Combined Net Worth of
State Farm Affiliates
The combined net worth of the State Farm group of companies (Group Net Worth) increased $5.6 billion in 2007, resulting in an overall net worth figure of $63.7 billion. Property/Casualty (P/C) pre-tax operating profit of $5.1 billion contributed to the increase in Group Net Worth and the P/C unaffiliated stock portfolio (net of tax) added $2.5 billion. Contributions to the U.S. and Canadian Qualified Pension Plans in 2007 and federal income taxes reduced our overall Group Net Worth, while the change in the net worth of the non-P/C affiliates resulted in an increase to Group Net Worth.

Property/Casualty Results
(Includes Auto, Fire, Health, and Miscellaneous Reinsurance) 2007 underwriting results for our P/C insurance affiliates declined significantly compared to 2006, most notably due to realized auto rate reductions and an increase in non-catastrophe losses.

In 2007, the P/C affiliates (combined) reported an underwriting gain of $621 million compared to an underwriting gain of $3.0 billion in 2006. The combined ratio for 2007 was 98.7, representing a 4.9 percentage point decline from the 2006 combined ratio of 93.8.

Total P/C expenses in 2007 decreased $13 million compared to 2006 (0.1 percent). The slight decrease in expenses combined with an increase in average policies in force resulted in a decline in expense per policy. Decreased agency related expenses and non-employee fees were partially offset by increases in salaries, post career benefit expenses, and significant increases in advertising.

Voluntary Auto policies in force increased significantly during 2007. This result was above the 2006 gain and was also above our planned growth. Production was the primary driver of positive results in 2007 compared to plan and the prior year. Retention also improved for the fourth consecutive year, and the 2007 lapse/cancellation ratio was the best reported in the last 20 years. Homeowners growth exceeded both plan and the 2006 policy gain; however, Business Insurance growth was below both targeted growth and the prior year.

The combined underwriting gain in 2007 was $621 million on earned premium of $48.1 billion. These results, combined with net investment income and other income of $4.6 billion resulted in a pre-tax operating profit of $5.1 billion compared to a pre-tax profit of $6.0 billion in 2006. Pre-tax results were reduced by Auto policyholder dividends of $78 million in 2007 and $1.4 billion in 2006.

Auto Lines of Business
The Auto business written by State Farm Mutual, State Farm Indemnity, State Farm Guaranty, and State Farm Texas County Mutual produced an underwriting loss of $659 million (2.2 percent of earned premium) compared with a $945 million gain in 2006. The Auto business generated net earned premium of $30.2 billion, a decrease of 1.8 percent compared to 2006. Rate activity reduced earned premium by $1.2 billion in 2007, although policy growth partially offset the impact of the rate reductions.

The loss ratio for the Auto lines of business was 66.2 percent in 2007 compared to 60.8 percent in 2006, a deterioration of 5.4 percentage points. Auto losses increased $1.3 billion (7.0 percent) compared to 2006. Non-catastrophe losses for the Auto lines increased $1.5 billion and were impacted by growth, increasing severity (or average paid cost) trends, and increased costs to settle claims which occurred in prior years. Catastrophe losses for the Auto lines decreased $206 million and were at the lowest level reported in the past 10 years.

Fire Lines of Business
(Includes Homeowners, Business Insurance, and other Lines) State Farm Fire and Casualty, State Farm Lloyds, State Farm General and State Farm Florida reported a combined underwriting gain of $462 million (2.9 percent of earned premium) in 2007 compared to a gain of $1.2 billion (8.1 percent of earned premium) in 2006. The underwriting gain declined by 63.0 percent between years mainly due to an increase in losses.

The companies reported net earned premium in 2007 of $15.9 billion, 2.7 percent more than 2006. The premium gains were impacted primarily by growth. Total incurred losses for 2007 increased $985 million (12.1 percent) compared to 2006, largely due to a $1.1 billion increase in non-catastrophe losses. Growth and increasing severity (or average paid cost) trends contributed to the increase in non-catastrophe losses between years. Catastrophe losses for the Fire affiliates decreased $118 million (5.5 percent) compared to 2006. The largest single catastrophe during 2007 was the October California Wildfire which resulted in $345 million of incurred losses.

Reinsurance Line of Business
The reinsurance line of business written by State Farm Mutual reported an underwriting gain of $863 million in 2007 compared to a gain of $755 million in 2006. Improved results were mainly due to additional earned premium from the catastrophe reinsurance agreements, partially offset by an increase in assumed losses.

State Farm Mutual Funds are available through prospectus by registered representatives of State Farm VP Management Corp., One State Farm Plaza, Bloomington, Illinois 61710, 1-800-447-4930.  Please read the prospectus and consider the investment objectives, risks, charges and expenses and other information it contains about State Farm Mutual Funds carefully before investing. AP2008/03/0177

State Farm VP Management Corp. is a separate entity from those State Farm entities which provide banking products and insurance products.

State Farm life insurance and annuities are issued by: State Farm Life Insurance Company (Not licensed in Massachusetts, New York or Wisconsin), State Farm Life and Accident Assurance Company (Licensed in New York and Wisconsin), Home Offices: Bloomington, Illinois

State Farm Bank, Bloomington, Illinois, is a Member FDIC and an Equal Housing Lender. Insurance, annuities and securities products offered by affiliate companies of State Farm Bank are not FDIC insured, are not a State Farm Bank obligation or guaranteed by State Farm Bank, and are subject to investment risk, including possible loss of principal invested.