruction, to present for
sale Financial Assets on the dates specified, the Custodian shall as soon as it
learns of any such impracticability, notify the Fund via telephone.
Unless the Custodian shall have received from the Fund a Letter, Notice, or
Electronic Instruction to the contrary, the Custodian shall deliver the
Financial Assets to a broker, a dealer or other purchaser identified in the
instruction against payment. It is understood by the Fund that delivery against
payment in the securities markets means delivery against a receipt or other
evidence that a payment is due later but before the end of the same business
day. The Custodian shall have no liability with respect to the non-receipt of
payment arising from:
i) Any insolvency of any broker, dealer or other purchaser which occurs after
delivery of the Financial Assets by Custodian but before payment is
received by Custodian; or
ii) Insolvency of any issuer of the Financial Assets; or
iii) Any act or omission of any broker, attorney, custodian, escrowee, or
similar agent designated by Fund to perform any act with respect to the
Financial Assets.
This Section shall not be interpreted to relieve or to lessen the standard of
care the Custodian is required to use by other terms of this Agreement.
SECTION 2.3.5 REGISTERED SECURITIES. Except as otherwise set forth in
this Section 2.3.5, the Custodian shall register any registerable Financial
Assets held and maintained in a Custody Account in Custodian's nominee name or
that of an affiliate or Depository. Private placements and other types of
Financial Assets which the Fund from time to time identifies shall be registered
in the name of the Fund. All taxes or other expenses incidental to any transfer
to or from the name of a nominee shall be borne by the Fund.
SECTION 2.36 CALLS FOR PAYMENT. The Custodian shall use its reasonable
best efforts to determine from financial information services to which it
subscribes, or such other financial services as agreed to by the parties, when
Financial Assets held in the Custody Account are called for payment and
surrender for payment any Financial Assets or notes which have matured or with
respect to which it received or knows of a notice to call.
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SECTION 2.3.7 NOTICES, ADVICE, ETC. The Custodian shall use its
reasonable best efforts to:
(a) promptly notify the Fund of any unpaid principal amounts, or any
unpaid amounts of interest accrued and owing, or payable on any
Financial Assets held or maintained in a Custody Account of which
Custodian is aware;
(b) forward to the Fund as of the close of business each business day
(electronically or by mail) advices of the Financial Assets and cash
transactions in a Custody Account;
(c) deliver to the Fund, promptly upon receipt of the Fund's request, a
schedule of the Financial Assets held and maintained in a Custody
Account;
(d) promptly notify the Fund of any legal action of which the Custodian's
corporate actions unit becomes aware with respect to any Financial
Assets held and maintained in a Custody Account;
(e) promptly notify the Fund of any subscriptions, warrants or like rights
it may have of which the Custodian's corporate action unit becomes
aware;
(f) promptly notify the Fund of any invitations to tender a Financial
Asset, held and maintained in a Custody Account of which the
Custodian's corporate action unit becomes aware; and
(g) deliver to the Fund all printed material received by the Custodian's
corporate actions unit and requiring some action by the Fund
pertaining to any Financial Assets held or maintained in a Custody
Account.
SECTION 2.3.8 STOCK DIVIDENDS, ETC. Financial Assets delivered to the
Custodian as stock dividends, stock splits or as a result of the exercise of
rights, shall be deposited into and held and maintained in the Custody Account
of the Fund and treated in like manner as all other Financial Assets therein
held and maintained.
SECTION 2.3.9 FRACTIONAL SHARES. In the event that an issuer of a
Financial Asset held by the Custodian in the Custody Account shall declare a
dividend payable in stock, and such dividend results in a fractional share of
stock being issued, the Custodian, without prior notice to or from the Fund,
shall sell such fractional share(s) and deposit the proceeds received from such
sale into the Custody Account. The Custodian shall notify the Fund of such sale
thereafter.
SECTION 2.3.10 COLLECTION OF INCOME AND PRINCIPAL. The Custodian shall
from time to time take necessary action(s) to collect dividends, interest
payments, payments made on account of called and matured Financial Assets, and
any other payments with respect to such Financial Assets deposited into or held
or maintained in the Custody Account, when such payments shall become owing;
provided that so long as Custodian's actions are in compliance with the standard
of care set forth in Section 7.17, Custodian shall not be responsible for
failure
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to receive payment of (or late payment of) distributions with respect to
Financial Assets or other property held in the Custody Account. Upon receipt of
such funds collected hereunder, Custodian will use its best efforts to deposit
such collected funds into the Custody Account on the same business day upon
which such collected funds are received by the Custodian. Accordingly, in
making collections of income or principal hereunder, the Custodian may to the
extent necessary or required by any applicable law of any sovereign body,
including the United States, or a State, and solely to such extent, execute on
behalf of the Fund certificates or other like documents. All cash shall be held
and maintained in the Custody Account subject to further instruction from the
Fund. In the event the Custody Account is credited by the Custodian in
anticipation of the Custodian's collection of monies, and the Custodian is
unable to collect such monies, the Fund agrees that it shall promptly upon
telephonic notice from the Custodian, return an amount equal to the amount so
credited and not collected to the Custodian in immediately available funds.
SECTION 2.3.11 EXCHANGE CERTIFICATES. The Custodian shall exchange
temporary for definitive certificates or effect mandatory exchanges of
certificates.
SECTION 2.3.12 BOOKS AND RECORDS. Custodian shall at all times maintain
proper books and records that shall identify the Fund as the entitlement holder
of such Financial Assets and the location of the Financial Assets.
The Custodian shall with respect to the Fund create and maintain all
records relating to its activities and obligations under this Contract. All
such records shall upon reasonable notice and during the regular business hours
of the Custodian be open for inspection by duly authorized officers, employees
or agents of the Fund and employees and agents of the Securities and Exchange
Commission. The Custodian shall, at the Fund's request, supply the Fund with a
tabulation of securities owned by the Fund and held by the Custodian and shall,
when requested to do so by the Fund and for such compensation as shall be agreed
upon between the Fund and the Custodian, include certificate numbers in such
tabulations.
The Custodian shall cooperate with and supply reasonable and customary
information regarding the Custody Account to the entity or entities appointed by
the Board of Directors of the Fund to keep the books of account of the Fund.
Unless Fund shall send to Custodian a written exception or objection to any
statement of account within 90 days of its receipt of such statement from
Custodian, Fund shall be deemed to have approved such statement.
SECTION 2.3.13 CERTIFICATE OF THE BANK. The Custodian shall:
(a) DELIVER TO THE FUND ON OR BEFORE JANUARY 31ST OF EACH CALENDAR YEAR, A
CERTIFIED SCHEDULE, DATED DECEMBER 31, OF THE PRECEDING CALENDAR YEAR,
EXECUTED BY TWO DULY ELECTED AND AUTHORIZED OFFICERS OF CUSTODIAN
SETTING FORTH A FULL DESCRIPTION OF THE FINANCIAL ASSETS HELD AND
MAINTAINED IN EACH CUSTODY ACCOUNT, INCLUDING, BUT NOT LIMITED TO,
AMONG OTHER THINGS, THE PAR VALUE OF EACH BOND AND THE NUMBER OF
SHARES FOR EACH STOCK OR THE
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EQUIVALENT, AS THE CASE MAY BE, AS OF THE CLOSE OF BUSINESS ON
DECEMBER 31ST, OF EACH CALENDAR YEAR;
(b) use its best efforts to deliver to the Fund, within five (5) business
days after the receipt of the written request of the Fund a certified
schedule, dated the date of its issue, executed by two duly elected
and authorized officers of Custodian, setting forth a full description
of the Financial Assets held and maintained in the Custody Accounts,
including among other things, the par value of each bond and the
number of shares for each stock or the equivalent, as the case may be;
and
(c) deliver following a request by the Fund, to any governmental agency
certified by the Fund to the Custodian and, in a timely manner, a
certified schedule, which schedule, to the extent possible, shall be
substantially in the form of the certified schedule to be delivered
pursuant to the preceding clause (b) of this subsection.
In the event the Custodian is unable to deliver, pursuant to clause (c)
above, the certified schedule therein described, the Custodian shall,
immediately upon learning of such inability, notify the Fund by telephone and
promptly confirm such notice to the Fund in writing. Such written notice to the
Fund shall set forth (i) an explanation as to the Custodian's inability to
deliver such certified schedule and (ii) the date upon which such certified
schedule shall be delivered.
SECTION 2.3.14 OTHER SECURITIES. UPON RECEIPT OF AN AUTHORIZATION LETTER
OR ELECTRONIC INSTRUCTION, THE CUSTODIAN IS AUTHORIZED TO TAKE ANY AND ALL
ACTIONS NECESSARY TO SETTLE TRANSACTIONS IN FUTURES AND/OR OPTIONS CONTRACTS.
SECTION 2.4 LOTTERY. In the event Financial Assets held in the Custody
Account at a Securities Depository are called for partial redemption by the
issuer, the Custodian will, in its reasonable discretion, allocate the called
portion to the respective holders in a manner which is fair, equitable, and in
accordance with its established procedures.
SECTION 2.5 CONVERSION. The Custodian shall, except where instructed
otherwise by the Fund, convert monies received by the Custodian with respect to
Financial Assets maintained in the Custody Account of foreign issue into United
States dollars at prevailing rates. In effecting such conversion, the Custodian
may use any reasonable method or agency available to it, including the
facilities of its own divisions or affiliates. The Fund agrees that it shall
bear all risk and reasonable expense of such conversion, including without
limitation, losses arising from fluctuations in the exchange rate.
SECTION 2.6 MAINTAIN DUPLICATE RECORDS. The Custodian shall store "off-
premises" tapes of daily transactions with respect to the Custody Account. Such
tapes shall be maintained in accordance with the Custodian's practice in effect
from time to time.
SECTION 2.7 SETTLEMENT. The Fund intends to have sufficient immediately
available funds each day in the Custody Account to pay for the settlement of all
Financial Assets delivered against payment to Custodian or its agents and
credited to the Custody Account. Should Fund
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fail to have sufficient immediately available funds in a Custody Account to
settle deliveries of Financial Assets pursuant to Section 2.3.2 (a "Deficit"),
Custodian may elect (i) to reject the settlement of any or all of the Financial
Assets delivered to it that day to a Custody Account but only after notice to
Fund, (ii) to settle the deliveries on the Fund's behalf and debit the Custody
Account of the Fund for the amount of such Deficit, or (iii) to reverse the
posting of the Financial Assets credited to the Custody Account, but only after
notice to the Fund.
No prior action or course of dealing on the part of Custodian with respect
to the settlement of Financial Assets transactions on Fund's behalf shall be
used by or give rise to any claim or action by Fund against Custodian for its
refusal to pay or settle for a securities transaction that has not been timely
funded as required herein.
SECTION 2.8 SECURITY INTEREST. To the extent Custodian has advanced
funds on Fund's behalf in connection with the settlement of purchases and sales
of Financial Assets for the Custody Account, Custodian shall have a security
interest in the Financial Assets which are the subject of such purchases and
sales until Fund shall have repaid the amount of such advance to Custodian, and
Custodian's security interest in such Financial Assets shall be released upon
Fund's repayment of such advance to Custodian.
SECTION 3 SAFEKEEPING OF FINANCIAL ASSETS.
SECTION 3.1 SAFEKEEPING. The Custodian shall hold all Financial Assets
held in the Custody Account in its vault and physically segregate for the
account of the Fund all Financial Assets held by it, except those Financial
Assets which are book-entry securities maintained on the Federal Reserve
Book-Entry Account System or which are eligible for deposit with a Depository.
Unless specified in the Authorization Letter to the contrary, it is understood
that, eligible Financial Assets will be maintained with a Depository. The
Custodian shall be responsible for all Financial Assets deposited into and held
and maintained in the Custody Account whether the Financial Assets be in the
physical custody of the Custodian or held by the Custodian through a Depository;
PROVIDED that the Custodian shall not be responsible for loss or destruction of
Securities held and maintained in the Custody Account, where such loss or
destruction is caused by earthquake, volcanic eruptions or such like
disturbances of nature, by reason of war, whether declared or undeclared, or
caused by the lawful act of any executive, legislative, judicial, administrative
or other governmental or military body or officer. Custodian shall be obligated
to indemnify Fund for any loss of Financial Assets received for, and credited to
the Custody Account resulting from (i) the negligence or willful misconduct of
Custodian or its officers, employees or agents (excluding any Depository
retained for such Financial Assets) or (ii) the burglary, robbery, hold-up,
theft or mysterious disappearance, including loss by damage or destruction. In
the event of a loss of Financial Assets for which it is required to indemnify
Fund pursuant to the immediately preceding sentence, Custodian shall promptly
replace such Financial Assets (by among other means posting appropriate security
or bond with the issuer(s) of such Financial Assets and obtaining their reissue)
or if agreed to by Fund and Custodian, Custodian shall replace the value thereof
(determined based upon the market value of the Financial Assets which are the
subject of such loss as of the date of the discovery of such loss or as of the
date of replacement) and the value of any loss of rights or privileges resulting
from the
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loss of such Financial Assets. The foregoing indemnity shall be the exclusive
liability of Custodian to Fund for its loss of Financial Assets held for the
Custody Account.
Custodian shall be responsible for only those duties expressly stated in
this Agreement or expressly contained in instructions to perform the services
described herein given to Custodian pursuant to the provisions of this Agreement
and accepted by Custodian but, without limiting the foregoing, Custodian and its
agents shall have no duty or responsibility;
(a) to supervise the investment of, or make recommendations with respect
to the purchase, retention or sale of, Financial Assets relating to
the Custody Account, or to maintain any insurance on Financial Assets
in the Custody Account for Fund's benefit;
(b) with regard to any Financial Assets in the Custody Account as to which
a default in the payment of principal or interest has occurred, to
take any action other than giving of notice with respect to such
default; except, in each instance, where Custodian has been requested
by Fund and Custodian has agreed in writing to do so;
(c) to evaluate, or report to Fund regarding, the financial condition of
any person, firm or corporation to which Custodian is instructed to
deliver Financial Assets or funds pursuant to this Agreement;
(d) for any loss occasioned by delay in the actual receipt of notice by
Custodian of any payment, redemption or other transaction in respect
to which Custodian is authorized to take some action pursuant to this
Agreement; or
(e) for any errors or omissions made by any securities pricing services
used by Custodian to value Financial Assets credited to the Custody
Account as part of any service subscribed to by Fund from Custodian.
SECTION 3.2 USE OF A DEPOSITORY. The Custodian shall:
(a) upon the delivery or transfer, by book-entry or otherwise, of any of
the Fund's Financial Assets to a Securities Depository Account as
provided herein, identify in its records the Financial Assets as held
for the Fund in the Custody Agreement;
(b) at all times retain against the Depository any and all rights provided
the Custodian, whether such rights be provided by applicable law,
governmental rules or regulations, rules and regulations of the
Depository, or otherwise, including but not limited to, the right to
recover from the Depository (for the benefit of the Fund) for any loss
or losses on the part of the Depository;
(c) from time to time, as the need may arise, to enforce, for the benefit
of the Fund, any and all rights provided the Custodian, whether such
rights be provided by applicable law, governmental rules or
regulations or otherwise, against the Depository pertaining to any
Financial Assets which are the property of the Custody Account and are
deposited by the Custodian with the Depository;
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(d) within ten (10) business days after its receipt of a request from the
Fund, deliver to the Fund the most current report issued by the
Depository pertaining to its system of internal accounting control;
and
(e) make payment for securities purchased and sold through the clearing
medium employed by such Depository for transactions of participants
acting through it. Upon any purchase of securities, payment will be
made only upon delivery of the securities to or for the account of the
Fund; and upon any sale of securities, delivery of the securities will
be made only against payment therefor.
SECTION 3.3 THE DEPOSITORY ACCOUNT. The Depository account maintained
by the Custodian and receiving Financial Assets which have been recorded by the
Custodian as held for the Custody Account, shall hold only Financial Assets in
which the Custodian has interest only in a fiduciary or agency capacity for
clients and the Financial Assets in such account will not be commingled with the
Custodian's own Financial Assets.
SECTION 3.4 CERTAIN CONDITIONS. Any Financial Assets held by the
Custodian for the benefit of the Fund pursuant hereto (including those Financial
Assets held in a Depository) shall be considered by the parties hereto, and
shall be at all times, the sole, absolute property of the Fund, and for purposes
of this Agreement, shall be considered part of the Financial Assets held and
maintained in the Custody Account.
SECTION 3.5 SEGREGATED ACCOUNT. The Custodian shall upon receipt of
Instructions from the Fund establish and maintain a segregated account or
accounts for and on behalf of each such Fund, into which account or accounts may
be transferred cash and/or securities (including securities maintained in an
account by the Custodian pursuant to Section 3.2. hereof):
(a) in accordance with the provisions of any agreement among the Fund, the
Custodian and a broker-dealer registered under the Securities Exchange
Act of 1934 and a member of the NASD (or any futures commission
merchant registered under the Commodity Exchange Act), relating to
compliance with the rules of The Options Clearing Corporation and of
any registered national securities exchange (or the Commodity Futures
Trading Commission or any registered contract market), or of any
similar organization or organizations, regarding escrow or other
arrangements in connection with transactions by the Fund,
(b) for purposes of segregating cash or government securities in
connection with options purchased, sold or written by the Fund or
commodity futures contracts or options thereon purchased or sold by
the Fund,
(c) for the purposes of compliance by the Fund with the procedures
required by Investment Company Act Release No. 10666, or any
subsequent release or releases of the Securities and Exchange
Commission relating to the maintenance of segregated accounts by
registered investment companies, and
(d) for other proper corporate purposes.
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SECTION 4 PUT OPTIONS. Notwithstanding any provision hereunder to the
contrary, with respect to Financial Assets which possess so-called put options
or similar characteristics which grant the Fund the option to redeem such
Financial Assets prior to their maturity date ("Put Options Securities")
including, but not limited to so-called put bonds, the following shall apply:
(a) with respect to put options which are exercisable semi-annually, or
less frequently than semi-annually, and where such Put Option
Financial Assets is actually delivered to the Custodian not less than
fifteen (15) business days prior to the put option exercise date, the
Custodian shall use its reasonable best efforts to notify the Fund of
such put option, where correct and timely notification is published in
the publications or services ("Notification Sources") the Custodian
routinely uses for this purpose, or as to which the Custodian receives
timely notice from the Fund;
(b) once notified, the Fund must direct the exercise or non-exercise of
such put option by Letter delivered to the Custodian not less than
five (5) business days prior to the put option exercise date, and if
the Fund fails to make such direction, the Custodian shall not
exercise such put option; and
(c) for purposes of this Section 3: a "business day" is a day on which the
Custodian is open for business under the laws of the State of New
York; the notification sources include, but are not limited to, J.J.
Kenney, THE WALL STREET JOURNAL and/or DTC, and the Custodian reserves
the right to utilize other notification sources or discontinue any of
the aforementioned notification sources at any time and without
notice, and
(d) the Custodian shall not notify the Fund of put options exercisable
more frequently than semi-annually.
SECTION 5 BULK HOLDING. The Custodian may hold the Financial Assets
of the Fund in its own vault, separate from its own Financial Assets in bulk
with Financial Assets of the same class and the same issue of other of its own
fiduciary and agency customers; PROVIDED THAT: the Financial Assets in such bulk
shall be adequately identified as belonging to the Fund on the records of the
Custodian.
SECTION 6 THE CUSTODIAN. The Fund and the Custodian agree that the
Custodian in carrying out the provisions of this Agreement, including but not
limited to the purchase of any Financial Assets for deposit into, or the selling
or delivering of any Financial Assets held and maintained in, the Custody
Account, is acting solely as the agent of the Fund. Unless the Custodian shall
otherwise agree in writing, the Custodian shall not have the duty to take any
action other than those actions expressly set forth herein or those actions
necessary and advisable to accomplish such expressly set forth actions. The
Custodian is hereby expressly authorized to execute in the name of the Fund such
certificates as may be necessary to obtain payment with respect to, or to effect
the sale, transfer or other disposition of any Financial Assets held in the
Custody Account in accordance with the Fund's instructions. In carrying out the
purchase or sale
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of any Financial Assets hereunder, the Custodian may, upon receipt of the Fund's
instructions, purchase from or sell to the Custodian's bond department or an
affiliate of the Custodian.
SECTION 7 GENERAL.
SECTION 7.1 WAIVER; AMENDMENTS. Except as otherwise provided in Section
2.3.12, no delay on the part of the Fund or the Custodian in the exercise of any
right, power or remedy shall operate as a waiver thereof, nor shall any single
or partial exercise by the Fund or the Custodian of any right, power or remedy
preclude other or further exercise thereof, or the exercise of any other right,
power or remedy. No amendment, modification or waiver of, or consent with
respect to, any provision of this Agreement, shall in any event be effective
unless the same shall be in writing and signed and delivered by each of the
Custodian and the Fund.
SECTION 7 .2 NOTICE. Notices with respect to termination, any disputes
hereunder, specification of authorized officers and employees, and terms and
conditions for instructions required hereunder, shall be in writing, and shall
be deemed to have been duly given if delivered personally, by courier service or
by mail, postage prepaid, to the following addresses (or to such other address
as either party hereto may from time to time designate by notice duly given in
accordance with this paragraph):
To us at:
State Farm Balanced Fund, Inc.
One State Farm Plaza
Bloomington, Illinois 61710
Attention: David R. Grimes
To Custodian, to the attention of the individual designated by Custodian as
the safekeeping account administrator for Fund's account, at:
The Chase Manhattan Bank
North American Insurance Securities Services
3 Chase MetroTech Center, 6th Floor
Brooklyn, New York 11245
SECTION 7.3 COMPUTATIONS. Where the character or amount of any asset or
liability or item of income or expense is required to be determined, or any
consolidation or other accounting computation is required to be made, for the
purpose of this Agreement, such determination or calculation shall, to the
extent applicable, be made in accordance with generally accepted accounting
principles.
SECTION 7.4 HEADINGS. Section headings used in this Agreement are for
convenience only, and shall not effect the construction of this Agreement.
SECTION 7.5 GOVERNING LAW. This Agreement shall be a contract made
under and governed by the internal laws of the State of New York including the
UCC.
12
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SECTION 7.6 SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon the Fund and the Custodian individually and each of their respective
successors and assigns, and shall inure to the benefit of the Trust and the
Custodian and the respective successors and assigns of the Trust and the
Custodian; PROVIDED that, the Custodian may not assign or transfer this
Agreement or delegate any of its duties hereunder except as permitted herein,
without the prior written consent of the Trust.
SECTION 7.7 INTEGRATION: COURSE OF DEALING. This Agreement constitutes
the sole agreement of the parties with respect to the subject matter hereof and
supersedes all oral negotiations and prior writings with respect to the subject
matter hereof.
SECTION 7.8 TERMINATION. This Agreement shall terminate 90 days after
the receipt by the Custodian or the Fund, or such mutually agreed date as the
case may be, of written notice from the Custodian or the Fund terminating this
Agreement.
SECTION 7.9 CERTAIN NOTICES BY THE FUND AND THE CUSTODIAN. The Fund
agrees to promptly notify the Custodian of any material change in its
organization or any reorganization by it. The Custodian shall notify the Fund
of any changes in its organization which affect its ability to do business as a
banking corporation.
SECTION 7.10 CERTAIN REPRESENTATIONS BY THE FUND. The Fund herewith
promises to the Custodian that (i) all instructions and confirmations given
hereunder shall be given and are given pursuant to authorizations contained or
to be contained in resolutions of its Board of Directors and by persons
authorized by such resolutions to give the same, and (ii) it shall from time to
time furnish the Custodian with certified copies of such resolutions upon which
it may rely for the authorizations contained therein until otherwise notified in
writing of a change thereto.
SECTION 7.11 TAXPAYER IDENTIFICATION NUMBER. The Fund's taxpayer
identification number is _____________________. Unless Fund has already done
so, as a U. S. citizen or resident, it shall deliver promptly to Custodian with
respect to the Custody Account established under this Agreement, two duly
completed and executed copies of United States Internal Revenue Service form W-9
for the Fund. Fund shall provide duly executed and completed updates of such
form after the occurrence of an event requiring a change in the form previously
delivered by Fund to Custodian. The Fund shall be responsible for the payment
of all taxes relating to the Financial Assets in the Custody Account.
SECTION 7.12 EXPENSES AND TAXES. The Fund agrees to pay, and to save the
Custodian harmless from all liability, for any taxes which may be payable in
connection with the Financial Assets and any proceeds generated by Financial
Assets and any other property of the Fund purchased or held and maintained
hereunder. All obligations provided for in this subsection 7.12, and in
subsection 7.13 hereof, shall survive any termination of this Agreement.
SECTION 7.13 FEES. For and in consideration of the Custodian acting as
the custodian and the agent of the Fund pursuant to the terms herein contained,
the Fund agrees to pay to the Custodian fees for such services as mutually
agreed upon by the parties hereto. Such
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<PAGE>
agreed upon fees may from time to time be modified by the Custodian pursuant to
its notice to the Fund effective no less than 90 days following the Fund's
receipt of such notice. To the extent that Custodian advances funds to the
Custody Account for disbursements or to effect the settlement of purchase
transactions, the Custodian shall be entitled to collect from the Custody
Account an amount equal to The Chase Manhattan Bank's Prime Rate in effect as
announced by it from time to time, unless the Fund and Custodian have agreed in
writing to another interest rate.
SECTION 7.14 HOLD HARMLESS. The Fund agrees to indemnify and hold the
Custodian harmless from and against all claims, losses, liabilities and
expenses, including without limitation, reasonable legal fees and expenses,
arising from any claim of any party arising or resulting from actions the
Custodian takes that are required by this Agreement, provided that the Custodian
shall have acted in good faith and exercised ordinary due care.
SECTION 7.15 FORCE MAJEURE. The Custodian shall not be responsible for
its failure to carry out its responsibilities hereunder where such failure is
caused by circumstances reasonably beyond the control of the Custodian,
including but not limited to, acts of God, war, internal strife and acts of
government.
SECTION 7.16 DISCLAIMER OF LIABILITY. UNDER NO CIRCUMSTANCES WHATSOEVER
SHALL EITHER PARTY BE RESPONSIBLE TO THE OTHER PARTY FOR ANY INCIDENTAL,
SPECIAL, CONSEQUENTIAL, OR INDIRECT DAMAGES OF ANY KIND WHATSOEVER, PROVIDED TUE
PARTY AGAINST WHOM THE DAMAGES ARE CLAIMED HAS NOT ACTED IN BAD FAITH OR ENGAGED
IN WILLFUL MISCONDUCT; AND, PROVIDED FURTHER, THAT ANY INDEMNITY CLAIM BY THE
CUSTODIAN UNDER SECTION 7.14 SHALL CONSTITUTE A DIRECT DAMAGES CLAIM AND SHALL
NOT BE SUBJECT TO THE LIMITATION SET FORTH HEREIN.
SECTION 7.17 STANDARD OF CARE. The Custodian expressly agrees that in
carrying out its responsibilities hereunder it shall be responsible for damages,
except as limited by Section 3.1, the Fund suffers as a result of Custodian's,
its employees' and agents' negligence, willful misconduct or failure to act in
good faith and in accordance with the commercial standard of care for Money
Center banks which offer custodial services. The Custodian shall not be
responsible for the title, validity or genuineness of any property or evidence
of title thereto received by it or delivered by it pursuant to this Agreement.
The Custodian shall be held harmless in acting upon any notice, request,
direction, instruction, consent, certification or other instrument believed by
it, acting in good faith, to be genuine and delivered by an authorized officer
of Fund.
SECTION 7.18 EXHIBITS. The parties agree that any exhibits attached
hereto may be modified effective upon written notice from the Fund to the
Custodian. Any such modified exhibit shall be and is hereby deemed to be the
exhibit (indicated in such written notice) to this Agreement.
SECTION 7.19 NONDISCLOSURE, CONFIDENTIALITY. The Custodian expressly
agrees that it shall not use the name of, nor identify, the Fund or any of its
subsidiaries in any of the
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Custodian's media or other advertising distributed by the Custodian to its
customers or potential customers.
The Custodian shall maintain the confidentiality of the Fund's Custody
Account information and not disclose any such information except as permitted by
this Agreement or as required by laws, rules, regulations or orders having the
force of law, but only after notice to Fund.
The Shareholders Communications Act of 1985 and subsequent amendments to
the act authorize Custodian to release to issuers of Securities and to other
security holders of an issue, Fund name, address and Securities position if Fund
Custody Account was opened after December 28, 1985, unless Fund states its
objection. Custodian hereby acknowledges Fund's objection.
SECTION 7.20 "FREE RIDING" PROHIBITION. Fund hereby acknowledges that
the act of placing a buy order and sale order for the same securities which are
to settle on the same date in instances where Fund does not have in the Custody
Account sufficient funds independent of the sale of such securities to satisfy
fifty percent (50%) or more of the purchase price (or such other percentage as
may be required by applicable law and regulation) constitutes the practice
commonly known as "free riding" and is prohibited under both Regulation T and
Regulation U of the Board of Governors of the Federal Reserve System (12 C.F.R.
Parts 220 and 221).
SECTION 7.21 FUND RESPONSIBILITY. Fund agrees that it shall be
responsible to Custodian as a principal for all of its obligations to Custodian
arising under or in connection with this Agreement, and Fund warrants its
authority to deposit in the Custody Account any Financial Assets and funds which
Custodian receives therefor and to give instructions relative thereto. Fund
further agrees that Custodian shall not be subject to, nor shall its right and
obligations with respect to this Agreement and the Custody Account be affected
by, any agreement between Fund and any such person.
SECTION 7.22 BINDING OBLIGATION AND LIMITATION OF LIABILITY. It is
expressly understood that the obligations of the Fund under this Agreement will
not be binding on any of the Directors, shareholders, nominees, officers, agents
or employees of the Fund personally, but bind only the assets and property of
the Fund.
Custodian agrees that no Director, shareholder, nominee, officer, agent or
employee of the Fund may be held personally liable or responsible for any
obligations of the Fund arising out of this Agreement.
SECTION 7.23 RESERVATION OF RIGHT. Custodian shall have the right not to
accept for deposit to the Custody Account any Financial Assets which are in a
form or condition which Custodian, in its sole discretion, determines not to be
suitable for the services Custodian provides under this Agreement.
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Custodian's and Fund's rights and remedies under this Agreement are in
addition to, and not in limitation of, any other rights and remedies available
to Custodian and Fund under applicable law.
SECTION 7.24 CUSTODIAN'S ANNUAL REPORT. Upon the Fund's request,
Custodian will send the annual report (SAS 70 Report) prepared by its external
auditors on its systems of internal accounting control of custodied Financial
Assets.
SECTION 7.25 ADDITIONAL INVESTMENT PORTFOLIOS. In the event that the
Fund establishes additional investment portfolios for which it desires the
Custodian to be the Custodian or desires to have the Custodian be the Custodian
for existing investment portfolios not covered by this Agreement, it shall so
notify the Custodian in writing, and if the Custodian agrees in writing to serve
as Custodian, such investment portfolios shall become Funds hereunder.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers effective as of the day
and year first written above.
State Farm Balanced Fund, Inc.
By: /s/ David R. Grimes
-----------------------------------
Title: Secretary
-----------------------------------
The Chase Manhattan Bank
By: /s/ Craig F. Werder
-----------------------------------
Title: Vice President
-----------------------------------
Address:
------------------------------
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[FOR DOMESTIC CUSTODY AGREEMENTS
HAVING REVISED UCC ARTICLE 8 DEFINITIONS]
GLOBAL CUSTODY RIDER
TO
DOMESTIC CUSTODY AGREEMENT
This Rider is entered into by and between The Chase Manhattan Bank
("Custodian") and State Farm Balanced Fund, Inc. ("Company") to provide Global
Custody Services subject to the terms of the Custody Agreement dated as
of _________________, and the terms herein. If there is any conflict between
the terms in the Custody Agreement and the terms in this Rider with regard to
the provision by Custodian of Global Custody Services to Company, the terms of
this Rider shall govern. The terms of this Rider shall be effective as of the
date Custodian commences to provide Global Custody Services to Company.
Capitalized terms used herein and not defined herein shall have the meaning as
set forth in the Custody Agreement.
1. MAINTENANCE OF FINANCIAL ASSETS AND CASH OUTSIDE THE UNITED STATES.
Global Custody Services shall be provided for those Financial Assets that
are to be held outside the United States and unless Company's instructions
specifically require another location acceptable to Custodian:
(a) Financial Assets shall be held in the country or other
jurisdiction in which the principal trading market for such Financial Assets are
located, where such Financial Assets are to be presented for payment or where
such Financial Assets are acquired; and
(b) cash shall be credited to an account in a country or other
jurisdiction in which such cash may be legally deposited or is the legal
currency for the payment of public or private debts.
Cash may be held pursuant to instructions in either interest or
non-interest bearing accounts as may be available for the particular currency.
To the extent Custodian can comply with Company's instructions to it, Custodian
is authorized to maintain cash balances on deposit for Company with Custodian or
one of its Affiliates at such reasonable rates of interest as may from time to
time be paid on such accounts, or in non-interest bearing accounts as Company
may direct, if acceptable to Custodian. For purposes hereof, the term
"Affiliate" shall mean an entity controlling, controlled by, or under common
control with, Custodian.
If Company wishes to have any of the Financial Assets held in the custody
of a Securities Intermediary other than the established Subcustodians as defined
in Section 2 hereof (or their securities depositories), such arrangement must be
authorized by a written agreement, signed by Custodian and Company.
<PAGE>
2. SUBCUSTODIANS AND DEPOSITORIES.
Custodian may act under this Rider through the subcustodians listed in
Schedule A hereto with which Chase entered into subcustodial agreements
("Subcustodians"). At Company's request, Custodian may, but need not, add to
Schedule A an Eligible Foreign Custodian (hereinafter defined) that is either a
bank or a non-Compulsory Depository where Custodian has not acted as Foreign
Country Manager (hereinafter defined) with respect to the selection thereof.
Custodian shall notify Company in writing in the event that Custodian agrees to
add any such entity. Company authorizes Custodian to hold Financial Assets
recorded to the Custody Account in accounts which Custodian has established
with one or more of its branches or Subcustodians. Custodian and Subcustodians
are authorized to hold any of the Financial Assets in their accounts with any
securities depository in which Custodian or Subcustodians' participant,
subject in the case of a Compulsory Depository to the provisions set forth in
section 9(e) hereof.
Custodian may add new, replace or remove Subcustodians. Company shall be
given reasonable notice by Custodian of any amendment to Schedule A. Upon
Company's request, Custodian shall identify the name, address and principal
place of business of any Subcustodian of Company's Financial Assets and the name
and address of the governmental agency or other regulatory authority that
supervises or regulates such Subcustodian.
To be a Subcustodian of Financial Assets maintained outside the United
States the Subcustodian chosen must be either a branch of a U.S. Bank or an
Eligible Foreign Custodian, which are further defined as follows:
(i) "U.S. Bank" shall mean a qualified U.S. bank as defined in Rule
17f-5(a)(7) under the Investment Company Act of 1940, as amended (the "1940
Act");
(ii) "Eligible Foreign Custodian" shall mean (1) a banking institution
or trust company, incorporated or organized under the laws of a country other
than the United States, that is regulated as such by that country's government
or an agency thereof, (2) a majority owned direct or indirect subsidiary of a
U.S. Bank or bank holding company that is incorporated or organized under the
laws of a country other than the United States, (3) a foreign securities
depository or clearing agency, incorporated or organized under the laws of a
country other than the United States that acts as a system for handling of
securities or equivalent book-entries in that country and that is regulated by a
foreign financial regulatory authority as defined under Section 2(a)(5) of the
1940 Act, (4) a securities depository or clearing agency organized under the
laws of a country other than the United States, when acting as a transnational
system for the central handling of Financial Assets or equivalent book-entries,
and (5) any other entity that shall have been so qualified by exemptive order,
rule or other appropriate action of the Securities and Exchange Commission (the
USEC").
3. USE OF SUBCUSTODIAN.
(a) Custodian shall identify the Financial Assets on its books as
belonging to Company.
<PAGE>
(b) A Subcustodian shall hold Company's Financial Assets together with
Financial Assets belonging to other of Custodian's customers in accounts
identified on such Subcustodian's books as for the exclusive benefit of
Custodian's customers.
(c) Any Financial Assets in the accounts held by a Subcustodian shall
be subject only to the instruction of Custodian. Any Financial Assets held in a
securities depository for the account of a Subcustodian shall be subject only to
the directions of such Subcustodian.
(d) Any agreement Custodian enters into with a Subcustodian for
holding its customers' assets shall provide that such assets shall not be
subject to any right, charge, security interest, lien or claim of any kind in
favor of such Subcustodian except for safe custody or administration, and that
the beneficial ownership of such assets shall be freely transferable without the
payment of money or value other than for safe custody or administration or, in
the case of cash deposit, liens or rights in favor of creditors of the
Subcustodian arising under bankruptcy, insolvency or similar laws. Where
Financial Assets are deposited by a Subcustodian with a securities depository,
Custodian shall cause the Subcustodian to identify on its books as belonging to
Custodian, as agent, the Financial Assets shown on the Subcustodian's account on
the books of such securities depository. The foregoing shall not apply to the
extent of any special agreement or arrangement made by Company with any
particular Subcustodian.
4. GLOBAL FINANCIAL ASSETS ACCOUNT TRANSACTIONS.
(a) Financial Assets shall be transferred, exchanged or delivered by
Custodian or Subcustodian upon receipt by Custodian of instructions from Company
which include all information required by Custodian. Settlement and payment for
Financial Assets received for, and delivery of Financial Assets out of, the
Custody Account may be made in accordance with the customary or established
Securities trading or Securities processing practices and procedures in the
jurisdiction or market in which the transaction occurs, including, without
limitation, delivery of Securities to a purchaser, dealer or their agents
against a receipt with the expectation of receiving later payment and free
delivery. Delivery of Financial Assets out of the Custody Account may be made
in any manner specifically required by Company's instructions acceptable to
Custodian.
All collections of funds or other property paid or distributed in respect
of Financial Assets in the Custody Account shall be made at Company's risk.
Custodian shall have no liability for any loss occasioned by delay in the actual
receipt of notice by Custodian or by Subcustodians of any payment, redemption or
other transaction regarding Financial Assets in the Custody Account in respect
of which Custodian has agreed to take any action under the Agreement.
5. CORPORATE ACTIONS; PROXIES; TAX RECLAIMS.
(a) CORPORATE ACTIONS. Whenever Custodian receives information
concerning the Financial Assets which requires discretionary action by the
beneficial owner of the Financial Assets (other than a proxy), such as
subscription rights, bonus issues, stock repurchase plans and rights offerings,
or legal notices or other material intended to be transmitted to Securities
holders
<PAGE>
("Corporate Actions"), Custodian shall give Company notice of such Corporate
Actions to the extent that its central corporate actions department has actual
knowledge of a Corporate Action in time to notify its customers. Custodian
shall notify Company of any Corporate Action regarding Financial Assets held for
the Company, that Custodian shall have received after its intended expiration.
When a rights entitlement or a fractional interest resulting from a
rights issue, stock dividend, stock split or similar Corporate Action is
received which bears an expiration date, Custodian shall endeavor to obtain
instructions from Company or an Authorized Officer, but if instructions are not
received in time for Custodian to take timely action, or actual notice of such
Corporate Action was received too late to seek instructions, Custodian is
authorized to sell such rights entitlement or fractional interest and to credit
the Cash Account with the proceeds or take any other action Custodian deems, in
good faith, to be appropriate.
(b) PROXY VOTING. Custodian shall provide proxy voting services, if
elected by Company, in accordance with the terms of the Proxy Voting Services
Rider hereto. Proxy voting services may be provided by Custodian or, in whole
or in part, by one or more third parties appointed by Custodian (which may be
its Affiliates); provided that Custodian shall be liable for the performance of
any such third party to the same extent as Custodian would have been if it
performed such services itself.
(c) TAX RECLAIMS.
(i) Subject to the provisions hereof, Custodian shall apply for a
reduction of withholding tax and any refund of any tax paid or tax credits which
apply in each applicable market in respect of income payments on Financial
Assets for Company's benefit which Custodian believes may be available to
Company.
(ii) The provision of tax reclaim services by Custodian is conditional
upon it receiving from Company or, to the extent the Financial Assets are
beneficially owned by others, from each beneficial owner, A) a declaration of
the beneficial owner's identity and place of residence and (B) certain other
documentation (PRO FORMA copies of which are available from Custodian). Company
acknowledges that, if Custodian does not receive such declarations,
documentation and information Custodian will be unable to provide tax reclaim
services.
(iii) Custodian and its agents shall not be liable to Company or any
third party for any taxes, fines or penalties payable by Custodian or its agents
or by Company, and shall be indemnified accordingly, whether these result from
the inaccurate completion of documents by Company or any third party, or as a
result of the provision to Custodian or any third party of inaccurate or
misleading information or the withholding of material information by Company or
any other third party, or as a result of any delay of any revenue authority or
any other matter beyond Custodian's or its agents' control.
(iv) Custodian shall perform tax reclaim services only with respect to
taxation levied by the revenue authorities of the countries notified to Company
from time to time and Custodian may, by notification in writing, supplement or
amend the markets in which the tax reclaim
<PAGE>
services are offered. Other than as expressly provided in this sub-clause,
Custodian shall have no responsibility with regard to Company's tax position or
status in any jurisdiction.
(v) Company confirms that Custodian is authorized to disclose any
information requested by any revenue authority or any governmental body in
relation to Company or the Financial Assets and/or cash held for Company.
(vi) Tax reclaim services may be provided by Custodian or, in whole or
in part, by one or more third parties appointed by Custodian (which may be
Affiliates); provided that Custodian shall be liable for the performance of any
such third party to the same extent as Custodian would have been if it performed
such services.
(d) TAX OBLIGATIONS AND INDEMNIFICATION.
(i) Company confirms that Custodian is authorized to deduct from any
cash received or credited to the Cash Account any taxes or levies required by
any revenue or governmental authority for whatever reason in respect of the
Custody Account.
(ii) Company agrees that if Custodian does not receive appropriate
declarations, documentation and information that additional United Kingdom
taxation shall be deducted from all income received in respect of the Financial
Assets issued outside the United Kingdom and that any applicable United States
withholding tax shall be deducted from income received from the Financial
Assets. Company shall provide to Custodian such documentation and information
as Custodian may require in connection with taxation, and warrant that, when
given, this information shall be true and correct in every respect, not
misleading in any way, and contain all material information. Company undertakes
to notify Custodian immediately if any such information requires updating or
amendment.
(iii) Company shall be responsible for the payment of all taxes relating
to the Financial Assets in the Custody Account, and Company agrees to pay,
indemnify and hold Custodian and its agents harmless from and against any and
all liabilities, penalties, interest or additions to tax with respect to or
resulting from, any delay in, or failure by, Custodian or its agents (1) to pay,
withhold or report any U.S. federal, state or local taxes or foreign taxes
imposed on, or (2) to report interest, dividend or other income paid or credited
to the Cash Account, whether such failure or delay by Custodian or its agents to
pay, withhold or report tax or income is the result of (x) Company's failure to
comply with the terms of this paragraph, or (y) Custodian or its agents own acts
or omissions; provided however, Company shall not be liable to Custodian and its
agents for any penalty or additions to tax due as a result of the failure of
Custodian or its agents to pay or withhold tax or to report interest, dividend
or other income paid or credited to the Cash Account solely as a result of
negligent acts or omissions of Custodian or its agents.
6. NOMINEES.
Financial Assets which are ordinarily held in registered form may be
registered in a nominee name of Custodian, Subcustodians or securities
depositories, as the case may be. Custodian may without notice to Company cause
any such Financial Assets to cease to be
<PAGE>
registered in the name of any such nominee and to be registered in Company's
name. Company agrees to hold Custodian, Subcustodians, securities depositories
and its and their respective nominees harmless from any liability arising
directly or indirectly from its or their status as a mere record holder of
Financial Assets in the Custody Account.
7. STANDARD OF CARE.
Custodian shall use reasonable care with respect to its obligations and
the safekeeping of Company's Financial Assets hereunder. Custodian shall be
liable to Company for any loss which shall occur as the result of the failure of
a Subcustodian (except that Custodian shall have no liability for the
performance of a Compulsory Depository as defined in section 9(e) hereof) to
exercise reasonable care with respect to the safekeeping of Financial Assets
where such loss results directly from the failure of a Subcustodian to use
reasonable care in the provision of custodial services by it in accordance with
the standards prevailing in its local market or from the willful default of such
Subcustodian in the provision of custodial services by it. Any liability of the
Custodian hereunder shall be limited to the extent set forth in section 7.16 of
the Custody Agreement. Custodian shall not be responsible for the insolvency of
any Subcustodian which is not a branch or its Affiliate.
Custodian shall be entitled to rely, and may act, upon the advice of
counsel (who may be counsel for Company) on all matters and shall be without
liability for any action reasonably taken or omitted pursuant to such advice.
Without limiting anything else contained in this section, Custodian shall
not be liable for any loss which results from: 1) the general risk of investing,
or 2) investing or holding Financial Assets in a particular country including,
but not limited to, nationalization, expropriation or other governmental
actions; regulation of the banking or securities industry; currency
restrictions, devaluations or fluctuations; and market conditions which prevent
the orderly execution of securities transactions or affect the value of
Financial Assets.
8. FEES AND EXPENSES.
Company agrees to pay Custodian for Global Custody Services hereunder the
fees set forth in Schedule B hereto or such other amounts as may be agreed upon
in writing, together with its reasonable out-of-pocket or incidental expenses,
including, but not limited to, legal fees.
9. MISCELLANEOUS.
(a) FOREIGN EXCHANGE TRANSACTIONS. To facilitate the administration
of Company's trading and investment activity, when instructed by specific or
standing instruction, Custodian is authorized to enter into spot or forward
foreign exchange contracts for Company's account with itself (or any of its
Affiliates). Custodian may establish rules or limitations concerning any
foreign exchange facility made available. In all cases where Custodian or its
Affiliates have entered into a separate master foreign exchange contract with
Company that covers a foreign exchange transaction for the Custody Account, the
terms and conditions of that foreign exchange contract and, to the extent not
inconsistent, the Agreement shall apply to such transaction.
<PAGE>
(b) CERTIFICATION OF RESIDENCY, ETC. Company certifies that it is a
resident of the United States and agrees to notify Custodian of any changes in
residency. Custodian may rely upon this certification or the certification of
such other facts as may be required to administer Custodian's obligations under
this Rider and the Agreement. Company shall indemnify Custodian and its agents
against all losses, liability, damages, claims or demands arising directly or
indirectly from any such certifications.
(c) ACCESS TO RECORDS. Custodian shall allow Company's independent
public accountant reasonable access to records relating to the Custody Account
as is required in connection with their examination of books and records
pertaining to Company's affairs. Subject to restrictions under applicable law,
Custodian shall also obtain an undertaking to permit Company's independent
public accountants reasonable access to the records of any Subcustodian which
has physical possession of any Financial Assets as may be required in connection
with the examination of Company's books and records.
(d) COMPANY'S REPRESENTATION. Company represents that the Financial
Assets being placed in Custodian's custody are subject to the 1940 Act, as the
same may be amended from time to time.
(e) COMPLIANCE WITH SEC RULE 17f-5.
(1) Company's board of directors (or equivalent body) (hereinafter
"Board") hereby delegates to Custodian, and Custodian hereby accepts the
delegation to Custodian, of the obligation to perform as its "Foreign Custody
Manager" (as that term is defined in SEC Rule 1 7f-5(a)(2)), both for the
purpose of selecting Eligible Foreign Custodians (as that term is defined in SEC
Rule 17f-5(a)(1), and as the same may be amended from time to time, or that have
otherwise been made exempt pursuant to an SEC exemptive order) to hold Financial
Assets and of evaluating the contractual arrangements with such Eligible Foreign
Custodians (as set forth in SEC Rule 17f-5(c)(2)); provided that, the term
Eligible Foreign Custodian shall not include any "Compulsory Depository". A
Compulsory Depository shall mean a securities depository or clearing agency the
use of which is compulsory because: (i) its use is required by law or
regulation, (ii) securities cannot be withdrawn from the depository, or (iii)
maintaining securities outside the depository is not consistent with prevailing
custodial practices in the country which the depository serves. Compulsory
Depositories used by Custodian as of the date hereof are set forth in Appendix
1-A hereto, and as the same may be amended on notice to Company from time to
time.
(2) In connection with the foregoing, Custodian shall:
(i) provide written reports notifying our Board of the placement of
Financial Assets with particular Eligible Foreign Custodians and of any material
change in the arrangements with such Eligible Foreign Custodians, with such
reports to be provided to our Board at such times as the Board deems reasonable
and appropriate based on the circumstances of our foreign custody arrangements
(and until further notice from us such reports shall be provided not less than
quarterly with respect to the placement of Financial Assets with particular
Eligible Foreign
<PAGE>
Custodians and with reasonable promptness upon the occurrence of any material
change in the arrangements with such Eligible Foreign Custodians);
(ii) exercise such reasonable care, prudence and diligence in
performing as Company's Foreign Custody Manager as a person having
responsibility for the safekeeping of Financial Assets would exercise;
(iii) in selecting an Eligible Foreign Custodian, first have determined
that Financial Assets placed and maintained in the safekeeping of such Eligible
Foreign Custodian shall be subject to reasonable care, based on the standards
applicable to custodians in the relevant market, after having considered all
factors relevant to the safekeeping of such Financial Assets, including, without
limitation, those factors set forth in SEC Rule 17f-5(c)(1)(i)-(iv);
(iv) determine that the written contract with the Eligible Foreign
Custodian (or, in the case of an Eligible Foreign Custodian that is a securities
depository or clearing agency, such contract, the rules or established practices
or procedures of the depository, or any combination of the foregoing) requires
that the Eligible Foreign Custodian will provide reasonable care for Financial
Assets based on the standards applicable to custodians in the relevant market;
and
(v) have established a system to monitor the continued appropriateness
of maintaining Financial Assets with particular Eligible Foreign Custodians and
of the governing contractual arrangements; it being understood, however, that in
the event that Custodian shall have determined that the existing Eligible
Foreign Custodian in a given country would no longer afford Financial Assets
reasonable care and that no other Eligible Foreign Custodian in that country
would afford reasonable care, Custodian shall promptly so advise Company and
shall then act in accordance with Company's instructions with respect to the
disposition of the affected Financial Assets.
Subject to paragraphs (e)(2)(i)-(v) above, Custodian is hereby authorized to
place and maintain Financial Assets on Company's behalf with Eligible Foreign
Custodians pursuant to a written contract deemed appropriate by Custodian.
(3) Except as expressly provided herein, Company shall be solely
responsible to assure that the maintenance of Financial Assets hereunder
complies with the rules, regulations, interpretations and exemptive orders
promulgated by or under the authority of the SEC.
(4) Custodian represents to Company that Custodian is a U.S. Bank as
defined in Rule 17f-5(a)(7). Company represents to Custodian that: (i) the
Financial Assets being placed and maintained in Custodian's custody are subject
to the 1940 Act, as the same may be amended from time to time; (ii) Company's
Board: (A) has determined that it is reasonable to rely on Custodian to perform
as its Foreign Custody Manager (B) or Company's investment adviser shall have
determined that Company may maintain Financial Assets in each country in which
Financial Assets shall be held hereunder and determined to accept the risks
arising therefrom (including, but not limited to, a country's financial
infrastructure (and including any Compulsory Depository operating in such
country), prevailing custody and settlement practices, laws applicable to the
safekeeping and recovery of Financial Assets held in custody, and the
<PAGE>
likelihood of nationalization, currency controls and the like) (collectively
("Country Risk")). Nothing contained herein shall require Custodian to make any
selection or to engage in any monitoring on Company's behalf that would entail
consideration of Country Risk.
(5) Custodian shall provide to Company such information relating to
Country Risk as is specified in Appendix 1-B hereto. Company hereby
acknowledges that: (i) such information is solely designed to inform it of
market conditions and procedures, but is not intended to influence Company's
investment decisions; and (ii) Custodian has gathered the information from
sources it considers reliable, but that Custodian shall have no responsibility
for inaccuracies or incomplete information.
STATE FARM BALANCED FUND, INC.
By:
-----------------------------------
Name:
Title:
Date:
-----------------------------------
Accepted and agreed to:
THE CHASE MANHATTAN BANK
By:
--------------------------------
Craig F. Werder
Title: Vice President
<PAGE>
- --------------------------------------------------------------------------------
APPENDIX 1-A
COMPULSORY DEPOSITORIES
AS OF JULY 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
COUNTRY DEPOSITORY INSTRUMENT
- --------------------------------------------------------------------------------
<S> <C> <C>
- --------------------------------------------------------------------------------
ARGENTINA CAJA DE VALORES Equity, Corporate & Government
Debt
- --------------------------------------------------------------------------------
AUSTRALIA AUSTRACLEAR LTD. Corporate Debt, Money Market &
Semi-Government Debt
- --------------------------------------------------------------------------------
CHESS Equity
(Clearing House Electronic
Sub-register System)
- --------------------------------------------------------------------------------
RITS Government Debt
(Reserve Bank Information and
Transfer System)
- --------------------------------------------------------------------------------
AUSTRIA OSTERREICHISCHE KONTROLBANK AG Equity, Corporate + Government
Debt
- --------------------------------------------------------------------------------
CIK Equity + Corporate Debt
BELGIUM (Caisse Interprofessionnelle
de Depots et de Virements de
Titres)
- --------------------------------------------------------------------------------
BANQUE NATIONALE DE BELGIQUE Treasury Bills + Government Debt
- --------------------------------------------------------------------------------
BRAZIL BOVESPA Equity
(Bolsa de Valores de Sao
Paolo)
- --------------------------------------------------------------------------------
BVRJ Equity
(Bolsa de Valores de Rio de
Janeiro)
- --------------------------------------------------------------------------------
BULGARIA BNB Government Debt
(Bulgaria National Bank)
- --------------------------------------------------------------------------------
CENTRAL DEPOSITORY A.D. Equity
- --------------------------------------------------------------------------------
CANADA CDS Equity, Corporate + Government
(Canadian Depository for Debt
Securities)
- --------------------------------------------------------------------------------
CHINA, SSCCRC Equity
SHANGHAI (Shanghai Securities Central
Clearing and Registration
Corp.)
- --------------------------------------------------------------------------------
CHINA, SSCC Equity
SHENZHEN (Shenzhen Securities Clearing
Co., Ltd.)
- --------------------------------------------------------------------------------
COLOMBIA DCV Government debt issued,
(Deposito Central de Valores) guaranteed or administered by
the central bank.
- --------------------------------------------------------------------------------
CDA Equity and listed government
CROATIA (Central Depository Agency) debt. (Created in April 1997,
the CDA is expected to be
operational in 1998)
- --------------------------------------------------------------------------------
MINISTRY OF FINANCE REGISTRY & Short-term debt issued by the
NATIONAL BANK OF CROATIA Ministry of Finance and the
REGISTRY National Bank of Croatia,
respectively.
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
COMPULSORY DEPOSITORIES
AS OF JULY 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
COUNTRY DEPOSITORY INSTRUMENT
- --------------------------------------------------------------------------------
<S> <C> <C>
- --------------------------------------------------------------------------------
CZECH SCP Equity + Long-Term Government
REPUBLIC (Securities Center) Debt
- --------------------------------------------------------------------------------
DENMARK VP Equity, Corporate + Government
(Vaerdipapircentralen) Debt
- --------------------------------------------------------------------------------
EGYPT MISR CLEARING & SEC. DEP. Equity
- --------------------------------------------------------------------------------
ESTONIA EVK Equity
(Estonian Central Depository
for Securities Ltd.)
- --------------------------------------------------------------------------------
EUROMARKET CEDEL & EUROCLEAR Euro-Debt
- --------------------------------------------------------------------------------
FINLAND CSR Equity + Government Debt
(Central Share Registry
Finland)
- --------------------------------------------------------------------------------
FRANCE SICOVAM Equity + Corporate Debt.
(Banque de France)
- --------------------------------------------------------------------------------
SATURNE Government Debt.
(Banque de France)
- --------------------------------------------------------------------------------
GERMANY DBC Equity, Corporate + Government
(Deutsche Boerse Clearing Debt
A.G.)
- --------------------------------------------------------------------------------
GREECE APOTHETIRIO TITLON A.E. Equity
- --------------------------------------------------------------------------------
BANK OF GREECE Government Debt
- --------------------------------------------------------------------------------
HONG KONG CCASS Equity
(Central Clearing and
Settlement System)
- --------------------------------------------------------------------------------
CMU Corporate + Government Debt
(Central Moneymarkets Unit)
- --------------------------------------------------------------------------------
HUNGARY KELER LTD. Equity + Government Debt
- --------------------------------------------------------------------------------
INDIA NSDL Equity + Corporate Debt
(National Securities
Depository Limited)
- --------------------------------------------------------------------------------
IRELAND CREST Equity
- --------------------------------------------------------------------------------
GSO Government Debt
(Gift Settlement Office)
- --------------------------------------------------------------------------------
ISRAEL TASE CLEARING HOUSE Equity, Corporate + Government
(Tel Aviv Stock Exchange Debt
Clearing House)
- --------------------------------------------------------------------------------
ITALY MONTE TITOLI Equity + Corporate Debt
- --------------------------------------------------------------------------------
BANK OF ITALY Government Debt
- --------------------------------------------------------------------------------
JAPAN BANK OF JAPAN Registered Government Debt
- --------------------------------------------------------------------------------
LATVIA LCD Equity + Government Debt)
(Latvian Central Depository)
- --------------------------------------------------------------------------------
LEBANON MIDCLEAR Equity
(Custodian and Clearing Center
of Lebanon and the Middle
East)
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
COMPULSORY DEPOSITORIES
AS OF JULY 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
COUNTRY DEPOSITORY INSTRUMENT
- --------------------------------------------------------------------------------
<S> <C> <C>
- --------------------------------------------------------------------------------
LITHUANIA CSDL Equity + Government Debt
(Central Securities Depository
of Lithuania)
- --------------------------------------------------------------------------------
LUXEMBOURG CEDEL Equity
- --------------------------------------------------------------------------------
MALAYSIA MCD Equity
(Malaysian Central Depository
Snd Bhd)
- --------------------------------------------------------------------------------
MAURITIUS CDS Equity
(Central Depository System)
- --------------------------------------------------------------------------------
MEXICO INDEVAL Equity, Corporate + Government
(Institucion para el Deposito Debt.
de Valores)
- --------------------------------------------------------------------------------
MOROCCO MAROCLEAR Equity + Corporate Debt
(expected to be operational in
1998)
- --------------------------------------------------------------------------------
NETHERLANDS NECIGEF/KAS ASSOCIATE N.V. Equity, Corp. + Govt. D
- --------------------------------------------------------------------------------
NEW ZEALAND AUSTRACLEAR NEW ZEALAND Equity, Corporate + Government
Debt
- --------------------------------------------------------------------------------
NORWAY VPS Equity, Corporate + Government
(Verdipapirsentralen) Debt
- --------------------------------------------------------------------------------
OMAN MSM Equity
(Muscat Securities Market)
- --------------------------------------------------------------------------------
PAKISTAN CDC Equity
(Central Depository Company of
Pakistan Ltd.)
- --------------------------------------------------------------------------------
PERU CAVALI Equity
(Caja de Valores)
- --------------------------------------------------------------------------------
PHILIPPINES PCD Equity
(Philippine Central
Depository)
- --------------------------------------------------------------------------------
POLAND NDS Equity, Long-Term Government
(National Securities Debt + Vouchers
Depository)
- --------------------------------------------------------------------------------
CRT Treasury-Bills
(Central Registry of Treasury-
Bills)
- --------------------------------------------------------------------------------
PORTUGAL INTERBOLSA Equity, Corporate + Government
Debt
- --------------------------------------------------------------------------------
ROMANIA SNCDD - RASDAQ Equity
(National Company for
Clearing, Settlement and
Depository for Securities)
- --------------------------------------------------------------------------------
BSE Equity
(Bucharest Stock Exchange
Registry)
- --------------------------------------------------------------------------------
NATIONAL BANK OF ROMANIA Treasury-Bills
- --------------------------------------------------------------------------------
RUSSIA VNESTORGBANK Ministry of Finance Bonds
- --------------------------------------------------------------------------------
NATIONAL DEPOSITORY CENTER GKOs are Treasury Bills with
three months to one year
maturity; OFZs are Federal Loan
bonds with one to two years'
maturity.
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
COMPULSORY DEPOSITORIES
AS OF JULY 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
COUNTRY DEPOSITORY INSTRUMENT
- --------------------------------------------------------------------------------
<S> <C> <C>
- --------------------------------------------------------------------------------
SINGAPORE CDP Equity + Corporate Debt and
(Central Depository Pte. Ltd.) Malaysian equities traded on
CLOB
- --------------------------------------------------------------------------------
MONETARY AUTHORITY OF Government Debt
SINGAPORE
- --------------------------------------------------------------------------------
SLOVAK SCP Equity + Government Debt
REPUBLIC (Stredisko Cennych Papiru)
- --------------------------------------------------------------------------------
NATIONAL BANK OF SLOVAKIA Treasury-Bills
- --------------------------------------------------------------------------------
SLOVENIA KDD Equity + Corporate Debt
(The Centralna Klirinsko
Depota Druzba d.d. (KDD)
- --------------------------------------------------------------------------------
SO. AFRICA CD Corporate + Government Debt
(Central Depository)
- --------------------------------------------------------------------------------
SO. KOREA KSD Equity, Corporate + Government
Debt
- --------------------------------------------------------------------------------
SPAIN SCLV Equity + Corporate Debt
(Servicio de Compensacion y
Liquidacion de Valores)
- --------------------------------------------------------------------------------
CBEO Government Debt
(Central Book Entry Office)
- --------------------------------------------------------------------------------
SRI LANKA CDS Equity
(Central Depository System
(Private) Ltd.)
- --------------------------------------------------------------------------------
SWEDEN VPC Equity, Corporate + Government
Vardepapperscentralen AB) Debt
- --------------------------------------------------------------------------------
SWITZERLAND SEGA Equity, Corporate + Government
(Schweizerische Effekten-Giro Debt
AG)
- --------------------------------------------------------------------------------
TAIWAN TSCD Equity + Government Debt
(Taiwan Securities Central
Depository Co., Ltd.)
- --------------------------------------------------------------------------------
THAILAND TSDC Equity, Corporate + Government
(Thailand Securities Debt
Depository Company Ltd.)
- --------------------------------------------------------------------------------
TUNISIA STICODEVAM Equity
(Societe Tunisienne
Interprofessionnelle pour la
Compensation et le Depot des
Valeurs Mobilieres
- --------------------------------------------------------------------------------
MINISTRY OF FINANCE Government Debt tradable on the
stock exchange (BTNBs)
- --------------------------------------------------------------------------------
CENTRAL BANK OF TUNISIA Government Debt not tradable on
the stock exchange (BTCs)
- --------------------------------------------------------------------------------
TURKEY TAKAS BANK Equity + Corporate Debt
- --------------------------------------------------------------------------------
CENTRAL BANK OF TURKEY Government Debt
- --------------------------------------------------------------------------------
UNITED CREST Equity + Corp. Debt
KINGDOM (Clearing & settlement system)
- --------------------------------------------------------------------------------
CMO Sterling CDs & CP
(Central Moneymarket Office)
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
COMPULSORY DEPOSITORIES
AS OF JULY 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
COUNTRY DEPOSITORY INSTRUMENT
- --------------------------------------------------------------------------------
<S> <C> <C>
- --------------------------------------------------------------------------------
CGO Gilts
(Central Gilts Office)
- --------------------------------------------------------------------------------
UNITED DTC Equity + Corporate Debt
STATES (Depository Trust Company)
- --------------------------------------------------------------------------------
PTC Mortgage Back Debt
(Participants Trust Company)
- --------------------------------------------------------------------------------
FED BOOK-ENTRY Government Debt
- --------------------------------------------------------------------------------
ZAMBIA LuSE Equity + Government Debt
(LuSE Central Shares
Depository Ltd.)
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
APPENDIX 1-B
INFORMATION REGARDING COUNTRY RISK
1. To aid our Board in its determinations regarding Country Risk, The
Chase Manhattan Bank ("Bank") shall furnish Board annually and upon the initial
placing of Assets into a country the following information (check items
applicable):
A Opinions of local counsel concerning:
i. Whether applicable foreign law would restrict the access afforded
- --- our independent public accountants to books and records kept by an
eligible foreign custodian located in that country.
ii. Whether applicable foreign law would restrict the our ability to
- --- recover our assets in the event of the bankruptcy of an Eligible
Foreign Custodian located in that country.
iii. Whether applicable foreign law would restrict the our ability to
- --- recover assets that are lost while under the control of an
Eligible Foreign Custodian located in the country.
B. Written information concerning:
i. The likelihood of expropriation, nationalization, freezes, or
- --- confiscation of our assets.
ii. Whether difficulties in converting our cash and cash equivalents
- --- to U.S. dollars are reasonably foreseeable.
C. A market report with respect to the following topics:
(i) securities regulatory environment, (ii) foreign ownership
restrictions, (iii) foreign exchange, (iv) securities settlement and
registration, (v) taxation, and (vi) compulsory depositories (including
depository evaluation).
2. To aid our Board in monitoring Country Risk, Bank shall furnish
Board the following additional information:
Market flashes, including with respect to changes in the information in
market reports
<PAGE>
GLOBAL PROXY SERVICE RIDER
l. Company hereby requests The Chase Manhattan Bank ("Chase") to provide to
Company Global Proxy Services (the "Services") for the countries listed
in the procedures and guidelines ("Procedures") furnished to Company, as
the same may be amended by Chase from time to time on prior notice to
Company. The Procedures are incorporated by reference herein and form a
part of this Rider. This Global Proxy Service Rider supplements the terms
of the Global Custody Rider to the Custody Agreement between Chase and
Company. All terms herein unless defined herein shall have the meanings
set forth in the Global Custody Rider or the Custody Agreement. This
Rider shall be effective on the date Chase commences to provide Global
Proxy Service to Company.
2. The Services shall consist of those elements as set forth in the
Procedures, and shall include (a) notifications ("Notifications") by
Chase to Company of the dates of pending shareholder meetings,
resolutions to be voted upon and the return dates as may be received by
Chase or provided to Chase by the Subcustodians (as defined in the Global
Custody Rider) or third parties, and (b) voting by Chase of proxies based
on our instructions. Original proxy materials or copies thereof shall not
be provided. Notifications shall generally be in English and, where
necessary, shall be summarized and translated from such non-English
materials as have been made available to Chase or the Subcustodian. In
this respect Chase's only obligation is to provide information from
sources Chase believes to be reliable and/or to provide materials
summarized and/or translated in good faith. Chase shall have the right,
in its discretion, to provide Notifications, or parts thereof, in the
language received. Upon reasonable advance request
<PAGE>
by Company, backup information relative to Notifications, such as annual
reports, explanatory material concerning resolutions, management
recommendations or other material relevant to the exercise of proxy
voting rights shall be provided as available, but without translation.
3. While Chase shall attempt to provide accurate and complete Notifications,
whether or not translated, Company acknowledges and agrees Chase shall
not be liable for any losses or other consequences that may result from
reliance by Company upon Notifications where Chase prepared the same in
good faith.
4. Notwithstanding the fact that Chase may be acting in a fiduciary capacity
with respect to Company under other agreements or otherwise under the
Custody Agreement, in performing Services Chase shall be acting solely as
Company's agent, and shall not exercise any discretion with regard to
such Services.
5. Proxy voting may be precluded or restricted in a variety of
circumstances, including, without limitation, where the relevant
securities are: (i) on loan; (ii) at the registrar for registration or
reregistration; (iii) the subject of a conversion or other corporate
action; (iv) not held in a name subject to the control of Chase or the
Subcustodian or are otherwise held in a manner which precludes voting;
(v) not capable of being voted on account of local market regulations or
practices or restrictions by the issuer; or (vi) held in a margin or
collateral account.
6. Company acknowledges that in certain countries Chase may be unable to
vote individual proxies but shall only be able to vote proxies on a net
basis (E.G., a net yes or no vote given the voting instructions received
from all its customers).
<PAGE>
7. Company shall not make any use of the information provided hereunder,
except in connection with the funds or plans covered by this Rider, and
shall in no event sell, license, give or otherwise make the information
provided hereunder available, to any third party, and Company shall not
directly or indirectly compete with Chase or diminish the market for the
Services by provision of such information, in whole or in part, for
compensation or otherwise, to any third party.
STATE FARM BALANCED FUND, INC.
By:
-----------------------------------
Name
Title
DATE:
-----------------------------------
<PAGE>
State Farm Insurance Companies
Global Custody Fee Proposal
25 September 1998
I. Safekeeping and Settlement
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
COUNTRY SAFEKEEPING FEES TRANSACTION FEES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Tier One Canada 3.0 b.p. $35.00
CEDEL
Japan
United Kingdom
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Tier Two Australia 5.0 b.p. $35.00
France
Germany
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Tier Three Italy 6.0 b.p. $35.00
Netherlands
Switzerland
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Tier Four Denmark 6.0 b.p. $50.00
Finland
Hong Kong
Ireland
Sweden
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Tier Five Malaysia 8.0 b.p. $55.00
New Zealand
Norway
Singapore
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Tier Six Mexico 12.0 b.p. $100.00
Portugal
Spain
Thailand
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Tier Seven Brazil 25.0 b.p. $100.00
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
State Farm Insurance Companies
Global Custody Fee Proposal
25 September 1998
I. Safekeeping and Settlement (CONT.)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
COUNTRY SAFEKEEPING FEES TRANSACTION
FEES
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Tier Eight Argentina 40.0 b.p. $100.00
Bangladesh
Botswana
Chile
China (Shanghai)
China (Shenzhen)
Czech Republic
Greece
Hungary
India
Indonesia
Israel
Jordan
Morocco
Pakistan
Peru
Philippines
Poland
Portugal
Sri Lanka
Taiwan
Tunisia
Turkey
Uruguay
Venezuela
Zimbabwe
- --------------------------------------------------------------------------------
Tier Nine Costa Rica 50.0 b.p. $150.00
Cyprus
Ecuador
Egypt
Ghana
Jamaica / T&T
Kenya
Mauritius
Nepal
Slovakia
Slovena
Vietnam
Zambia
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
SPECIAL FOREIGN CUSTODY MANAGER AGREEMENT
This agreement is made as of January ____, 1999 between State Farm Growth
Fund, Inc. (the "Fund") and State Farm Investment Management Corp. (the
"Adviser").
WHEREAS, The Fund desires to appoint the Adviser as a Special Foreign
Custody Manager on the terms and conditions contained herein.
WHEREAS, The adviser believes it appropriate that it serve as Special
Foreign Custody Manager and perform the duties set forth herein on the terms and
condition contained herein.
NOW, THEREFORE, in consideration of the terms of this agreement, each of
the Fund and the Adviser agrees as follows:
Section 1 - Defined Terms. Whenever used in this agreement, the following words
and phrases shall have the following meanings, unless the context otherwise
requires:
"Compulsory Securities Depository" means a foreign Securities Depository or
clearing agency that, either as a legal or practical matter, must be used if the
Fund determines to place Foreign Assets in a country outside the United States
(i) because required by law or regulation; (ii) because securities cannot be
withdrawn from such foreign Securities Depository or clearing agency; or (iii)
because maintaining or effecting trades in securities outside the foreign
Securities Depository or clearing agency is not consistent with prevailing or
developing custodial or market practices.
"Country Risk" means all factors reasonably related to the systemic risk of
holding Foreign Assets in a particular country including, but not limited to,
such country's political environment; economic and financial infrastructure,
prevailing or developing custody and settlement practices; and laws and
regulations applicable to the safekeeping and recovery of Foreign Assets held in
custody in that country.
"Eligible Foreign Custodian" has the meaning provided in the Rule.
"Foreign Assets" means any of the Fund's investments (including foreign
currencies) for which the primary market is outside the United States and such
cash and cash equivalents as are reasonably necessary to effect the Fund's
transactions in such investments.
"Rule" means Rule 17f-5 under the Investment Company Act of 1940, as
amended.
<PAGE>
"Securities Depository" means any securities depository or clearing agency
within the meaning of Sections (a)(1)(ii) or (a)(1)(iii) of the Rule.
"1940 Act" means the Investment Company Act of 1940, as amended.
Section 2 - Delegation to the Adviser as Special Foreign Custody Manager. The
Fund, pursuant to resolution adopted by its Board of Directors (the "Board"),
hereby delegates to the Adviser, subject to Section (b) of Rule 17f-5, the
responsibility for selecting, contracting with, and monitoring Eligible Foreign
Custodians that are Compulsory Securities Depositories, and the Adviser hereby
accepts such delegation, as Special Foreign Custody Manager of the Fund.
Section 3 - Countries Covered. The Special Foreign Custody Manager shall be
responsible for performing the delegated responsibilities defined below only
with respect to the countries and custody arrangements for each such country
listed on Schedule A to this agreement, which list of countries may be amended
from time to time by the Fund with the agreement of the Special Foreign Custody
Manager. The Special Foreign Custody Manager shall list on Schedule B the
Compulsory Securities Depositories selected by the Special Foreign Custody
Manger to maintain the assets of the Fund, which list of Compulsory Securities
Depositories may be amended from time to time in the sole discretion of the
Special Foreign Custody Manager. The Special Foreign Custody Manger will
provide amended versions of Schedules A and B in accordance with Section 7
hereunder.
Upon receipt by the Special Foreign Custody Manager of Authorization to
place or maintain Foreign Assets in a country listed on Schedule A, the Special
Foreign Custody Manager shall be deemed to have been delegated by the Board
responsibility as Special Foreign Custody Manager and to have accepted such
delegation. Upon closing the Fund's account with the Compulsory Securities
Depository, the Adviser shall immediately cease to be the Special Foreign
Custody Manager of the Fund with respect to the country.
The Special Foreign Custody Manager may withdraw its acceptance of
delegated responsibilities with respect to a designated country upon written
notice to the Fund. Thirty days (or such longer period as to which the parties
agree in writing) after receipt of any such notice by
<PAGE>
the Fund, the Adviser shall have no further responsibility as Special Foreign
Custody Manager to the Fund with respect to the country as to which the
adviser's acceptance of delegation is withdrawn.
Section 4 - Scope of Delegated Responsibilities.
4.1 Selection of Compulsory Securities Depositories
Subject to the provisions of this Section 4, the Special Foreign
Custody Manager may place and maintain the Foreign Assets in the Care of
the Compulsory Securities Depository selected by the Special Foreign Custody
Manager in each country listed on Schedule A, as amended from time to time.
In performing its delegated responsibilities as Special Foreign
Custody Manager to place or maintain Foreign Assets with Compulsory Securities
Depositories, the Special Foreign Custody Manager shall determine that the
Foreign Assets will be subject to reasonable card, based on the standards
applicable to custodians in the country in which the Foreign Assets will be held
by that Compulsory Securities Depository, after considering all factors relevant
to the safekeeping of such assets, including, without limitation the factors
specified in Section (c)(1) of the Rule.
4.2 Contracts with Compulsory Securities Depositories
The Special Foreign Custody Manager shall determine that the contract
with each Compulsory Securities Depository selected by the Special Foreign
Custody Manager (or if no contract exists, the rules or established practices or
procedures of the Compulsory Foreign Securities Depository) will satisfy the
requirements of Section (c)(2) of the Rule.
4.3 Monitoring
In each case in which the Special Foreign Custody Manager maintains
Foreign Assets with a Compulsory Securities Depository selected by the Special
Foreign Custody Manager, the Special Foreign Custody Manager shall establish a
system to monitor (i) the appropriateness of maintaining the Foreign Assets with
such Compulsory Securities Depository and (ii) the contract governing the
custody arrangements established by the Special Foreign Custody Manger with the
Compulsory Securities Depository referred to
<PAGE>
in Section 4.2. In the event the Special Foreign Custody Manager determines
that the custody arrangements with a Compulsory Securities Depository it has
selected are no longer appropriate, the Special Foreign Custody Manager shall
notify the Board in accordance with Section 7 hereunder.
Section 5 - Guidelines for the Exercise of Delegated Authority. For purposes of
this Section 5, the Board shall be deemed to have considered and determined to
accept such Country Risk as is incurred by placing and maintaining the Foreign
Assets in each country for which the Adviser is serving as Special Foreign
Custody Manger of the Fund, and the Board shall be deemed to be monitoring on a
continuing basis such Country Risk to the extent the Board considers necessary
or appropriate.
Section 6 - Standard of Care as Special Foreign Custody Manager of the Fund. In
performing the responsibilities delegated to it, the Special Foreign Custody
Manager agrees to exercise reasonable care, prudence and diligence such as a
person having responsibility for the safekeeping of assets of management
investment companies registered under the 1940 Act would exercise.
Sections 7 - Reporting Requirements. The Special Foreign Custody Manager shall
report the withdrawal of the Foreign Assets from a Compulsory Securities
Depository by providing the Board amended Schedules A or B at the end of the
calendar quarter in which an amendment to either Schedule has occurred. The
Special Foreign Custody Manager shall make written reports notifying the Board
of any other material change in the foreign custody arrangements of the Fund
with respect to Compulsory Securities Depositories described in this Agreement
after the occurrence of the material change.
Section 8 - Representations with Respect to the Rule. The Fund represents to
the Adviser that the Board has determined that it is reasonable for the Board to
rely on the Adviser to perform the responsibilities delegated pursuant to this
Agreement to the Adviser as the Special Foreign Custody Manager of the Fund.
Section 9 - Effective Date and Termination of the Adviser as Special Foreign
Custody Manager. The Board's delegation to the Adviser as Special Foreign
Custody Manager of the Fund shall be
<PAGE>
effective as of the date hereof and shall remain in effect until terminated at
any time, without penalty, by written notice from the terminating party to the
non-terminating party. Termination will become effective thirty days after
receipt by the non-terminating party of such notice.
Section 10 - Representations.
10.1 The Fund hereby represents that (a) this Agreement has been duly
authorized, executed and delivered by the Fund, constitutes a valid and legally
binding obligation of the Fund enforceable in accordance with its terms, and no
statute, regulation, rule, order, judgment or contract binding on the Fund
prohibits the Fund's execution or performance of this agreement; and (b) this
agreement has been duly approved and authorized by the Board.
10.2 The Adviser represents that this agreement has been duly authorized,
executed and delivered by the Adviser, constitutes a valid and legally binding
obligation of the Adviser enforceable in accordance with its terms, and no
statute, regulation, rule, order, judgment or contract binding on the Adviser
prohibits the Adviser's execution or performance of this agreement.
Section 11 - Miscellaneous.
11.1 The Adviser shall not be liable under this agreement for any costs,
expenses, damages, liabilities or claims, including attorneys' and
accountants' fees, sustained or incurred by, or asserted against the Fund,
except to the extent the same arises out of the failure by the Adviser to
exercise the care, prudence and diligence required by Section 6 of this
Agreement. In no event shall the Adviser be liable to either the Fund, its
Board, or any third party for special, direct or consequential damages, or
for lost profits or loss of business, arising in connection with this
Agreement.
11.2 This Agreement constitutes the entire agreement between the Adviser
and the Fund regarding the delegation of responsibilities under the Rule.
11.3 Any notice or other instrument in writing, authorized or required by
this agreement to be given to the Adviser, shall be sufficiently given if
received by it at its offices at One State Farm Plaza, Bloomington, Illinois
61710 or at such other place as the Adviser may from time to time designate in
writing.
<PAGE>
11.4 Any notice or other instrument in writing, authorized or required by
this agreement to be given to the Fund shall be sufficiently given if received
by it at its offices at One State Farm Plaza, Bloomington, Illinois 61710 or at
such other place as the Fund may from time to time designate in writing.
11.5 In case any provision in or obligation under this agreement shall be
invalid, illegal or unenforceable in any jurisdiction, the validity, legality
and enforceability of the remaining provisions shall not in any way be affected
thereby. This agreement may not be amended or modified in any manner except by
a written agreement executed by both parties. This agreement shall extend to
and shall be binding upon the parties hereto, and their respective successors
and assigns; provided, however, that this agreement shall not be assignable by
either party without the written consent of the other.
11.6 This agreement shall be construed in accordance with the substantive
laws of the State of Illinois, without regard to conflicts of laws principles
thereof. Each of the Adviser and the Fund consents to the Jurisdiction of a
state or federal court situated in Illinois in connection with any dispute
arising hereunder and irrevocably waives, to the fullest extent permitted by
applicable law, any objection which it may now or hereafter have to the laying
of venue of any such proceeding brought in such a court and any claim that such
proceeding brought in such a court has been brought in an inconvenient forum.
Each of the Adviser and the fund irrevocably waives any and all rights to trial
by jury in any legal proceeding arising out of or relating to this agreement.
11.7 The parties hereto agree that, in performing hereunder, the Adviser is
acting solely on behalf of the Fund and no contractual or service relationship
shall be deemed to be established hereby between the Adviser and any other
person.
11.8 This agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original, but such counterparts shall, together,
constitute only one instrument.
IN WITNESS WHEREOF, each the Fund and the Adviser have caused this
agreement to be executed by their respective officers, thereunto duly
authorized, as of the date first above written.
<PAGE>
State Farm Growth Fund, Inc.
By:
-----------------------------------
Edward B. Rust, Jr.
Title: President
State Farm Investment Management Corp.
By:
-----------------------------------
Roger S. Joslin
Title: Vice President - Treasurer
<PAGE>
SCHEDULE A
Specified Countries
1. Netherlands
<PAGE>
SCHEDULE B
Compulsory Securities Depositories
1. Nederlands Centraal Instituut voor Giraal Effectenverkeer B.V. (NECIGEF)
<PAGE>
BELL, BOYD & LLOYD
Three First National Plaza
70 West Madison Street, Suite 3300
Chicago, Illinois 60602-4207
312 372 1121
Fax: 312 372 2098
January 29, 1999
As counsel for State Farm Balanced Fund, Inc. (the "Registrant"), we
consent to the incorporation by reference of our opinion dated March 8, 1996,
filed with the Registrant's registration statement on Form N-1A, on March 21,
1996, Securities Act file no. 2-27769.
In giving this consent we do not admit that we are in the category of
persons whose consent is required under Section 7 of the Securities Act of 1933.
/s/ Bell, Boyd & Lloyd
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Highlights" and "Independent Auditors," and to the use of our report dated
December 18, 1998 for the State Farm Balanced Fund, Inc. in the Registration
Statement (Form N-1A) of the State Farm Balanced Fund, Inc. and its
incorporation by reference in the related Prospectus and Statement of Additional
Information filed with the Securities and Exchange Commission in this
Post-Effective Amendment No. 39 to the Registration Statement under the
Securities Act of 1933 (File No. 2-27769) and in this Amendment No. 20 to the
Registration Statement under the Investment Company Act of 1940 (File No.
811-1520).
ERNST & YOUNG LLP
Chicago, Illinois
January 27, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000093716
<NAME> STATE FARM BALANCED FUND, INC.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-END> NOV-30-1998
<INVESTMENTS-AT-COST> 540321219
<INVESTMENTS-AT-VALUE> 890256427
<RECEIVABLES> 27572838
<ASSETS-OTHER> 364312
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 918193577
<PAYABLE-FOR-SECURITIES> 23625000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1367209
<TOTAL-LIABILITIES> 24992209
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 518204884
<SHARES-COMMON-STOCK> 18028260
<SHARES-COMMON-PRIOR> 16538194
<ACCUMULATED-NII-CURRENT> 24614336
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 446940
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 349935208
<NET-ASSETS> 893201368
<DIVIDEND-INCOME> 9724889<F1>
<INTEREST-INCOME> 19172814
<OTHER-INCOME> 0
<EXPENSES-NET> 1133007
<NET-INVESTMENT-INCOME> 27764696
<REALIZED-GAINS-CURRENT> 446940
<APPREC-INCREASE-CURRENT> 70040582
<NET-CHANGE-FROM-OPS> 98252218
<EQUALIZATION> 714370
<DISTRIBUTIONS-OF-INCOME> (26507020)<F2>
<DISTRIBUTIONS-OF-GAINS> (11354841)<F3>
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3094918
<NUMBER-OF-SHARES-REDEEMED> 2390819
<SHARES-REINVESTED> 785967
<NET-CHANGE-IN-ASSETS> 130922171
<ACCUMULATED-NII-PRIOR> 22642290
<ACCUMULATED-GAINS-PRIOR> 11354841
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 980972
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1133007
<AVERAGE-NET-ASSETS> 828234500
<PER-SHARE-NAV-BEGIN> 46.09
<PER-SHARE-NII> 1.54
<PER-SHARE-GAIN-APPREC> 4.14
<PER-SHARE-DIVIDEND> (1.54)
<PER-SHARE-DISTRIBUTIONS> (.69)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 49.54
<EXPENSE-RATIO> .14
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Net of foreign withholding taxes of $113,470
<F2>Per share $1.54
<F3>Per share $.69
</FN>
</TABLE>
