State Farm Mutual Funds® Top Annual Barron’s Review

BARRON’S ARTICLE

In its annual review, the financial periodical Barron’s has ranked State Farm Mutual Funds® the top mutual fund family for the one-year period ending Dec. 31, 2008.

State Farm Mutual Funds (Associate and Retail Funds combined) ranked first overall out of 59 fund families (one-year ranking) and second out of 53 fund families (five-year ranking) in Barron’s 2008 annual Fund Survey compiled by Lipper Associates.

It is the third straight year State Farm has ranked in the top 10 and the second time in six years we earned Barron’s top ranking for the one-year period. Following a similar bear market in 2002, State Farm claimed the top spot out of 81 fund families.

The 2008 rankings are improvements over 2006 rankings of eighth out of 67 families for the one-year period and 24th out of 62 families for the five-year period. In 2007, State Farm Mutual Funds ranked sixth and 20th respectively.

2008 Barron’s Fund Family Review – Top Ten

Source:  Barron’s “The Best Families in a Bruising Year” February 2, 2009

While 2008 was a “bruising year” for markets and volatility was a predominant theme, State Farm’s long-term focus in our investment philosophy helped contribute to our strong relative performance compared to our peers, said Scott Hintz, Assistant Vice President of Securities Products. By balancing our internal strengths and complementing them with sub-advisers that have similar views, we strive toward our goal of competitive performance that is consistent with our generally conservative risk profile over rolling five- and 10-year periods of time.

We try to avoid extreme roller-coaster-like swings for our shareholders, Hintz noted.

“2008 was obviously a brutal year for the financial markets and mutual fund investors,” he said. “However, we are pleased with the recognition from Barron’s that we did a better overall job than our competitors of limiting the losses to our shareholders.” 

Consistently achieving five-year rankings well within the top half of fund families is what we are working toward, Hintz said. One-year rankings are a welcome bonus and an accomplishment to be proud of, but their volatility shouldn’t be ignored. Only three of last year’s top 10 fund families are still in the top 10 this year. Volatility over shorter time periods (such as one year) can be challenging to understand or explain. Often, what may perform well one year performs poorly the next year, and vice versa. 

Besides the #1 overall one-year ranking for 2008, State Farm also ranked #1 in the U.S. Equity category, #2 in Mixed Equity, #2 in Tax-Exempt Bond, #7 in Taxable Bond and #31 in World Equity. The asset size and strong performance relative to peers of the four Associate Funds in 2008 influenced our overall results; in addition, the LifePath Funds performed well relative to their peers and were contributing factors to our ranking.

Two of our sub-advisers also ranked in the top 10 for one-year performance – #2 Northern Trust and #6 Barclays. Our other sub-advisers (Bridgeway, Marsico, Northern Cross, Rainier and Westwood) did not qualify for inclusion in the survey due to not meeting Barron’s requirements for offering funds across all five general asset classifications.

About Barron’s Survey

To qualify for the Lipper/Barron’s Fund Survey, a fund family must have at least three funds in Lipper’s general U.S.–stock category, as well as one in world equity, which combines global and international funds. Also required is one mixed-equity fund, which holds stocks and bonds. Fund shops also must have at least two taxable-bond funds and one tax-exempt offering.

The Lipper/Barron’s Fund Family survey uses an asset-weighted ranking system. Each fund’s return is measured against those of all funds in its Lipper category. That leads to a percentile ranking, with 100 the highest and 1 the lowest, which is then weighted by asset size, relative to the fund family’s other assets in its general classification (world equity, for instance). The score is then multiplied by the weighting of its general classification as follows: 48.6% U.S. Equity, 18.0% World Equity, 15.5% Mixed Equity, 15.0% Taxable Bond and 3.0% Tax Exempt Bond. All fund scores for the fund family are then added up for a total score. The fund family with the highest score wins, both for every category and overall. 

Fund returns are adjusted for 12b-1 fees, but the return calculation does not include loads or sales charges. If loads or sales charges had been included, the returns for State Farm retail funds would have been lower. 

The State Farm Mutual Funds included in the Barron's Fund Family Survey consist of four Associate mutual funds available only to State Farm associates and 13 Retail mutual funds available to the public. The Barron's survey did not include the State Farm S&P 500 Index Fund, the State Farm LifePath 2050® Fund or the State Farm Money Market Fund.

Past performance is no indication of future performance. Investment return and principal value will fluctuate so that fund shares, when redeemed, may be worth more or less then their original cost. State Farm VP Management Corp. is a separate entity from those State Farm entities which provide banking and insurance products.

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.

State Farm VP Management Corp Risk/Important Disclosures, State Farm Mutual Funds Prospectus.

AP2009/02/2216