I want a fund that could generate income

What are my choices?

A mutual fund may generate income in the form of interest and dividends from the bonds or money market securities held in its portfolio. There are two bond funds included in the State Farm Mutual Funds® family of funds (State Farm Bond Fund and State Farm Tax Advantaged Bond Fund) a balanced fund (State Farm Equity and Bond Fund) and a money market fund (State Farm Money Market Fund). Your Registered State Farm Agent will be able to assist you in exploring which funds may be appropriate for you.

It is important to note all bonds are subject to interest rate risk, including those issued by the U.S. Government.  There is risk that the bonds a fund holds may decline in value due to an increase in interest rates.

The State Farm Bond Fund seeks the highest yield, or interest payments, consistent with investing in investment grade bonds. Bonds are considered investment grade if rated in one of Standard and Poor's or Moody's Investors Services, Inc., top four rating categories. The higher the grade, the more secure, in the opinion of the raters, the bond may be.

Assets of the Tax Advantaged Bond Fund are mainly invested in a diversified group of municipal bonds such as the general obligation bonds of a state or those financing a specific project. Dividends paid by the Tax Advantaged Bond Fund are largely exempt from federal income tax. A portion of these dividends may, however, be subject to alternative minimum tax, and the receipt of this portion can increase the likelihood that a taxpayer will be subject to alternative minimum tax. The securities held by the Tax Advantaged Bond Fund may have maturities of one to 30 years with the majority being longer than five years.

The State Farm Equity and Bond Fund invests all its assets in the State Farm Equity Fund and the State Farm Bond Fund. The objective is to seek capital appreciation along with some income. Normally, 60 percent of the assets will be in shares of the Equity Fund, a fund that invests primarily in common stocks and other equity securities. The Equity and Bond Fund will not invest more than 75 percent in either of the underlying funds.

The State Farm Money Market Fund attempts to maximize current income while preserving capital and seeks to maintain a stable net asset value of $1.00 per share. The Fund invests in short-term money market securities such as commercial paper or U.S. government Treasury Bills. These types of instruments will have maturity dates of 13 months or less which can reduce the risk of lost value.

An investment in a 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.

State Farm VP Management Corp Risk/Important Disclosures. State Farm Mutual Funds Prospectus. The State Farm College Savings Plan Enrollment Handbook (PDF 260 KB) .

It is important to note that there is market risk involved when investing in mutual funds, including possible loss of principal.

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AP2008/01/9822