Certified Annual Shareholder Report of a Management Investment Company · Form N-CSR
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1: N-CSR State Farm Mutual Fund Trust Class A, B and 442± 1,826K
Institutional Class Shares
2: EX-99.A.2 Certification As Required by Rule 30a-2(A) 2 16K
3: EX-99.B Certification Pursuant to Rule 906 of the 1 7K
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N-CSR · State Farm Mutual Fund Trust Class A, B and Institutional Class Shares
Document Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-10027
STATE FARM MUTUAL FUND TRUST
(Exact name of registrant as specified in charter)
One State Farm Plaza
Bloomington, IL 61710-0001
(Address of principal executive offices) (Zip code)
Michael L. Tipsord Alan Goldberg
One State Farm Plaza Bell, Boyd & Lloyd LLC
Bloomington, Illinois 61710-0001 Three First National Plaza
70 West Madison St., Suite 3300
Chicago, Illinois 60602
(Names and addresses of agents for service)
Registrant's telephone number, including area code: 1-800-447-4930
Date of fiscal year end: 12/31/2003
Date of reporting period: 12/31/2003
ITEM 1. REPORTS TO STOCKHOLDERS.
December 31, 2003
[LOGO] STATE FARM INSURANCE(R) Mutual
Funds(R)
State Farm Mutual Fund Trust
Annual Report
[GRAPHIC]
Class A Shares / Class B Shares / Institutional Shares
State Farm Equity Fund
State Farm Small Cap Equity Fund
State Farm International Equity Fund
State Farm S&P 500 Index Fund
State Farm Small Cap Index Fund
State Farm International Index Fund
State Farm Equity and Bond Fund
State Farm Bond Fund
State Farm Tax Advantaged Bond Fund
State Farm Money Market Fund
State Farm LifePath(R) Income Fund
State Farm LifePath 2010(R) Fund
State Farm LifePath 2020(R) Fund
State Farm LifePath 2030(R) Fund
State Farm LifePath 2040(R) Fund
[Download Table]
Table of Contents
Message to Shareowners............... i Master Investment Portfolio
Schedule of Investments
Schedule of Investments S&P 500 Index Master Portfolio...... 109
State Farm Equity Fund.............. 17 Russell 2000 Index Master Portfolio. 118
State Farm Small Cap Equity Fund.... 19 International Index Master Portfolio 140
State Farm International Equity Fund 22 LifePath Retirement Master Portfolio 152
State Farm Equity and Bond Fund..... 26 LifePath 2010 Master Portfolio...... 165
State Farm Bond Fund................ 27 LifePath 2020 Master Portfolio...... 181
State Farm Tax Advantaged Bond Fund. 32 LifePath 2030 Master Portfolio...... 197
State Farm Money Market Fund........ 36 LifePath 2040 Master Portfolio...... 212
Financial Statements
Financial Statements Statements of Assets and Liabilities 228
Statements of Assets and Liabilities 38 Statements of Operations............ 230
Statements of Operations............ 42 Statements of Change in Net Assets.. 232
Statements of Changes in Net Assets. 44 Notes to Financial Statements....... 236
Notes to Financial Statements....... 49 Report of Independent Auditors...... 244
Financial Highlights................. 60 Trustees Information................ 245
Report of Independent Auditors....... 105
Management Information............... 106
Service is only a phone call away
Contact your local Registered State Farm Agent or call our Securities Products
Department toll free, at 1-800-447-4930.
Fund prices are available to you 24 hours a day, 7 days a week.
Investor Services Representatives are available 8 a.m. - 6 p.m. Central Time
Monday through Friday (except holidays)
1-800-447-4930
Visit our website www.statefarm.com(R)
This report and material must be accompanied or preceded by a prospectus for
the State Farm Mutual Fund Trust (the "Trust").
The Trust offers Class A and Class B shares for fifteen separate funds through
two prospectuses, one for ten of the funds and another for five of the funds.
The Trust also offers Institutional shares for the fifteen funds in separate
prospectuses, one for ten of the funds and another for five of the funds.
Distributor: State Farm VP Management Corp.
[LOGO] STATE FARM Mutual
INSURANCE(R) Funds(R)
Message to Shareowners of State Farm Mutual Fund Trust
We are glad you chose State Farm Mutual Funds and your Registered State Farm
Agent to help you prepare for your financial future. Enclosed is the State Farm
Mutual Fund Trust Annual Report for the 12 months ended December 31, 2003.
Within this annual report, for each of the funds offered by the Trust, you will
find information such as: historical performance returns, performance
comparisons to securities indices, audited financial information and lists of
portfolio holdings. We encourage your review and consideration of this entire
report.
We have expanded the investment choices by adding State Farm LifePath Funds in
2003. This report includes information on the five funds added to the Trust in
late May 2003: the State Farm(R) LifePath(R) Income Fund, the State Farm
LifePath 2010(R) Fund, the State Farm LifePath 2020(R) Fund, the State Farm
LifePath 2030(R) Fund and the State Farm LifePath 2040(R) Fund. This report
also provides information concerning all three share classes for the fifteen
mutual funds available through investment with the Trust: Class A, Class B and
Institutional (Class I) shares. Institutional shares is a restricted class,
offered primarily for the funding of certain tax qualified accounts. While all
three share classes are invested in the same fund portfolios, performance
returns will differ between share classes due to differing expenses between the
share classes.
Overall, the funds' returns for this year reflected the many positive trends in
the world and U.S. economies. The U.S. stock market posted its first overall
positive year since 1999 and as a result, our funds' equity investments
outperformed our funds' fixed income investments.
As you review the returns for the funds it is important to realize that
historical returns are not good indicators of near term investments results.
The following pages contain additional discussion of factors impacting
performance, specific to each of the funds.
Thank you for investing with State Farm Mutual Funds(R).
Sincerely,
/s/ Phillip G. Hawkins
Phillip G. Hawkins
Vice President
State Farm Investment Management Corp.
LifePath(R), and LifePath followed by 2010, 2020, 2030 and 2040 are registered
trademarks of Barclays Global Investors, N.A.
i
State Farm Equity Fund
Investment Strategy Impacting Performance
The Equity Fund seeks long-term growth of capital. The manager, State Farm
Investment Management Corp., seeks to purchase the common stocks of large U.S.
companies that are considered well run and able to generate long-term capital
appreciation.
How the Equity Fund Performed
The Equity Fund generated a total return of 22.81% for Class A shares and
22.57% for Class B shares excluding sales charges, and 23.52% for Institutional
shares, in the 12 month period ended December 31, 2003. The total return of the
S&P 500(R) Index during the same time period was 28.68%. See the line graph
below for performance with sales charges for Class A and Class B shares.
Reasons for the Equity Fund's Performance
The Equity Fund's positive return reflected the overall positive results of the
equity markets that rebounded after three years of negative returns. The fund
performed below the S&P 500 Index as the fund's holdings of pharmaceutical
firms, consumer product companies, telecommunications operations and
international oil firms was below the index.
Over the past year, the fund has added to its holdings of financial services,
consumer products firms, oil and gas companies, telecommunications and
telecommunications equipment, healthcare firms, electrical manufacturing firms
and technology companies.
Financial highlights for this fund can be found on pages 60-62.
Performance Comparison
The following graph compares a $10,000 investment in the Equity Fund since
inception to a theoretical investment of the same amount in the S&P 500 Index**:
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT FOR THE PERIOD ENDED
DECEMBER 31, 2003, INCLUDING APPLICABLE SALES CHARGES
[CHART]
Equity Equity S&P 500(R)
Class A Class B Index**
12/18/00 $10,000.00 $10,000.00 $10,000.00
12/31/00 9,686.64 9,682.86 9,984.68
3/31/01 8,285.30 8,271.84 8,800.95
6/30/01 8,530.79 8,517.24 9,316.03
9/30/01 7,589.74 7,556.11 7,948.61
12/31/01 8,285.30 8,241.17 8,797.92
3/31/02 8,346.67 8,302.52 8,822.10
6/30/02 7,334.02 7,299.09 7,640.15
9/30/02 6,239.54 6,202.18 6,320.26
12/31/02 6,731.72 6,680.40 6,853.53
3/31/03 6,536.45 6,475.16 6,637.68
6/30/03 7,296.98 7,224.27 7,659.44
9/30/03 7,420.31 7,357.67 7,862.11
12/31/03 8,267.34 8,188.48 8,819.44
Fund's Average Annual Total Return
Since inception
Class A: -6.08%
Class B: -6.37%
Class I*: 2.60%
1 Year
Class A: 19.17%
Class B: 19.57%
Class I: 23.52%
*Class I inception date 11/1/2001. Class I share performance may
be greater than or less than the lines shown for Class A and
Class B shares because of differing loads and expenses between
the share classes.
**S&P 500(R) Index tracks the common stock performance of large
U.S. companies in the manufacturing, utilities, transportation,
and financial industries. In total, the S&P 500 is comprised of
500 common stocks. Unlike an investment in the Equity Fund, a
theoretical investment in the Index does not reflect any
expenses. It is not possible to invest directly in an index.
The performance data quoted represents past performance and does not guarantee
future results. Investment return and principal value will fluctuate and fund
shares, when redeemed, may be worth more or less than their original cost.
Recent performance may be less than the figures shown. Obtain total returns
current to the most recent month-end at statefarm.com(R) under the Mutual Funds
tab.
Average annual total return is the compounded rate of change in value during a
period of investment, including the value of shares acquired through
reinvestment of all dividends and of all capital gain distributions for the
period. This rate is based on an investment at the beginning of the period
through the end of of the period and includes all applicable fees and expenses.
Returns in the graph reflect a maximum sales charge of 3% for Class A shares
and Class B shares at one year, while the Class B shares since inception return
reflects a maximum sales charge of 2.50% (Class I does not include a sales
charge). These figures do not reflect the deduction of taxes that a shareholder
would pay on the fund distributions or the redemption of fund shares. A fund
may have commenced investment operations on or before 12/18/00, which is the
SEC effective registration date for the State Farm Mutual Fund Trust.
See Financial Highlights beginning on page 60.
1
State Farm Small Cap Equity Fund
Investment Strategy Impacting Performance
The Small Cap Equity Fund seeks long-term growth of capital. The Fund invests
its assets primarily in equity securities of companies with relatively small
market capitalizations located in the United States. These companies typically
have market capitalizations of $50 million to $1.5 billion at the time the Fund
purchases these securities. The Fund invests in securities that its
sub-advisor, Capital Guardian Trust Company (Capital Guardian), thinks are
undervalued and represent good long-term investment opportunities.
How the Small Cap Equity Fund Performed
The Small Cap Equity Fund generated a total return of 39.38% for Class A shares
and 39.00% for Class B shares excluding sales charges, and 40.23% for
Institutional shares in the 12 month period ended December 31, 2003. The total
return of the Russell 2000(R) Index during the same time period was 47.25%. See
the line graph below for performance with sales charges for Class A and Class B
shares.
Reasons for the Small Cap Equity Fund's Performance
The Fund's return somewhat varied from the Russell 2000 Index because the Fund
invests in a representative sample of the 2000 stocks in the Index, but not in
every stock included in the Index. The Fund satisfactorily tracked, before fees
and expenses, the performance of the Russell 2000 Index in 2003. Small cap
equities out-performed the overall equity market in 2003. Investments in the
information technology equities led performance while the telecommunications
sector underperformed the rest of the Index.
Financial highlights for this fund can be found on pages 63-65.
Performance Comparison
The following graph compares a $10,000 investment in the Small Cap Equity Fund
since inception to a theoretical investment of the same amount in the Russell
2000 Index**:
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT FOR THE PERIOD ENDED
DECEMBER 31, 2003, INCLUDING APPLICABLE SALES CHARGES
[CHART]
Small Cap Small Cap Russell
Equity Fund Equity Fund 2000
Class A Class B Index**
12/18/00 $10,000.00 $10,000.00 $10,000.00
12/31/00 9,915.49 9,925.29 10,446.99
3/31/01 8,648.17 8,640.68 9,767.38
6/30/01 10,371.72 10,374.87 11,174.41
9/30/01 7,705.29 7,687.37 8,842.24
12/31/01 9,702.86 9,675.43 10,706.69
3/31/02 10,159.59 10,124.73 11,133.21
6/30/02 8,819.86 8,794.86 10,203.34
9/30/02 6,718.93 6,697.94 8,019.80
12/31/02 7,165.50 7,125.47 8,513.61
3/31/03 6,729.08 6,697.94 8,131.20
6/30/03 8,271.79 8,214.65 10,035.90
9/30/03 8,850.31 8,784.68 10,946.92
12/31/03 9,987.04 9,909.00 12,536.61
Fund's Average Annual Total Return
1 Year
Class A: 35.16%
Class B: 36.00%
Class I: 40.23%
Since inception
Class A: -0.04%
Class B: -0.30%
Class I*: 5.32%
*Class I inception date 2/28/2002. Class I share performance may
be greater than or less than the lines shown for Class A and
Class B shares because of differing loads and expenses between
the share classes.
**The Russell 2000(R) Index tracks the common stock performance of
the 2,000 smallest U.S. companies in the Russell 3000(R) Index,
which represents approximately 10% of the total capitalization of
the Russell 3000 Index. Unlike an investment in the Small Cap
Equity Fund, a theoretical investment in the Index does not
reflect any expenses. It is not possible to invest directly in an
index.
The performance data quoted represents past performance and does not guarantee
future results. Investment return and principal value will fluctuate and fund
shares, when redeemed, may be worth more or less than their original cost.
Recent performance may be less than the figures shown. Obtain total returns
current to the most recent month-end at statefarm.com(R) under the Mutual Funds
tab.
Average annual total return is the compounded rate of change in value during a
period of investment, including the value of shares acquired through
reinvestment of all dividends and of all capital gain distributions for the
period. This rate is based on an investment at the beginning of the period
through the end of the period and includes all applicable fees and expenses.
Returns in the graph reflect a maximum sales charge of 3% for Class A shares
and Class B shares at one year, while the Class B shares since inception return
reflects a maximum sales charge of 2.50% (Class I does not include a sales
charge). These figures do not reflect the deduction of taxes that a shareholder
would pay on the fund distributions or the redemption of fund shares. A fund
may have commenced investment operations on or before 12/18/00, which is the
SEC effective registration date for the State Farm Mutual Fund Trust.
See Financial Highlights beginning on page 60.
2
State Farm International Equity Fund
Investment Strategy Impacting Performance
The International Equity Fund seeks long-term growth of capital. The Fund
invests its assets primarily in common stocks of companies located in 16
European countries. The Fund may also invest in companies located in emerging
markets. The Fund invests in securities that its sub-advisor, Capital Guardian,
thinks are undervalued and represent good long-term investment opportunities.
How the International Equity Fund Performed
The International Equity Fund generated a total return of 33.61% for Class A
shares and 33.18% for Class B shares excluding sales charges, and 34.56% for
Institutional shares in the 12 month period ended December 31, 2003. The total
return of the Morgan Stanley Capital International Europe, Australia and Far
East Free ("EAFE(R) Free Index") during the same time period was 38.59%.
Reasons for the International Equity Fund's Performance
The Fund satisfactorily tracked, before fees and expenses, the performance of
the EAFE Free Index in 2003. The utilities sector and a rebound in the
telecommunications sector lead gains while consumer discretionary stocks
underperformed the rest of the Index.
Financial highlights for this fund can be found on pages 66-68.
Performance Comparison
The following graph compares a $10,000 investment in the International Equity
Fund since inception to a theoretical investment of the same amount in the EAFE
Free Index**:
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT FOR THE PERIOD ENDED
DECEMBER 31, 2003, INCLUDING APPLICABLE SALES CHARGES
[CHART]
International International EAFE
Equity Fund Equity Fund FREE
Class A Class B Index**
12/18/00 $10,000.00 $10,000.00 $10,000.00
12/31/00 9,751.65 9,754.07 10,170.00
3/31/01 8,466.94 8,467.64 8,773.42
6/30/01 8,416.37 8,396.82 8,657.84
9/30/01 7,091.19 7,071.54 7,468.47
12/31/01 7,864.51 7,834.81 7,989.30
3/31/02 7,874.64 7,834.81 8,066.91
6/30/02 7,570.99 7,540.56 7,859.70
9/30/02 5,992.01 5,957.34 6,320.31
12/31/02 6,514.05 6,475.33 6,715.80
3/31/03 5,918.13 5,869.87 6,164.21
6/30/03 6,976.40 6,916.59 7,351.96
9/30/03 7,531.23 7,470.74 7,949.46
12/31/03 8,703.72 8,625.50 9,307.12
Fund's Average Annual Total Return
1 Year
Class A: 29.53%
Class B: 30.18%
Class I: 34.56%
Since inception
Class A: -4.47%
Class B: -4.75%
Class I*: 9.26%
*Class I inception date 2/28/2002. Class I share performance may
be greater than or less than the lines shown for Class A
and Class B shares because of differing loads and expenses
between the share classes.
**The Morgan Stanley Capital International Europe, Australia and
Far East Free (EAFE(R) Free) Index currently measures the
performance of stock markets of Europe, Australia, New Zealand,
and the Far East and takes into account local market restrictions
on share ownership by foreigners. EAFE Free is meant to reflect
actual opportunities for foreign investors in a local market.
Unlike an investment in the International Equity Fund, a
theoretical investment in the Index does not reflect any
expenses. It is not possible to invest directly in an index.
The performance data quoted represents past performance and does not guarantee
future results. Investment return and principal value will fluctuate and fund
shares, when redeemed, may be worth more or less than their original cost.
Recent performance may be less than the figures shown. Obtain total returns
current to the most recent month-end at statefarm.com(R) under the Mutual Funds
tab.
Average annual total return is the compounded rate of change in value during a
period of investment, including the value of shares acquired through
reinvestment of all dividends and of all capital gain distributions for the
period. This rate is based on an investment at the beginning of the period
through the end of of the period and includes all applicable fees and expenses.
Returns in the graph reflect a maximum sales charge of 3% for Class A shares
and Class B shares at one year, while the Class B shares since inception return
reflects a maximum sales charge of 2.50% (Class I does not include a sales
charge). These figures do not reflect the deduction of taxes that a shareholder
would pay on the fund distributions or the redemption of fund shares. A fund
may have commenced investment operations on or before 12/18/00, which is the
SEC effective registration date for the State Farm Mutual Fund Trust.
See Financial Highlights beginning on page 60.
3
State Farm S&P 500 Index Fund
Investment Strategy Impacting Performance
The S&P 500 Index Fund seeks to provide investment results that correspond to
the total return of publicly traded common stocks in the aggregate, as
represented by the Standard & Poor's 500(R) Stock Index ("S&P 500(R)
Index")./1/ The S&P 500 Index Fund invests all of its assets in a separate
series of an unaffiliated mutual fund called the S&P 500 Index Master
Portfolio, which holds each of the stocks that make up the S&P 500 Index.
Barclays Global Fund Advisors is the investment adviser to the S&P 500 Index
Master Portfolio and seeks to achieve investment performance that is similar to
the S&P 500 Index by staying as fully invested as practicable in common stocks.
How the S&P 500 Index Fund Performed
The S&P 500 Index Fund generated a total return of 27.39% for Class A shares
and 27.19% for Class B shares excluding sales charges, and 28.27% for
Institutional shares, in the 12 month period ended December 31, 2003. The total
return of the S&P 500 Index during the same time period was 28.68%. The Index
Master Portfolio satisfactorily tracked, before fees and expenses, the
performance of the S&P 500 Index during 2003. See the line graph below for
performance of the S&P 500 Index Fund with sales charges for Class A and Class
B shares.
Within the Index, sector performance was positive. Information technology
(17.74% of the Index as of December 31, 2003) led the way with a 47.23% gain
for the year. Materials (3.04% of the Index as of December 31, 2003) returned
38.23%. Consumer discretionary, at 11.29% of the Index as of December 31, 2003,
climbed 37.45%. Industrials (10.90% of the Index as of December 31, 2003) and
financials (the largest sector, at 20.65% of the Index as of December 31, 2003)
returned 32.11% and 31.06%, respectively, for the year.
Among the Index's ten largest constituents, all delivered positive results.
Technology Bellwethers Intel Corp. (2.04% of the Index as of December 31, 2003)
and Cisco Systems Inc. (1.63% of the Index as of December 31, 2003) gained
105.84% and 84.96%, respectively, for the year. Citigroup Inc. (2.43% of the
Index as of December 31, 2003) returned 37.94%, and General Electric Co.
(the largest constituent at 3.02% of the Index as of December 31, 2003) climbed
27.23%. International Business Machines Corp. (1.55% of the Index as of
December 31, 2003) gained 19.59% for the year.
Financial highlights for this fund can be found on pages 69-71.
Performance Comparison
The following graph compares a $10,000 investment in the S&P 500 Index Fund
since inception to a theoretical investment of the same amount in the S&P 500
Index**:
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT FOR THE PERIOD ENDED
DECEMBER 31, 2003, INCLUDING APPLICABLE SALES CHARGES
[CHART]
S&P 500 S&P 500
Index Index S&P 500
Class A Class B Index**
12/18/00 $10,000.00 $10,000.00 $10,000.00
12/31/00 9,681.07 9,680.63 9,984.68
3/31/01 8,507.32 8,497.23 8,800.95
6/30/01 8,992.34 8,972.53 9,316.03
9/30/01 7,643.97 7,624.22 7,948.61
12/31/01 8,446.46 8,419.06 8,797.92
3/31/02 8,456.22 8,419.06 8,822.10
6/30/02 7,305.31 7,281.34 7,640.15
9/30/02 6,037.37 6,014.17 6,320.26
12/31/02 6,537.46 6,500.50 6,853.53
3/31/03 6,311.69 6,275.67 6,637.68
6/30/03 7,273.66 7,214.09 7,659.44
9/30/03 7,440.53 7,390.05 7,862.11
12/31/03 8,327.90 8,268.83 8,819.44
Fund's Average Annual Total Return
Since inception
Class A: -5.85%
Class B: -6.07%
Class I*: 1.71%
1 Year
Class A: 23.49%
Class B: 24.19%
Class I: 28.27%
*Class I inception date 11/1/2001. Class I share performance may
be greater than or less than the lines shown for Class A and
Class B shares because of differing loads and expenses between
the share classes.
**The S&P 500(R) Index tracks the common stock performance of large
U.S. companies in the manufacturing, utilities, transportation,
and financial industries. In total, the S&P 500 is comprised of
500 common stocks. Unlike an investment in the S&P 500 Index
Fund, a theoretical investment in the Index does not reflect any
expenses. It is not possible to invest directly in an index.
The performance data quoted represents past performance and does not guarantee
future results. Investment return and principal value will fluctuate and fund
shares, when redeemed, may be worth more or less than their original cost.
Recent performance may be less than the figures shown. Obtain total returns
current to the most recent month-end at statefarm.com(R) under the Mutual Funds
tab.
Average annual total return is the compounded rate of change in value during a
period of investment, including the value of shares acquired through
reinvestment of all dividends and of all capital gain distributions for the
period. This rate is based on an investment at the beginning of the period
through the end of of the period and includes all applicable fees and expenses.
Returns in the graph reflect a maximum sales charge of 3% for Class A shares
and Class B shares at one year, while the Class B shares since inception return
reflects a maximum sales charge of 2.50% (Class I does not include a sales
charge). These figures do not reflect the deduction of taxes that a shareholder
would pay on the fund distributions or the redemption of fund shares. A fund
may have commenced investment operations on or before 12/18/00, which is the
SEC effective registration date for the State Farm Mutual Fund Trust.
See Financial Highlights beginning on page 60.
---------------------
(1)"S&P 500(R) Index" is a trademark of The McGraw-Hill Companies, Inc. and has
been licensed for use by the State Farm Mutual Fund Trust. The State Farm
S&P 500 Index Fund (the "Fund") is not sponsored, endorsed, sold or promoted
by Standard & Poor's and Standard & Poor's makes no representation regarding
the advisability of investing in the Fund.
4
State Farm Small Cap Index Fund
Investment Strategy Impacting Performance
The Small Cap Index Fund seeks to match as closely as practicable, before fees
and expenses, the performance of the Russell 2000(R) Small Stock Index./1/ The
Fund invests all of its assets in a separate series of an unaffiliated mutual
fund called the Russell 2000 Index Master Portfolio. Barclays Global Fund
Advisors is the investment adviser to the Russell 2000 Index Master Portfolio
and seeks to achieve investment performance that is similar to the Russell 2000
Index by staying as fully invested as possible in common stocks. The Russell
2000 Index Master Portfolio pursues its investment objective by investing in a
representative sample of the securities contained in the Russell 2000 Index
based upon sampling and modeling techniques.
How the Small Cap Index Fund Performed
The Small Cap Index Fund generated a total return of 44.70% for Class A shares
and 44.46% for Class B shares excluding sales charges, and 45.97% for
Institutional shares in the 12 month period ended December 31, 2003. The total
return of the Russell 2000 Index during the same time period was 47.25%. See
the line graph below for performance with sales charges for Class A and Class B
shares.
Reasons for the Small Cap Index Fund's Performance
The Fund's return somewhat varied from the Russell 2000 Index because the Fund
invested in a representative sample of the 2000 stocks in the Index, but not in
every stock included in the Index. The Fund satisfactorily tracked, before fees
and expenses, the performance of the Russell 2000 Index in 2003. Small cap
equities out-performed the overall equity market in 2003. Investments in the
information technology equities led performance while the telecommunications
sector underperformed the rest of the Index.
Financial highlights for this fund can be found on pages 72-74.
Performance Comparison
The following graph compares a $10,000 investment in the Small Cap Index Fund
since inception to a theoretical investment of the same amount in the Russell
2000 Small Stock Index**:
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT FOR THE PERIOD ENDED
DECEMBER 31, 2003, INCLUDING APPLICABLE SALES CHARGES
[CHART]
Small Cap Index Small Cap Index Russell 2000
Since Inception Fund Class A Fund Class B Index**
12/18/2000 $10,000.00 $10,000.00 $10,000.00
12/31/2000 10,122.56 10,135.19 10,446.99
03/31/2001 9,404.37 9,394.27 9,767.38
06/30/2001 10,753.40 10,765.50 11,174.41
09/30/2001 8,501.79 8,482.02 8,842.24
12/31/2001 10,266.62 10,242.39 10,706.69
03/31/2002 10,662.63 10,639.26 11,133.21
06/30/2002 9,761.70 9,728.06 10,203.34
09/30/2002 7,662.84 7,633.71 8,019.80
12/31/2002 8,104.25 8,066.57 8,513.61
03/31/2003 7,706.00 7,668.22 8,131.20
06/30/2003 9,458.27 9,401.04 10,035.90
09/30/2003 10,274.67 10,224.81 10,946.92
12/31/2003 11,727.16 11,699.39 12,536.61
Fund's Average Annual Total Return
1 Year
Class A: 40.39%
Class B: 41.46%
Class I: 45.97%
Since inception
Class A: 5.39%
Class B: 5.31%
Class I*: 10.69%
*Class I inception date 2/28/2002. Class I share performance may
be greater than or less than the lines shown for Class A and
Class B shares because of differing loads and expenses between
the share classes.
**The Russell 2000(R) Index tracks the common stock performance of
the 2,000 smallest U.S. companies in the Russell 3000(R) Index,
which represents approximately 10% of the total capitalization of
the Russell 3000 Index. Unlike an investment in the Small Cap
Index Fund, a theoretical investment in the Index does not
reflect any expenses. It is not possible to invest directly in an
index.
The performance data quoted represents past performance and does not guarantee
future results. Investment return and principal value will fluctuate and fund
shares, when redeemed, may be worth more or less than their original cost.
Recent performance may be less than the figures shown. Obtain total returns
current to the most recent month-end at statefarm.com(R) under the Mutual Funds
tab.
Average annual total return is the compounded rate of change in value during a
period of investment, including the value of shares acquired through
reinvestment of all dividends and of all capital gain distributions for the
period. This rate is based on an investment at the beginning of the period
through the end of of the period and includes all applicable fees and expenses.
Returns in the graph reflect a maximum sales charge of 3% for Class A shares
and Class B shares at one year, while the Class B shares since inception return
reflects a maximum sales charge of 2.50% (Class I does not include a sales
charge). These figures do not reflect the deduction of taxes that a shareholder
would pay on the fund distributions or the redemption of fund shares. A fund
may have commenced investment operations on or before 12/18/00, which is the
SEC effective registration date for the State Farm Mutual Fund Trust.
See Financial Highlights beginning on page 60.
---------------------
/(1)/The Russell 2000(R) Index is a trademark/service mark, and Russell(R) is a
trademark of the Frank Russell Company. The State Farm Small Cap Index
Fund (the "Fund") is not sponsored, endorsed, sold or promoted by, nor in
any way affiliated with the Frank Russell Company. Frank Russell company
is not responsible for and has not reviewed the Fund nor any associated
literature or publications and Frank Russell company makes no
representation or warranty, express or implied, as to their accuracy, or
completeness, or otherwise.
5
State Farm International Index Fund
Investment Strategy Impacting Performance
The International Index Fund seeks to match as closely as practicable, before
fees and expenses, the performance of an international portfolio of common
stocks represented by the Morgan Stanley Capital International Europe,
Australia, and Far East Free Index ("EAFE(R) Free Index")./1/ The Fund invests
all of its assets in a separate series of an unaffiliated mutual fund called
the International Index Master Portfolio. Barclays Global Fund Advisors is the
investment adviser to the International Index Master Portfolio. The
International Index Master Portfolio seeks to match the performance of the EAFE
Free Index by investing in common stocks included in the Index and by staying
as fully invested as possible in common stocks. The International Index Master
Portfolio selects a representative sample of the securities contained in the
EAFE Free Index based upon sampling and modeling techniques.
How the International Index Fund Performed
The International Index Fund generated a total return of 36.95% for Class A
shares and 36.71% for Class B shares excluding sales charges, and 37.79% for
Institutional shares in the 12 month period ended December 31, 2003. The total
return of the EAFE Free Index during the same time period was 38.59%. See the
line graph below for performance with sales charges for Class A and Class B
shares.
Reasons for the International Index Fund's Performance
The Fund satisfactorily tracked, before fees and expenses, the performance of
the EAFE Free Index in 2003. The utilities sector and a rebound in the
telecommunications sector lead gains while consumer discretionary stocks
underperformed the rest of the Index.
Financial highlights for this fund can be found on pages 75-77.
Performance Comparison
The following graph compares a $10,000 investment in the International Index
Fund since inception to a theoretical investment of the same amount in the EAFE
Free Index**:
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT FOR THE PERIOD ENDED
DECEMBER 31, 2003, INCLUDING APPLICABLE SALES CHARGES
[CHART]
International International Index EAFE FREE
Index Class A Class B Index**
12/18/2000 10,000.00 10,000.00 10,000.00
12/31/2000 9,846.24 9,850.27 10,170.00
03/31/2001 8,478.44 8,468.33 8,773.42
06/30/2001 8,362.03 8,342.22 8,657.84
09/30/2001 7,227.04 7,207.29 7,468.47
12/31/2001 7,661.21 7,637.36 7,989.30
03/31/2002 7,709.88 7,676.18 8,066.91
06/30/2002 7,495.72 7,472.28 7,859.70
09/30/2002 5,986.84 5,964.21 6,320.31
12/31/2002 6,352.41 6,314.02 6,715.80
03/31/2003 5,810.73 5,774.78 6,164.21
06/30/2003 6,923.64 6,872.87 7,351.96
09/30/2003 7,455.47 7,402.30 7,949.46
12/31/2003 8,699.88 8,633.98 9,307.12
Fund's Average Annual Total Return
1 Year
Class A: 32.84%
Class B: 33.71%
Class I: 37.79%
Since inception
Class A: -4.48%
Class B: -4.72%
Class I*: 10.74%
*Class I inception date 2/28/2002. Class I share performance may
be greater than or less than the lines shown for Class A and
Class B shares because of differing loads and expenses between
the share classes.
**The Morgan Stanley Capital International Europe, Australia and
Far East Free (EAFE(R) Free) Index currently measures the
performance of stock markets of Europe, Australia, New Zealand,
and the Far East and takes into account local market restrictions
on share ownership by foreigners. EAFE Free is meant to reflect
actual opportunities for foreign investors in a local market.
Unlike an investment in the International Index Fund, a
theoretical investment in the Index does not reflect any
expenses. It is not possible to invest directly in an index.
The performance data quoted represents past performance and does not guarantee
future results. Investment return and principal value will fluctuate and fund
shares, when redeemed, may be worth more or less that their original cost.
Recent performance may be less that the figures shown. Obtain total returns
current to the most recent month-end at statefarm.com(R) under the Mutual Funds
tab.
Average annual total return is the compounded rate of change in value during a
period of investment, including the value of shares acquired through
reinvestment of all dividends and of all capital gain distributions for the
period. This rate is based on an investment at the beginning of the period
through the end of the period and includes all applicable fees and expenses.
Returns in the graph reflect a maximum sales charge of 3% for Class A shares
and Class B shares at one year, while the Class B shares since inception return
reflects a maximum sales charge of 2.50% (Class I does not include a sales
charge). These figures do not reflect the deduction of taxes that a shareholder
would pay on the fund distributions or the redemption of fund shares. A fund
may have commenced investment operations on or before 12/18/00, which is the
SEC effective registration date for the State Farm Mutual Fund Trust.
See Financial Highlights beginning on page 60.
---------------------
/(1)/The EAFE(R) Free Index is a trademark, service mark and the exclusive
property of Morgan Stanley Capital International, Inc. ("MSCI") and its
affiliates and has been licensed for use by the State Farm Mutual Fund
Trust (the "Trust"). The State Farm International Index Fund (the "Fund"),
based on the EAFE(R) Free Index, has not been passed on by MSCI as to its
responsibility for and does not participate in the management of the fund
assets or sale of the fund shares. The Trust's Prospectus contains a more
detailed description of the limited relationship MSCI has with the Trust
and the Fund.
6
State Farm Equity and Bond Fund
Investment Strategy Impacting Performance
The Equity and Bond Fund seeks long-term growth of principal while providing
some current income. The Fund invests all of its assets in shares of the State
Farm Equity Fund and the State Farm Bond Fund. Generally, the State Farm Equity
and Bond Fund attempts to maintain approximately 60% of its net assets in
shares of the Equity Fund and approximately 40% of its net assets in shares of
the Bond Fund. The mix of assets was in line with these targets on December 31,
2003.
How the State Farm Equity and Bond Fund Performed
The Equity and Bond Fund generated a total return of 14.70% for Class A shares
and 14.36% for Class B shares excluding sales charges, and 15.26% for
Institutional shares in the 12 month period ended December 31, 2003. The total
return of the S&P 500(R) Index during the same time period was 28.68% and the
total return of the Lehman Brothers Aggregate Bond Index was 4.10%. See the
line graph below for performance with sales charges for Class A and Class B
shares.
Reasons for the State Farm Equity and Bond Fund's Performance
The equity portfolio of the fund reflected a positive return representative of
the overall positive results of the equity markets in the same time period. The
fund's equity investments performed under the S&P 500 Index benchmark as the
fund's holdings of pharmaceutical firms, consumer product companies,
telecommunications operations and international oil firm were below the index.
Within the fixed income portfolio of the fund's investments, corporate bond
holdings performed better than other asset classes over the past year.
Corporate bonds performed well as yield spreads to U.S. Treasuries narrowed
significantly. The lowest quality bonds provided the highest return. With short
term interest rates at historically low levels, the fund's cash investments
caused the fund's return to lag behind the Lehman Brothers Aggregate Bond Index.
Financial highlights for this fund can be found on pages 78-80.
Performance Comparison
The following graph compares a $10,000 investment in the Equity and Bond Fund
since inception to a theoretical investment of the same amount in the S&P 500
Index**, the Lehman Brothers Aggregate Bond Index**, and the Blended
Benchmark***:
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT FOR THE PERIOD ENDED
DECEMBER 31, 2003, INCLUDING APPLICABLE SALES CHARGES
[CHART]
[Download Table]
Equity & Equity & Lehman Brothers
Bond Bond U.S. Aggregate S&P 500(R) Blended
Class A Class B Bond Index** Index** Benchmark***
12/18/2000 $10,000.00 $10,000.00 $10,000.00 $10,000.00 $10,000.00
12/31/2000 9,702.67 9,698.82 10,031.00 9,984.68 10,003.21
3/31/2001 8,968.52 8,964.96 10,334.61 8,800.95 9,414.41
6/30/2001 9,139.59 9,136.08 10,392.30 9,316.03 9,746.54
9/30/2001 8,698.16 8,684.79 10,873.02 7,948.61 9,118.37
12/31/2001 9,152.48 9,126.97 10,877.05 8,797.92 9,629.57
3/31/2002 9,183.05 9,157.49 10,886.63 8,822.10 9,647.91
6/30/2002 8,620.78 8,619.88 11,288.41 7,640.15 9,099.45
9/30/2002 8,004.28 7,993.17 11,806.30 6,320.26 8,514.68
12/31/2002 8,426.89 8,405.96 11,991.65 6,853.53 8,908.78
3/31/2003 8,333.25 8,302.19 12,158.35 6,637.68 8,845.95
6/30/2003 8,985.27 8,947.32 12,463.28 7,659.44 9,438.01
9/30/2003 9,079.42 9,030.65 12,445.30 7,862.11 9,586.33
12/31/2003 9,665.51 9,616.58 12,484.48 8,819.44 10,290.67
Fund's Average Annual Total Return
Since inception
Class A: -1.11%
Class B: -1.28%
Class I(1): 3.78%
1 Year
Class A: 11.26%
Class B: 11.36%
Class I: 15.26%
*Class I inception date 2/28/2002. Class I share performance may
be greater than or less than the lines shown for Class A and
Class B shares because of differing loads and expenses between
the share classes.
**See footnotes for the Equity Fund and the Bond Fund for
descriptions of the indices.
***The Manager computes the Blended Benchmark using 60% S&P 500
Index and 40% Lehman Brothers Aggregate Bond Index. Unlike an
investment in the Equity and Bond Fund, returns of the Blended
Benchmark do not reflect expenses of investing. Moreover, returns
of the Blended Benchmark do not reflect any deductions for taxes.
Unlike an investment in the Equity and Bond Fund, a theoretical
investment in the index does not reflect any expenses. It is not
possible to invest directly in the index.
The performance data quoted represents past performance and does not guarantee
future results. Investment return and principal value will fluctuate and fund
shares, when redeemed, may be worth more or less than their original cost.
Recent performance may be less than the figures shown. Obtain total returns
current to the most recent month-end at statefarm.com(R) under the Mutual Funds
tab.
Average annual total return is the compounded rate of change in value during a
period of investment, including the value of shares acquired through
reinvestment of all dividends and of all capital gain distributions for the
period. This rate is based on an investment at the beginning of the period
through the end of the period and includes all applicable fees and expenses.
Returns in the graph reflect a maximum sales charge of 3% for Class A shares
and Class B shares at one year, while the Class B shares since inception return
reflects a maximum sales charge of 2.50% (Class I does not include a sales
charge). These figures do not reflect the deduction of taxes that a shareholder
would pay on the fund distributions or the redemption of fund shares. A fund
may have commenced investment operations on or before 12/18/00, which is the
SEC effective registration date for the State Farm Mutual Fund Trust.
See Financial Highlights beginning on page 60.
7
State Farm Bond Fund
Investment Strategy Impacting Performance
The Bond Fund seeks to realize over a period of years the highest yield
consistent with investing in investment grade bonds. The Fund invests primarily
in investment grade bonds issued by U.S. companies, U.S. government and agency
obligations, and mortgage backed securities.
How the State Farm Bond Fund Performed
The Bond Fund generated a total return of 3.16% for Class A shares and 2.78%
for Class B shares excluding sales charges, and 3.69% for Institutional shares,
in the 12 month period ended December 31, 2003. The total return of the Lehman
Brothers Aggregate Bond Index during the same time period was 4.10%. See the
line graph below for performance with sales charges for Class A and Class B
shares.
Reasons for the Bond Fund's Performance
The asset class composition of the fund's portfolio was similar to the previous
year. Overall, the fund's investments in corporate bonds performed better than
other asset classes of the fund over the past year. Corporate bonds performed
well as yield spreads to U.S. Treasuries narrowed significantly. The lowest
quality bonds provided the highest return. With short term interest rates at
historically low levels, the fund's cash investments caused the fund's return
to lag behind the Lehman Brothers Aggregate Bond Index.
Financial highlights for this fund can be found on pages 81-83.
Performance Comparison
The following graph compares a $10,000 investment in the Bond Fund since
inception to a theoretical investment of the same amount in the Lehman Brothers
Aggregate Bond Index**:
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT FOR THE PERIOD ENDED
DECEMBER 31, 2003, INCLUDING APPLICABLE SALES CHARGES
[CHART]
Lehman Brothers
Bond Bond U.S. Aggregate
Class A Class B Bond Index**
12/18/00 $10,000.00 $10,000.00 $10,000.00
12/31/00 9,724.31 9,728.19 10,031.00
3/31/01 10,002.47 10,004.84 10,334.61
6/30/01 10,022.34 10,015.06 10,392.30
9/30/01 10,481.69 10,477.19 10,873.02
12/31/01 10,445.75 10,429.85 10,877.05
3/31/02 10,403.35 10,376.31 10,886.63
6/30/02 10,734.58 10,730.43 11,288.41
9/30/02 11,242.94 11,239.78 11,806.30
12/31/02 11,388.05 11,376.94 11,991.65
3/31/03 11,538.95 11,520.33 12,158.35
6/30/03 11,808.37 11,794.81 12,463.28
9/30/03 11,771.35 11,736.79 12,445.30
12/31/03 11,747.61 11,725.49 12,484.48
Fund's Average Annual Total Return
Since inception
Class A: 5.45%
Class B: 5.38%
Class I*: 4.98%
1 Year
Class A: 0.08%
Class B: -0.22%
Class I: 3.69%
*Class I inception date 11/01/2001. Class I share performance may
be greater than or less than the lines shown for Class A and
Class B shares because of differing loads and expenses between
the share classes.
**The Lehman Brothers Aggregate Bond Index contains approximately
6,766 Government, corporate and collateralized debt instruments
with maturities greater than 1 year and an outstanding par value
of at least $150 million. The Lehman Brothers Aggregate Bond
Index represents an unmanaged group of bonds and mortgage-backed
securities that differ from the composition of the Bond Fund.
Unlike an investment in the Bond Fund, a theoretical investment
in the Index does not reflect any expenses. It is not possible to
invest directly in an index.
The performance data quoted represents past performance and does not guarantee
future results. Investment return and principal value will fluctuate and fund
shares, when redeemed, may be worth more or less than their original cost.
Recent performance may be less than the figures shown. Obtain total returns
current to the most recent month-end at statefarm.com(R) under the Mutual Funds
tab.
Average annual total return is the compounded rate of change in value during a
period of investment, including the value of shares acquired through
reinvestment of all dividends and of all capital gain distributions for the
period. This rate is based on an investment at the beginning of the period
through the end of of the period and includes all applicable fees and expenses.
Returns in the graph reflect a maximum sales charge of 3% for Class A shares
and Class B shares at one year, while the Class B shares since inception return
reflects a maximum sales charge of 2.50% (Class I does not include a sales
charge). These figures do not reflect the deduction of taxes that a shareholder
would pay on the fund distributions or the redemption of fund shares. A fund
may have commenced investment operations on or before 12/18/00, which is the
SEC effective registration date for the State Farm Mutual Fund Trust.
See Financial Highlights beginning on page 60.
8
State Farm Tax Advantaged Bond Fund
Investment Strategy Impacting Performance
The Tax Advantaged Bond Fund seeks as high a rate of income exempt from federal
income taxes as is consistent with prudent investment management. The fund
invests primarily in a diversified selection of municipal bonds. Dividends from
the fund largely will be exempt from federal income tax, but a portion of those
dividends may be subject to state and local taxes and (if applicable) the
alternative minimum tax. The fund may hold bonds with maturities of one to
thirty years.
How the Tax Advantaged Bond Fund Performed
The Tax Advantaged Bond Fund generated a total return of 5.60% for Class A
shares and 5.18% for Class B shares excluding sales charges, and 6.18% for
Institutional shares, in the 12 month period ended December 31, 2003. The total
return of the Lehman Brothers Municipal Bond Index was 5.31% during the same
time period. See the line graph below for performance with sales charges for
Class A and Class B shares.
Reasons for the Tax Advantaged Bond Fund's Performance
Interest rates declined slightly on the longer end of the yield curve.
Short-term interest rates remained at historically low levels throughout the
year. These factors tended to increase returns as the fund remained fully
invested throughout the year.
Lower quality bonds performed well during 2003. The market sector especially
benefited from the improving credit situation related to both tobacco
securitizations and airline facility bonds. The fund invested in bonds with
generally very good credit quality, and had no exposure to the high yield
sector. This lack of exposure to lower quality bonds put the fund at a
disadvantage and tended to decrease returns relative to the market.
The Fund's duration was slightly longer than the index, and this benefited the
performance in a declining yield environment. The credit quality of the fund
was better than that of the index, which lowered the performance of the fund as
lower quality assets performed particularly well.
The position of the portfolio on the yield curve increased return, as the
portions of the yield curve corresponding with the portfolio outperformed most
yield curve sectors not held in the fund. The holdings in the portfolio did not
change significantly during 2003. The structure of the portfolio remained
essentially constant for the year.
Financial highlights for this fund can be found on pages 84-86.
Performance Comparison
The following graph compares a $10,000 investment in the Tax Advantaged Bond
Fund since inception to a theoretical investment of the same amount in the
Lehman Brothers Municipal Bond Index**:
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT FOR THE PERIOD ENDED
DECEMBER 31, 2003, INCLUDING APPLICABLE SALES CHARGES
[CHART]
Tax Tax Lehman Brothers
Advantaged Advantaged Municipal
Class A Class B Bond Index**
12/18/2000 $10,000.00 $10,000.00 $10,000.00
12/31/2000 9,739.42 9,743.18 10,052.90
3/31/2001 9,912.25 9,911.21 10,276.58
6/30/2001 9,923.43 9,912.77 10,344.22
9/30/2001 10,212.29 10,199.42 10,634.24
12/31/2001 10,106.20 10,079.90 10,569.13
3/31/2002 10,240.09 10,207.42 10,667.74
6/30/2002 10,659.50 10,651.94 11,058.09
9/30/2002 11,357.81 11,356.01 11,583.38
12/31/2002 11,282.41 11,267.33 11,582.60
3/31/2003 11,441.73 11,418.82 11,722.42
6/30/2003 11,782.34 11,755.08 12,022.83
9/30/2003 11,779.90 11,741.00 12,033.07
12/31/2003 11,913.77 11,890.35 12,197.57
Fund's Average Annual Total Return
Since inception
Class A: 5.94%
Class B: 5.87%
Class I*: 7.93%
1 Year
Class A: 2.42%
Class B: 2.18%
Class I: 6.18%
*Class I inception date 2/28/2002. Class I share performance may
be greater than or less than the lines shown for Class A and
Class B shares because of differing loads and expenses between
the share classes.
**The Lehman Brothers Municipal Bond Index includes approximately
47,067 municipal bonds which are selected to be representative of
the market. To be included in the Index, a municipal bond must
meet the following criteria: have a minimum credit rating of Baa
assigned by Moody's Investors Service, Inc. or S&P; have been
issued as part of an issue of at least $50 million; have an
amount outstanding of at least 5 million; have been issued since
December 31,1990; and have a maturity of at least one year. The
Lehman Brothers Municipal Bond Index represents an unmanaged
group of bonds that differ from the composition of the Tax
Advantaged Bond Fund. Unlike an investment in the Tax Advantaged
Bond Fund, a theoretical investment in the Index does not reflect
any expenses. It is not possible to invest directly in an index.
The performance data quoted represents past performance and does not guarantee
future results. Investment return and principal value will fluctuate and fund
shares, when redeemed, may be worth more or less than their original cost.
Recent performance may be less than the figures shown. Obtain total returns
current to the most recent month-end at statefarm.com(R) under the Mutual Funds
tab.
Average annual total return is the compounded rate of change in value during a
period of investment, including the value of shares acquired through
reinvestment of all dividends and of all capital gain distributions for the
period. This rate is based on an investment at the beginning of the period
through the end of of the period and includes all applicable fees and expenses.
Returns in the graph reflect a maximum sales charge of 3% for Class A shares
and Class B shares at one year, while the Class B shares since inception return
reflects a maximum sales charge of 2.50% (Class I does not include a sales
charge). These figures do not reflect the deduction of taxes that a shareholder
would pay on the fund distributions or the redemption of fund shares. A fund
may have commenced investment operations on or before 12/18/00, which is the
SEC effective registration date for the State Farm Mutual Fund Trust.
See Financial Highlights beginning on page 60.
9
State Farm Money Market Fund
The Money Market Fund seeks to maximize current income to the extent consistent
with the preservation of capital and maintenance of liquidity. The Fund pursues
this objective by investing in high quality commercial paper and other
short-term debt securities. It is managed by State Farm Investment Management
Corp. An investment in the Money Market Fund is not insured or guaranteed by
the Federal Deposit Insurance Corporation or any other government agency.
Although the Fund seeks to preserve the value of your investment at $1.00 per
share, it is possible to lose money by investing in the Fund.
Financial highlights for this fund can be found on pages 87-89.
10
State Farm LifePath(R) Income Fund
Investment Strategy Impacting Performance
The State Farm LifePath Income Fund is managed for investors seeking income and
moderate long-term growth capital. The adviser expects that about 35% of the
Fund's assets will be invested in stocks, with the rest in bonds and money
market instruments./1/
How the State Farm LifePath Income Fund Performed
The State Farm LifePath Income Fund generated a total return of 8.20% for Class
A shares and 7.93% for Class B shares excluding sales charges, and 8.54% for
Institutional shares, since inception on May 9, 2003. See the line graph below
for performance with sales charges for Class A and Class B shares.
The total return of comparative indices for this fund, during the same time
period were as follows: S&P 500(R) Index 28.68%, Russell 3000(R) Index 24.15%,
MSCI EAFE(R) Index 35.02%, Citigroup Salomon 3 Month Treasury Bill Index 0.74%,
and Lehman Brothers Aggregate Bond Index 1.12%.
Reasons for the State Farm LifePath Income Fund's Performance
The LifePath Funds with a longer time horizon, because they were positioned
with a higher equity mix, had higher returns than LifePath Funds with a shorter
time horizon. The LifePath Funds were managed to seek the highest expected
return in exchange for the various levels of risk most investors that share the
Funds' time horizons are willing to take. The LifePath Funds' returns during
the year were consistent with this investment discipline.
Investment allocations within the LifePath Funds were very stable during the
year ended December 31, 2003. The allocation to international equities helped
performance for each LifePath Fund during the year, as a result of the
weakening U.S. dollar. The weakening U.S. dollar, all else being equal, caused
the value of international investments to rise in value in U.S. dollar terms.
In addition, while the LifePath Funds do not make sector or style bets,
portfolio allocations in sectors that usually responded quickly to changes in
the economic environments, such as technology sector securities, helped
portfolio performance across the LifePath Funds, as the U.S. economy recovered
during 2003. Financial highlights for this fund can be found on pages 90-92.
Performance Comparison
The following graph compares a $10,000 investment in the State Farm LifePath
Income Fund since inception to theoretical investments of the same amount in
the following indexes: S&P 500 Index*, Russell 3000 Index*, MSCI EAFE Index*,
Citigroup Salomon 3 Month Treasury Bill Index*, and Lehman Brothers Aggregate
Bond Index*:
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT FOR THE PERIOD ENDED
DECEMBER 31, 2003, INCLUDING APPLICABLE SALES CHARGES
[CHART]
5/9/2003 12/31/2003
LifePath Income Class A $10,000.00 $10,495.91
LifePath Income Class B 10,000.00 10,492.90
LifePath Income Class I 10,000.00 10,854.23
Russell 3000 Index 10,000.00 12,414.52
MSCI EAFE Index 10,000.00 13,502.28
Citigroup 3 Month Treasury Bill Index 10,000.00 10,073.54
Lehman Brothers U.S. Aggregated Bond Index 10,000.00 10,116.00
S&P 500 Index 10,000.00 12,051.38
Fund's Average Annual Total Return
Since Inception
Class A: 4.96%
Class B: 4.93%
Class I: 8.54%
*See footnotes for the LifePath 2040(R) Fund for description of
the indices.
The performance data quoted represents past performance and does not guarantee
future results. Investment return and principal value will fluctuate and fund
shares, when redeemed, may be worth more or less than their original cost.
Recent performance may be less than the figures shown. Obtain total returns
current to the most recent month-end at statefarm.com(R) under the Mutual Funds
tab.
Average annual total return is the compounded rate of change in value during a
period of investment, including the value of shares acquired through
reinvestment of all dividends and of all capital gain distributions for the
period. This rate is based on an investment at the beginning of the period
through the end of the period, reflects a maximum sales charge of 3% (Class I
does not include a sales charge), and includes all other applicable fees and
expenses. Ending net asset value on 5/9/2003 is used to calculate since
inception returns. These figures do not reflect the deduction of taxes that a
shareholder would pay on the fund distributions or the redemption of fund
shares. See Financial Highlights beginning on page 60.
---------------------
/(1)/All securities are held in the LifePath Master Portfolios in which the
State Farm LifePath Funds invest all their assets. For simplicity, all
references to LifePath Funds refer also to the LifePath Master Portfolios
except with respect to performance data quoted. State Farm Investment
Management Corp. is the investment adviser to the State Farm LifePath
Funds. Barclays Global Fund Advisors is the investment adviser to the
LifePath Master Portfolios.
11
State Farm LifePath 2010(R) Fund
Investment Strategy Impacting Performance
The State Farm LifePath 2010 Fund is managed for investors planning to begin to
withdraw substantial portions of their investment approximately in the year
2010. As of December 31, 2003, the State Farm LifePath 2010 Fund held about 49%
of its assets in stocks and the rest of its assets in bonds and money market
instruments./1/ The Fund pursues a strategy of allocating and reallocating
investments among stocks, bonds, and money market instruments. Through
strategic reallocation, this strategy takes into account the Fund's time
horizon and risk tolerance, resulting in a gradual decline of overall risk as
the investment horizon narrows.
How the State Farm LifePath 2010 Fund Performed
The State Farm LifePath 2010 Fund generated a total return of 11.14% for Class
A shares and 10.82% for Class B shares excluding sales charges, and 11.77% for
Institutional shares, since inception on May 9, 2003. See the line graph below
for performance with sales charges for Class A and Class B shares.
The total return of comparative indices for this fund, during the same time
period were as follows: S&P 500(R) Index 28.68%, Russell 3000(R) Index 24.15%,
MSCI EAFE(R) Index 35.02%, Citigroup Salomon 3 Month Treasury Bill Index 0.74%,
and Lehman Brothers Aggregate Bond Index 1.12%.
Reasons for the State Farm LifePath 2010 Fund's Performance
The LifePath Funds with a longer time horizon, because they were positioned
with a higher equity mix, had higher returns than LifePath Funds with a shorter
time horizon. The LifePath Funds were managed to seek the highest expected
return in exchange for the various levels of risk most investors that share the
Funds' time horizons are willing to take. The LifePath Funds' returns during
the year were consistent with this investment discipline.
Investment allocations within the LifePath Funds were very stable during the
year ended December 31, 2003. The allocation to international equities helped
performance for each LifePath Fund during the year, as a result of the
weakening U.S. dollar. The weakening U.S. dollar, all else being equal, caused
the value of international investments to rise in value in U.S. dollar terms.
In addition, while the LifePath Funds do not make sector or style bets,
portfolio allocations in sectors that usually responded quickly to changes in
the economic environments, such as technology sector securities, helped
portfolio performance across the LifePath Funds, as the U.S. economy recovered
during 2003. Financial highlights for this fund can be found on pages 93-95.
Performance Comparison
The following graph compares a $10,000 investment in the State Farm LifePath
2010 Fund since inception to theoretical investments of the same amount in the
following indexes: S&P 500 Index*, Russell 3000 Index*, MSCI EAFE Index*,
Citigroup Salomon 3 Month Treasury Bill Index*, and Lehman Brothers Aggregate
Bond Index*:
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT FOR THE PERIOD ENDED
DECEMBER 31, 2003, INCLUDING APPLICABLE SALES CHARGES
[CHART]
5/9/2003 12/31/2003
LifePath 2010 Class A $10,000.00 $10,781.60
LifePath 2010 Class B 10,000.00 10,782.42
LifePath 2010 Class I 10,000.00 11,176.96
Russell 3000 Index 10,000.00 12,414.52
MSCI EAFE Index 10,000.00 13,502.28
Citigroup 3 Month Treasury Bill Index 10,000.00 10,073.54
Lehman Brothers U.S. Aggregated Bond Index 10,000.00 10,116.00
S&P 500 Index 10,000.00 12,051.38
Fund's Average Annual Total Return
Since inception
Class A: 7.82%
Class B: 7.82%
Class I: 11.77%
*See footnotes for the LifePath 2040(R) Fund for description of the
indices.
The performance data quoted represents past performance and does not guarantee
future results. Investment return and principal value will fluctuate and fund
shares, when redeemed, may be worth more or less than their original cost.
Recent performance may be less than the figures shown. Obtain total returns
current to the most recent month-end at statefarm.com(R) under the Mutual Funds
tab.
Average annual total return is the compounded rate of change in value during a
period of investment, including the value of shares acquired through
reinvestment of all dividends and of all capital gain distributions for the
period. This rate is based on an investment at the beginning of the period
through the end of the period, reflects a maximum sales charge of 3% (Class I
does not include a sales charge), and includes all other applicable fees and
expenses. Ending net asset value on 5/9/2003 is used to calculate since
inception returns. These figures do not reflect the deduction of taxes that a
shareholder would pay on the fund distributions or the redemption of fund
shares. See Financial Highlights beginning on page 60.
---------------------
/(1)/All securities are held in the LifePath Master Portfolios in which the
State Farm LifePath Funds invest all their assets. For simplicity, all
references to LifePath Funds refer also to the LifePath Master Portfolios
except with respect to performance data quoted. State Farm Investment
Management Corp. is the investment adviser to the State Farm LifePath
Funds. Barclays Global Fund Advisors is the investment adviser to the
LifePath Master Portfolios.
12
State Farm LifePath 2020(R) Fund
Investment Strategy Impacting Performance
The State Farm LifePath 2020 Fund is managed for investors planning to begin to
withdraw substantial portions of their investment approximately in the year
2020. As of December 31, 2003, the State Farm LifePath 2020 Fund held about 65%
of its assets in stocks and the rest of its assets in bonds and money market
instruments./1/ The Fund pursues a strategy of allocating and reallocating
investments among stocks, bonds, and money market instruments. Through
strategic reallocation, this strategy takes into account the Fund's time
horizon and risk tolerance, resulting in a gradual decline of overall risk as
the investment horizon narrows.
How the State Farm LifePath 2020 Fund Performed
The State Farm LifePath 2020 Fund generated a total return of 14.67% for Class
A shares and 14.46% for Class B shares excluding sales charges, and 15.20% for
Institutional shares, since inception on May 9, 2003. See the line graph below
for performance with sales charges for Class A and Class B shares.
The total return of comparative indices for this fund, during the same time
period were as follows: S&P 500(R) Index 28.68%, Russell 3000(R) Index 24.15%,
MSCI EAFE(R) Index 35.02%, Citigroup Salomon 3 Month Treasury Bill Index 0.74%,
and Lehman Brothers Aggregate Bond Index 1.12%.
Reasons for the State Farm LifePath 2020 Fund's Performance
The LifePath Funds with a longer time horizon, because they were positioned
with a higher equity mix, had higher returns than LifePath Funds with a shorter
time horizon. The LifePath Funds were managed to seek the highest expected
return in exchange for the various levels of risk most investors that share the
Funds' time horizons are willing to take. The LifePath Funds' returns during
the year were consistent with this investment discipline.
Investment allocations within the LifePath Funds were very stable during the
year ended December 31, 2003. The allocation to international equities helped
performance for each LifePath Fund during the year, as a result of the
weakening U.S. dollar. The weakening U.S. dollar, all else being equal, caused
the value of international investments to rise in value in U.S. dollar terms.
In addition, while the LifePath Funds do not make sector or style bets,
portfolio allocations in sectors that usually responded quickly to changes in
the economic environments, such as technology sector securities, helped
portfolio performance across the LifePath Funds, as the U.S. economy recovered
during 2003. Financial highlights for this fund can be found on pages 96-98.
Performance Comparison
The following graph compares a $10,000 investment in the State Farm LifePath
2020 Fund since inception to theoretical investments of the same amount in the
following indexes: S&P 500 Index*, Russell 3000 Index*, MSCI EAFE Index*,
Citigroup Salomon 3 Month Treasury Bill Index*, and Lehman Brothers Aggregate
Bond Index*:
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT FOR THE PERIOD ENDED
DECEMBER 31, 2003, INCLUDING APPLICABLE SALES CHARGES
[CHART]
5/9/2003 12/31/2003
LifePath 2020 Class A $10,000.00 $11,125.34
LifePath 2020 Class B 10,000.00 11,146.12
LifePath 2020 Class I 10,000.00 11,519.78
Russell 3000 Index 10,000.00 12,414.52
MSCI EAFE Index 10,000.00 13,502.28
Citigroup 3 Month Treasury Bill Index 10,000.00 10,073.54
Lehman Brothers U.S. Aggregated Bond Index 10,000.00 10,116.00
S&P 500 Index 10,000.00 12,051.38
Fund's Average Annual Total Return
Since inception
Class A: 11.25%
Class B: 11.46%
Class I: 15.20%
*See footnotes for the LifePath 2040(R) Fund for description of the
indices.
The performance data quoted represents past performance and does not guarantee
future results. Investment return and principal value will fluctuate and fund
shares, when redeemed, may be worth more or less than their original cost.
Recent performance may be less than the figures shown. Obtain total returns
current to the most recent month-end at statefarm.com(R) under the Mutual Funds
tab.
Average annual total return is the compounded rate of change in value during a
period of investment, including the value of shares acquired through
reinvestment of all dividends and of all capital gain distributions for the
period. This rate is based on an investment at the beginning of the period
through the end of the period, reflects a maximum sales charge of 3% (Class I
does not include a sales charge), and includes all other applicable fees and
expenses. Ending net asset value on 5/9/2003 is used to calculate since
inception returns. These figures do not reflect the deduction of taxes that a
shareholder would pay on the fund distributions or the redemption of fund
shares. A fund may have commenced investment operations on or before 12/18/00,
which is the SEC effective registration date for the State Farm Mutual Fund
Trust. See Financial Highlights beginning on page 60.
---------------------
/(1)/All securities are held in the LifePath Master Portfolios in which the
State Farm LifePath Funds invest all their assets. For simplicity, all
references to LifePath Funds refer also to the LifePath Master Portfolios
except with respect to performance data quoted. State Farm Investment
Management Corp. is the investment adviser to the State Farm LifePath
Funds. Barclays Global Fund Advisors is the investment adviser to the
LifePath Master Portfolios.
13
State Farm LifePath 2030(R) Fund
Investment Strategy Impacting Performance
The State Farm LifePath 2030 Fund is managed for investors planning to begin to
withdraw substantial portions of their investment approximately in the year
2030. As of December 31, 2003, the State Farm LifePath 2030 Fund held about 79%
of its assets in stocks and the rest of its assets in bonds and money market
instruments./1/ The Fund pursues a strategy of allocating and reallocating
investments among stocks, bonds, and money market instruments. Through
strategic reallocation, this strategy takes into account the Fund's time
horizon and risk tolerance, resulting in a gradual decline of overall risk as
the investment horizon narrows.
How the State Farm LifePath 2030 Fund Performed
The State Farm LifePath 2030 Fund generated a total return of 17.02% for Class
A shares and 16.61% for Class B shares excluding sales charges, and 17.45% for
Institutional shares, since inception on May 9, 2003. See the line graph below
for performance with sales charges for Class A and Class B shares.
The total return of comparative indices for this fund, during the same time
period were as follows: S&P 500(R) Index 28.68%, Russell 3000(R) Index 24.15%,
MSCI EAFE(R) Index 35.02%, Citigroup Salomon 3 Month Treasury Bill Index 0.74%,
and Lehman Brothers Aggregate Bond Index 1.12%.
Reasons for the State Farm LifePath 2030 Fund's Performance
The LifePath Funds with a longer time horizon, because they were positioned
with a higher equity mix, had higher returns than LifePath Funds with a shorter
time horizon. The LifePath Funds were managed to seek the highest expected
return in exchange for the various levels of risk most investors that share the
Funds' time horizons are willing to take. The LifePath Funds' returns during
the year were consistent with this investment discipline.
Investment allocations within the LifePath Funds were very stable during the
year ended December 31, 2003. The allocation to international equities helped
performance for each LifePath Fund during the year, as a result of the
weakening U.S. dollar. The weakening U.S. dollar, all else being equal, caused
the value of international investments to rise in value in U.S. dollar terms.
In addition, while the LifePath Funds do not make sector or style bets,
portfolio allocations in sectors that usually responded quickly to changes in
the economic environments, such as technology sector securities, helped
portfolio performance across the LifePath Funds, as the U.S. economy recovered
during 2003. Financial highlights for this fund can be found on pages 99-101.
Performance Comparison
The following graph compares a $10,000 investment in the State Farm LifePath
2030 Fund since inception to theoretical investments of the same amount in the
following indexes: S&P 500 Index*, Russell 3000 Index*, MSCI EAFE Index*,
Citigroup Salomon 3 Month Treasury Bill Index*, and Lehman Brothers Aggregate
Bond Index*:
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT FOR THE PERIOD ENDED
DECEMBER 31, 2003, INCLUDING APPLICABLE SALES CHARGES
[CHART]
5/9/2003 12/31/2003
LifePath 2030 Class A $10,000.00 $11,354.30
LifePath 2030 Class B 10,000.00 11,360.91
LifePath 2030 Class I 10,000.00 11,744.99
Russell 3000 Index 10,000.00 12,414.52
MSCI EAFE Index 10,000.00 13,502.28
Citigroup 3 Month Treasury Bill Index 10,000.00 10,073.54
Lehman Brothers U.S. Aggregated Bond Index 10,000.00 10,116.00
S&P 500 Index 10,000.00 12,051.38
Fund's Average Annual Total Return
Since inception
Class A: 13.54%
Class B: 13.61%
Class I: 17.45%
*See footnotes for the LifePath 2040(R) Fund for description of the
indices.
The performance data quoted represents past performance and does not guarantee
future results. Investment return and principal value will fluctuate and fund
shares, when redeemed, may be worth more or less than their original cost.
Recent performance may be less than the figures shown. Obtain total returns
current to the most recent month-end at statefarm.com(R) under the Mutual Funds
tab.
Average annual total return is the compounded rate of change in value during a
period of investment, including the value of shares acquired through
reinvestment of all dividends and of all capital gain distributions for the
period. This rate is based on an investment at the beginning of the period
through the end of the period, reflects a maximum sales charge of 3% (Class I
does not include a sales charge), and includes all other applicable fees and
expenses. Ending net asset value on 5/9/2003 is used to calculate since
inception returns. These figures do not reflect the deduction of taxes that a
shareholder would pay on the fund distributions or the redemption of fund
shares. A fund may have commenced investment 