STATE FARM BALANCED FUND INC, 497, 2000-10-11

STATE FARM BALANCED FUND INC
497, 2000-10-11

Previous: STATE FARM GROWTH FUND INC, 497, 2000-10-11

Next: PATHMARK STORES INC, SC 13G, 2000-10-11

<PAGE>
[LOGO]

STATE FARM GROWTH FUND, INC.
STATE FARM BALANCED FUND, INC.
STATE FARM INTERIM FUND, INC.
STATE FARM MUNICIPAL BOND FUND, INC.

THREE STATE FARM PLAZA
BLOOMINGTON, ILLINOIS 61791-0001

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, 2000 as Supplemented October 11, 2000
<PAGE>
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
INVESTMENTS, RISKS AND PERFORMANCE.......................... 3
State Farm Growth Fund.............................. 3
State Farm Balanced Fund............................ 5
State Farm Interim Fund............................. 7
State Farm Municipal Bond Fund...................... 9
HOW THE FUNDS INVEST........................................ 11
Growth Fund......................................... 11
Balanced Fund....................................... 11
Interim Fund........................................ 12
Municipal Bond Fund................................. 13
RISKS....................................................... 13
HOW TO BUY FUND SHARES...................................... 15
Who May Invest...................................... 15
Minimum Investments................................. 15
How to Buy.......................................... 15
Share Price......................................... 17
HOW TO REDEEM FUND SHARES................................... 17
Signature Guarantee................................. 19
TAX-QUALIFIED ACCOUNTS...................................... 20
MANAGEMENT OF THE FUNDS..................................... 21
DIVIDENDS, DISTRIBUTIONS AND TAXES.......................... 22
FINANCIAL HIGHLIGHTS........................................ 24
</TABLE>

-------
2
<PAGE>
INVESTMENTS, RISKS AND PERFORMANCE
--------------------------------------------------------------------------------

STATE FARM GROWTH FUND

WHAT IS GROWTH FUND'S INVESTMENT OBJECTIVE AND WHAT ARE ITS PRINCIPAL INVESTMENT
STRATEGIES?

OBJECTIVE. Growth Fund seeks long-term growth of capital and income.

PRINCIPAL INVESTMENT STRATEGIES. Growth Fund invests most of its assets in
common stocks and other 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. In making investment decisions on specific securities, the Manager
analyzes long-term industry conditions, management capabilities, and financial
solvency.

The Fund may invest up to 25% of its assets in securities of foreign
companies.

WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN GROWTH FUND?

The Fund invests mostly in common stocks, which represent an equity interest
(ownership) in a business and are subject to MARKET RISK. Stock prices may
fluctuate widely over short or 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. 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). The Fund's past performance
doesn't necessarily indicate how it will perform in the future.

-------
3
<PAGE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<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%
1999 18.72%
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 an 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, 1999:

<TABLE>
<CAPTION>
GROWTH FUND S&P 500 INDEX*
----------- --------------
<S> <C> <C>
1 year 18.72 % 21.04 %
5 years 23.46 % 28.55 %
10 years 16.54 % 18.01 %
</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. Unlike an
investment in the Growth Fund, returns of the S&P 500 Index do not reflect
expenses of investing.

WHAT ARE THE COSTS OF INVESTING IN GROWTH FUND?

Below are the fees and expenses that you would pay if you buy and hold shares of
the Fund.

SHAREHOLDER TRANSACTION EXPENSES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)

<TABLE>
<S> <C>
Maximum sales charge None
Redemption fee None
Exchange fee None
</TABLE>

FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)

<TABLE>
<S> <C>
Management fees .11%
Distribution (12b-1) fees None
Other expenses .01%
----
Total Annual Fund 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>

-------
4
<PAGE>
STATE FARM BALANCED FUND

WHAT IS BALANCED FUND'S INVESTMENT OBJECTIVE AND WHAT ARE ITS PRINCIPAL
INVESTMENT STRATEGIES?

OBJECTIVE. Balanced Fund seeks income and some long-term growth of both
principal and income.

PRINCIPAL INVESTMENT STRATEGIES. 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 Balanced 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 ordinarily invests at least 25% of its total assets in fixed
income securities. The 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 primarily in intermediate or long 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 or growth in income (for
common stocks). In making investment decisions on specific securities, the
Manager analyzes long-term industry conditions, management capabilities, and
financial solvency.

The Fund may invest up to 25% of its assets in the securities of foreign
companies.

WHAT ARE THE PRINCIPAL 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 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.

-------
5
<PAGE>
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 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. 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 market indices. 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). 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>
<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%
1999 9.74%
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: -7.71%,
during the third quarter of 1990.

The following table shows the Average Annual Total Return on an investment
in the Fund compared to market indices for the 1-, 5- and 10-year periods ended
December 31, 1999:

<TABLE>
<CAPTION>
LEHMAN
BALANCED S&P 500 INTERMED.
FUND INDEX* INDEX**
-------- -------- ---------
<S> <C> <C> <C>
1 year 9.74% 21.04% 0.41%
5 years 16.56% 28.55% 6.54%
10 years 14.18% 18.01% 6.90%
</TABLE>

------------------------

* The S&P 500 Index is a capitalization-weighted measure of 500 large U.S.
companies.

** The Lehman Brothers Intermediate Treasury Index contains approximately 99
U.S. Treasury securities with maturities ranging from one to ten years.

The S&P 500 Index and the Lehman Brothers Intermediate Treasury Index
represent unmanaged groups of stocks and bonds that differ from the
composition of the Balanced Fund. Unlike an investment in the Balanced Fund,
returns in the indices do not reflect expenses of investing.

WHAT ARE THE COSTS OF INVESTING IN BALANCED FUND?

Below are the fees and expenses that you would pay if you buy and hold shares of
the Fund.

SHAREHOLDER TRANSACTION EXPENSES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)

<TABLE>
<S> <C>
Maximum sales charge None
Redemption fee None
Exchange fee None
</TABLE>

FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)

<TABLE>
<S> <C>
Management fees .12%
Distribution (12b-1) fees None
Other expenses .01%
----
Total Annual Fund 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>

-------
6
<PAGE>
STATE FARM INTERIM FUND

WHAT IS INTERIM FUND'S INVESTMENT OBJECTIVE AND WHAT ARE ITS PRINCIPAL
INVESTMENT STRATEGIES?

OBJECTIVE. Interim Fund seeks the realization over a period of years of the
highest yield consistent with relative price stability (relatively low
volatility).

PRINCIPAL INVESTMENT STRATEGIES. 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 Manager typically distributes the Fund's investments 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 up to 15 years. The
Manager buys securities for the Fund with shorter maturities, even though they
tend to produce less income, because they generally also have less volatile
prices. The Manager will seek to hold the securities in which the Fund invests
until they mature, but it may sell them earlier. The Manager purchases bonds
after conducting thorough credit analyses of the issuers. The Manager seeks to
purchase bonds that offer yields that are commensurate with the credit quality
of the issuer. Generally, the Manager would sell securities in order to meet a
large volume of redemptions, to reposition the maturity structure of the
portfolio or to adjust credit risk of the portfolio. Usually, the Manager would
sell securities that produce the least amount of capital gains.

WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN INTERIM FUND?

The chief risks of investing in Interim Fund are INTEREST RATE RISK, CREDIT
RISK AND INFLATION RISK. The Fund is not a money market fund, and the Fund does
not attempt to maintain a stable net asset value like a money market 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.

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. You can lose money by investing in the Fund.

IS AN INVESTMENT IN INTERIM FUND APPROPRIATE FOR ME?

The Fund might be appropriate for you if you are seeking a fixed income
investment with more price stability than an investment in long-term bonds.

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. The bar chart

-------
7
<PAGE>
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). 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>
<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%
1999 0.85%
Total Return
</TABLE>

The Fund's best and worst quarters during the last 10 years were:
Best quarter: 4.18%,
during the fourth quarter of 1991.

Worst quarter: -1.20%,
during the first quarter of 1994.

The table below shows the Average Annual Total Return on an investment in
the Fund compared to a market index for the 1-, 5- and 10-year periods ended
December 31, 1999:

<TABLE>
<CAPTION>
LEHMAN
1-5 YEAR
U.S. TREASURY
INTERIM FUND INDEX*
------------ --------------
<S> <C> <C>
1 year 0.85 % 1.89%
5 years 6.42 % 6.74%
10 years 6.56 % 6.76%
</TABLE>

------------------------

* The Lehman Brothers 1-5 Year U.S. Treasury Index presently contains
approximately 73 U.S. Treasury Securities with maturities ranging from one
to five years. The Lehman Brothers 1-5 Year U.S. Treasury Index represents
an unmanaged group of bonds that differs from the composition of the Interim
Fund. Unlike an investment in the Interim Fund, returns of the Lehman 1-5
Year U.S. Treasury Index do not reflect expenses of investing.

WHAT ARE THE COSTS OF INVESTING IN INTERIM FUND?

Below are the fees and expenses that you would pay if you buy and hold
shares of the Fund.

SHAREHOLDER TRANSACTION EXPENSES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)

<TABLE>
<S> <C>
Maximum sales charge None
Redemption fee None
Exchange fee None
</TABLE>

FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)

<TABLE>
<S> <C>
Management fees .15%
Distribution (12b-1) fees None
Other expenses .05%
----
Total Annual Fund Operating Expenses .20%
</TABLE>

<TABLE>
<S> <C>
After 1 year $ 20

After 3 years $ 64

After 5 years $113

After 10 years $255
</TABLE>

-------
8
<PAGE>
STATE FARM MUNICIPAL BOND FUND

WHAT IS MUNICIPAL BOND FUND'S INVESTMENT OBJECTIVE AND WHAT ARE ITS PRINCIPAL
INVESTMENT STRATEGIES?

OBJECTIVE. Municipal Bond Fund seeks as high a rate of income exempt from
federal income taxes as is consistent with prudent investment management.

PRINCIPAL INVESTMENT STRATEGIES. 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 Manager usually will hold municipal bonds for the Fund 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). The Manager may also sell a bond
for the Fund if its credit risk increases significantly.

WHAT ARE THE PRINCIPAL 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.

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 grade 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.

IS AN INVESTMENT IN MUNICIPAL BOND FUND APPROPRIATE FOR ME?

The 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.

HOW HAS MUNICIPAL BOND FUND PERFORMED?

-------
9
<PAGE>
variability of Fund returns over the periods listed (and consequently, the
potential rewards and risks of a Fund investment). 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>
<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%
1999 -1.04%
Total Return
</TABLE>

The Fund's best and worst quarters during the last 10 years were:

Best quarter: 5.18%,
during the second quarter of 1995.

Worst quarter: -3.23%,
during the first quarter of 1994.

The following table shows the Average Annual Total Return on an investment
in the Fund compared to a market index for the 1-, 5- and 10-year periods ended
December 31, 1999:

<TABLE>
<CAPTION>
MUNICIPAL LEHMAN MUNICIPAL
BOND FUND BOND INDEX*
--------- ----------------
<S> <C> <C>
1 year -1.04% -2.06%
5 years 5.87% 6.91%
10 years 6.20% 6.89%
</TABLE>

------------------------

* The Lehman Brothers Municipal Bond Index includes approximately 52,000
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. The Lehman Brothers Municipal Bond Index
represents an unmanaged group of bonds that differs from the composition of
the Municipal Bond Fund. Unlike an investment in the Municipal Bond Fund,
returns of the Lehman Brothers Municipal Bond Index do not reflect expenses
of investing.

WHAT ARE THE COSTS OF INVESTING IN MUNICIPAL BOND FUND?

Below are the fees and expenses that you would pay if you buy and hold shares of
the Fund.

SHAREHOLDER TRANSACTION EXPENSES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)

<TABLE>
<S> <C>
Maximum sales charge None
Redemption fee None
Exchange fee None
</TABLE>

FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)

<TABLE>
<S> <C>
Management fees .12%
Distribution (12b-1) fees None
Other expenses .04%
----
Total Annual Fund Operating Expenses .16%
</TABLE>

<TABLE>
<S> <C>
After 1 year $ 16
After 3 years $ 52
After 5 years $ 90
After 10 years $205
</TABLE>

-------
10
<PAGE>
HOW THE FUNDS INVEST
--------------------------------------------------------------------------------

GROWTH FUND

COMMON STOCKS. Growth Fund invests most of its assets in common stock and
other 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 take a temporary
defensive position in attempting to respond to adverse market, economic,
political or other conditions. 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.

FIXED INCOME SECURITIES. The 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 primarily in intermediate or long 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 and preferred stocks 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/Baa) assigned by S&P or Moody's or, if unrated, determined by
the Manager to be of comparable quality. Bonds rated below BBB by S&P or below
Baa by Moody's have speculative characteristics, and are commonly referred to as
"junk bonds" and present a higher degree of credit risk. For more information,
see "Description of Bond Ratings" in the Statement of Additional Information.

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
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.

-------
11
<PAGE>
The Fund generally keeps its investments as long as the Manager believes
that they are generating appropriate income or meet credit standards (for bonds)
or have the potential, over the long-term, to generate capital gain or growth in
income (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 grade 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 high grade 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 up to 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
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 with 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 Manager will seek to hold the securities in which the Fund invests until
they mature, but it may sell them earlier. The Manager purchases bonds after
conducting thorough credit analyses of the issuers. The Manager seeks to
purchase bonds that offer yields which are commensurate with the credit quality
of the issuer. Generally, the Manager would sell securities in order to meet a
large volume of redemptions, to reposition the maturity structure of the
portfolio or to adjust credit risk of the portfolio. Usually, the Manager would
sell securities that produce the least amount of capital gains.

SHORT-TERM INVESTMENTS. Interim Fund may invest without limit 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 measure pending investment in securities. The Fund may take a
temporary defensive position in attempting to respond to adverse market,
economic, political or other conditions. During those periods,

-------
12
<PAGE>
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 and state income taxes. The Fund
does not currently intend to purchase municipal obligations whose interest would
be subject to the 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 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 and fixed income securities generally carry a
greater degree of risk than higher-rated municipal bonds. Bonds rated below BBB
by S&P or below Baa by Moody's have speculative characteristics, and are
commonly referred to as "junk bonds" and present a higher degree of credit risk.

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. The Fund will hold assets not invested in municipal
bonds as cash or invest in interest-bearing demand notes, bank savings accounts
and high grade money market securities or U.S. Treasury securities. In
attempting to respond to adverse market, economic, political or other
conditions, as a temporary defensive measure, the Fund may invest without limit
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 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.

-------
13
<PAGE>
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 when due.

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.

-------
14
<PAGE>
HOW TO BUY FUND SHARES
--------------------------------------------------------------------------------

WHO MAY INVEST

Shares of the Funds may be purchased by current and retired agents and
employees of the State Farm Insurance Companies and by their family members.

Effective January 1, 2001, a "family member" will be defined as:

- Legally married spouse

- Lineal ascendants (e.g., parents, grandparents, etc.) and spousal lineal
ascendants

- Lineal descendants (e.g., children, grandchildren, etc.) including
stepchildren, court appointed foster children, and legally adopted children

If, after December 31, 2000, you are a Fund shareowner who is not eligible
to invest in the Funds, you may maintain and add to your current Fund
account(s), but you may not open any new Fund account.

Some State Farm agents purchase shares of the State Farm Funds as an
investment for a qualified retirement plan. When this occurs, participating
employees of the State Farm agent may need to establish a State Farm Funds IRA
account into which the agent makes plan contributions. If you have a State Farm
Funds IRA account into which SEP contributions are made by your employer agent,
you may also make traditional or rollover IRA contributions into that account.

MINIMUM INVESTMENTS

<S> <C>
To open an account by check: $50
To open an account by payroll
deduction: $20
Subsequent investments by check,
EFT or automatic investing: $50
Subsequent investments by payroll
deduction: $20
</TABLE>

The Manager reserves the right to charge a low balance fee or close an
account if the account balance falls below $10. The Manager waives this right
for accounts participating in the automatic investment plan.

HOW TO BUY

You may buy shares of any of the State Farm Funds by sending a written
order, by telephone, by automatic investment, 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, or by sending a letter of instruction indicating your
account registration, account number and the Fund name or by authorizing the
Manager to withdraw money from your bank account.

IN WRITING. To open a new account in writing, complete and sign the
Application and mail it to State Farm Mutual Funds, P.O. Box 219548, Kansas
City, Missouri 64121-9548, together with a check made payable to "State Farm
Mutual Funds," an authorization for payroll deduction, or both.

BY TELEPHONE. The Telephone Investment Privilege is automatically
established for you unless you decline this privilege on the Application. With
the Telephone Investment Privilege, you can purchase additional Fund shares by
having the Fund make an electronic withdrawal from your pre-designated bank
account. To make a telephone investment, call 1-800-447-0740.

If you currently do not have the Telephone Investment Privilege but would
like to sign up for this privilege, you may complete an Investors Account
Services Form. Your signature on the Investors Account Services Form must be
guaranteed (see "Signature Guarantee"). Further documentation may be required
from corporations, partnerships, trusts and other entities. Telephone Investment
is not available for IRA accounts.

During periods of volatile economic and market conditions, you may have
difficulty making a purchase request by telephone, in which case you should
consider sending in your request by letter.

Although the Application or the Investors Account Services Form authorize
the Funds and the Manager to record all telephone instructions, the

-------
15
<PAGE>
Funds may not honor telephone instructions unless permission to record is
confirmed by the caller.

The Telephone Investment Privilege authorizes the Manager to act upon an
instruction by telephone to purchase shares for any account for which the
Telephone Investment Privilege applies. The Manager and the Funds will employ
reasonable procedures, including recording telephone instructions and providing
written confirmation of each resulting transaction, to confirm that telephone
instructions are genuine. If the Manager and the Funds fail to comply with 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 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 investment transaction.

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, phone or fax as long as you provide clear instructions and indicate
your account registration, account number and the Fund name.

BY AUTOMATIC INVESTING. The automatic investment plan allows you to make
regular investments in a Fund through automatic transfers from your bank
account. To participate in the automatic investment plan, complete the pertinent
section of the Application or complete an Investors Account Services Form, which
you can obtain by calling 1-800-447-0470. You can make monthly investments of
$50 or more by authorizing a Fund to draw pre-authorized checks on your bank or
credit union account. There is no charge to participate in the automatic
investment plan. You can stop the withdrawals at any time by writing the Manager
or by calling 1-800-447-0740.

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, please read the
description of the Fund to be purchased in this prospectus.

A written exchange request must be signed by all of the owners of the
account, must be sent to the Manager, and must clearly indicate your account
number, account registration and the Fund names.

BY TELEPHONE EXCHANGE. The Telephone Exchange Privilege is automatically
established for you unless you decline this privilege on the Application. With
the Telephone Exchange Privilege 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 Fund 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 Funds will employ reasonable procedures, including
recording of telephone instructions and providing written confirmation of each
resulting transaction, to confirm that telephonic instructions are genuine. If
the Manager and the Funds 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.

-------
16
<PAGE>
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.

Each 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 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, at any
time, request in writing or by calling 1-800-447-0740 to have your income
dividends and capital gain distributions paid to you in cash.

- Stock certificates will not be issued unless you request to receive
certificates in writing, by fax, or by calling 1-800-447-0740. Certificates
will be issued for full shares only and will be mailed to your address of
record.

- The Manager will send to you by mail a confirmation of each transaction, other
than purchases by payroll deduction and by the automatic investment plan
method. You will receive confirmation of your purchases by payroll deduction
and by the automatic investment plan method 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.

- A Fund will not accept third party checks unless a company affiliated with the
Manager issues the check.

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 of each Fund 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. Shares will not be priced on days when the NYSE
is closed.

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 of the Fund 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:

State Farm Mutual Funds
P.O. Box 219548
Kansas City, Missouri, 64121-9548

Your redemption request must clearly identify the exact name(s) in which
your account is registered, your account number, 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.

-------
17
<PAGE>
All shareowners 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 more than $100,000, your signature, and the
signatures of any joint owners of your account, must be guaranteed as described
under "Signature Guarantee."

Redemption proceeds you request in writing normally will be sent by check to
your address of record. If you give specific instructions in your written
redemption request, however, you may have the proceeds sent to another payee or
to an address other than the address of record. If you request expedited
delivery of the redemption proceeds, a fee of $15.00 will be deducted from your
redemption proceeds.

BY TELEPHONE REDEMPTION. The Telephone Redemption Privilege is
automatically established for you unless you decline this privilege on the
Application. With the Telephone Redemption Privilege, you can redeem shares by
calling 1-800-447-0740. You may redeem shares by telephone up to and including
$100,000 if the proceeds are to be sent to the address of record, or you may
redeem up to 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. If you currently do not have the Telephone Redemption Privilege
but would like to sign up for this privilege, you may complete an Investors
Account Services Form. Your signature on the Investors Account Services 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.

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 Application or the Investors Account Services Form authorize
the Funds and the Manager to record all telephone instructions, the Funds may
not honor telephone instructions unless permission to record is confirmed by the
caller.

The Telephone Redemption Privilege authorizes the Manager to act upon an
instruction by telephone to redeem shares from any account for which the
Telephone Redemption Privilege applies. The Manager and the Funds will employ
reasonable procedures, including recording telephone instructions and providing
written confirmation of each resulting transaction, to confirm that telephone
instructions are genuine. If the Manager and the Funds fail to comply with 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 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 (816) 471-4832. You may request a redemption by fax of up to and
including $100,000 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.

Unless you request electronic transfer, redemption proceeds requested by fax
(up to and including $100,000) will be sent by check to your address of record.
If you request expedited delivery of the redemption proceeds, a fee of $15.00
will be deducted from your redemption proceeds.

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 of $100
or more withdrawn from your

-------
18
<PAGE>
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 below.

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 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, which may take up to 15 days
from the date of purchase.

- You may change your address of record by calling 1-800-447-0740, or by sending
a written request to the Manager. Redemption proceeds will be sent to the
former address during the fifteen day period after the Manager receives the
request for an address change, unless the address change is in writing and
your signature is guaranteed (see "Signature Guarantee").

- For IRA non-systematic withdrawals a shareholder should complete the
Distribution Request Form which can be obtained by calling 1-800-447-0740.

- If you request, redemption proceeds will be sent electronically to your
pre-designated bank account. The electronic transfer will be completed either
through the EFT method or through the wire transfer method, whichever you
choose. With the EFT method, the redemption proceeds will usually be deposited
in your pre-designated bank account within one or two days after the
processing of the redemption request. With the wire transfer method, the
redemption proceeds will usually be deposited in your pre-designated bank
account on the next business day after receipt of the redemption request. If
you choose electronic deposit of your proceeds using the wire transfer method,
the Manager will charge you a $15.00 fee, and this fee will be subtracted from
your redemption proceeds. There currently is no charge for electronic transfer
of redemption proceeds using the EFT method. Your bank may charge additional
fees for electronic transfers you initiate. The wire transfer method is not
available to shareowners participating in the systematic withdrawal program.
To change the bank or account designated to receive your redemption proceeds,
send a written request (not by fax) signed by each shareowner with each
signature guaranteed as described in this prospectus under "Signature
Guarantee" to:

State Farm Mutual Funds
P.O. Box 219548
Kansas City, Missouri 64121-9548

If the registered owner(s) of the new bank account is/are the same as the
registered owner(s) of the former bank account, no signature guarantee is
necessary.

- 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.

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

-------
19
<PAGE>
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 that exceeds $100,000, 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 Investors Account Services Form used to establish the Telephone
Investment, Redemption and/or Exchange Privilege(s), and on the Investors
Account Services Form used to change the pre-designated bank account into
which redemption proceeds may be deposited. If pre-designated bank account
information is changed but the registered owner(s) of the bank account remains
the same, no signature guarantee will be required.

TAX-QUALIFIED ACCOUNTS
--------------------------------------------------------------------------------

Tax-qualified accounts 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 TAX-QUALIFIED
PLANS.

- TRADITIONAL IRAs allow most individuals under 70 1/2 years of age with taxable
compensation to save up to $2,000 per year ($4,000 for most married couples).
If your spouse has less than $2,000 in taxable compensation, he or she may
still contribute up to $2,000 to an IRA, as long as you and your spouse's
combined taxable compensation 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 adjusted gross income up to $95,000 per
year, and married couples with adjusted gross income up to $150,000 per year,
to contribute up to $2,000 per person per year. Contributions to Roth IRAs are
not tax-deductible and earnings are not taxable upon withdrawal if the Roth
IRA has been held at least five years and you: (1) have attained age 59 1/2,
(2) have become disabled, (3) have become deceased, or (4) use the proceeds
(up to $10,000) to purchase a first home.

- EDUCATION IRAs allow individuals, subject to certain income limitations, to
contribute up to $500 annually for a child under the age of 18. Although
contributions to an Education IRA are not deductible for federal income tax
purposes, the proceeds are generally not taxable provided withdrawals are used
to pay for qualified higher education expenses. If contributions are made to a
qualified state tuition program for a child, contributions may not be made to
an Education IRA during that tax year.

- OTHER RETIREMENT PLANS--The Funds may be used as investments by other kinds of
retirement plans. All of these accounts need to be established by the trustee
of the plan. The Funds do not offer prototype retirement 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,
1999, the management fees paid by the Funds were:

<TABLE>
<S> <C>
Growth Fund .11%
Balanced Fund .12%
Interim Fund .15%
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 and John Concklin.
BALANCED FUND is managed by a team consisting of Mr. Concklin, Mr. Eckley,
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 is Vice President
of GROWTH FUND and BALANCED 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.

PAUL ECKLEY is a Senior Vice President of the Manager, and Senior 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 Lloyds, Inc. since 1998; 1995-1998 Vice President--Common
Stocks.

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

-------
21
<PAGE>
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 and a member of the
portfolio management team for GROWTH FUND and BALANCED FUND. 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 Senior
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.

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 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 taxable to you as dividends; long-term capital gain
distributions are taxable to you as long-term capital gains. The determination
of a capital gain classification as short-term versus long-term 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

-------
22
<PAGE>
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
calculating the amount of your capital gains or losses.

A redemption or an exchange of Fund shares 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 or exchanged 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, 1999 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

Net asset value, beginning of year $ 44.65 39.48 34.55 29.40 22.63

INCOME FROM INVESTMENT OPERATIONS

Net investment income 0.62 0.61 0.62 0.63 0.50

Net gain or (loss) on investments
(both realized and unrealized) 7.33 6.33 7.23 5.17 6.97
-------- ------- ------- ------- -------

Total from investment operations 7.95 6.94 7.85 5.80 7.47
-------- ------- ------- ------- -------

LESS DISTRIBUTIONS

Net investment income (0.59) (0.64) (0.61) (0.53) (0.52)

Capital gains (0.05) (1.13) (2.31) (0.12) (0.18)
-------- ------- ------- ------- -------

Total distributions (0.64) (1.77) (2.92) (0.65) (0.70)
-------- ------- ------- ------- -------

Net asset value, end of year $ 51.96 44.65 39.48 34.55 29.40
======== ======= ======= ======= =======

TOTAL RETURN 17.93% 18.17% 24.80% 20.09% 33.67%

RATIOS/SUPPLEMENTAL DATA

Net assets, end of year (millions) $2,786.4 2,285.5 1,821.1 1,362.9 1,068.6

Ratio of expenses to average net assets 0.12% 0.12% 0.12% 0.13% 0.14%(a)

Ratio of net investment income to average net assets 1.27% 1.47% 1.78% 1.88% 1.95%

Portfolio turnover rate 2% 1% 6% 16% 3%
</TABLE>

(a) The ratio based on net custodian expenses would have been .13% in 1995.

-------
24
<PAGE>
BALANCED FUND

Net asset value, beginning of year $49.54 46.09 42.04 37.76 31.12

INCOME FROM INVESTMENT OPERATIONS

Net investment income 1.51 1.54 1.40 1.39 1.25

Net gain or (loss) on investments
(both realized and unrealized) 3.23 4.14 5.45 4.38 6.77
------ ------ ------ ------ ------

Total from investment operations 4.74 5.68 6.85 5.77 8.02
------ ------ ------ ------ ------

LESS DISTRIBUTIONS

Net investment income (1.47) (1.54) (1.47) (1.30) (1.19)

Capital gains (0.02) (0.69) (1.33) (0.19) (0.19)
------ ------ ------ ------ ------

Total distributions (1.49) (2.23) (2.80) (1.49) (1.38)
------ ------ ------ ------ ------

Net asset value, end of year $52.79 49.54 46.09 42.04 37.76
====== ====== ====== ====== ======

TOTAL RETURN 9.72% 12.72% 17.33% 15.78% 26.53%

RATIOS/SUPPLEMENTAL DATA

Net assets, end of year (millions) $990.7 893.2 762.3 626.1 499.7

Ratio of expenses to average net assets 0.13% 0.14% 0.14% 0.15% 0.17%(a)

Ratio of net investment income to average net assets 2.96% 3.34% 3.42% 3.63% 3.66%

Portfolio turnover rate 5% 2% 6% 9% 6%
</TABLE>

(a) The ratio based on net custodian expenses would have been .16% in 1995.

-------
25
<PAGE>
INTERIM FUND

Net asset value, beginning of year $ 9.98 9.85 9.98 10.15 9.72

INCOME FROM INVESTMENT OPERATIONS

Net investment income 0.64 0.68 0.69 0.70 0.70

Net gain or (loss) on investments
(both realized and unrealized) (0.51) 0.13 (0.13) (0.17) 0.43
------ ----- ----- ----- -----

Total from investment operations 0.13 0.81 0.56 0.53 1.13
------ ----- ----- ----- -----

LESS DISTRIBUTIONS

Net investment income (0.64) (0.68) (0.69) (0.70) (0.70)
------ ----- ----- ----- -----

Total distributions (0.64) (0.68) (0.69) (0.70) (0.70)
------ ----- ----- ----- -----

Net asset value, end of year $ 9.47 9.98 9.85 9.98 10.15
====== ===== ===== ===== =====

TOTAL RETURN 1.35% 8.31% 5.87% 5.44% 11.91%

RATIOS/SUPPLEMENTAL DATA

Net assets, end of year (millions) $151.6 154.1 112.8 107.6 104.7

Ratio of expenses to average net assets 0.20% 0.21% 0.22% 0.23%(a) 0.25%(a)

Ratio of net investment income to average net assets 6.63% 6.80% 7.03% 7.03% 7.00%

Portfolio turnover rate 12% 14% 15% 17% 17%
</TABLE>

(a) The ratio based on net custodian expenses would have been .22% in 1996
and .24% in 1995.

-------
26
<PAGE>
MUNICIPAL BOND FUND

Net asset value, beginning of year $ 8.55 8.43 8.44 8.50 7.88

INCOME FROM INVESTMENT OPERATIONS

Net investment income 0.43 0.45 0.47 0.48 0.48

Net gain or (loss) on investments
(both realized and unrealized) (0.43) 0.12 (0.01) (0.06) 0.62
------ ----- ----- ----- -----

Total from investment operations -- 0.57 0.46 0.42 1.10
------ ----- ----- ----- -----

LESS DISTRIBUTIONS

Net investment income (0.43) (0.45) (0.47) (0.48) (0.48)

Capital gain(a) -- -- -- -- --
------ ----- ----- ----- -----

Total distributions (0.43) (0.45) (0.47) (0.48) (0.48)
------ ----- ----- ----- -----

Net asset value, end of year $ 8.12 8.55 8.43 8.44 8.50
====== ===== ===== ===== =====

TOTAL RETURN 0.04% 6.82% 5.68% 5.21% 14.25%

RATIOS/SUPPLEMENTAL DATA

Net assets, end of year (millions) $358.6 363.1 336.4 321.1 307.4

Ratio of expenses to average net assets 0.16% 0.15% 0.15% 0.16% 0.17%(b)

Ratio of net investment income to average net assets 5.20% 5.29% 5.61% 5.76% 5.80%

Portfolio turnover rate 10% 6% 6% 6% 7%
</TABLE>

(a) Distributions representing less than $.01 per share 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 and
performance 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.

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
THREE STATE FARM PLAZA
BLOOMINGTON, ILLINOIS 61791-0001
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. Information on the operation of
the Public Reference Room may be obtained by calling the SEC at 202-942-8090.
Copies of this information may be obtained, after paying a duplicating fee, by
sending your request to the SEC's Public Reference Section, 450 5th Street,
N.W., Washington, DC 20549-0102 or by electronic mail request at the following
e-mail address: [email protected].

<TABLE>
<S> <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>
[LOGO]

State Farm Growth Fund, Inc.
State Farm Balanced Fund, Inc.
State Farm Interim Fund, Inc.
State Farm Municipal Bond Fund, Inc.

THREE STATE FARM PLAZA, BLOOMINGTON, ILLINOIS 61791-0001
(309)766-2029 (800)477-0740

STATEMENT OF ADDITIONAL INFORMATION --

APRIL 1, 2000 as Supplemented October 11, 2000

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, 2000
and as supplemented October 11, 2000. 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............................... 11
Service Agreement........................................... 12
Underwriting Agreement...................................... 12
Transfer Agent Agreement.................................... 12
Performance Information..................................... 12
Portfolio Transactions...................................... 14
Additional Tax Considerations............................... 15
Directors and Officers...................................... 16
General Information......................................... 23
Description of Bond Ratings................................. 23
Ratings by Moody's.......................................... 24
S&P Ratings................................................. 25
Financial Statements........................................ 27
</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, December 9, 1966;
Interim Fund, November 10, 1976; and Municipal Bond Fund, December 6, 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

EQUITY SECURITIES

Growth Fund and Balanced Fund invest in common stocks, which represent an
equity interest (ownership) in a business. 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 Depositary 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 domiciled
and doing business in 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.

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.

Growth Fund may invest in fixed income investments such as United States
government obligations, investment grade bonds and preferred stocks. 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.
("Moody's") or Standard & Poor's Corporation ("S&P") 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 fifth 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 for S&P and Ba and lower for
Moody's) 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.

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

3
<PAGE>
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 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.

4
<PAGE>
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 AND CONCENTRATION

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 will 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. The investment objective of each
Fund can only be changed with the approval of the shareholders of the Fund. 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;

6
<PAGE>
(3) Make loans except by the purchase of bonds or other obligations of types
commonly distributed publicly or privately to financial institutions;

(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 ever borrowed, and neither Fund has
any 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 more than 15% of its net assets (taken at market value at the
time of each purchase) in illiquid securities, including repurchase agreements
maturing in more than seven days;

(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; or

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 purposes 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 restriction number 15 above, Interim Fund and Municipal Bond
Fund may invest more than 25% of the value of its total assets in money market
instruments, including certificates of deposit, commercial paper, treasury bills
or banker's acceptances of U.S. commercial banks when higher than normal
redemptions are expected or it is anticipated that interest rates will increase
in the future. In addition, Municipal Bond Fund may invest more than 25% of the
value of its total assets in such investments in order to take a temporary
defensive position in response to adverse market, economic, political or other
conditions.

For purposes of restriction number 15 above, Interim Fund and Municipal Bond
Fund may invest more than 25% of the value of its total assets in money market
instruments, including certificates of deposit, commercial paper, treasury bills
or bankers' acceptances of U.S. commercial banks when higher than normal
redemptions are expected or it is anticipated that interest rates will increase
in the future. In addition, Municipal Bond Fund may invest more than 25% of the
value of its total assets in such investments in order to take a temporary
defensive position in response to adverse market, economic, political or other
conditions.

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 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 of the Funds is determined as of the
time of the close of regular session trading on the New York Stock Exchange
("NYSE"), (currently at 3:00 p.m., Central time) on each day when the NYSE is
open. The NYSE is scheduled to be open Monday through Friday throughout the
year, except for certain federal and other holidays. 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

9
<PAGE>
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 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.

10
<PAGE>
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.

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, 1999, 1998 and 1997, the Manager
earned $2,740,037, $2,221,492 and $1,705,166, respectively, for its services as
investment adviser to Growth Fund. For its services to Balanced Fund, the
Manager earned $1,113,753, $980,972 and $829,724, respectively; for its services
to Interim Fund, the Manager earned $230,126, $199,209 and $184,551
respectively; and for its services to Municipal Bond Fund, the Manager earned
$442,211, $425,519 and $400,859, respectively. 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

11
<PAGE>
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 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 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

<TABLE>
<S> <C> <C> <C>
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.
</TABLE>

12
<PAGE>
For example, as of November 30, 1999 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............................... 17.93% 9.72% 1.35% 0.04%
5 Years.............................. 22.79% 16.28% 6.54% 6.31%
10 Years............................. 16.25% 14.06% 6.60% 6.36%
</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 30-day
period by the maximum offering price per share on the last day of the period,
according to the following formula:

<TABLE>
<C> <S> <C> <C> <C> <C> <C>
Yield = 2 [ ( a-b + 1 ) to the power of 6 - 1 ]
--
cd
</TABLE>

<TABLE>
<S> <C> <C> <C>
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.
</TABLE>

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.

13
<PAGE>
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 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 increasingly is using electronic communication networks (ECNs)
to purchase and sell portfolio securities for the Funds. The Manager uses ECNs
to trade portfolio securities when it believes that doing so will result in the
best net price for a Fund.

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.

14
<PAGE>
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, 1999, 1998 and 1997, brokerage
commissions paid by Growth Fund totaled $140,090, $241,371 and $195,621,
respectively, and for Balanced Fund, brokerage commissions totaled $46,566,
$36,881 and $57,525, 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.

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 a 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, 2000, Interim Fund has a capital
loss carry-forward of $4,007,631, and $22,669 of this carry-forward will expire
if there are no capital gains to offset the loss against during the fiscal year
ending November 30, 2000.

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>
NAME, AGE AND ADDRESS POSITION(S) HELD WITH THE FUNDS PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
--------------------- ------------------------------- ----------------------------------------------
<S> <C> <C>

Edward B. Rust, Jr.*, Director and President, State CHAIRMAN OF THE BOARD, PRESIDENT, CEO, AND
Age 49 Farm Growth Fund, Inc., State DIRECTOR -- State Farm Mutual Automobile
Farm Balanced Fund, Inc., Insurance Company; PRESIDENT, CEO, AND
State Farm Interim Fund, DIRECTOR -- State Farm Life Insurance Company,
Inc., and State Farm State Farm Life and Accident Assurance
Municipal Bond Fund, Inc. Company, State Farm Annuity and Life Insurance
Company, State Farm General Insurance Company,
State Farm Fire and Casualty Company, State
Farm Investment Management Corp.; CHAIRMAN OF
THE BOARD AND DIRECTOR (SINCE 1999), State
Farm Federal Savings Bank; 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
</TABLE>

16
<PAGE>

Roger S. Joslin*, Director, Senior Vice President VICE CHAIRMAN, CHIEF FINANCIAL OFFICER, SENIOR
Age 63 and Treasurer, State Farm VICE PRESIDENT, TREASURER, AND DIRECTOR --
Growth Fund, Inc., State Farm State Farm Mutual Automobile Insurance
Balanced Fund, Inc., State Company; DIRECTOR -- State Farm Life Insurance
Farm Interim Fund, Inc., and Company, State Farm Life and Accident
State Farm Municipal Bond Assurance Company, State Farm Annuity and Life
Fund, Inc. Insurance Company; DIRECTOR, VICE PRESIDENT,
AND TREASURER -- State Farm General Insurance
Company, State Farm Lloyds, Inc., State Farm
Investment Management Corp., State Farm
International Services, Inc.; DIRECTOR, VICE
PRESIDENT AND TREASURER (SINCE 1999), State
Farm Federal Savings Bank; 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

Albert H. Hoopes, Director, State Farm Growth ATTORNEY; TRUSTEE -- State Farm Variable
Age 85 Fund, Inc., State Farm Product Trust (since 1997).
1001 North Main Balanced Fund, Inc., State
Street Farm Interim Fund, Inc., and
Bloomington, IL 61701 State Farm Municipal Bond
Fund, Inc.

Thomas M. Mengler, Director, State Farm Growth DEAN, UNIVERSITY OF ILLINOIS COLLEGE OF LAW;
Age 46 Fund, Inc., State Farm TRUSTEE -- State Farm Variable Product Trust
Swanland Building Balanced Fund, Inc., State (since 1997).
601 E. John St. Farm Interim Fund, Inc., and
Champaign, IL 61820 State Farm Municipal Bond
Fund, Inc.

Davis U. Merwin, Director, State Farm Growth INVESTOR; TRUSTEE -- State Farm Variable
Age 71 Fund, Inc., State Farm Product 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.
</TABLE>

17
<PAGE>

James A. Shirk, Director, State Farm Growth DIRECTOR AND PRESIDENT -- BEER NUTS, INC.;
Age 56 Fund, Inc., State Farm TRUSTEE -- State Farm Variable Product Trust
103 North Robinson Balanced Fund, Inc., State (since 1997).
Bloomington, IL 61701 Farm Interim Fund, Inc., and
State Farm Municipal Bond
Fund, Inc.

Kurt G. Moser, Senior Vice President, State SENIOR VICE PRESIDENT -- INVESTMENTS (SINCE
Age 55 Farm Growth Fund, Inc., State 1998), PRESIDENT -- INVESTMENTS -- State Farm
Farm Balanced Fund, Inc., Mutual Automobile Insurance Company, State
State Farm Interim Fund, Farm County Mutual Insurance Company of Texas,
Inc., and State Farm State Farm Lloyds, Inc.; SENIOR VICE PRESIDENT
Municipal Bond Fund, Inc. --INVESTMENTS (SINCE 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; VICE
PRESIDENT -- INVESTMENTS (SINCE 1998), State
Farm Florida Insurance 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.
</TABLE>

18
<PAGE>

Paul N. Eckley, Senior Vice President, State SENIOR VICE PRESIDENT -- INVESTMENTS AND
Age 45 Farm Growth Fund, Inc. and ASSISTANT SECRETARY-TREASURER (SINCE 1998),
State Farm Balanced Fund, VICE PRESIDENT -- COMMON STOCKS -- State Farm
Inc. 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

John S. Concklin, Vice President, State Farm VICE PRESIDENT -- COMMON STOCKS AND ASSISTANT
Age 53 Growth Fund, Inc. and State SECRETARY-TREASURER (SINCE 1997), VICE
Farm Balanced Fund, Inc. PRESIDENT -- FIXED INCOME -- State Farm Mutual
Automobile 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 -- 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 --
Age 57 Secretary, State Farm Growth State Farm Mutual Automobile Insurance
Fund, Inc., State Farm Company; ASSISTANT VICE PRESIDENT AND
Balanced Fund, Inc., State SECRETARY -- State Farm Investment Management
Farm Interim Fund, Inc., and Corp., State Farm Variable Product Trust;
State Farm Municipal Bond ASSISTANT VICE PRESIDENT AND SECRETARY (SINCE
Fund, Inc. 1997) -- State Farm VP Management Corp.
</TABLE>

19
<PAGE>

Jerel S. Chevalier, Assistant Secretary -- DIRECTOR OF MUTUAL FUNDS -- State Farm Mutual
Age 61 Treasurer, State Farm Growth Automobile Insurance Company; ASSISTANT
Fund, Inc., State Farm SECRETARY-TREASURER -- State Farm Investment
Balanced Fund, Inc., State Management Corp.; ASSISTANT SECRETARY --
Farm Interim Fund, Inc., and TREASURER (SINCE 1997) -- State Farm Variable
State Farm Municipal Bond Product Trust
Fund, Inc.

Howard A. Thomas, Assistant Secretary -- DIRECTOR OF MUTUAL FUNDS (SINCE 1998) -- State
Age 52 Treasurer, State Farm Growth Farm Mutual Automobile Insurance Company;
Fund, Inc., State Farm MANAGER OF ACCOUNTING BENEFITS (1988-1998) --
Balanced Fund, Inc., State State Farm Mutual Automobile Insurance
Farm Interim Fund, Inc., and Company; ASSISTANT SECRETARY-TREASURER (SINCE
State Farm Municipal Bond 1998) -- State Farm Investment Management
Fund, Inc. Corp., State Farm Variable Product Trust

Donald O. Jaynes, Assistant Secretary, State Farm ASSOCIATE GENERAL COUNSEL, State Farm Mutual
Age 51 Growth Fund, Inc., State Farm Automobile Insurance Company; ASSISTANT
Balanced Fund, Inc., State SECRETARY (SINCE 1998) -- State Farm
Farm Interim Fund, Inc., and Investment Management Corp., State Farm
State Farm Municipal Bond Variable Product Trust
Fund, Inc.

Stephen L. Horton, Assistant Secretary, State Farm COUNSEL -- State Farm Mutual Automobile
Age 42 Growth Fund, Inc., State Farm Insurance Company; ASSISTANT SECRETARY (SINCE
Balanced Fund, Inc., State 2000) -- State Farm Investment Management
Farm Interim Fund, Inc., and Corp., State Farm Variable Product Trust;
State Farm Municipal Bond ASSISTANT SECRETARY (SINCE 1999) -- State Farm
Fund, Inc. VP Management Corp.

David M. Moore, Assistant Secretary, State Farm COUNSEL (SINCE 1997), ASSISTANT TAX COUNSEL
Age 38 Growth Fund, Inc., State Farm (1995-1997) -- State Farm Mutual Automobile
Balanced Fund, Inc., State Insurance Company; ASSISTANT SECRETARY (SINCE
Farm Interim Fund, Inc., and 2000) -- State Farm Investment Management
State Farm Municipal Bond Corp., State Farm Variable Product Trust
Fund, Inc.

Michael L. Tipsord, Assistant Secretary, State Farm VICE PRESIDENT AND ASSISTANT TREASURER (SINCE
Age 40 Growth Fund, Inc., State Farm 1998), EXECUTIVE ASSISTANT -- OPERATIONS
Balanced Fund, Inc., State (SINCE 1997), ASSISTANT CONTROLLER
Farm Interim Fund, Inc., and (1996-1997), DIRECTOR OF ACCOUNTING
State Farm Municipal Bond (1995-1996) -- State Farm Mutual Automobile
Fund, Inc. Insurance Company; ASSISTANT SECRETARY --
State Farm Investment Management Corp.,
ASSISTANT SECRETARY (SINCE 1997) -- State Farm
Variable Product Trust; TREASURER (SINCE 1996)
-- Insurance Placement Services, Inc.
</TABLE>

20
<PAGE>

Donald E. Heltner, Vice President, State Farm VICE PRESIDENT -- FIXED INCOME AND ASSISTANT
Age 52 Balanced Fund, Inc. and State SECRETARY-TREASURER, State Farm Life Insurance
Farm Interim Fund, Inc. Company, State Farm Life and Accident
Assurance Company, and State Farm Annuity and
Life Insurance Company; VICE PRESIDENT --
FIXED INCOME (SINCE 1998), 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., and
State Farm Variable Product Trust; prior to
1998, VICE PRESIDENT, Century Investment
Management Co.

Julian R. Bucher, Vice President, State Farm VICE PRESIDENT -- MUNICIPAL SECURITIES AND
Age 57 Municipal Bond Fund, Inc. 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, 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>

------------------------

* Director who is an "interested person" of a Fund or of the Manager, as
defined in the Investment Company Act of 1940.

As of December 31, 1999, the directors and officers as a group owned 1.68%
of the Municipal Bond Fund's outstanding shares and owned less than one percent
of the other Funds' outstanding shares.

21
<PAGE>
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 $1,800 for each meeting of
the Board of Directors attended during the year ended November 30, 1999.

<TABLE>
<CAPTION>
TOTAL
COMPENSATION
FROM ALL
MUNICIPAL FUNDS
GROWTH BALANCED INTERIM BOND AND FUND
NAME OF DIRECTOR FUND FUND FUND FUND COMPLEX(10)*
---------------- -------- -------- -------- --------- ------------
<S> <C> <C> <C> <C> <C>
Edward B. Rust, Jr........................... $ 0 $ 0 $ 0 $ 0 $ 0
Albert H. Hoopes............................. 3,600 1,800 600 1,200 14,400
Roger S. Joslin.............................. 0 0 0 0 0
Thomas M. Mengler............................ 3,600 1,800 600 1,200 14,400
Davis U. Merwin.............................. 3,600 1,800 600 1,200 14,400
James A. Shirk............................... 3,600 1,800 600 1,200 14,400
</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.

22
<PAGE>
GENERAL INFORMATION

OWNERSHIP OF SHARES

As of December 31, 1999, Continental Trust Company, 231 South LaSalle
Street, Chicago, Illinois 60692, as trustee of the Agents' Trustee Keogh Plan
and Custodian of IRAs which fund the Agents' Simplified Pension Plan, 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........................................ 3,696,985 6.83%
Balanced Fund...................................... 1,378,629 7.21%
Interim Fund....................................... 1,121,524 7.19%
</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.

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 the Manager and of each Fund has adopted a Code of
Ethics. The Code of Ethics 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. The Code of Ethics permits
subscribers subject to the Code to invest in securities, including securities
that may be purchased or held by a Fund.

DESCRIPTION OF BOND RATINGS

A rating obtained from 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

23
<PAGE>
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.

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 indicates
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

24
<PAGE>
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 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:

<TABLE>
<S> <C>
Prime-1 Highest Quality
Prime-2 Higher Quality
Prime-3 High Quality
</TABLE>

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.

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.

25
<PAGE>
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 rated 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+.

26
<PAGE>
FINANCIAL STATEMENTS

27
<PAGE>
REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Shareowners
State Farm Growth Fund, Inc.
State Farm Balanced Fund, Inc.
State Farm Interim Fund, Inc.
State Farm Municipal Bond Fund, Inc.

We have audited the accompanying statements of assets and liabilities,
including the portfolios of investments, of State Farm Growth Fund, Inc., State
Farm Balanced Fund, Inc., State Farm Interim Fund, Inc., and State Farm
Municipal Bond Fund, Inc. as of November 30, 1999, the related statements of
operations and changes in net assets for each of the two years in the period
then ended, and the financial highlights for each of the fiscal years since
1990. These financial statements and financial highlights are the responsibility
of the Funds' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
November 30, 1999, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
State Farm Growth Fund, Inc., State Farm Balanced Fund, Inc., State Farm Interim
Fund, Inc., and State Farm Municipal Bond Fund, Inc. at November 30, 1999, the
results of their operations and changes in their net assets for each of the two
years in the period then ended, and the financial highlights for each of the
fiscal years since 1990, in conformity with generally accepted accounting
principles.

[LOGO]

Chicago, Illinois
December 17, 1999

28
<PAGE>
STATE FARM GROWTH FUND, INC.

PORTFOLIO OF INVESTMENTS

NOVEMBER 30, 1999

<TABLE>
<CAPTION>
SHARES VALUE
--------------------- --------------
<C> <S> <C>
COMMON STOCKS (98.4%)
AGRICULTURE, FOODS, & BEVERAGE (4.7%)
3,154,196 Archer-Daniels-Midland Company.............................. $ 39,230,313
92,000 Campbell Soup Company....................................... 4,105,500
930,000 Kellogg Company............................................. 31,503,750
208,000 Sara Lee Corporation........................................ 5,044,000
81,600 Sysco Corporation........................................... 3,105,900
710,900 The Coca-Cola Company....................................... 47,852,456
--------------
130,841,919
--------------
BANKS (8.9%)
176,945 ABN Amro Holding NV......................................... 4,314,396
181,237 Amsouth Bancorporation...................................... 4,089,160
421,268 Bank of America Corporation................................. 24,644,178
715,322 Bank One Corporation........................................ 25,215,100
90,000 First Security Corporation.................................. 2,531,250
43,500 First Virginia Banks Inc.................................... 1,973,812
61,300 Golden West Financial Corporation........................... 6,187,469
47,700 JP Morgan & Co. Incorporated................................ 6,272,550
6,200 M&T Bank Corporation........................................ 2,914,000
809,800 National Commerce Bancorporation............................ 20,447,450
72,000 Northern Trust Corporation.................................. 6,970,500
640,074 Pacific Century Financial Corporation....................... 12,561,452
830,316 Popular Inc................................................. 23,871,585
345,000 Southtrust Corporation...................................... 13,390,313
157,900 SunTrust Banks Inc.......................................... 11,033,262
62,000 TCF Financial Corporation................................... 1,755,375
158,350 U.S. Bancorp................................................ 5,413,591
238,900 Wachovia Corporation........................................ 18,499,819
1,220,000 Wells Fargo & Company....................................... 56,730,000
--------------
248,815,262
--------------
BUILDING MATERIALS & CONSTRUCTION (1.5%)
1,039,200 Vulcan Materials Company.................................... 41,827,800
--------------
CHEMICALS (5.3%)
830,000 Air Products & Chemicals Inc................................ 26,871,250
496,104 E.I. du Pont de Nemours and Company......................... 29,487,181
588,300 Great Lakes Chemical Corporation............................ 19,524,206
561,000 International Flavors & Fragrances Inc...................... 20,651,812
45,200 Praxair Inc................................................. 2,017,050
1,410,300 Sigma-Aldrich Corporation................................... 40,369,837
81,000 The Dow Chemical Company.................................... 9,487,125
--------------
148,408,461
--------------
</TABLE>

29
<PAGE>
STATE FARM GROWTH FUND, INC.

PORTFOLIO OF INVESTMENTS (CONTINUED)

NOVEMBER 30, 1999

<TABLE>
<CAPTION>
SHARES VALUE
--------------------- --------------
<C> <S> <C>
COMMON STOCKS (98.4%) (CONTINUED)
COMPUTER SOFTWARE AND SERVICES (7.4%)
61,100 AutoDesk Inc................................................ $ 1,790,994
124,000 Automatic Data Processing Inc............................... 6,122,500
719,700 Cisco Systems Inc. (a)...................................... 64,188,244
30,800 Electronic Data Systems Corporation......................... 1,980,825
1,197,500 Microsoft Corporation (a)................................... 109,028,663
344,700 Oracle Corporation (a)...................................... 23,374,969
--------------
206,486,195
--------------
COMPUTERS (7.0%)
322,200 Compaq Computer Corporation................................. 7,873,762
1,437,000 Hewlett-Packard Company..................................... 136,335,375
496,400 International Business Machines Corporation................. 51,160,225
--------------
195,369,362
--------------
CONSUMER & MARKETING (5.9%)
63,600 Clorox Co................................................... 2,834,175
183,800 Colgate-Palmolive Company................................... 10,086,025
1,439,200 Hon Industries Inc.......................................... 31,122,700
317,876 Kimberly Clark Corp......................................... 20,304,330
413,700 McDonald's Corporation...................................... 18,616,500
464,308 Newell Rubbermaid Inc....................................... 15,235,106
565,100 The Gillette Company........................................ 22,709,956
339,400 The Procter & Gamble Company................................ 36,655,200
125,446 Unilever NV................................................. 6,828,967
--------------
164,392,959
--------------
ELECTRONIC/ELECTRICAL MFG. (8.2%)
46,043 ABB Ltd. (a)................................................ 4,563,957
82,300 Applied Materials Inc. (a).................................. 8,019,106
91,900 Diebold Inc................................................. 2,107,956
109,400 Emerson Electric Co......................................... 6,235,800
771,200 General Electric Company.................................... 100,256,000
967,200 Intel Corporation........................................... 74,172,150
91,600 KLA Tencor Corporation (a).................................. 7,745,925
351,600 Linear Technology Corp...................................... 24,985,575
--------------
228,086,469
--------------
FINANCIAL SERVICES (2.7%)
537,200 Citigroup Inc............................................... 28,941,650
167,400 Federal Home Loan Mortgage.................................. 8,265,375
250,800 Federal National Mortgage Association....................... 16,709,550
124,600 First Union Corp............................................ 4,820,462
</TABLE>

30
<PAGE>
STATE FARM GROWTH FUND, INC.

PORTFOLIO OF INVESTMENTS (CONTINUED)

NOVEMBER 30, 1999

<TABLE>
<CAPTION>
SHARES VALUE
--------------------- --------------
<C> <S> <C>
COMMON STOCKS (98.4%) (CONTINUED)
FINANCIAL SERVICES (2.7%) (Continued)
558,450 MBNA Corporation............................................ $ 14,100,862
36,400 The Finova Group Inc........................................ 1,353,625
--------------
74,191,524
--------------
HEALTH CARE (14.6%)
294,500 Abbott Laboratories......................................... 11,191,000
1,550,000 Biomet Inc.................................................. 49,115,625
59,600 Boston Scientific Corporation (a)........................... 1,259,050
107,050 Covance Inc. (a)............................................ 1,164,169
947,200 Eli Lilly & Co.............................................. 67,961,600
1,240,800 Johnson & Johnson........................................... 128,733,000
80,000 Medtronic Inc............................................... 3,110,000
523,400 Merck & Co. Inc............................................. 41,086,900
2,880,000 Pfizer Inc.................................................. 104,220,000
--------------
407,841,344
--------------
MACHINERY & MANUFACTURING (3.8%)
175,300 AlliedSignal Inc............................................ 10,485,131
190,800 AptarGroup Inc.............................................. 5,175,450
370,000 Caterpillar Inc............................................. 17,158,750
428,200 Corning Incorporated........................................ 40,116,987
50,000 Cummins Engine Company Inc.................................. 2,025,000
57,800 Deere & Company............................................. 2,481,787
70,000 Illinois Tool Works Inc..................................... 4,532,500
173,200 Minnesota Mining & Manufacturing Co......................... 16,551,425
337,500 Osmonics Inc. (a)........................................... 3,037,500
171,100 Pall Corporation............................................ 4,010,156
--------------
105,574,686
--------------
MEDIA & BROADCASTING (3.5%)
155,433 Reuters Group PLC ADR....................................... 10,180,861
360,181 SBS Broadcasting SA (a)..................................... 14,587,330
2,619,540 The Walt Disney Company..................................... 73,019,678
--------------
97,787,869
--------------
MINING & METALS (.8%)
36,700 Newmont Mining Corporation.................................. 869,331
132,800 Nucor Corporation........................................... 6,698,100
185,000 Rio Tinto PLC ADR........................................... 14,383,750
81,250 Steel Dynamics Inc. (a)..................................... 1,117,188
--------------
23,068,369
--------------
</TABLE>

31
<PAGE>
STATE FARM GROWTH FUND, INC.

PORTFOLIO OF INVESTMENTS (CONTINUED)

NOVEMBER 30, 1999

<TABLE>
<CAPTION>
SHARES VALUE
--------------------- --------------
<C> <S> <C>
COMMON STOCKS (98.4%) (CONTINUED)
OIL, GAS, & OTHER ENERGY (6.0%)
440,400 Barrett Resources Corporation (a)........................... $ 11,698,125
322,892 BP Amoco PLC ADR............................................ 19,676,231
530,000 Chevron Corporation......................................... 46,938,125
106,102 Devon Energy Corporation.................................... 3,740,096
646,300 Exxon Corporation........................................... 51,259,669
237,100 Pennzoil-Quaker State Co.................................... 2,459,913
516,300 Royal Dutch Petroleum Company ADR........................... 29,945,400
--------------
165,717,559
--------------
RETAILERS (2.2%)
1,063,200 Wal-Mart Stores Inc......................................... 61,266,900
--------------
TELECOM & TELECOM EQUIPMENT (14.5%)
450,000 ADC Telecommunications Inc. (a)............................. 23,990,625
600,000 AT&T Corp................................................... 33,525,000
575,000 LM Ericsson Telephone Company ADR........................... 27,707,813
638,732 Lucent Technologies Inc..................................... 46,667,357
1,023,729 MCI Worldcom Inc. (a)....................................... 84,649,592
264,000 Motorola Inc................................................ 30,162,000
115,400 Nextlink Communications Inc. (Class A) (a).................. 5,770,000
129,800 Nokia Corporation ADR....................................... 17,936,738
346,600 Nortel Networks Corp........................................ 25,648,400
1,497,512 SBC Communications Inc...................................... 77,777,030
347,400 Tele Danmark AS ADR......................................... 11,095,088
136,200 U.S. West Inc............................................... 8,452,913
215,000 Vodafone AirTouch Public Limited Co. ADR (a)................ 10,145,313
--------------
403,527,869
--------------
UTILITIES & ENERGY (1.4%)
74,900 CMS Energy Corporation...................................... 2,490,425
132,000 Duke Energy Corporation..................................... 6,690,750
88,500 FPL Group Inc............................................... 3,871,875
188,674 Scottish Power PLC ADR (a).................................. 6,591,798
288,000 Southern Company............................................ 6,732,000
166,000 Teco Energy Inc............................................. 3,320,000
98,500 Texas Utilities Company (Holding Co.)....................... 3,527,531
112,400 The AES Corporation (a)..................................... 6,512,175
--------------
39,736,554
--------------
TOTAL COMMON STOCKS
(cost $1,103,793,558)............................................................. 2,742,941,101
--------------
</TABLE>

32
<PAGE>
STATE FARM GROWTH FUND, INC.

PORTFOLIO OF INVESTMENTS (CONTINUED)

NOVEMBER 30, 1999

<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE
--------------------- --------------
<C> <S> <C>
SHORT-TERM INVESTMENTS (1.5%)
Ford Motor Credit Company, 5.505% to 5.616%, December,
30,000,000 1999...................................................... $ 30,008,883
10,000,000 U.S. Treasury Bills, 4.670%, January, 2000.................. 9,951,900
3,063,268 Chase Vista Treasury Plus Money Market Fund................. 3,063,268
--------------
TOTAL SHORT-TERM INVESTMENTS
(cost $43,025,115)................................................................ 43,024,051
--------------
TOTAL INVESTMENTS (99.9%)
(cost $1,146,818,673)............................................................. 2,785,965,152
CASH AND OTHER ASSETS, NET OF LIABILITIES (0.1%).................................... 474,279
--------------
NET ASSETS (100.0%)................................................................. $2,786,439,431
==============
</TABLE>

Notes:

(a) Non-income producing security.

At November 30, 1999, net unrealized appreciation of $1,639,146,479 consisted of
gross unrealized appreciation of $1,666,509,427 and gross unrealized
depreciation of $27,362,948 based on cost of $1,146,818,673 for federal income
tax purposes.

See accompanying notes to financial statements.

33
<PAGE>
STATE FARM GROWTH FUND, INC.

STATEMENT OF ASSETS AND LIABILITIES

NOVEMBER 30, 1999

<TABLE>
<S> <C> <C>
ASSETS
Investments, at value (cost $1,146,818,673)............... $2,785,965,152
Cash...................................................... 2,946
Receivable for:
Dividends and interest.................................. $4,629,871
Shares of the Fund sold................................. 714,812 5,344,683
----------
Prepaid expenses.......................................... 47,942
--------------
Total assets.............................................. 2,791,360,723
--------------

LIABILITIES AND NET ASSETS
Payable for:
Shares of the Fund redeemed............................. 1,093,506
Securities purchased.................................... 3,000,000
Other (including $750,584 to Manager)................... 827,786
----------
4,921,292
--------------
Total liabilities....................................... 4,921,292
--------------
Net assets applicable to 53,626,713 shares outstanding of
$0.50 par value common stock (100,000,000 shares
authorized)............................................... $2,786,439,431
==============
Net asset value, offering price and redemption price per
share..................................................... $ 51.96
==============

ANALYSIS OF NET ASSETS
Excess of amounts received from sales of shares over
amounts paid on redemptions of shares on account of
capital................................................. $1,111,497,452
Accumulated net realized gain on sales of investments..... 13,478,727
Net unrealized appreciation of investments................ 1,639,146,479
Undistributed net investment income....................... 22,316,773
--------------
Net assets applicable to shares outstanding................. $2,786,439,431
==============
</TABLE>

See accompanying notes to financial statements.

34
<PAGE>
STATE FARM GROWTH FUND, INC.

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
---------------------------
1999 1998
------------ ------------
<S> <C> <C>
INVESTMENT INCOME:
Dividends................................................. $ 33,916,255 $ 29,997,754
Interest.................................................. 2,390,006 3,413,231
------------ ------------
36,306,261 33,410,985
Less: foreign withholding taxes........................... 547,592 297,805
------------ ------------
Total investment income................................... 35,758,669 33,113,180

EXPENSES:
Investment advisory and management fees................... 2,740,037 2,221,492
Professional fees......................................... 96,955 55,382
ICI dues.................................................. 55,835 44,841
Registration fees......................................... 27,350 61,281
Fidelity bond expense..................................... 8,803 8,367
Directors' fees........................................... 14,400 16,259
Reports to shareowners.................................... 81,541 21,287
Security evaluation fees.................................. 3,128 3,237
Franchise taxes........................................... 18,148 17,495
Custodian fees............................................ 21,037 26,161
Proxy and related expense................................. -- 31,777
Other..................................................... 131 10,745
------------ ------------
Total expenses............................................ 3,067,365 2,518,324
------------ ------------
Net investment income....................................... 32,691,304 30,594,856

REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on sales of investments................. 13,478,727 2,197,936
Change in net unrealized appreciation..................... 368,649,780 306,511,650
------------ ------------
Net realized and unrealized gain on investments............. 382,128,507 308,709,586
------------ ------------
Net change in net assets resulting from operations.......... $414,819,811 $339,304,442
============ ============
</TABLE>

See accompanying notes to financial statements.

35
<PAGE>
STATE FARM GROWTH FUND, INC.

STATEMENTS OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-------------------------------
1999 1998
-------------- --------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income..................................... $ 32,691,304 $ 30,594,856
Net realized gain on sales of investments................. 13,478,727 2,197,936
Change in net unrealized appreciation..................... 368,649,780 306,511,650
-------------- --------------
Net change in net assets resulting from operations.......... 414,819,811 339,304,442
Undistributed net investment income included in price of
shares issued and redeemed................................ 666,112 789,317

DISTRIBUTION TO SHAREOWNERS FROM:
Net investment income..................................... (30,736,945) (31,134,862)
Net realized gain......................................... (2,197,936) (52,131,683)
-------------- --------------
Total distributions to shareowners.......................... (32,934,881) (83,266,545)

FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold................................. 313,280,990 334,952,191
Reinvestment of ordinary income dividends and capital gain
distributions........................................... 31,660,456 80,862,911
-------------- --------------
344,941,446 415,815,102
Less payments for shares redeemed......................... 226,541,809 208,248,185
-------------- --------------
Net increase in net assets from Fund share transactions..... 118,399,637 207,566,917
-------------- --------------
Total increase in net assets................................ 500,950,679 464,394,131

NET ASSETS:
Beginning of year......................................... 2,285,488,752 1,821,094,621
-------------- --------------
End of year (including undistributed net investment income
of $22,316,773 in 1999, and $19,696,302 in 1998)........ $2,786,439,431 $2,285,488,752
============== ==============
</TABLE>

See accompanying notes to financial statements.

36
<PAGE>
STATE FARM GROWTH FUND, INC.

FINANCIAL HIGHLIGHTS

PER SHARE INCOME AND CAPITAL CHANGES
(For a share outstanding throughout each year)

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-----------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994 1993 1992 1991 1990
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year... $ 44.65 $ 39.48 $ 34.55 $ 29.40 $ 22.63 $22.21 $23.05 $20.33 $16.77 $16.90

INCOME FROM INVESTMENT
OPERATIONS
Net investment
income............ 0.62 0.61 0.62 0.63 0.50 0.44 0.45 0.43 0.42 .47
Net gain or (loss)
on investments
(both realized and
unrealized)....... 7.33 6.33 7.23 5.17 6.97 0.43 (0.60) 2.70 4.32 0.26
-------- -------- -------- -------- -------- ------ ------ ------ ------ ------
Total from
investment
operations........ 7.95 6.94 7.85 5.80 7.47 0.87 (0.15) 3.13 4.74 0.73
-------- -------- -------- -------- -------- ------ ------ ------ ------ ------

LESS DISTRIBUTIONS
Net investment
income............ (0.59) (0.64) (0.61) (0.53) (0.52) (0.45) (0.45) (0.41) (0.54) (0.40)
Capital gains....... (0.05) (1.13) (2.31) (0.12) (0.18) -- (0.24) -- (0.64) (0.46)
-------- -------- -------- -------- -------- ------ ------ ------ ------ ------
Total
distributions..... (0.64) (1.77) (2.92) (0.65) (0.70) (0.45) (0.69) (0.41) (1.18) (0.86)
-------- -------- -------- -------- -------- ------ ------ ------ ------ ------
Net asset value, end
of year............. $ 51.96 $ 44.65 $ 39.48 $ 34.55 $ 29.40 $22.63 $22.21 $23.05 $20.33 $16.77
======== ======== ======== ======== ======== ====== ====== ====== ====== ======
TOTAL RETURN.......... 17.93% 18.17% 24.80% 20.09% 33.67% 4.02% (0.65)% 15.49% 29.79% 4.27%

RATIOS/SUPPLEMENTAL
DATA
Net assets, end of
year (millions)..... $2,786.4 $2,285.5 $1,821.1 $1,362.9 $1,068.6 $771.7 $725.1 $696.1 $558.4 $414.3
Ratio of expenses to
average net
assets.............. 0.12% 0.12% 0.12% 0.13% 0.14%(a) 0.14% 0.14% 0.16% 0.19% 0.21%
Ratio of net
investment income to
average net
assets.............. 1.27% 1.47% 1.78% 1.88% 1.95% 2.00% 2.05% 1.99% 2.22% 2.84%
Portfolio turnover
rate................ 2% 1% 6% 16% 3% 3% 2% 2% 1% 16%
</TABLE>

------------------------------

(a) The ratio based on net custodian expenses would have been .13% in 1995.

37
<PAGE>
STATE FARM BALANCED FUND, INC.

PORTFOLIO OF INVESTMENTS

NOVEMBER 30, 1999

<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
------- ---------------------------------------------------------------------- ------------
<C> <S> <C>
COMMON STOCKS (68.1%)
AGRICULTURE, FOODS, & BEVERAGE (3.7%)
853,118 Archer-Daniels-Midland Company........................................ $ 10,610,655
26,000 Campbell Soup Company................................................. 1,160,250
310,000 Kellogg Company....................................................... 10,501,250
58,000 Sara Lee Corporation.................................................. 1,406,500
190,000 The Coca-Cola Company................................................. 12,789,375
------------
36,468,030
------------
BANKS (5.7%)
49,960 ABN Amro Holding NV................................................... 1,218,159
52,312 Amsouth Bancorporation................................................ 1,180,290
36,700 Bank of America Corporation........................................... 2,146,950
184,100 Bank One Corporation.................................................. 6,489,525
25,650 First Security Corporation............................................ 721,406
12,300 First Virginia Banks Inc.............................................. 558,112
17,700 Golden West Financial Corporation..................................... 1,786,594
10,900 JP Morgan & Co. Incorporated.......................................... 1,433,350
1,900 M&T Bank Corporation.................................................. 893,000
20,500 Northern Trust Corporation............................................ 1,984,656
180,960 Pacific Century Financial Corporation................................. 3,551,340
166,924 Popular Inc........................................................... 4,799,065
99,000 Southtrust Corporation................................................ 3,842,438
21,400 SunTrust Banks Inc.................................................... 1,495,325
17,600 TCF Financial Corporation............................................. 498,300
19,251 U.S. Bancorp.......................................................... 658,144
75,700 Wachovia Corporation.................................................. 5,862,019
373,800 Wells Fargo & Company................................................. 17,381,700
------------
56,500,373
------------
BUILDING MATERIALS & CONSTRUCTION (.6%)
160,200 Vulcan Materials Company.............................................. 6,448,050
------------
CHEMICALS (3.4%)
230,000 Air Products & Chemicals Inc.......................................... 7,446,250
108,705 E.I. du Pont de Nemours and Company................................... 6,461,153
141,400 Great Lakes Chemical Corporation...................................... 4,692,712
120,000 International Flavors & Fragrances Inc................................ 4,417,500
11,800 Praxair Inc........................................................... 526,575
245,500 Sigma-Aldrich Corporation............................................. 7,027,437
23,000 The Dow Chemical Company.............................................. 2,693,875
------------
33,265,502
------------
</TABLE>

38
<PAGE>
STATE FARM BALANCED FUND, INC.

PORTFOLIO OF INVESTMENTS (CONTINUED)

NOVEMBER 30, 1999

<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
------- ---------------------------------------------------------------------- ------------
<C> <S> <C>
COMMON STOCKS (68.1%) (CONTINUED)
COMPUTER SOFTWARE AND SERVICES (2.3%)
15,500 AutoDesk Inc.......................................................... $ 454,344
67,700 Cisco Systems Inc. (a)................................................ 6,037,994
8,800 Electronic Data Systems Corporation................................... 565,950
168,600 Microsoft Corporation (a)............................................. 15,350,507
------------
22,408,795
------------
COMPUTERS (5.0%)
377,000 Hewlett-Packard Company............................................... 35,767,875
137,200 International Business Machines Corporation........................... 14,140,175
------------
49,908,050
------------
CONSUMER & MARKETING (4.7%)
22,200 Clorox Co............................................................. 989,287
160,000 Hon Industries Inc.................................................... 3,460,000
177,937 Kimberly Clark Corp................................................... 11,365,726
96,700 McDonald's Corporation................................................ 4,351,500
136,218 Newell Rubbermaid Inc................................................. 4,469,653
300,000 The Gillette Company.................................................. 12,056,250
81,600 The Procter & Gamble Company.......................................... 8,812,800
22,857 Unilever NV........................................................... 1,244,278
------------
46,749,494
------------
ELECTRONIC/ELECTRICAL MFG. (5.0%)
28,600 Applied Materials Inc. (a)............................................ 2,786,712
10,100 Diebold Inc........................................................... 231,669
31,200 Emerson Electric Co................................................... 1,778,400
159,900 General Electric Company.............................................. 20,787,000
251,400 Intel Corporation..................................................... 19,279,237
18,700 KLA Tencor Corporation (a)............................................ 1,581,319
40,800 Linear Technology Corp................................................ 2,899,350
------------
49,343,687
------------
FINANCIAL SERVICES (.8%)
66,750 Citigroup Inc......................................................... 3,596,156
160,650 MBNA Corporation...................................................... 4,056,412
9,900 The Finova Group Inc.................................................. 368,156
------------
8,020,724
------------
</TABLE>

39
<PAGE>
STATE FARM BALANCED FUND, INC.

PORTFOLIO OF INVESTMENTS (CONTINUED)

NOVEMBER 30, 1999

<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
------- ---------------------------------------------------------------------- ------------
<C> <S> <C>
COMMON STOCKS (68.1%) (CONTINUED)
HEALTH CARE (9.9%)
38,700 Allergan Inc.......................................................... $ 3,807,112
405,000 Biomet Inc............................................................ 12,833,437
31,025 Covance Inc. (a)...................................................... 337,397
212,000 Eli Lilly & Co........................................................ 15,211,000
198,000 Johnson & Johnson..................................................... 20,542,500
21,600 Medtronic Inc......................................................... 839,700
123,400 Merck & Co. Inc....................................................... 9,686,900
960,000 Pfizer Inc............................................................ 34,740,000
------------
97,998,046
------------
MACHINERY & MANUFACTURING (2.8%)
44,600 AlliedSignal Inc...................................................... 2,667,637
45,900 AptarGroup Inc........................................................ 1,245,038
100,000 Caterpillar Inc....................................................... 4,637,500
124,100 Corning Incorporated.................................................. 11,626,619
14,700 Deere & Company....................................................... 631,181
20,000 Illinois Tool Works Inc............................................... 1,295,000
47,700 Minnesota Mining & Manufacturing Co................................... 4,558,331
84,375 Osmonics Inc. (a)..................................................... 759,375
------------
27,420,681
------------
MEDIA & BROADCASTING (4.2%)
42,000 Lee Enterprises Incorporated.......................................... 1,189,125
42,000 Lee Enterprises Incorporated Class B.................................. 1,189,125
173,333 Reuters Group PLC ADR................................................. 11,353,312
993,495 The Walt Disney Company............................................... 27,693,673
------------
41,425,235
------------
MINING & METALS (1.0%)
29,200 Newmont Mining Corporation............................................ 691,675
109,200 Nucor Corporation..................................................... 5,507,775
50,000 Rio Tinto PLC ADR..................................................... 3,887,500
18,750 Steel Dynamics Inc. (a)............................................... 257,813
------------
10,344,763
------------
OIL, GAS, & OTHER ENERGY (4.4%)
89,986 BP Amoco PLC ADR...................................................... 5,483,522
144,000 Chevron Corporation................................................... 12,753,000
29,185 Devon Energy Corporation.............................................. 1,028,771
164,500 Exxon Corporation..................................................... 13,046,906
65,220 Pennzoil-Quaker State Co.............................................. 676,658
188,700 Royal Dutch Petroleum Company ADR..................................... 10,944,600
------------
43,933,457
------------
</TABLE>

40
<PAGE>
STATE FARM BALANCED FUND, INC.

PORTFOLIO OF INVESTMENTS (CONTINUED)

NOVEMBER 30, 1999

<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
------- ---------------------------------------------------------------------- ------------
<C> <S> <C>
COMMON STOCKS (68.1%) (CONTINUED)
RETAILERS (.9%)
149,600 Wal-Mart Stores Inc................................................... $ 8,620,700
------------
TELECOM & TELECOM EQUIPMENT (12.6%)
258,200 ADC Telecommunications Inc. (a)....................................... 13,765,288
255,000 AT&T Corp............................................................. 14,248,125
136,000 LM Ericsson Telephone Company ADR..................................... 6,553,500
220,376 Lucent Technologies Inc............................................... 16,101,222
324,657 MCI Worldcom Inc. (a)................................................. 26,845,076
64,000 Motorola Inc.......................................................... 7,312,000
29,800 Nextlink Communications Inc. (Class A) (a)............................ 1,490,000
22,100 Nokia Corporation ADR................................................. 3,053,944
89,200 Nortel Networks Corp.................................................. 6,600,800
470,024 SBC Communications Inc................................................ 24,411,872
23,100 U.S. West Inc......................................................... 1,433,644
60,000 Vodafone AirTouch Public Limited Co. ADR (a).......................... 2,831,250
------------
124,646,721
------------
UTILITIES & ENERGY (1.1%)
20,800 CMS Energy Corporation................................................ 691,600
36,000 Duke Energy Corporation............................................... 1,824,750
25,200 FPL Group Inc......................................................... 1,102,500
49,300 Scottish Power PLC ADR (a)............................................ 1,722,419
80,000 Southern Company...................................................... 1,870,000
47,300 Teco Energy Inc....................................................... 946,000
28,000 Texas Utilities Company (Holding Co.)................................. 1,002,750
30,200 The AES Corporation (a)............................................... 1,749,713
------------
10,909,732
------------
TOTAL COMMON STOCKS
(cost $267,308,424)........................................................... 674,412,040
------------
</TABLE>

<TABLE>
<CAPTION>
PRINCIPAL COUPON
AMOUNT RATE MATURITY DATE VALUE
----------- ------- ------------------ ------------
<C> <S> <C> <C> <C>
CORPORATE BONDS (7.8%)
AGRICULTURE, FOODS, & BEVERAGE (.8%)
$ 3,000,000 Pioneer Hi-Bred International Inc...................... 5.750% January 15, 2009 $ 2,732,430
3,000,000 Dean Foods Company..................................... 6.625% May 15, 2009 2,841,090
2,950,000 Archer-Daniels-Midland Company......................... 5.870% November 15, 2010 2,937,669
------------
8,511,189
------------
AUTOMOTIVE (.6%)
3,000,000 Daimler Chrysler North America......................... 6.900% September 1, 2004 2,993,250
3,000,000 Ford Motor Credit Company.............................. 5.800% January 12, 2009 2,703,420
------------
5,696,670
------------
</TABLE>

41
<PAGE>
STATE FARM BALANCED FUND, INC.

PORTFOLIO OF INVESTMENTS (CONTINUED)

NOVEMBER 30, 1999

42
<PAGE>
STATE FARM BALANCED FUND, INC.

PORTFOLIO OF INVESTMENTS (CONTINUED)

NOVEMBER 30, 1999

<TABLE>
<CAPTION>
PRINCIPAL COUPON
AMOUNT RATE MATURITY DATE VALUE
--------------------------------------------------------------------- ------- ------------------ ------------
CORPORATE BONDS (7.8%) (CONTINUED)
<C> <S> <C> <C> <C>
TELECOM & TELECOM EQUIPMENT (.8%)
$ 5,000,000 US West Communications................................. 5.625% November 15, 2008 $ 4,404,300
3,000,000 AT&T Corp.............................................. 6.000% March 15, 2009 2,765,790
1,000,000 New England Telephone & Telegraph Co................... 5.875% April 15, 2009 906,070
------------
8,076,160
------------
UTILITIES & ENERGY (.3%)
3,000,000 Alabama Power Company.................................. 7.125% August 15, 2004 2,990,070
------------
TOTAL CORPORATE BONDS
(cost $81,676,545).............................................................................. 77,756,262
------------
U.S. TREASURY OBLIGATIONS (21.7%)
3,000,000 U.S. Treasury Notes.................................... 6.375% January 15, 2000 3,002,160
2,000,000 U.S. Treasury Notes.................................... 8.500% February 15, 2000 2,012,220
3,000,000 U.S. Treasury Notes.................................... 6.875% March 31, 2000 3,013,650
3,000,000 U.S. Treasury Notes.................................... 5.500% April 15, 2000 2,999,340
5,000,000 U.S. Treasury Notes.................................... 6.250% May 31, 2000 5,015,200
3,000,000 U.S. Treasury Notes.................................... 8.750% August 15, 2000 3,061,290
3,000,000 U.S. Treasury Notes.................................... 8.500% November 15, 2000 3,074,100
4,200,000 U.S. Treasury Notes.................................... 7.750% February 15, 2001 4,287,696
5,000,000 U.S. Treasury Notes.................................... 6.375% March 31, 2001 5,026,250
625,000 U.S. Treasury Bonds.................................... 13.125% May 15, 2001 686,556
2,000,000 U.S. Treasury Notes.................................... 8.000% May 15, 2001 2,056,040
680,000 U.S. Treasury Bonds.................................... 13.375% August 15, 2001 760,131
4,000,000 U.S. Treasury Notes.................................... 7.875% August 15, 2001 4,119,120
5,500,000 U.S. Treasury Notes.................................... 7.500% November 15, 2001 5,648,445
5,000,000 U.S. Treasury Bonds.................................... 14.250% February 15, 2002 5,837,900
2,000,000 U.S. Treasury Notes.................................... 7.500% May 15, 2002 2,065,840
5,000,000 U.S. Treasury Notes.................................... 6.000% July 31, 2002 4,996,600
7,500,000 U.S. Treasury Notes.................................... 6.375% August 15, 2002 7,552,725
2,570,000 U.S. Treasury Bonds.................................... 11.625% November 15, 2002 2,945,477
5,000,000 U.S. Treasury Notes.................................... 6.250% February 15, 2003 5,020,450
3,000,000 U.S. Treasury Bonds.................................... 10.750% May 15, 2003 3,417,150
9,000,000 U.S. Treasury Notes.................................... 5.750% August 15, 2003 8,888,850
5,500,000 U.S. Treasury Bonds.................................... 11.875% November 15, 2003 6,564,800
9,000,000 U.S. Treasury Notes.................................... 5.875% February 15, 2004 8,927,460
9,000,000 U.S. Treasury Notes.................................... 7.250% May 15, 2004 9,367,740
6,000,000 U.S. Treasury Notes.................................... 7.250% August 15, 2004 6,256,740
1,500,000 U.S. Treasury Bonds.................................... 11.625% November 15, 2004 1,835,460
5,000,000 U.S. Treasury Notes.................................... 7.500% February 15, 2005 5,276,500
1,785,000 U.S. Treasury Bonds.................................... 8.250% May 15, 2005 1,804,403
7,500,000 U.S. Treasury Notes.................................... 6.500% May 15, 2005 7,593,750
</TABLE>

43
<PAGE>
STATE FARM BALANCED FUND, INC.

PORTFOLIO OF INVESTMENTS (CONTINUED)

NOVEMBER 30, 1999

<TABLE>
<CAPTION>
PRINCIPAL COUPON
AMOUNT RATE MATURITY DATE VALUE
--------------------------------------------------------------------- ------- ------------------ ------------
U.S. TREASURY OBLIGATIONS (CONTINUED) (21.7%)
<C> <S> <C> <C> <C>
$ 4,800,000 U.S. Treasury Bonds.................................... 10.750% August 15, 2005 $ 5,804,640
6,000,000 U.S. Treasury Notes.................................... 5.875% November 15, 2005 5,902,020
11,500,000 U.S. Treasury Bonds.................................... 9.375% February 15, 2006 13,300,785
6,000,000 U.S. Treasury Notes.................................... 6.875% May 15, 2006 6,190,620
3,000,000 U.S. Treasury Notes.................................... 7.000% July 15, 2006 3,116,370
4,000,000 U.S. Treasury Notes.................................... 6.500% October 15, 2006 4,046,160
10,000,000 U.S. Treasury Notes.................................... 6.250% February 15, 2007 9,982,100
11,000,000 U.S. Treasury Notes.................................... 6.625% May 15, 2007 11,207,020
4,000,000 U.S. Treasury Notes.................................... 6.125% August 15, 2007 3,956,480
10,000,000 U.S. Treasury Notes.................................... 5.500% February 15, 2008 9,524,800
1,000,000 U.S. Treasury Bonds.................................... 10.375% November 15, 2009 1,165,080
7,000,000 U.S. Treasury Bonds.................................... 10.000% May 15, 2010 8,127,700
------------
TOTAL U.S. TREASURY OBLIGATIONS
(cost $220,390,521)............................................................................. 215,437,818
------------
GOVERNMENT AGENCY SECURITIES (1.0%)
10,000,000 Federal National Mortgage Association (cost
$9,523,438)........................................... 6.000% May 15, 2008 9,501,500
------------
</TABLE>

<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT
----------
<C> <S> <C>
SHORT-TERM INVESTMENTS (.9%)
1,700,000 Ford Motor Credit Company, 5.616%, December, 1999...................................... 1,700,530
5,000,000 U.S. Treasury Bills, 4.670%, January, 2000............................................. 4,975,950
2,082,036 Chase Vista Treasury Plus Money Market Fund............................................ 2,082,036
------------
TOTAL SHORT-TERM INVESTMENTS
(cost $8,757,992)................................................................................. 8,758,516
------------
TOTAL INVESTMENTS (99.5%)
(cost $587,656,920)............................................................................... 985,866,136
------------
CASH AND OTHER ASSETS, NET OF LIABILITIES (0.5%).................................................... 4,857,766
------------
NET ASSETS (100.0%)................................................................................. $990,723,902
============
</TABLE>

Notes:

(a) Non-income producing security.

At November 30, 1999, net unrealized appreciation of $398,209,216 consisted of
gross unrealized appreciation of $413,638,806 and gross unrealized depreciation
of $15,429,590 based on cost of $587,656,920 for federal income tax purposes.

See accompanying notes to financial statements.

44
<PAGE>
STATE FARM BALANCED FUND, INC.

STATEMENT OF ASSETS AND LIABILITIES

NOVEMBER 30, 1999

<TABLE>
<S> <C> <C>
ASSETS
Investments, at value (cost $587,656,920)................. $985,866,136
Cash...................................................... 4,058
Receivable for:
Dividends and interest.................................. $5,548,228
Shares of the Fund sold................................. 255,020 5,803,248
----------
Prepaid expenses.......................................... 19,219
------------
Total assets.............................................. 991,692,661
------------

LIABILITIES AND NET ASSETS
Payable for:
Shares of the Fund redeemed............................. 626,768
Other (including $297,302 to Manager)................... 341,991 968,759
---------- ------------
Total liabilities....................................... 968,759
------------

Net assets applicable to 18,766,813 shares outstanding of
$1.00 par value common stock (40,000,000 shares
authorized)............................................... $990,723,902
============

Net asset value, offering price and redemption price per
share..................................................... $ 52.79
============

ANALYSIS OF NET ASSETS
Excess of amounts received from sales of shares over
amounts paid on redemptions of shares on account of
capital................................................. $555,375,580
Accumulated net realized gain on sales of investments..... 10,843,298
Net unrealized appreciation of investments................ 398,209,216
Undistributed net investment income....................... 26,295,808
------------
Net assets applicable to shares outstanding............... $990,723,902
============
</TABLE>

See accompanying notes to financial statements.

45
<PAGE>
STATE FARM BALANCED FUND, INC.

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
INVESTMENT INCOME:
Dividends................................................. $ 8,844,759 $ 9,838,359
Interest.................................................. 21,001,785 19,172,814
----------- -----------
29,846,544 29,011,173
Less: foreign withholding taxes........................... 144,691 113,470
----------- -----------
Total investment income................................... 29,701,853 28,897,703

EXPENSES:
Investment advisory and management fees................... 1,113,753 980,972
Professional fees......................................... 61,649 33,191
ICI dues.................................................. 23,365 20,048
Registration fees......................................... 8,879 20,140
Fidelity bond expense..................................... 5,377 4,827
Directors' fees........................................... 7,200 8,129
Reports to shareowners.................................... 32,580 11,907
Security evaluation fees.................................. 4,571 4,893
Franchise taxes........................................... 17,600 17,229
Custodian fees............................................ 17,895 17,454
Proxy and related expense................................. -- 14,077
Other..................................................... 131 140
----------- -----------
Total expenses............................................ 1,293,000 1,133,007
----------- -----------
Net investment income....................................... 28,408,853 27,764,696

REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on sales of investments................. 10,843,298 446,940
Change in net unrealized appreciation..................... 48,274,008 70,040,582
----------- -----------
Net realized and unrealized gain on investments............. 59,117,306 70,487,522
----------- -----------
Net change in net assets resulting from operations.......... $87,526,159 $98,252,218
=========== ===========
</TABLE>

See accompanying notes to consolidated financial statements.

46
<PAGE>
STATE FARM BALANCED FUND, INC.

STATEMENTS OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
---------------------------
1999 1998
------------ ------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income..................................... $ 28,408,853 $ 27,764,696
Net realized gain on sales of investments................. 10,843,298 446,940
Change in net unrealized appreciation..................... 48,274,008 70,040,582
------------ ------------
Net change in net assets resulting from operations.......... 87,526,159 98,252,218
Undistributed net investment income included in price of
shares issued and redeemed................................ 270,649 714,370

DISTRIBUTION TO SHAREOWNERS FROM:
Net investment income..................................... (27,062,617) (26,507,020)
Net realized gain......................................... (382,353) (11,354,841)
------------ ------------
Total distributions to shareowners.......................... (27,444,970) (37,861,861)

FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold................................. 112,775,656 143,691,069
Reinvestment of ordinary income dividends and capital gain
distributions........................................... 26,064,784 36,429,240
------------ ------------
138,840,440 180,120,309
Less payments for shares redeemed......................... 101,669,744 110,302,865
------------ ------------
Net increase in net assets from Fund share transactions..... 37,170,696 69,817,444
------------ ------------
Total increase in net assets................................ 97,522,534 130,922,171
------------ ------------

NET ASSETS:
Beginning of year......................................... 893,201,368 762,279,197
------------ ------------
End of year (including undistributed net investment income
of $26,295,808 in 1999, and $24,614,336 in 1998)........ $990,723,902 $893,201,368
============ ============
</TABLE>

See accompanying notes to financial statements.

47
<PAGE>
STATE FARM BALANCED FUND, INC.

FINANCIAL HIGHLIGHTS

PER SHARE INCOME AND CAPITAL CHANGES
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
--------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994 1993
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
year....................... $49.54 $46.09 $42.04 $37.76 $31.12 $30.88 $31.24

INCOME FROM INVESTMENT
OPERATIONS
Net investment income...... 1.51 1.54 1.40 1.39 1.25 1.03 0.98
Net gain or (loss) on
investments (both
realized and
unrealized).............. 3.23 4.14 5.45 4.38 6.77 0.17 (0.09)
------ ------ ------ ------ ------ ------ ------
Total from investment
operations............... 4.74 5.68 6.85 5.77 8.02 1.20 0.89
------ ------ ------ ------ ------ ------ ------

LESS DISTRIBUTIONS
Net investment income...... (1.47) (1.54) (1.47) (1.30) (1.19) (0.89) (1.01)
Capital gains.............. (0.02) (0.69) (1.33) (0.19) (0.19) (0.07) (0.24)
------ ------ ------ ------ ------ ------ ------
Total distributions........ (1.49) (2.23) (2.80) (1.49) (1.38) (0.96) (1.25)
------ ------ ------ ------ ------ ------ ------
Net asset value, end of
year....................... $52.79 $49.54 $46.09 $42.04 $37.76 $31.12 $30.88
====== ====== ====== ====== ====== ====== ======
TOTAL RETURN................. 9.72% 12.72% 17.33% 15.78% 26.53% 3.98% 2.91%

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year
(millions)................. $990.7 $893.2 $762.3 $626.1 $499.7 $370.5 $327.8
Ratio of expenses to average
net assets................. 0.13% 0.14% 0.14% 0.15% 0.17%(a) 0.17% 0.19%
Ratio of net investment
income to average net
assets..................... 2.96% 3.34% 3.42% 3.63% 3.66% 3.36% 3.20%
Portfolio turnover rate...... 5% 2% 6% 9% 6% 4% 4%

<CAPTION>
YEAR ENDED NOVEMBER 30,
------------------------------
1992 1991 1990
-------- -------- --------
<S> <C> <C> <C>
Net asset value, beginning of
year....................... $27.98 $22.72 $22.27
INCOME FROM INVESTMENT
OPERATIONS
Net investment income...... 0.98 0.94 1.06
Net gain or (loss) on
investments (both
realized and
unrealized).............. 3.29 5.81 0.74
------ ------ ------
Total from investment
operations............... 4.27 6.75 1.80
------ ------ ------
LESS DISTRIBUTIONS
Net investment income...... (0.89) (1.03) (0.92)
Capital gains.............. (0.12) (0.46) (0.43)
------ ------ ------
Total distributions........ (1.01) (1.49) (1.35)
------ ------ ------
Net asset value, end of
year....................... $31.24 $27.98 $22.72
====== ====== ======
TOTAL RETURN................. 15.43% 31.09% 8.29%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year
(millions)................. $259.7 $173.5 $108.8
Ratio of expenses to average
net assets................. 0.22% 0.26% 0.27%
Ratio of net investment
income to average net
assets..................... 3.29% 3.66% 4.87%
Portfolio turnover rate...... 4% 1% 10%
</TABLE>

------------------------------

(a) The ratio based on net custodian expenses would have been .16% in 1995.

48
<PAGE>
STATE FARM INTERIM FUND, INC.

PORTFOLIO OF INVESTMENTS

NOVEMBER 30, 1999

<TABLE>
<CAPTION>
PRINCIPAL COUPON
AMOUNT RATE MATURITY DATE VALUE
--------------------- -------- ------------------ ------------
<C> <S> <C> <C> <C>
U.S. TREASURY OBLIGATIONS (97.7%)
$2,000,000 U.S. Treasury Notes................... 6.375% January 15, 2000 $ 2,001,440
2,000,000 U.S. Treasury Notes................... 8.500% February 15, 2000 2,012,220
1,000,000 U.S. Treasury Notes................... 6.875% March 31, 2000 1,004,550
6,250,000 U.S. Treasury Notes................... 5.500% April 15, 2000 6,248,625
1,000,000 U.S. Treasury Notes................... 6.750% April 30, 2000 1,004,670
1,000,000 U.S. Treasury Notes................... 8.875% May 15, 2000 1,015,270
1,000,000 U.S. Treasury Notes................... 6.250% May 31, 2000 1,003,040
4,000,000 U.S. Treasury Notes................... 8.750% August 15, 2000 4,081,720
3,750,000 U.S. Treasury Notes................... 8.500% November 15, 2000 3,842,625
3,000,000 U.S. Treasury Notes................... 5.500% December 31, 2000 2,987,580
1,000,000 U.S. Treasury Notes................... 5.250% January 31, 2001 992,900
4,000,000 U.S. Treasury Notes................... 7.750% February 15, 2001 4,083,520
4,000,000 U.S. Treasury Notes................... 5.625% February 28, 2001 3,985,960
5,000,000 U.S. Treasury Notes................... 8.000% May 15, 2001 5,140,100
4,000,000 U.S. Treasury Notes................... 7.875% August 15, 2001 4,119,120
3,000,000 U.S. Treasury Notes................... 6.375% September 30, 2001 3,018,330
4,000,000 U.S. Treasury Notes................... 7.500% November 15, 2001 4,107,960
4,000,000 U.S. Treasury Bonds................... 14.250% February 15, 2002 4,670,320
4,000,000 U.S. Treasury Notes................... 7.500% May 15, 2002 4,131,680
8,000,000 U.S. Treasury Notes................... 6.375% August 15, 2002 8,056,240
4,000,000 U.S. Treasury Bonds................... 11.625% November 15, 2002 4,584,400
5,000,000 U.S. Treasury Notes................... 5.750% November 30, 2002 4,958,550
6,000,000 U.S. Treasury Notes................... 6.250% February 15, 2003 6,024,540
7,000,000 U.S. Treasury Notes................... 5.750% April 30, 2003 6,923,560
2,000,000 U.S. Treasury Bonds................... 10.750% May 15, 2003 2,278,100
2,000,000 U.S. Treasury Bonds................... 11.125% August 15, 2003 2,318,260
7,000,000 U.S. Treasury Notes................... 5.750% August 15, 2003 6,913,550
1,000,000 U.S. Treasury Bonds................... 11.875% November 15, 2003 1,193,600
3,000,000 U.S. Treasury Notes................... 5.875% February 15, 2004 2,975,820
8,000,000 U.S. Treasury Notes................... 7.250% May 15, 2004 8,326,880
5,000,000 U.S. Treasury Notes................... 7.250% August 15, 2004 5,213,950
8,000,000 U.S. Treasury Notes................... 7.875% November 15, 2004 8,556,400
4,000,000 U.S. Treasury Notes................... 7.500% February 15, 2005 4,221,200
4,000,000 U.S. Treasury Notes................... 6.500% May 15, 2005 4,050,000
8,000,000 U.S. Treasury Notes................... 6.500% August 15, 2005 8,100,240
4,000,000 U.S. Treasury Notes................... 5.875% November 15, 2005 3,934,680
------------
TOTAL U.S. TREASURY OBLIGATIONS
(cost $154,727,422)........................................................................ $148,081,600
------------
</TABLE>

49
<PAGE>
STATE FARM INTERIM FUND, INC.

PORTFOLIO OF INVESTMENTS (CONTINUED)

NOVEMBER 30, 1999

<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE
--------------------- ------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (2.2%)
1,000,000 U.S. Treasury Bills, 4.670%, January, 2000.................. $ 995,190
2,341,436 Chase Vista Treasury Plus Money Market Fund................. 2,341,436
------------
TOTAL SHORT-TERM INVESTMENTS
(cost $3,336,496)................................................................. 3,336,626
------------
TOTAL INVESTMENTS (99.9%)
(cost $158,063,918)............................................................... 151,418,226
CASH AND OTHER ASSETS, NET OF LIABILITIES (0.1%).................................... 150,001
------------
NET ASSETS (100.0%)................................................................. $151,568,227
============
</TABLE>

Notes:

At November 30, 1999, net unrealized depreciation of $6,645,692 consisted of
gross unrealized appreciation of $27,412 and gross unrealized depreciation of
$6,673,104 based on cost of $158,063,918 for federal income tax purposes.

See accompanying notes to financial statements.

50
<PAGE>
STATE FARM INTERIM FUND, INC.

STATEMENT OF ASSETS AND LIABILITIES

NOVEMBER 30, 1999

<TABLE>
<S> <C> <C>
ASSETS
Investments, at value (cost $158,063,918)................. $151,418,226
Receivable for:
Interest................................................ $2,019,638
Shares of the Fund sold................................. 61,773 2,081,411
----------
Prepaid expenses.......................................... 4,909
------------
Total assets.............................................. 153,504,546
------------

LIABILITIES AND NET ASSETS
Dividends payable to shareowners.......................... 1,634,840
Payable for:
Shares of the Fund redeemed............................. 217,722
Other (including $59,681 to Manager).................... 83,757 301,479
---------- ------------
Total liabilities....................................... 1,936,319
------------
Net assets applicable to 15,999,067 shares outstanding of
$1.00 par value common stock (40,000,000 shares
authorized)............................................... $151,568,227
============
Net asset value, offering price and redemption price per
share..................................................... $ 9.47
============

ANALYSIS OF NET ASSETS
Excess of amounts received from sales of shares over
amounts paid on redemptions of shares on account of
capital................................................. $162,221,550
Accumulated net realized loss on sales of investments..... (4,007,631)
Net unrealized depreciation of investments................ (6,645,692)
------------
Net assets applicable to shares outstanding................. $151,568,227
============
</TABLE>

See accompanying notes to financial statements.

51
<PAGE>
STATE FARM INTERIM FUND, INC.

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
------------------------
1999 1998
----------- ----------
<S> <C> <C>
INVESTMENT INCOME:
Interest.................................................. $10,570,203 $8,742,391

EXPENSES:
Investment advisory and management fees................... 230,126 199,209
Professional fees......................................... 41,759 19,501
ICI dues.................................................. 6,174 3,283
Registration fees......................................... 145 12,266
Fidelity bond expense..................................... 2,709 2,638
Directors' fees........................................... 2,400 2,709
Reports to shareowners.................................... 5,533 2,713
Security evaluation fees.................................. 963 1,862
Franchise taxes........................................... 8,323 12,547
Custodian fees............................................ 10,256 6,112
Proxy and related expense................................. -- 2,950
Other..................................................... 131 140
----------- ----------
Total expenses............................................ 308,519 265,930
----------- ----------
Net investment income....................................... 10,261,684 8,476,461

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on sales of investments................. (884,533) (994,996)
Change in net unrealized appreciation or depreciation..... (7,167,018) 2,484,327
----------- ----------
Net realized and unrealized gain (loss) on investments...... (8,051,551) 1,489,331
----------- ----------
Net change in net assets resulting from operations.......... $ 2,210,133 $9,965,792
=========== ==========
</TABLE>

See accompanying notes to financial statements.

52
<PAGE>
STATE FARM INTERIM FUND, INC.

STATEMENTS OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
---------------------------
1999 1998
------------ ------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income..................................... $ 10,261,684 $ 8,476,461
Net realized loss on sales of investments................. (884,533) (994,996)
Change in net unrealized appreciation or depreciation..... (7,167,018) 2,484,327
------------ ------------
Net change in net assets resulting from operations.......... 2,210,133 9,965,792

DISTRIBUTION TO SHAREOWNERS FROM:
Net investment income..................................... (10,261,684) (8,476,461)
------------ ------------
Total distributions to shareowners.......................... (10,261,684) (8,476,461)

FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold................................. 75,116,757 100,294,008
Reinvestment of ordinary income dividends................. 9,326,141 7,418,955
------------ ------------
84,442,898 107,712,963
Less payments for shares redeemed......................... 78,967,686 67,903,936
------------ ------------
Net increase in net assets from Fund share transactions..... 5,475,212 39,809,027
------------ ------------
Total increase (decrease) in net assets..................... (2,576,339) 41,298,358
------------ ------------

NET ASSETS:
Beginning of year......................................... 154,144,566 112,846,208
------------ ------------
End of year............................................... $151,568,227 $154,144,566
============ ============
</TABLE>

See accompanying notes to financial statements.

53
<PAGE>
STATE FARM INTERIM FUND, INC.

FINANCIAL HIGHLIGHTS

INCOME FROM INVESTMENT
OPERATIONS
Net investment income...... 0.64 0.68 0.69 0.70 0.70 0.71 0.74
Net gain or (loss) on
investments (both
realized and
unrealized).............. (0.51) 0.13 (0.13) (0.17) 0.43 (0.80) 0.06
------ ------ ------ ------ ------ ------ ------
Total from investment
operations............... 0.13 0.81 0.56 0.53 1.13 (0.09) 0.80
------ ------ ------ ------ ------ ------ ------

LESS DISTRIBUTIONS
Net investment income...... (0.64) (0.68) (0.69) (0.70) (0.70) (0.71) (0.74)
------ ------ ------ ------ ------ ------ ------
Total distributions........ (0.64) (0.68) (0.69) (0.70) (0.70) (0.71) (0.74)
------ ------ ------ ------ ------ ------ ------
Net asset value, end of
year....................... $ 9.47 $ 9.98 $ 9.85 $ 9.98 $10.15 $ 9.72 $$10.52
====== ====== ====== ====== ====== ====== ======
TOTAL RETURN................. 1.35% 8.31% 5.87% 5.44% 11.91% (0.85)% 7.82%

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year
(millions)................. $151.6 $154.1 $112.8 $107.6 $104.7 $ 94.3 $103.7
Ratio of expenses to average
net assets................. 0.20% 0.21% 0.22% 0.23%(a) 0.25%(a) 0.22% 0.25%
Ratio of net investment
income to average net
assets..................... 6.63% 6.80% 7.03% 7.03% 7.00% 7.00% 7.00%
Portfolio turnover rate...... 12% 14% 15% 17% 17% 15% 15%

<CAPTION>
YEAR ENDED NOVEMBER 30,
------------------------------
1992 1991 1990
-------- -------- --------
<S> <C> <C> <C>
Net asset value, beginning of
year....................... $10.50 $10.16 $10.17
INCOME FROM INVESTMENT
OPERATIONS
Net investment income...... 0.78 0.78 0.82
Net gain or (loss) on
investments (both
realized and
unrealized).............. (0.04) 0.34 (0.01)
------ ------ ------
Total from investment
operations............... 0.74 1.12 0.81
------ ------ ------
LESS DISTRIBUTIONS
Net investment income...... (0.78) (0.78) (0.82)
------ ------ ------
Total distributions........ (0.78) (0.78) (0.82)
------ ------ ------
Net asset value, end of
year....................... $10.46 $10.50 $10.16
====== ====== ======
TOTAL RETURN................. 7.19% 11.41% 8.27%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year
(millions)................. $ 85.9 $ 66.8 $ 52.7
Ratio of expenses to average
net assets................. 0.27% 0.28% 0.30%
Ratio of net investment
income to average net
assets..................... 7.30% 7.65% 8.12%
Portfolio turnover rate...... 15% 14% 14%
</TABLE>

------------------------------

(a) The ratio based on net custodian expenses would have been .22% in 1996 and
.24% in 1995.

54
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.

PORTFOLIO OF INVESTMENTS

NOVEMBER 30, 1999

<TABLE>
<CAPTION>
RATING(B)
PRINCIPAL COUPON (MOODY'S
AMOUNT RATE MATURITY DATE OR S&P) VALUE
--------------------- -------- ------------------ --------- ------------
<C> <S> <C> <C> <C> <C>
LONG-TERM MUNICIPAL BONDS (97.8%)
ALABAMA (1.8%)
$ 2,200,000 The Water Works and Sewer
Board, Birmingham,
Alabama, Water and Sewer
Revenue Bonds,
Series 1994 (Prerefunded
to 1-1-2004 @ 102)....... 4.750% January 1, 2005 Aa3 $ 2,243,648
2,165,000 Huntsville, Alabama,
General Obligation
Warrants,
Series 1998A............. 4.600% November 1, 2013 Aa2 1,931,656
2,465,000 Limestone County Board of
Education, Alabama,
Capital Outlay Tax Antic
Warrants, Series 1998.... 4.900% July 1, 2015 Aaa 2,240,217
------------
6,415,521
------------
ALASKA (1.6%)
1,505,000 Anchorage, Alaska, General
Obligation General
Purpose Refunding
Bonds.................... 4.600% February 1, 2003 Aaa 1,506,099
1,500,000 Municipality of Anchorage,
Alaska, 1993 General
Obligation Refunding
School Bonds,
Series B................. 4.900% September 1, 2003 Aaa 1,516,275
1,100,000 Municipality of Anchorage,
Alaska, 1994 General
Obligation School
Bonds.................... 5.400% July 1, 2005 Aaa 1,131,955
1,565,000 Matanuska-Susitna Borough,
Alaska, General
Obligation School Bonds,
1999 Series A............ 5.000% March 1, 2015 Aaa 1,442,226
------------
5,596,555
------------
ARIZONA (6.0%)
1,000,000 Pima County, Arizona,
General Obligation
Refunding Bonds,
Series 1992.............. 6.300% July 1, 2002 A1 1,045,870
</TABLE>

55
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.

PORTFOLIO OF INVESTMENTS (CONTINUED)

NOVEMBER 30, 1999

<TABLE>
<CAPTION>
RATING(B)
PRINCIPAL COUPON (MOODY'S
AMOUNT RATE MATURITY DATE OR S&P) VALUE
--------------------- -------- ------------------ --------- ------------
<C> <S> <C> <C> <C> <C>
LONG-TERM MUNICIPAL BONDS (97.8%) (CONTINUED)
ARIZONA (6.0%) (CONTINUED)
$ 2,250,000 Pima County, Arizona,
Unified School District
No. 1, Tucson School
Improvement Bonds,
Series 1990 B
(Prerefunded to 7-1-2000
@ 101)................... 6.900% July 1, 2002 A2 $ 2,310,142
3,000,000 Tempe Union High School
District No. 213,
Maricopa County, Arizona,
School Improvement
General Obligation Bonds,
Project of 1989,
Series 1992B
(Prerefunded to 7-1-2001
@ 101)................... 5.875% July 1, 2002 A+ 3,101,490
2,000,000 Deer Valley Unified School
District No. 97 of
Maricopa County, Arizona,
School Improvement Bonds,
Project of 1992,
Series A (1993).......... 5.125% July 1, 2004 Aaa 2,038,740
1,000,000 Maricopa County, Arizona,
Unified School District
No. 69, Paradise Valley
School Improvement Bonds,
Series 1990A............. 7.100% July 1, 2004 A1 1,095,640
2,340,000 City of Phoenix, Arizona,
General Obligation
Refunding Bonds,
Series 1993 A............ 5.300% July 1, 2006 Aa1 2,406,620
1,000,000 Maricopa County, Arizona,
Unified School District
No. 69, Paradise Valley
School Improvement Bonds,
Series 1994A............. 7.100% July 1, 2008 A1 1,132,700
1,200,000 Maricopa County, Arizona,
Unified School District
No. 69, Paradise Valley
School Improvement Bonds,
Series 1994A............. 7.000% July 1, 2009 A1 1,360,392
</TABLE>

56
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.

PORTFOLIO OF INVESTMENTS (CONTINUED)

NOVEMBER 30, 1999

<TABLE>
<CAPTION>
RATING(B)
PRINCIPAL COUPON (MOODY'S
AMOUNT RATE MATURITY DATE OR S&P) VALUE
--------------------- -------- ------------------ --------- ------------
<C> <S> <C> <C> <C> <C>
LONG-TERM MUNICIPAL BONDS (97.8%) (CONTINUED)
ARIZONA (6.0%) (CONTINUED)
$ 2,500,000 Maricopa County, Arizona,
Unified School District
No. 69, Paradise Valley
School Improvement Bonds,
Series 1994A............. 7.000% July 1, 2010 A1 $ 2,862,650
4,250,000 Mesa Unified School
District No. 4 of
Maricopa County, Arizona,
School Improvement Bonds,
Project of 1995,
Series D (1997).......... 4.750% July 1, 2010 Aaa 4,062,277
------------
21,416,521
------------
CALIFORNIA (5.0%)
3,000,000 State of California,
Various Purpose General
Obligation Bonds......... 5.900% February 1, 2000 Aa3 3,011,100
400,000 State of California,
General Obligation
Veterans Bonds,
Series AL................ 9.600% April 1, 2001 Aa3 428,192
1,400,000 San Diego County,
California, Water
Authority Water Revenue
Certificates of
Participation,
Series 1991A............. 6.000% May 1, 2001 Aa3 1,437,632
3,500,000 City of Los Angeles,
California, Wastewater
System Revenue Bonds,
Series 1990 B
(Prerefunded to 6-1-2000
@ 102)................... 6.900% June 1, 2004 Aaa 3,623,340
3,000,000 City of Los Angeles,
California, Department of
Water and Power, Electric
Plant Refunding Revenue
Bonds, Second Issue of
1993..................... 4.800% November 15, 2004 Aa3 3,044,340
2,000,000 State of California,
Various Purpose General
Obligation Bonds......... 6.000% October 1, 2006 Aa3 2,161,280
</TABLE>

57
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.

PORTFOLIO OF INVESTMENTS (CONTINUED)

NOVEMBER 30, 1999

<TABLE>
<CAPTION>
RATING(B)
PRINCIPAL COUPON (MOODY'S
AMOUNT RATE MATURITY DATE OR S&P) VALUE
--------------------- -------- ------------------ --------- ------------
<C> <S> <C> <C> <C> <C>
LONG-TERM MUNICIPAL BONDS (97.8%) (CONTINUED)
CALIFORNIA (5.0%) (CONTINUED)
$ 2,830,000 Sacramento County,
California, Sanitary
District Financing
Authority Revenue Bonds,
1995..................... 5.000% December 1, 2007 Aa3 $ 2,886,091
1,500,000 Sacramento County,
California, Sanitary
District Financing
Authority Revenue Bonds,
1995..................... 5.000% December 1, 2008 Aa3 1,520,730
------------
18,112,705
------------
COLORADO (4.0%)
2,620,000 Cherry Creek School
District No. 5, Arapahoe
County, Colorado, General
Obligation Improvement
Bonds, Series 1990
(Prerefunded to
12-15-2000 @ 101)........ 7.000% December 15, 2003 Aa2 2,725,612
2,000,000 Jefferson County, Colorado,
School District No. R-1
General Obligation Bonds,
Series 1992 (Prerefunded
to 12-15-2002 @ 101)..... 5.750% December 15, 2003 Aaa 2,093,560
2,000,000 Arapahoe County School
District # 6, Colorado,
Littleton Public Schools
General Obligation
Improvement Bonds,
Series 1995A............. 5.000% December 1, 2007 Aa2 2,019,700
2,540,000 Mesa County Valley School
District No. 51, County
of Mesa, State of
Colorado, General
Obligation Bonds,
Series 1996.............. 5.300% December 1, 2010 Aaa 2,559,761
3,135,000 St. Vrain School District
# R3-1J, Colorado,
General Obligation,
Series 1997.............. 5.000% December 15, 2012 Aaa 3,024,303
</TABLE>

58
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.

PORTFOLIO OF INVESTMENTS (CONTINUED)

NOVEMBER 30, 1999

<TABLE>
<CAPTION>
RATING(B)
PRINCIPAL COUPON (MOODY'S
AMOUNT RATE MATURITY DATE OR S&P) VALUE
--------------------- -------- ------------------ --------- ------------
<C> <S> <C> <C> <C> <C>
LONG-TERM MUNICIPAL BONDS (97.8%) (CONTINUED)
COLORADO (4.0%) (CONTINUED)
$ 1,855,000 City of Boulder, Colorado,
Open Space Acquisition
Refunding Bonds,
Series 1999.............. 5.000% August 15, 2013 Aa1 $ 1,778,426
------------
14,201,362
------------
DELAWARE (.7%)
1,125,000 The State of Delaware,
General Obligation Bonds,
Series 1994B (Prerefunded
to 12-1-2004 @ 100)...... 6.000% December 1, 2011 Aa1 1,191,577
1,125,000 The State of Delaware,
General Obligation Bonds,
Series 1994B (Prerefunded
to 12-1-2004 @ 100)...... 6.000% December 1, 2012 Aa1 1,191,577
------------
2,383,154
------------
FLORIDA (1.9%)
2,000,000 School District of Leon
County, Florida, General
Obligation Refunding
Bonds, Series 1991....... 5.850% July 1, 2001 A1 2,050,040
2,000,000 State of Florida, State
Board of Education,
Public Education Capital
Outlay Refunding Bonds,
1995 Series C............ 5.125% June 1, 2008 Aa2 2,015,940
3,000,000 State of Florida, State
Board of Education
Capital Outlay, 1999
Series A................. 4.750% January 1, 2015 Aa2 2,699,970
------------
6,765,950
------------
GEORGIA (8.0%)
1,500,000 Municipal Electric
Authority of Georgia,
General Power Revenue
Bonds, Series 1993A...... 5.000% January 1, 2004 A3 1,504,875
2,100,000 Cherokee County School
Systems, Georgia, General
Obligation School,
Series 1993.............. 4.900% February 1, 2004 A2 2,120,349
</TABLE>

59
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.

PORTFOLIO OF INVESTMENTS (CONTINUED)

NOVEMBER 30, 1999

<TABLE>
<CAPTION>
RATING(B)
PRINCIPAL COUPON (MOODY'S
AMOUNT RATE MATURITY DATE OR S&P) VALUE
--------------------- -------- ------------------ --------- ------------
<C> <S> <C> <C> <C> <C>
LONG-TERM MUNICIPAL BONDS (97.8%) (CONTINUED)
GEORGIA (8.0%) (CONTINUED)
$ 1,205,000 DeKalb County School
District, Georgia,
General Obligation
Refunding Bonds,
Series 1993.............. 5.100% July 1, 2004 Aa2 $ 1,230,606
3,215,000 Forsyth County School
District, Georgia,
General Obligation Bonds,
Series 1995 (Prerefunded
to 7-1-2005 @ 102)....... 5.050% July 1, 2007 Aaa 3,315,983
3,590,000 State of Georgia, General
Obligation Bonds,
Series 1996C............. 6.250% August 1, 2009 Aaa 3,930,440
2,000,000 State of Georgia, General
Obligation Bonds,
Series 1995C............. 5.700% July 1, 2011 Aaa 2,103,900
4,000,000 Gwinnett County Water &
Sewer Authority, Georgia,
Revenue Series 1998...... 5.000% August 1, 2011 Aaa 3,947,560
3,000,000 State of Georgia, General
Obligation Bonds,
Series 1995B............. 5.750% March 1, 2012 Aaa 3,147,870
3,000,000 State of Georgia, General
Obligation Bonds,
Series 1994B............. 6.250% April 1, 2012 Aaa 3,283,920
1,055,000 Columbia County, Georgia,
General Obligation Bonds
(Courthouse/Detention
Center Projects),
Series 1998.............. 4.700% February 1, 2013 A+ 958,309
1,195,000 Columbia County, Georgia,
General Obligation Bonds
(Courthouse/Detention
Center Projects),
Series 1998.............. 4.800% February 1, 2014 A+ 1,082,025
2,500,000 Fayette County School
District, Georgia,
General Obligation
Refunding School Bonds,
Series 1999.............. 4.750% March 1, 2015 Aa3 2,241,100
------------
28,866,937
------------
</TABLE>

60
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.

PORTFOLIO OF INVESTMENTS (CONTINUED)

NOVEMBER 30, 1999

<TABLE>
<CAPTION>
RATING(B)
PRINCIPAL COUPON (MOODY'S
AMOUNT RATE MATURITY DATE OR S&P) VALUE
--------------------- -------- ------------------ --------- ------------
<C> <S> <C> <C> <C> <C>
LONG-TERM MUNICIPAL BONDS (97.8%) (CONTINUED)
HAWAII (2.7%)
$ 2,200,000 City and County of
Honolulu, Hawaii, General
Obligation Refunding
Bonds, Series 1.......... 5.600% June 1, 2001 Aa3 $ 2,239,578
1,775,000 City and County of
Honolulu, Hawaii, General
Obligation Bonds, 1996
Series A................. 5.400% September 1, 2009 Aaa 1,804,554
2,225,000 City and County of
Honolulu, Hawaii, General
Obligation Bonds, 1996
Series A (Prerefunded to
9-1-2008 @ 100).......... 5.400% September 1, 2009 Aaa 2,292,061
3,000,000 State of Hawaii, General
Obligation Bonds of 1992,
Series BW................ 6.375% March 1, 2011 A1 3,267,750
------------
9,603,943
------------
IDAHO (.4%)
1,540,000 Joint School District
No. 2, Ada & Canyon
Counties, Idaho, General
Obligation School Bonds,
Series 1994.............. 5.000% July 30, 2004 Aa2 1,564,224
------------
ILLINOIS (5.8%)
200,000 Charleston, Illinois, Water
Works Improvement Bonds.. 8.000% January 1, 2000 A 200,648
2,500,000 DuPage Water Commission,
Illinois, General
Obligation Water
Refunding Bonds,
Series 1992.............. 5.850% March 1, 2000 Aaa 2,511,775
2,000,000 Lake County, Illinois,
Forest Preserve District
General Obligation
Refunding Bonds,
Series 1992B............. 5.700% February 1, 2003 Aa1 2,068,820
2,000,000 State of Illinois, General
Obligation Refunding
Bonds, Series of June
1993..................... 5.000% June 1, 2003 Aa2 2,027,540
2,025,000 County of DuPage, Illinois,
General Obligation
Refunding Bonds
(Alternate Rev.
Source--Stormwater
Project)................. 5.100% January 1, 2004 Aaa 2,056,975
</TABLE>

61
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.

PORTFOLIO OF INVESTMENTS (CONTINUED)

NOVEMBER 30, 1999

<TABLE>
<CAPTION>
RATING(B)
PRINCIPAL COUPON (MOODY'S
AMOUNT RATE MATURITY DATE OR S&P) VALUE
--------------------- -------- ------------------ --------- ------------
<C> <S> <C> <C> <C> <C>
LONG-TERM MUNICIPAL BONDS (97.8%) (CONTINUED)
ILLINOIS (5.8%) (CONTINUED)
$ 4,000,000 State of Illinois, General
Obligation Bonds,
Series September 1996.... 5.450% September 1, 2009 Aaa $ 4,086,200
2,500,000 Forest Preserve District of
Kane County, Kane County,
Illinois, General
Obligation Bonds,
Series 1999.............. 5.000% December 30, 2011 Aa3 2,429,250
3,785,000 DuPage County Forest
Preserve District,
Illinois, General
Obligation,
Series 1997.............. 4.900% October 1, 2013 Aaa 3,579,361
2,195,000 Community Unit School
District Number 200,
DuPage County, Illinois,
(Wheaton-Warrenville),
General Obligation School
Building Bonds,
Series 1999.............. 5.050% February 1, 2015 Aaa 2,036,082
------------
20,996,651
------------
INDIANA (2.9%)
900,000 Monroe County Jail,
Indiana, First Mortgage
Refunding Bonds,
Series 1993.............. 4.900% January 1, 2002 A1 906,165
925,000 Monroe County Jail,
Indiana, First Mortgage
Refunding Bonds,
Series 1993.............. 4.900% July 1, 2002 A1 932,557
2,000,000 Indianapolis, Indiana,
Local Public Improvement
Bond Bank, Series 1993A
Bonds.................... 5.250% January 10, 2004 Aaa 2,045,840
2,300,000 Indianapolis, Indiana,
Local Public Improvement
Bond Bank Refunding
Bonds, Series 1993 B..... 4.700% February 15, 2004 Aaa 2,303,841
2,125,000 Southwest Allen, Indiana,
High School Building
Corp., 1st Mortgage
Refunding Bonds,
Series 1996B............. 4.850% July 15, 2006 Aaa 2,118,944
</TABLE>

62
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.

PORTFOLIO OF INVESTMENTS (CONTINUED)

NOVEMBER 30, 1999

<TABLE>
<CAPTION>
RATING(B)
PRINCIPAL COUPON (MOODY'S
AMOUNT RATE MATURITY DATE OR S&P) VALUE
--------------------- -------- ------------------ --------- ------------
<C> <S> <C> <C> <C> <C>
LONG-TERM MUNICIPAL BONDS (97.8%) (CONTINUED)
INDIANA (2.9%) (CONTINUED)
$ 2,325,000 Eagle-Union Community
Schools Building
Corporation, Boone
County, Indiana, 1st
Mortgage Refunding Bonds,
Series 1999.............. 4.875% July 5, 2015 Aaa $ 2,086,222
------------
10,393,569
------------
IOWA (1.2%)
2,000,000 City of Des Moines, Iowa,
Sewer Revenue Bonds,
Series 1992D............. 6.000% June 1, 2003 Aaa 2,068,340
2,045,000 City of Iowa City, Johnson
County, Iowa, Sewer
Revenue Bonds............ 5.875% July 1, 2004 Aaa 2,100,276
------------
4,168,616
------------
KANSAS (.1%)
315,000 Johnson County Water
District No. 1, Kansas,
Water Revenue,
Series 1982A (Escrowed to
maturity)................ 10.250% August 1, 2002 Aaa 344,383
------------
KENTUCKY (.8%)
1,665,000 Jefferson County, Kentucky,
General Obligation
Refunding Bonds,
Series 1998A............. 4.600% December 1, 2013 Aa2 1,498,284
1,745,000 Jefferson County, Kentucky,
General Obligation
Refunding Bonds,
Series 1998A............. 4.700% December 1, 2014 Aa2 1,567,830
------------
3,066,114
------------
LOUISIANA (1.4%)
5,000,000 State of Louisiana, General
Obligation Bonds,
Series 1997A............. 5.375% April 15, 2011 Aaa 5,019,750
------------
</TABLE>

63
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.

PORTFOLIO OF INVESTMENTS (CONTINUED)

NOVEMBER 30, 1999

<TABLE>
<CAPTION>
RATING(B)
PRINCIPAL COUPON (MOODY'S
AMOUNT RATE MATURITY DATE OR S&P) VALUE
--------------------- -------- ------------------ --------- ------------
<C> <S> <C> <C> <C> <C>
LONG-TERM MUNICIPAL BONDS (97.8%) (CONTINUED)
MARYLAND (2.1%)
$ 2,000,000 Howard County, Maryland,
Consolidated Public
Improvement Refunding
Bonds, Series 1991B...... 5.800% August 15, 2001 Aaa $ 2,053,340
5,750,000 Montgomery County,
Maryland, General
Obligation Consolidated
Public Improvement, 1998
Series A................. 4.875% May 1, 2013 Aaa 5,453,645
------------
7,506,985
------------
MICHIGAN (3.3%)
3,140,000 State of Michigan, General
Obligation Bonds, Clean
Michigan Initiative
Program, Series 1999A.... 5.500% November 1, 2009 Aa1 3,254,013
3,800,000 Northville Public Schools,
Michigan, 1997 General
Obligation School
Building & Site &
Refunding................ 5.100% May 1, 2011 Aaa 3,737,908
2,465,000 Clarkston Community
Schools, County of
Oakland, State of
Michigan, 1998 Refunding
Bonds (General
Obligation-Unlimited
Tax)..................... 4.850% May 1, 2012 Aaa 2,319,097
1,400,000 Avondale School District,
Oakland County, Michigan,
1999 Refunding Bonds
(Unlimited Tax General
Obligation).............. 4.850% May 1, 2015 Aaa 1,263,472
1,400,000 Avondale School District,
Oakland County, Michigan,
1999 Refunding Bonds
(Unlimited Tax General
Obligation).............. 4.900% May 1, 2016 Aaa 1,259,706
------------
11,834,196
------------
</TABLE>

64
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.

PORTFOLIO OF INVESTMENTS (CONTINUED)

NOVEMBER 30, 1999

<TABLE>
<CAPTION>
RATING(B)
PRINCIPAL COUPON (MOODY'S
AMOUNT RATE MATURITY DATE OR S&P) VALUE
--------------------- -------- ------------------ --------- ------------
<C> <S> <C> <C> <C> <C>
LONG-TERM MUNICIPAL BONDS (97.8%) (CONTINUED)
MINNESOTA (3.5%)
$ 1,885,000 Anoka County, Minnesota,
General Obligation
Capital Improvement
Refunding Bonds,
Series 1992C............. 5.200% February 1, 2001 A1 $ 1,905,226
1,500,000 County of Ramsey,
Minnesota, General
Obligation Capital
Improvement Refunding
Bonds, Series 1992C...... 5.400% December 1, 2002 Aaa 1,545,165
3,215,000 State of Minnesota, General
Obligation State
Refunding Bonds of
1983..................... 5.125% August 1, 2004 Aaa 3,277,725
3,000,000 Becker, Minnesota,
Pollution Control Revenue
Refunding Bonds,
Series 1989A, (Northern
States Power
Co.--Sherburne County
Gen. Station Units 1 & 2
Project)................. 6.800% April 1, 2007 A1 3,063,780
3,000,000 Wayzata Independent School
District #284, Minnesota,
General Obligation School
Building Refunding,
Series 1998A............. 5.000% February 1, 2012 Aa1 2,927,700
------------
12,719,596
------------
MISSISSIPPI (1.2%)
$ 2,100,000 Jackson Public School
District, Mississippi,
General Obligation School
Bonds, Series 1992....... 5.800% July 1, 2002 A1 2,168,964
2,000,000 City of Jackson,
Mississippi, Water and
Sewer System Revenue
Refunding Bonds,
Series 1993-A............ 4.850% September 1, 2004 Aaa 2,015,900
------------
4,184,864
------------
</TABLE>

65
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.

PORTFOLIO OF INVESTMENTS (CONTINUED)

NOVEMBER 30, 1999

<TABLE>
<CAPTION>
RATING(B)
PRINCIPAL COUPON (MOODY'S
AMOUNT RATE MATURITY DATE OR S&P) VALUE
--------------------- -------- ------------------ --------- ------------
<C> <S> <C> <C> <C> <C>
LONG-TERM MUNICIPAL BONDS (97.8%) (CONTINUED)
NEBRASKA (4.4%)
$ 2,000,000 City of Lincoln, Nebraska,
Water Revenue and
Refunding Bonds,
Series 1993.............. 4.900% August 15, 2003 Aa2 $ 2,026,920
2,850,000 City of Lincoln, Nebraska,
Electric System Revenue
Refunding Bonds, 1993
Series A................. 4.700% September 1, 2003 Aa2 2,865,390
3,000,000 Omaha Public Power District
of Nebraska, Electric
System Revenue, Series A
(Prerefunded to 2-1-2000
@ 101.5)................. 6.700% February 1, 2005 AA 3,058,620
1,500,000 Omaha, Nebraska, Public
Power District Electric
System Revenue Bonds,
1993 Series B............ 5.100% February 1, 2005 Aa2 1,525,095
6,000,000 Omaha Public Power
District, Nebraska,
Electric System Revenue
Bonds, 1992 Series B
(Escrowed to maturity)... 6.150% February 1, 2012 Aa2 6,437,040
------------
15,913,065
------------
NEVADA (.6%)
2,110,000 State of Nevada, General
Obligation (Limited Tax)
Hoover Uprating Refunding
Bonds, Series 1992....... 6.000% October 1, 2001 Aa2 2,172,540
------------
NEW MEXICO (.7%)
2,500,000 City of Albuquerque, New
Mexico, Joint Water and
Sewer Refunding Revenue
Bonds, Series 1990B...... 7.000% July 1, 2003 Aa3 2,589,675
------------
NEW YORK (.3%)
1,250,000 State of New York, Power
Authority General Purpose
Bonds, Series Z (Escrowed
to maturity)............. 6.000% January 1, 2001 Aaa 1,273,588
------------
</TABLE>

66
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.

PORTFOLIO OF INVESTMENTS (CONTINUED)

NOVEMBER 30, 1999

<TABLE>
<CAPTION>
RATING(B)
PRINCIPAL COUPON (MOODY'S
AMOUNT RATE MATURITY DATE OR S&P) VALUE
--------------------- -------- ------------------ --------- ------------
<C> <S> <C> <C> <C> <C>
LONG-TERM MUNICIPAL BONDS (97.8%) (CONTINUED)
NORTH CAROLINA (3.1%)
$ 1,600,000 County of Buncombe, North
Carolina, Refunding
Bonds, Series 1993....... 5.100% March 1, 2004 Aa2 $ 1,632,944
1,325,000 Winston-Salem, North
Carolina, Water and Sewer
System Revenue Bonds,
Series 1995B............. 5.000% June 1, 2007 Aa2 1,332,407
1,665,000 Winston-Salem, North
Carolina, Water and Sewer
System Revenue Bonds,
Series 1995B............. 5.100% June 1, 2008 Aa2 1,675,306
4,000,000 County of Wake, North
Carolina, General
Obligation School Bonds,
Series 1997.............. 4.900% March 1, 2009 Aaa 3,969,200
3,000,000 State of North Carolina,
Public School Building
Bonds, General
Obligation,
Series 1999.............. 4.600% April 1, 2016 Aaa 2,628,180
------------
11,238,037
------------
NORTH DAKOTA (.6%)
2,000,000 Fargo, North Dakota, Water
Revenue of 1993 (Escrowed
to maturity)............. 5.000% January 1, 2004 Aaa 2,027,920
------------
OHIO (2.3%)
1,535,000 Columbus, Ohio, Sewer
Improvement No. 27
Refunding Bonds,
Series 1991 (Unlimited
Tax General Obligation
Bonds)................... 5.900% February 15, 2002 Aaa 1,585,440
5,000,000 State of Ohio, Full Faith &
Credit General Obligation
Infrastructure
Improvement Bonds,
Series 1997.............. 5.350% August 1, 2012 Aa1 5,020,250
1,970,000 Delaware County, Ohio,
General Obligation,
Limited Tax, Sewer
District Improvement
Bonds, Series 1999....... 4.900% December 1, 2015 Aaa 1,792,483
------------
8,398,173
------------
</TABLE>

67
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.

PORTFOLIO OF INVESTMENTS (CONTINUED)

NOVEMBER 30, 1999

<TABLE>
<CAPTION>
RATING(B)
PRINCIPAL COUPON (MOODY'S
AMOUNT RATE MATURITY DATE OR S&P) VALUE
--------------------- -------- ------------------ --------- ------------
<C> <S> <C> <C> <C> <C>
LONG-TERM MUNICIPAL BONDS (97.8%) (CONTINUED)
OKLAHOMA (2.1%)
$ 1,500,000 City of Tulsa, Oklahoma,
General Obligation
Refunding Bonds of
1993..................... 5.050% June 1, 2002 Aa2 $ 1,523,940
1,050,000 Oklahoma City, Oklahoma,
General Obligation Bonds,
Series 1993.............. 5.150% May 1, 2003 Aa2 1,070,706
1,050,000 Oklahoma City, Oklahoma,
General Obligation Bonds,
Series 1993.............. 5.250% May 1, 2004 Aa2 1,070,328
2,000,000 Oklahoma City, Oklahoma,
General Obligation
Refunding Bonds,
Series 1993.............. 5.300% August 1, 2005 Aa2 2,054,980
1,680,000 City of Tulsa, Oklahoma,
General Obligation Bonds,
Series 1999 (a).......... 5.250% December 1, 2009 Aa2 1,703,503
------------
7,423,457
------------
OREGON (1.7%)
4,000,000 Portland, Oregon, Sewer
System Revenue Refunding
Bonds, 1997 Series A..... 5.000% June 1, 2011 Aaa 3,921,200
2,000,000 Washington and Clackamas
Counties School District
#23J (Tigard-Tualatin),
Oregon, General
Obligation Bonds,
Series 1995.............. 5.550% June 1, 2011 A1 2,037,100
------------
5,958,300
------------
PENNSYLVANIA (1.1%)
1,645,000 City of Lancaster,
Lancaster County,
Pennsylvania, General
Obligation Bonds,
Series A of 1998......... 4.650% May 1, 2013 Aaa 1,486,455
2,695,000 City of Lancaster,
Lancaster County,
Pennsylvania, General
Obligation Bonds,
Series A of 1998......... 4.750% May 1, 2014 Aaa 2,430,701
------------
3,917,156
------------
</TABLE>

68
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.

PORTFOLIO OF INVESTMENTS (CONTINUED)

NOVEMBER 30, 1999

<TABLE>
<CAPTION>
RATING(B)
PRINCIPAL COUPON (MOODY'S
AMOUNT RATE MATURITY DATE OR S&P) VALUE
--------------------- -------- ------------------ --------- ------------
<C> <S> <C> <C> <C> <C>
LONG-TERM MUNICIPAL BONDS (97.8%) (CONTINUED)
SOUTH CAROLINA (2.7%)
$ 1,625,000 Charleston County, South
Carolina, General
Obligation Bonds of 1994
(ULT) (Escrowed to
maturity)................ 5.400% June 1, 2005 Aa3 $ 1,676,415
1,700,000 State of South Carolina,
General Obligation State
Highway Bonds,
Series 1995.............. 5.100% August 1, 2008 Aaa 1,720,315
1,700,000 State of South Carolina,
General Obligation State
Highway Bonds,
Series 1995.............. 5.250% August 1, 2009 Aaa 1,727,761
2,675,000 City of Columbia, South
Carolina, Waterworks and
Sewer System Revenue
Bonds, Series 1999....... 5.500% February 1, 2010 Aa2 2,743,935
1,800,000 School District No. 1 of
Richland County, South
Carolina, General
Obligation Bonds,
Series 1999.............. 5.500% March 1, 2010 Aa1 1,850,994
------------
9,719,420
------------
TENNESSEE (4.0%)
1,200,000 Shelby County, Tennessee,
General Obligation
Refunding Bonds, 1992
Series B................. 5.200% March 1, 2001 Aa3 1,214,136
1,000,000 Williamson County,
Tennessee, Public Works
Refunding Bonds,
Series 1992 5.650% March 1, 2002 Aa1 1,027,260
2,000,000 Nashville & Davidson
County, Tennessee,
Electric System Revenue
Bonds, 1992 Series B..... 5.500% May 15, 2002 Aa3 2,051,160
2,000,000 Nashville & Davidson
County, Tennessee,
General Obligation
Refunding Bonds of
1993..................... 5.000% May 15, 2003 Aa2 2,031,020
</TABLE>

69
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.

PORTFOLIO OF INVESTMENTS (CONTINUED)

NOVEMBER 30, 1999

<TABLE>
<CAPTION>
RATING(B)
PRINCIPAL COUPON (MOODY'S
AMOUNT RATE MATURITY DATE OR S&P) VALUE
--------------------- -------- ------------------ --------- ------------
<C> <S> <C> <C> <C> <C>
LONG-TERM MUNICIPAL BONDS (97.8%) (CONTINUED)
TENNESSEE (4.0%) (CONTINUED)
$ 1,500,000 Nashville & Davidson
County, Tennessee, Water
and Sewer Revenue
Refunding Bonds,
Series 1993.............. 4.900% January 1, 2004 Aaa $ 1,514,310
1,800,000 Nashville & Davidson
County, Tennessee,
General Obligation
Refunding Bonds of
1993..................... 5.000% May 15, 2005 Aa2 1,823,958
4,500,000 Nashville & Davidson
County, Tennessee, Water
and Sewer Revenue
Refunding Bonds,
Series 1996.............. 5.250% January 1, 2008 Aaa 4,561,920
------------
14,223,764
------------
TEXAS (5.6%)
1,000,000 State of Texas, Veterans'
Land Board General
Obligation Bonds,
Series 1984 (Prerefunded
to 12-1-1999 @ 100)...... 9.000% December 1, 2000 Aa1 1,000,140
2,000,000 Texas Public Finance
Authority, State of
Texas, General Obligation
Refunding Bonds,
Series 1992A............. 5.700% October 1, 2003 Aa1 2,084,280
2,000,000 City of Dallas, Texas,
Waterworks and Sewer
System Revenue Refunding
Bonds, Series 1993....... 4.900% April 1, 2004 Aa2 2,017,000
2,000,000 Harris County, Texas, Road
and Refunding Bonds,
Series 1993.............. 4.700% October 1, 2004 Aa1 2,007,260
2,355,000 Carrollton-Farmers Branch
Independent School
District (Dallas and
Denton Counties, Texas)
School Building Unlimited
Tax Bonds,
Series 1996.............. 5.200% February 15, 2008 Aaa 2,375,936
</TABLE>

70
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.

PORTFOLIO OF INVESTMENTS (CONTINUED)

NOVEMBER 30, 1999

<TABLE>
<CAPTION>
RATING(B)
PRINCIPAL COUPON (MOODY'S
AMOUNT RATE MATURITY DATE OR S&P) VALUE
--------------------- -------- ------------------ --------- ------------
<C> <S> <C> <C> <C> <C>
LONG-TERM MUNICIPAL BONDS (97.8%) (CONTINUED)
TEXAS (5.6%) (CONTINUED)
$ 1,000,000 Carrollton-Farmers Branch
Independent School
District (Dallas County,
Texas) School Building
Unlimited Tax Bonds,
Series 1999 (a).......... 5.375% February 15, 2008 Aaa $ 1,022,890
3,000,000 State of Texas, Public
Finance Authority,
General Obligation
Refunding Bonds,
Series 1996B............. 5.400% October 1, 2008 Aa1 3,070,290
2,455,000 Carrollton-Farmers Branch
Independent School
District (Dallas County,
Texas) School Building
Unlimited Tax Bonds,
Series 1999 (a).......... 5.500% February 15, 2009 Aaa 2,526,244
1,840,000 City of Dallas, Texas,
Waterworks and Sewer
System Revenue Bonds,
Series 1994A (Prerefunded
to 10-1-2001 @ 101.5).... 6.375% October 1, 2012 Aa2 1,932,773
2,250,000 Round Rock Independent
School District,
Williamson and Travis
Counties, Texas,
Unlimited Tax School
Building and Refunding
Bonds, Series 1999....... 4.750% August 1, 2015 Aaa 1,998,158
------------
20,034,971
------------
UTAH (1.1%)
2,780,000 Salt Lake County, Utah,
General Obligation Jail
Bonds, Series 1995....... 5.000% December 15, 2007 Aaa 2,801,545
1,300,000 City of Provo, Utah County,
Utah, General Obligation
Library Bonds,
Series 1999.............. 5.250% March 1, 2009 Aaa 1,317,004
------------
4,118,549
------------
</TABLE>

71
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.

PORTFOLIO OF INVESTMENTS (CONTINUED)

NOVEMBER 30, 1999

<TABLE>
<CAPTION>
RATING(B)
PRINCIPAL COUPON (MOODY'S
AMOUNT RATE MATURITY DATE OR S&P) VALUE
--------------------- -------- ------------------ --------- ------------
<C> <S> <C> <C> <C> <C>
LONG-TERM MUNICIPAL BONDS (97.8%) (CONTINUED)
VIRGINIA (.5%)
$ 1,685,000 Hampton Roads Sanitation
District, Virginia,
Wastewater Refunding and
Capital Improvement
Revenue Bonds,
Series 1993.............. 4.700% October 1, 2004 Aa3 $ 1,691,841
------------
WASHINGTON (6.8%)
1,250,000 Washington Public Power
Supply System Nuclear
Project No. 3, Refunding
Revenue Bonds,
Series 1991A............. 6.250% July 1, 2000 Aa1 1,265,350
1,000,000 Washington Public Power
Supply System Nuclear
Project No. 1, Revenue
Refunding Bonds,
Series 1990C............. 7.700% July 1, 2002 Aa1 1,074,690
2,000,000 Washington Public Power
Supply System Nuclear
Project No. 3, Refunding
Revenue Bonds,
Series 1993C............. 4.800% July 1, 2003 Aa1 2,008,420
2,520,000 Federal Way School District
No. 210, King County,
Washington, Unlimited Tax
General Obligation and
Refunding Bonds,
Series 1993.............. 5.250% December 1, 2003 Aaa 2,583,882
2,000,000 City of Seattle,
Washington, Unlimited Tax
General Obligation
Refunding Bonds of
1993..................... 4.800% December 1, 2004 Aaa 2,008,320
1,500,000 Washington Public Power
Supply System Nuclear
Project No. 2, Revenue
Refunding Bonds,
Series 1990A (Prerefunded
to 7-1-2000 @ 102)....... 7.625% July 1, 2008 Aaa 1,560,240
4,500,000 State of Washington,
General Obligation Bonds,
Series 1993A............. 5.750% October 1, 2012 Aa1 4,690,755
</TABLE>

72
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.

PORTFOLIO OF INVESTMENTS (CONTINUED)

NOVEMBER 30, 1999

<TABLE>
<CAPTION>
RATING(B)
PRINCIPAL COUPON (MOODY'S
AMOUNT RATE MATURITY DATE OR S&P) VALUE
--------------------- -------- ------------------ --------- ------------
<C> <S> <C> <C> <C> <C>
LONG-TERM MUNICIPAL BONDS (97.8%) (CONTINUED)
WASHINGTON (6.8%) (CONTINUED)
$ 2,000,000 City of Vancouver,
Washington, Water and
Sewer Revenue Refunding
Bonds, 1998.............. 4.600% June 1, 2013 Aaa $ 1,783,620
2,495,000 Seattle, Washington, Water
System Revenue 1998...... 5.000% October 1, 2013 Aa2 2,370,425
2,605,000 City of Vancouver,
Washington, Water and
Sewer Revenue Refunding
Bonds, 1998.............. 4.650% June 1, 2014 Aaa 2,298,470
3,000,000 State of Washington,
Variable Purpose General
Obligation Refunding
Bonds, Series R-99A...... 4.750% January 1, 2015 Aa1 2,669,340
------------
24,313,512
------------
WEST VIRGINIA (.7%)
2,540,000 State of West Virginia,
State Road General
Obligation Bonds,
Series 1998.............. 5.000% June 1, 2013 Aaa 2,417,750
------------
WISCONSIN (4.6%)
3,500,000 Milwaukee, Wisconsin,
Metropolitan Sewerage
District General
Obligation Capital
Purpose Bonds,
Series 1990A (Escrowed to
maturity)................ 6.700% October 1, 2002 Aa1 3,709,300
2,000,000 State of Wisconsin, General
Obligation Refunding
Bonds of 1993,
Series 1................. 5.300% November 1, 2003 Aa2 2,055,380
2,000,000 State of Wisconsin, General
Obligation Refunding
Bonds of 1993,
Series 3................. 4.750% November 1, 2003 Aa2 2,016,280
2,000,000 State of Wisconsin, General
Obligation Bonds of 1995,
Series A (Prerefunded to
5-1-2005 @ 100).......... 6.000% May 1, 2008 Aaa 2,121,080
2,500,000 State of Wisconsin, General
Obligation Refunding
Bonds of 1993,
Series 2................. 5.125% November 1, 2010 Aa2 2,500,925
</TABLE>

73
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.

PORTFOLIO OF INVESTMENTS (CONTINUED)

NOVEMBER 30, 1999

74
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.

PORTFOLIO OF INVESTMENTS (CONTINUED)

NOVEMBER 30, 1999

<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE
--------------------- ------------
<C> <S> <C>
SHORT-TERM INVESTMENTS (2.2%)
$ 2,000,000 General Electric Capital Corp., 5.260%, December, 1999...... $ 2,006,156
4,900,000 U.S. Treasury Bills, 4.690% and 5.075%, December, 1999 and
February, 2000............................................ 4,867,909
1,005,823 Chase Vista Treasury Plus Money Market Fund................. 1,005,823
------------
TOTAL SHORT-TERM INVESTMENTS
(cost $7,879,917)................................................................. 7,879,888
------------
TOTAL INVESTMENTS (100.0%)
(cost $356,702,137)............................................................... 358,672,430
LIABILITIES, NET OF CASH AND OTHER ASSETS (0.0%).................................... (118,733)
------------
NET ASSETS (100.0%)................................................................. $358,553,697
============
</TABLE>

Notes:

(a) Purchased on a "when-issued" basis.

(b) Ratings are unaudited.

At November 30, 1999, net unrealized appreciation of $1,970,293 consisted of
gross unrealized appreciation of $7,558,840 and gross unrealized depreciation of
$5,588,547 based on cost of $356,702,137 for federal income tax purposes.

See accompanying notes to financial statements.

75
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.

STATEMENT OF ASSETS AND LIABILITIES

NOVEMBER 30, 1999

<TABLE>
<S> <C> <C>
ASSETS
Investments, at value (cost $356,702,137)................. $358,672,430
Receivable for:
Interest................................................ $6,008,089
Shares of the Fund sold................................. 79,500
Securities sold......................................... 2,320,236 8,407,825
----------
Prepaid expenses.......................................... 9,987
------------
Total assets.............................................. 367,090,242
------------

LIABILITIES AND NET ASSETS
Dividends payable to shareowners.......................... 3,136,424
Payable for:
Shares of the Fund redeemed............................. 23,750
Securities purchased.................................... 5,226,586
Other (including $113,785 to Manager)................... 149,785 5,400,121
---------- ------------
Total liabilities....................................... 8,536,545
------------
Net assets applicable to 44,171,716 shares outstanding of
$1.00 par value common stock (100,000,000 shares
authorized)............................................... $358,553,697
============
Net asset value, offering price and redemption price per
share..................................................... $ 8.12
============

ANALYSIS OF NET ASSETS
Excess of amounts received from sales of shares over
amounts paid on redemptions of shares on account of
capital................................................. $356,624,780
Accumulated net realized loss on sales of investments..... (41,376)
Net unrealized appreciation of investments................ 1,970,293
------------
Net assets applicable to shares outstanding............... $358,553,697
============
</TABLE>

See accompanying notes to financial statements.

76
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
--------------------------
1999 1998
------------ -----------
<S> <C> <C>
INVESTMENT INCOME:
Taxable interest.......................................... $ 458,646 $ 548,684
Tax-exempt interest....................................... 19,158,717 18,524,272
------------ -----------
Total investment income................................... 19,617,363 19,072,956

EXPENSES:
Investment advisory and management fees................... 442,211 425,519
Professional fees......................................... 54,134 27,144
ICI dues.................................................. 12,972 9,948
Registration fees......................................... 2,879 7,226
Fidelity bond expense..................................... 3,453 3,768
Directors' fees........................................... 4,800 5,420
Reports to shareowners.................................... 6,310 3,591
Security evaluation fees.................................. 21,288 19,711
Franchise taxes........................................... 17,420 19,353
Custodian fees............................................ 12,456 10,425
Proxy and related expense................................. -- 3,710
Other..................................................... 131 140
------------ -----------
Total expenses............................................ 578,054 535,955
------------ -----------
Net investment income....................................... 19,039,309 18,537,001

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on sales of investments.......... 21,485 (62,861)
Change in net unrealized appreciation or depreciation..... (19,471,906) 5,100,703
------------ -----------
Net realized and unrealized gain (loss) on investments...... (19,450,421) 5,037,842
------------ -----------
Net change in net assets resulting from operations.......... $ (411,112) $23,574,843
============ ===========
</TABLE>

See accompanying notes to financial statements.

77
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.

STATEMENTS OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
---------------------------
1999 1998
------------ ------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income..................................... $ 19,039,309 $ 18,537,001
Net realized gain (loss) on sales of investments.......... 21,485 (62,861)
Change in net unrealized appreciation or depreciation..... (19,471,906) 5,100,703
------------ ------------
Net change in net assets resulting from operations.......... (411,112) 23,574,843

DISTRIBUTION TO SHAREOWNERS FROM:
Net investment income..................................... (19,039,309) (18,537,001)
------------ ------------
Total distributions to shareowners........................ (19,039,309) (18,537,001)

FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold................................. 39,488,742 38,871,460
Reinvestment of ordinary income dividends................. 14,382,411 13,564,060
------------ ------------
53,871,153 52,435,520
Less payments for shares redeemed......................... 38,958,604 30,744,422
------------ ------------
Net increase in net assets from Fund share transactions..... 14,912,549 21,691,098
------------ ------------
Total increase (decrease) in net assets..................... (4,537,872) 26,728,940
------------ ------------

NET ASSETS:
Beginning of year......................................... 363,091,569 336,362,629
------------ ------------
End of year............................................... $358,553,697 $363,091,569
============ ============
</TABLE>

See accompanying notes to financial statements.

78
<PAGE>
STATE FARM MUNICIPAL BOND FUND, INC.

FINANCIAL HIGHLIGHTS

INCOME FROM INVESTMENT
OPERATIONS
Net investment income...... 0.43 0.45 0.47 0.48 0.48 0.48 0.50
Net gain or (loss) on
investments (both
realized and
unrealized).............. (0.43) 0.12 (0.01) (0.06) 0.62 (0.69) 0.25
------ ------ ------ ------ ------ ------ ------
Total from investment
operations............... -- 0.57 0.46 0.42 1.10 (0.21) 0.75
------ ------ ------ ------ ------ ------ ------

LESS DISTRIBUTIONS
Net investment income...... (0.43) (0.45) (0.47) (0.48) (0.48) (0.48) (0.50)
Capital gains(a)........... -- -- -- -- -- (0.02) --
------ ------ ------ ------ ------ ------ ------
Total distributions........ (0.43) (0.45) (0.47) (0.48) (0.48) (0.50) (0.50)
------ ------ ------ ------ ------ ------ ------
Net asset value, end of
year....................... $ 8.12 $ 8.55 $ 8.43 $ 8.44 $ 8.50 $ 7.88 $ 8.59
====== ====== ====== ====== ====== ====== ======
TOTAL RETURN................. 0.04% 6.82% 5.68% 5.21% 14.25% (2.55)% 9.17%

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year
(millions)................. $358.6 $363.1 $336.4 $321.1 $307.4 $269.9 $276.4
Ratio of expenses to average
net assets................. 0.16% 0.15% 0.15% 0.16% 0.17%(b) 0.16% 0.18%
Ratio of net investment
income to average net
assets..................... 5.20% 5.29% 5.61% 5.76% 5.80% 5.80% 5.84%
Portfolio turnover rate...... 10% 6% 6% 6% 7% 8% 5%

<CAPTION>
YEAR ENDED NOVEMBER 30,
------------------------------
1992 1991 1990
-------- -------- --------
<S> <C> <C> <C>
Net asset value, beginning of
year....................... $ 8.15 $ 7.98 $ 7.96
INCOME FROM INVESTMENT
OPERATIONS
Net investment income...... 0.53 0.54 0.58
Net gain or (loss) on
investments (both
realized and
unrealized).............. 0.19 0.17 0.02
------ ------ ------
Total from investment
operations............... 0.72 0.71 0.60
------ ------ ------
LESS DISTRIBUTIONS
Net investment income...... (0.53) (0.54) (0.58)
Capital gains(a)........... -- -- --
------ ------ ------
Total distributions........ (0.53) (0.54) (0.58)
------ ------ ------
Net asset value, end of
year....................... $ 8.34 $ 8.15 $ 7.98
====== ====== ======
TOTAL RETURN................. 9.05% 9.17% 7.78%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year
(millions)................. $211.3 $167.2 $132.8
Ratio of expenses to average
net assets................. 0.19% 0.21% 0.23%
Ratio of net investment
income to average net
assets..................... 6.36% 6.75% 7.30%
Portfolio turnover rate...... 4% 2% 8%
</TABLE>

------------------------------

(a) Distributions representing less than $.01 per share were made in 1997, 1996,
1993 and 1992.

(b) The ratio based on net custodian expenses would have been .16% in 1995.

79
<PAGE>
STATE FARM MUTUAL FUNDS

NOTES TO FINANCIAL STATEMENTS

1. OBJECTIVE

The investment objective of the STATE FARM GROWTH FUND, INC. (GROWTH FUND)
is long-term growth of capital and income. The Fund seeks to achieve this
objective by investing most of its assets in common stocks and other income
producing equity securities that are believed to have potential for long-term
growth of capital or income, or both.

The investment objective of the STATE FARM BALANCED FUND, INC. (BALANCED
FUND) is to provide its shareowners income and some long-term growth of both
principal and income. The Fund seeks to achieve its objective by distributing
its investments among common stocks, preferred stocks and bonds in varying
proportions according to prevailing market conditions and the judgment of the
Manager.

The investment objective of the STATE FARM INTERIM FUND, INC. (INTERIM FUND)
is the realization over a period of years of the highest yield consistent with
relative price stability (relatively low volatility). The Fund seeks to achieve
its investment objective through investment in high quality debt securities with
primarily short-term (less than five years) and intermediate-term (five to
fifteen years) maturities.

The investment objective of the STATE FARM MUNICIPAL BOND FUND, INC.
(MUNICIPAL BOND FUND) is to provide its shareowners with as high a rate of
income exempt from federal income taxes as is consistent with prudent investment
management. The Fund seeks to achieve its investment objective through
investment primarily in a diversified portfolio of Municipal Bonds with
maturities of 1--17 years.

The following is a summary of significant accounting policies followed by
the Funds in the preparation of their financial statements in accordance with
generally accepted accounting principles.

2. SIGNIFICANT ACCOUNTING POLICIES

SECURITIES VALUATION

Investments are stated at value. Stocks traded on securities exchanges, or
in the over-the-counter market in which transaction prices are reported, are
valued at the last sales prices on the day of valuation or, if there are no
reported sales on that day, at the last reported bid price for the day.
Long-term debt securities and U.S. Treasury bills are valued using quotations
provided by an independent pricing service. Short-term debt securities, other
than U.S. Treasury bills, are valued at amortized cost which approximates market
value. Any securities not valued as described above are valued at fair value as
determined in good faith by the Boards of Directors or their delegate.

SECURITIES TRANSACTIONS AND INVESTMENT INCOME

Security transactions are accounted for on the trade date (date the order to
buy or sell is executed) and dividend income is recorded on the ex-dividend
date. Interest income is recorded on the accrual basis. Premiums and original
issue discounts on tax-exempt securities in the Municipal Bond Fund are
amortized. Realized gains and losses from security transactions are reported on
an identified cost basis.

SECURITIES PURCHASED ON A "WHEN-ISSUED" BASIS

The Municipal Bond Fund may purchase municipal bonds on a "when-issued"
basis. Delivery and payment for these securities may be a month or more after
the purchase date, during which time such securities are subject to market
fluctuations. It is possible that the securities will never be issued and the
commitment cancelled. At November 30, 1999, there were commitments of $5,226,586
for such securities, included in the investment portfolio.

80
<PAGE>
STATE FARM MUTUAL FUNDS

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FUND SHARE VALUATION

Fund shares are sold and redeemed on a continuous basis at net asset value.
The net asset value per share is determined daily on each day the New York Stock
Exchange is open, except that a Fund need not compute a net asset value on any
day when no purchase or redemption order has been received by the Fund. The net
asset values for the Funds are determined as of the close of regular session
trading on the New York Stock Exchange (usually 3:00 p.m. Bloomington, Illinois
time). The net asset value per share is computed by dividing the total value of
a Fund's investments and other assets, less liabilities, by the number of Fund
shares outstanding.

FEDERAL INCOME TAXES, DIVIDENDS AND DISTRIBUTIONS TO SHAREOWNERS

It is each Fund's policy to comply with the special provisions of the
Internal Revenue Code available to investment companies and, in the manner
provided therein, to distribute all taxable income, as well as any net realized
gain on sales of investments reportable for federal income tax purposes. Each
Fund has complied with this policy and, accordingly, no provision for federal
income taxes is required.

The Interim Fund and Municipal Bond Fund declare dividends daily equal to
each Fund's respective net investment income, and distributions of such amounts
are made at the end of each calendar quarter.

Net realized gains on sales of investments, if any, are distributed annually
after the close of a Fund's fiscal year. Dividends and distributions payable to
shareowners are recorded by the respective Fund on the ex-dividend date.

On December 17, 1999, the Growth Fund declared an ordinary income dividend
of $.33 per share and a capital gain distribution of $.23 per share to
shareowners of record on December 17, 1999 (reinvestment date December 20,
1999).

On December 17, 1999, the Balanced Fund declared an ordinary income dividend
of $.79 per share and a capital gain distribution of $.57 per share to
shareowners of record on December 17, 1999 (reinvestment date December 20,
1999).

The accumulated net realized loss on sales of investments at November 30,
1999 for the Interim Fund, amounting to $4,007,631, is available to offset
future taxable gains. If not applied, the capital loss carryover expires as
follows: $22,669 in 2000, $162,716 in 2001, $335,277 in 2002, $321,293 in 2003,
$363,957 in 2004, $922,190 in 2005, $994,996 in 2006, and $884,533 in 2007. A
capital loss carryover of $92,150 expired in 1999 and was re-classified from
Accumulated net realized loss on sales of investments to Excess of amounts
received from sales of shares over amounts paid on redemptions of shares on
account of capital on the Statement of Assets and Liabilities.

The accumulated net realized loss on sales of investments at November 30,
1999 for the Municipal Bond Fund, amounting to $41,376, is available to offset
future taxable gains. If not applied, the capital loss carryover expires in
2006.

EQUALIZATION ACCOUNTING

A portion of proceeds from sales and payments on redemptions of Fund shares
is credited or charged to undistributed net investment income for the Growth
Fund and Balanced Fund. As a result, undistributed net investment income per
share is unaffected by sales or redemptions of shares.

81
<PAGE>
STATE FARM MUTUAL FUNDS

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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:

<S> <C>
20% of the first $100 million of average net
State Farm Growth Fund, Inc................. assets

.15% of the next $100 million of average net
assets

.10% of the average net assets in excess of
$200 million

20% of the first $100 million of average net
State Farm Balanced Fund, Inc............... assets

.15% of the next $100 million of average net
assets

.10% of the average net assets in excess of
$200 million

20% of the first $50 million of average net
State Farm Interim Fund, Inc................ assets

.15% of the next $50 million of average net
assets

.10% of the average net assets in excess of
$100 million

20% of the first $50 million of average net
State Farm Municipal Bond Fund, Inc......... assets

.15% of the next $50 million of average net
assets

.10% of the average net assets in excess of
$100 million
</TABLE>

Under the terms of these agreements, the Funds incurred the following fees
for the fiscal years ended November 30:

<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
State Farm Growth Fund, Inc................................. $2,740,037 $2,221,492
State Farm Balanced Fund, Inc............................... 1,113,753 980,972
State Farm Interim Fund, Inc................................ 230,126 199,209
State Farm Municipal Bond Fund, Inc......................... 442,211 425,519
</TABLE>

The Funds do not pay any discount, commission or other compensation for
transfer agent or underwriting services provided by the Manager.

82
<PAGE>
STATE FARM MUTUAL FUNDS

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
Certain officers and/or directors of each Fund are also officers and/or
directors of the Manager. The Funds made no payments to their officers or
directors during the fiscal years ended November 30, except for the following
directors' fees paid to the Funds' independent directors:

<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
State Farm Growth Fund, Inc................................. $14,400 $15,300
State Farm Balanced Fund, Inc............................... 7,200 7,650
State Farm Interim Fund, Inc................................ 2,400 2,550
State Farm Municipal Bond Fund, Inc......................... 4,800 5,100
</TABLE>

4. INVESTMENT TRANSACTIONS

Investment transactions (exclusive of short-term instruments) for each of
the fiscal years ended November 30, were as follows:

<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
STATE FARM GROWTH FUND, INC.
Purchases................................................... $166,759,514 $309,663,058
Proceeds from sales......................................... 50,948,078 14,874,459

STATE FARM BALANCED FUND, INC.
Purchases................................................... 121,270,812 92,615,420
Proceeds from sales......................................... 42,344,646 17,698,918

STATE FARM INTERIM FUND, INC.
Purchases................................................... 26,673,672 52,146,094
Proceeds from sales......................................... 17,750,000 16,756,328

STATE FARM MUNICIPAL BOND FUND, INC.
Purchases................................................... 48,533,279 48,047,861
Proceeds from sales......................................... 35,579,660 20,915,700
</TABLE>

83
<PAGE>
STATE FARM MUTUAL FUNDS

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

5. FUND SHARE TRANSACTIONS

Proceeds and payments on Fund shares as shown in each Fund's statement of
changes in net assets are in respect of the following number of shares:

<TABLE>
<CAPTION>
1999 1998
---------- -----------
<S> <C> <C>
STATE FARM GROWTH FUND, INC.
Shares sold................................................. 6,423,670 8,122,332
Shares issued in reinvestment of ordinary income dividends
and capital gain distributions............................ 666,008 2,034,859
---------- -----------
7,089,678 10,157,191
Less shares redeemed........................................ 4,646,586 5,105,810
---------- -----------
Net increase in shares outstanding.......................... 2,443,092 5,051,381
========== ===========

STATE FARM BALANCED FUND, INC.
Shares sold................................................. 2,212,658 3,094,918
Shares issued in reinvestment of ordinary income dividends
and capital gain distributions............................ 518,187 785,967
---------- -----------
2,730,845 3,880,885
Less shares redeemed........................................ 1,992,292 2,390,819
---------- -----------
Net increase in shares outstanding.......................... 738,553 1,490,066
========== ===========

STATE FARM INTERIM FUND, INC.
Shares sold................................................. 7,721,510 10,094,227
Shares issued in reinvestment of ordinary income
dividends................................................. 959,304 748,608
---------- -----------
8,680,814 10,842,835
Less shares redeemed........................................ 8,132,727 6,846,009
---------- -----------
Net increase in shares outstanding.......................... 548,087 3,996,826
========== ===========

STATE FARM MUNICIPAL BOND FUND, INC.
Shares sold................................................. 4,692,572 4,573,153
Shares issued in reinvestment of ordinary income
dividends................................................. 1,721,081 1,593,850
---------- -----------
6,413,653 6,167,003
Less shares redeemed........................................ 4,685,530 3,616,812
---------- -----------
Net increase in shares outstanding.......................... 1,728,123 2,550,191
========== ===========
</TABLE>