Frequently Asked Questions

• General
• Retirement
• Rollovers
• Coverdell Education Savings Account
• The State Farm® College Savings Plan
• LifePath® Funds

General

Q: What do I need to get started?
A: In order to establish a State Farm Mutual Funds® account, complete an application with your registered State Farm® agent or contact a Securities Products Representative to request a new account packet. You may also download a new account packet from our Forms Library or use our Request Materials feature to have one sent to you. The minimum initial investment for State Farm Mutual Funds and The State Farm College Savings Plan is $250 with a $50 minimum for subsequent investments. If you wish to begin an Automatic Investment Plan (AIP), the minimum amount required for both initial and subsequent investments is $50.

Q: What can I do to ease my concerns over the recent price fluctuations of the stock markets?
A: Recently the stock markets have gone through a period of large price swings, causing concern among investors. During a volatile market period, it is important to review and remain focused on your long-term investment goals. This is not the first time the markets have gone through a volatile period, and it will not be the last. By working with your registered State Farm agent, you can understand the benefits of investing for the long-term, diversifying your portfolio, and the value of making regular investments over a long period of time. Although such an investment program cannot ensure a profit, it can ease the uncertainty created by changes in the markets.

It is important to note that diversification does not assure a profit or protect against loss in a declining market.

Q: Can I open a State Farm Mutual Fund account without the assistance of an agent?
A: Yes. However, every account opened with State Farm Mutual Funds must have a registered State Farm agent associated with it. If you open your account without the assistance of a registered State Farm agent, an agent in your local area will be assigned to your account.

Q: Why buy a mutual fund?
A: Mutual funds offer you a diversified investment vehicle without requiring a great deal of money. An investment in State Farm Mutual Funds may be started for as little as $250 initially or for $50 in conjunction with an automatic investment plan. Your investment and those of other investors with similar objectives are pooled to purchase securities.

A professional manager will closely monitor the securities held within a fund portfolio to determine if they are meeting the objective of that fund. Managers will buy and sell securities in an effort to get the best return for investors while maintaining that objective. There is usually a fee charged by fund companies for the manager's services. Those fees are normally a fraction of what it would cost you to make stock or bond purchases independently. See the prospectus for complete information regarding fees.

Your investment in a mutual fund is also liquid. In other words, you are able to sell your shares on any business day. The value of your shares is determined by the Net Asset Value of the fund as determined at the close of business on the day you wish to redeem shares. It is important to note that there is market risk involved when investing in mutual funds, including possible loss of principal.

Investment return and principal value will fluctuate and your investment, when redeemed, may be worth more or less than its original cost.

Q: Can I invest periodically throughout the year?
A: Yes. An easy way to do this is through an Automatic Investment Plan. By doing so, you will be taking advantage of an investment strategy known as dollar-cost averaging*. This strategy can help reduce your average cost basis. For example, assume you invest $500 quarterly in an investment which initially sells for $2.50 per share, therefore, you purchase 200 shares. If the price falls to $2.00 per share when you make your next investment, your next $500 purchase would buy 250 shares. If the price returns to $2.50 when you make your next investment, you will buy 200 additional shares. At the end of three quarters you would own 650 shares after investing $1,500. Your average cost per share would be $2.31, less than the fund's most recent market price ($2.50).

*Dollar-cost averaging neither guarantees a profit nor protects against loss in declining markets. Such a plan involves continuous investment in securities regardless of fluctuating price levels of such securities. Investors should consider their financial ability to continue purchases through periods of low-price levels.

Q: How do I select a mutual fund that's right for me?
A: First, determine your investment goal. Next, establish the amount of risk you are willing to assume to achieve this objective. A registered State Farm agent can provide you with a Risk Tolerance Tool to help you in determining your tolerance to risk. From there, identify funds whose investment objective is in line with yours and whose investment strategy appears suited to your risk tolerance level. Your registered State Farm agent will work with you to determine the funds that fit your risk tolerance.

Q: How do I determine the number of funds that I should own?
A: Some individuals would be well-served by investing in two or three mutual funds, while others with more complex needs may find five or six funds appropriate. The number of funds to own is a personal financial decision requiring a careful analysis of your specific needs and long-range investment plans. Your registered State Farm agent can be a valuable resource in helping you explore this objective.

Q: Is there risk in owning too many funds?
A: Yes, there is. While diversification is necessary in helping you protect your assets from undue risk and exposing your portfolio to a large number of investments, over-diversification can water down your investment results. And that can hinder your progress in achieving your goals. As a result, you need to strike a delicate balance between returns and risk with a select number of quality funds most appropriate for your personal financial needs. Again, your registered State Farm agent can provide important guidance and support in helping you explore this objective.

Q: What else should I keep in mind after purchasing my funds?
A: Realize that investing is not a one-time event. As your needs and goals change over time, you may want to shift assets from one type of fund to another. For example, when you have many years to reach retirement, you may want to invest most of your assets in stock funds because you have time to ride out the market's ups and downs. But when you come within 10 years of your golden years, you might want to invest a higher percentage of your assets in bond funds. An annual meeting with your registered State Farm agent is an excellent opportunity to keep your investments in line with your goals.

Q: What is the difference between Class A and Class B shares?
A: The class of shares you purchase is an important decision based on your own preference. Do you want to pay a sales charge, or 'load,' up front or when your shares are redeemed? With Class A shares, a sales load of up to 5 percent will be added to the initial purchase price. Class B shares are subject to a contingent deferred sales charge, or 'back-end load,' that applies when you redeem your shares.

Some investors prefer to pay the sales charge when the initial purchase takes place and then pay lower 12b-1 fees over time. 12b-1 fees are asset based sales charges used to pay marketing and distribution costs. Others may purchase Class B shares with higher 12b-1 fees in order to have a higher percentage of their investment go to work on day one. We developed our cost structures with the intention of neutralizing as much as possible the difference in the overall costs between Class A and B shares over time. However, because the sales load applied to Class A shares is reduced based on the amount invested, neutralization may not always occur.

The contingent deferred sales charge will be reduced during the period Class B shares are held. Class B shares held for seven years or longer will not be subject to the contingent deferred sales charge and will convert to Class A shares after eight years. No sales charge is applied when this conversion takes place.

No sales load is applied to reinvested dividends or distributions and Class A shares of the State Farm® Money Market Fund are not subject to an up-front load. Exchanges from the State Farm Money Market Fund to any of the other State Farm Mutual Funds will be subject to an up-front load.

Investments in money market funds are neither insured nor guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although money market funds seek to preserve the value of an investment at $1.00 per share, it is possible to lose money by investing in a money market fund.

Q: What is the difference between Class A, Class B, Legacy Class A and Legacy Class B shares?
A: Grandfathered shareholders may purchase Legacy Class A and Legacy Class B shares whereas shareholders who are not grandfathered may purchase Class A or Class B shares.

You are a grandfathered shareholder if you satisfy one or more the following criteria:

• Your account holding Legacy Class A or Legacy Class B shares was established before May 1, 2006.
• Your account holding Legacy Class A or Legacy Class B shares is established after April 30, 2006, as a result of the death or divorce of one or more individual shareholders who had a grandfathered account.
• Your account holding Legacy Class A or Legacy Class B shares is established after April 30, 2006, as a result of a conversion or re-characterization of a grandfathered IRA account.
• You are a trust that obtained Legacy Class A or Legacy Class B shares from another grandfathered account.

Q: Are there any costs or penalties for withdrawing funds?
A: There are no charges for redeeming Class A shares. If you redeem Class B fund shares, you may be assessed a contingent deferred sales charge based on the length of time you have held the shares. Shares held for seven years or longer will not be subject to the contingent deferred sales charge. Any time shares are redeemed, you may be taxed on any realized gains associated with those shares.

Funds that are held in Traditional or Roth IRAs may be subject to a 10% tax penalty if a withdrawal is made prior to participant's age 59 1/2. Traditional IRA withdrawals may be made prior to age 59 1/2 without incurring the 10% tax penalty if certain criteria are met. For funds in a Roth IRA, qualified distributions are not subject to the 10% tax penalty. There is no 10% tax penalty for withdrawals from a Coverdell Education Savings Account if the money is used for qualified education expenses (including grades K-12).   In a 529 college savings plan, withdrawals must be used for qualified higher education expenses in order for the earnings to be received free of federal income tax.* The availability of such tax or other benefits may be conditioned on meeting certain requirements.

A tax advisor should be consulted for more in depth information concerning the taxation and tax penalties associated with redeeming mutual fund shares.

* Pursuant to the Economic Growth and Tax Relief Reconciliation Act of 2001, earnings must be used to pay for qualified higher education expenses to be federally tax free. The earnings portion of a nonqualified withdrawal will be subject to ordinary income tax at the recipient’s marginal rate and subject to a 10% tax penalty.

Q: Low Balance Policy requirements – How can I avoid having this policy assessed to my account?
A: If the balance in any of your accounts falls below $1,000.00 at the close of business on the 2nd business day of November, through redemptions or for any other reason, each account that is below this threshold will be assessed a $25.00 low-balance fee or possibly be closed out.

• This policy does not apply to SEP, SIMPLE, Archer MSA, 403(b)(7) or any other accounts held under employer-sponsored retirement plans.
• No fee will be assessed on an account that was initially opened and funded in the current year. For example, if an account was opened and funded on Jan. 2, and the account value on the 2nd business day of November is $900.00, the fee would be waived in the 1st year. The account value would need to be $1,000.00 or higher the following year to avoid the fee.
• Only Traditional and Roth IRAs are combined to help reduce the possibility of being assessed the fee. For example, if an individual owns a Roth and a Traditional IRA, combined value of the IRAs equals $1,000 or higher, no fee would be assessed.
• If the balance in any accounts (other than a Traditional IRA, Roth IRA, Coverdell Education Savings Account, Archer MSA, SEP, SIMPLE IRA, 403(b)(7) or any other accounts held under employer-sponsored retirement plans) falls below $250.00 at the close of business on the 2nd business day of November, the account may redeem the shares in that account, close the account and send the proceeds to your address of record. If the value is over $250.00 and below $1,000.00, the account will be assessed the $25.00 low balance fee. Again, the same rule applies if it was opened in the same year (as referenced above).

• Your registered State Farm agent can assist you in determining if the fee would be assessed, or what steps can be taken to avoid it.

Retirement

Q: What is the annual deadline for contributing to my Traditional or Roth IRA?
A: You can make annual contributions to a Traditional or Roth IRA from January 1st through the tax-filing deadline (excluding extensions) for the contribution year, generally April 15. For example, year 2009 contributions can be made from January 1, 2009 through April 15, 2010.

Q: I have not saved much for retirement. What can I do to improve my chances to retire comfortably?
A: If you can be disciplined about investing for retirement, you will have the opportunity to accumulate money over time and be better prepared for your retirement years. Develop a mindset of paying yourself in addition to paying your bills. By doing so, you should have a steady flow of money going to work for you.

Q: How do I change my IRA beneficiary?
A: Choosing an IRA beneficiary is an important part of your estate and investment planning. But sometimes there can be events that result in a need to change that decision. If you have recently had such a change, you can change your beneficiary by completing a Designation of Beneficiary (PDF 29 KB) Form.

Without a beneficiary, your State Farm IRA assets will generally pass to your estate upon your death. The assets could then be subject to the potential delays and expenses associated with settling an estate, and the distribution options allowed by federal income tax law may be limited.

Choose your beneficiary carefully. Contact your Registered State Farm Agent if you need assistance in selecting a beneficiary or have any questions regarding your investment options.

Rollovers

Q: What's the difference between a transfer & a rollover?
A: A transfer is a movement of funds between like-type plans (IRA to IRA, SEP to SEP, Roth to Roth). A rollover is generally a movement of funds from one type of plan (e.g., qualified retirement plan) to another type of plan (e.g., IRA).


Q: What is distribution paperwork?
A: Distribution paperwork is the paperwork of a custodian or plan administrator that must be submitted to initiate a rollover to State Farm. The paperwork may be referred to as a distribution election form, direct rollover form, or distribution authorization form. The paperwork may be part of a termination packet received by a participant who is eligible to receive a distribution from a plan.

Q: Why do I need to call the Custodian in the case of a direct rollover?
A: Most custodians require the participant to call to request distribution paperwork. Some custodians may process rollover requests through internet forms or phone calls.

Q: Should I send the paperwork to State Farm or Custodian directly?
A: It would be best to send originals to the custodian and a copy to State Farm. If originals are sent to State Farm, we will forward them to the Custodian.

Q: Can I put both transfer/rollovers on the same form?
A: As a rule, direct rollovers require distribution paperwork from the surrendering custodian or plan administrator. The IRA/TSA Transfer Request form (PDF 352 KB) is used only for transfers (like-to-like plans).

LifePath Funds

Q: What is the number at the end of each LifePath Fund?
A: The number -- as in LifePath 2020 -- represents the approximate year when an investor expects to start withdrawing money. As this year gets closer, the investment managers at Barclays gradually adjust the portfolio's mix to try to maximize the return while taking into account the level of risk appropriate for the remaining time horizon.

Q: How do LifePath Funds change over time?
A: Follow each LifePath Fund -- over time the investment mix will change and eventually merge with the LifePath Income Fund as shown in this graphic.


Q: How much should I invest in LifePath?
A: Because each portfolio is broadly diversified, you can invest your assets in a LifePath Fund and feel confident that you are invested in the three broadest asset classes that can help you to be a successful investor.

LifePath can also be used as an investment core. Investors can put the majority of their investment in a LifePath Fund and then invest the remaining portion of their investment in other assets. In this way, they have professionals manage part of their assets while they manage the rest.

Q: Who manages LifePath Funds?
A: State Farm Investment Management Corp. is the investment advisor to the State Farm LifePath Funds. Each State Farm LifePath Fund invests all of its assets in a separate mutual fund called a LifePath Master Portfolio that has a substantially identical investment objective as the corresponding State Farm LifePath Fund. The LifePath Master Portfolios are managed by a team of investment professionals at Barclays Global Fund Advisors. This dedicated team of professionals has the skill, experience and focus to address the daily investment challenges of managing an investment portfolio.

State Farm VP Management Corp. (SFVPMC) is the distributor of the State Farm LifePath Funds.  Barclays Global Fund Advisors (BGFA) is the investment advisor to the LifePath Master Portfolios.    Neither SFIMC or SFVPMC, or their affiliates, are affiliated with BGFA or its affiliates.

Q: Can I get out of the LifePath Funds at any time?
A: Yes, you can move in and out of the LifePath Funds at any time. The number on each fund represents the approximate target year when you are planning to begin withdrawing your money.

LifePath® is a registered trademark of Barclays Global Investors, N.A.

LifePath Funds are target-date portfolios that provide a diversified exposure to stocks, bonds, and/or cash for those investors who have a specific date in mind (in this case, years 2010, 2020, 2030, 2040, or 2050) for retirement or another goal.  The target date is the approximate date when investors plan to start withdrawing assets.  The investment objectives of each fund are adjusted over time to become more conservative as the target date approaches. The principal value of the fund(s) is not guaranteed at any time, including at the target date.

Investment return and principal value will fluctuate and your investment, when redeemed, may be worth more or less than its original cost.

State Farm Agents do not provide tax, legal or investment advice.

The State Farm College Savings Plan is available by registered representatives of State Farm VP Management Corp., One State Farm Plaza, Bloomington, IL 61710, 1-800-447-4930. Please read carefully the Enrollment Handbook and Participation Agreement and consider the investment objectives, risks, fees and expenses and other information associated with The State Farm College Savings Plan before investing or sending money. State and local tax laws vary. If you or the designated beneficiary are not Nebraska residents, you should consider before investing whether you or the designated beneficiary's home state offers any state tax or other benefits to its residents for investing in the plan offered by the state.

The State Farm College Savings Plan (the "plan") is sponsored by the State of Nebraska and administered by the Nebraska State Treasurer. The plan is established in cooperation with State Farm VP Management Corp. ("State Farm"), the State of Nebraska, and OFI Private Investments Inc. (OFIPI), a subsidiary of OppenheimerFunds Inc, pursuant to which State Farm offers classes of shares in a series of accounts within the Nebraska Educational Savings Plan Trust (the "Trust" and plan issuer) that are distributed by OppenheimerFunds Distributor, Inc. (OFDI and together with OFIPI, “Oppenheimer”). The Trust offers other accounts that are not affiliated with the plan.

The Nebraska State Treasurer serves as trustee of the plan; OFIPI serves as the investment manager, with the oversight of the Nebraska Investment Council; and servicing agent: OFDI serves as the distributor: Union Bank & Trust (“Union Bank”) serves as the program manager.

The State Farm College Savings Plan is not insured or guaranteed by State Farm, Oppenheimer, Union Bank and Trust Company, the Trust, the State of Nebraska, the Nebraska State Treasurer, the Nebraska Investment Council, any of their respective affiliates, directors, officers or agents, or any other entity.

The information presented in this document does not constitute tax advice. Please consult your tax advisor for specific information about your tax situation, including any state tax consequences of an investment.

State Farm VP Management Corp Risk/Important Disclosures. State Farm Mutual Funds Prospectus. The State Farm College Savings Plan Enrollment Handbook (PDF 553 KB) .

Need Assistance? 1-800-447-4930

AP2009/10/1269