STATE FARM VARIABLE PRODUCT TRUST, N-1A EL, 1997-02-27

STATE FARM VARIABLE PRODUCT TRUST
N-1A EL, 1997-02-27

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File Nos. 333-______, 811-______

As filed with the Securities and Exchange Commission on ________, 1997

U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-1A

Registration Statement Under the Securities Act of 1933 [X]
Pre-Effective Amendment No. ____ [_]
Post-Effective Amendment No. ____ [_]
and
Registration Statement Under the Investment Company Act of 1940 [X]
Amendment No. ____ [_]

(Check appropriate box or boxes.)

______________________________________

STATE FARM VARIABLE PRODUCT TRUST
One State Farm Plaza
Bloomington, Illinois 61710-0001
(309) 766-2029
(Registrant's Exact Name, Address and Telephone Number)

Patricia L. Dysart, Esq.
State Farm Life Insurance Company
One State Farm Plaza
Bloomington, Illinois 61710-0001
(Name and Address of Agent for Service)

Copy to:

Stephen E. Roth, Esq.
Sutherland, Asbill & Brennan
1275 Pennsylvania Avenue, N.W.
Washington, D. C. 20004-2404

Approximate Date of Proposed Public Offering:
As soon as practicable after effectiveness of the Registration Statement.
____________________________________________

Pursuant to Rule 24f-2 under the Investment Company Act of 1940, the Registrant
declares that an indefinite amount of securities is being registered under the
Securities Act of 1933.

____________________________________________

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
SHALL DETERMINE.
<PAGE>

CROSS REFERENCE SHEET
Pursuant to Rule 481(a) under the Securities Act of 1933

Showing Location of Information Required by Form N-1A
in Part A (Prospectus) and Part B (Statement of
Additional Information) of the Registration Statement

__________________________________________________________________

<TABLE>
<CAPTION>
Caption(s) in the Statement
Item of Form N-1A Caption(s) in the Prospectus of Additional Information
----------------- ------------------------ -------------------------
<S> <C> <C>
PART A: INFORMATION REQUIRED IN A PROSPECTUS

1. Cover Page Cover page

2. Synopsis N/A

3. Condensed Financial N/A
Information

4. General Description of About the Trust
Registrant

5. Management of the Fund Management of the Trust;
Investment Objectives and
Policies; Investment
Techniques

5A. Management's N/A
Discussion of Fund
Performance

6. Capital Stock and Other Additional Information --
Securities About the Shares

7. Purchase of Securities Offering, Purchase and
Being Offered Redemption of Shares

8. Redemption or Offering, Purchase and
Repurchase Redemption of Shares

9. Pending Legal Additional Information --
Proceedings Legal Matters

PART B: INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION

10. Cover Page Cover Page

11. Table of Contents Table of Contents

12. General Information and N/A
History

13. Investment Objectives Investment Techniques and
Policies Restrictions

14. Management of the Fund Management of the Trust

15. Control Persons and Additional Information -- Shares
Principal Holders of
Securities
</TABLE>
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16. Investment Advisory and Management of the Trust --
Other Services Investment Advisory Agreements;
Additional Information -- Service
Providers

17. Brokerage Allocation Portfolio Transactions and
Other Practices Brokerage

18. Capital Stock and Other Additional Information -- Shares
Securities

19. Purchase, Redemption Determination of Net Asset Value;
and Pricing of Securities Redemption of Shares
Being Offered

20. Tax Status Dividends, Distributions and Taxes
-- Taxes

21. Underwriters Additional Information -- Service
Providers

22. Calculation of Performance Information
Performance Data

23. Financial Statements Audited Financial Statements
</TABLE>

PART C: OTHER INFORMATION

Information required to be included in Part C is set forth under the appropriate
item, so numbered, in Part C to this registration statement.

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STATE FARM VARIABLE PRODUCT TRUST
One State Farm Plaza
Bloomington, Illinois 61710-0001
(309) 766-2029

PROSPECTUS
________, 1997

State Farm Variable Product Trust is an investment company consisting of six
separate investment portfolios or funds (the "Funds"), each of which has
different investment objectives.

The MONEY MARKET FUND seeks to maximize current income to the extent consistent
with the preservation of capital and maintenance of liquidity. This Fund will
pursue its objective by investing exclusively in high quality money market
instruments. AN INVESTMENT IN THE MONEY MARKET FUND IS NEITHER INSURED NOR
GUARANTEED BY THE U.S. GOVERNMENT. This Fund will attempt to maintain a stable
net asset value of $1.00 per share, BUT THERE CAN BE NO ASSURANCE THAT THE FUND
WILL BE ABLE TO DO SO.

The LARGE CAP EQUITY INDEX FUND seeks to match the performance of the Standard &
Poor's Composite Index of 500 Stocks. This Fund will pursue its objective by
investing primarily on a capitalization-weighted basis in the securities
comprising the index.

The SMALL CAP EQUITY INDEX FUND seeks to match the performance of the Russell
2000 Small Stock Index. This Fund will pursue its objective by investing
primarily in a representative sample of stocks found in the index.

The INTERNATIONAL EQUITY INDEX FUND seeks to match the performance of the Morgan
Stanley Capital International Europe, Australia and Far East Index. This Fund
will pursue its objective by investing primarily in a representative sample of
stocks found in the index.

The BOND FUND seeks to realize over a period of years the highest yield
consistent with prudent investment management through current income and capital
gains. This Fund will pursue its objective by investing primarily in high
quality debt securities.

The STOCK AND BOND BALANCED FUND seeks long-term growth of capital, balanced
with current income. This Fund will pursue its objective by investing primarily
in the Trust's Large Cap Equity Index Fund and Bond Fund.

These Funds are available to the public only through the purchase of certain
variable annuity and variable life insurance contracts issued by State Farm Life
Insurance Company and State Farm Life and Accident Assurance Company.

This prospectus provides vital information about the Trust. For your own benefit
and protection, you should read it thoroughly before investing and keep it on
hand for future reference. A Statement of Additional Information containing
additional information about the Trust has been filed with the Securities and
Exchange Commission, and may be obtained without charge by sending a written
request to the Trust at the above address or calling the telephone number shown.
The Statement of Additional Information is considered part of this prospectus,
and is incorporated herein by reference.

SHARES OF THE TRUST ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK OR OTHER INSURED DEPOSITORY INSTITUTION, AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY. AN INVESTMENT IN ANY OF THE FUNDS INVOLVES INVESTMENT RISK INCLUDING
POSSIBLE LOSS OF PRINCIPAL.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES & EXCHANGE COMMISSION, NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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TABLE OF CONTENTS

<TABLE>
<S> <C>
ABOUT THE TRUST.......................................................... 1

INVESTMENT OBJECTIVES AND POLICIES....................................... 1
The Money Market Fund............................................... 2
The Equity Index Funds.............................................. 4
The Bond Fund....................................................... 8
The Stock and Bond Balanced Fund.................................... 9

INVESTMENT TECHNIQUES.................................................... 10
Loans of Portfolio Securities....................................... 10
Short-term Money Market Instruments................................. 11
Foreign Investments................................................. 11
Foreign Investments Generally.................................. 12
Investments in ADRs, EDRs and GDRs............................. 13
Stock Index Futures Contracts and Options on Such Contracts......... 14
Restricted Securities And Illiquid Investments...................... 14
Borrowing........................................................... 15
Investments in Securities of Small Capitalization Issuers........... 15
Investments in Other Investment Companies........................... 16

PERFORMANCE INFORMATION.................................................. 16

DETERMINATION OF NET ASSET VALUE......................................... 17

OFFERING, PURCHASE AND REDEMPTION OF SHARES.............................. 17

DIVIDENDS, DISTRIBUTIONS AND TAXES....................................... 18
Dividends And Distributions......................................... 18
Taxes............................................................... 19
General Tax Information........................................ 19
Taxation of Foreign Investments................................ 20
Additional Tax Considerations.................................. 20

MANAGEMENT OF THE TRUST.................................................. 21
Board of Trustees................................................... 21
Investment Adviser.................................................. 21
Investment Sub-adviser.............................................. 23
The Bond Fund and the Stock and Bond Balanced Fund Managers......... 23
</TABLE>

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<TABLE>
<S> <C>
ADDITIONAL INFORMATION................................................... 24
About The Shares.................................................... 24
Contract Owner Voting Rights........................................ 24
Annual and Semi-annual Reports...................................... 25
Service Providers................................................... 25
Legal Matters....................................................... 25
</TABLE>

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STATE FARM VARIABLE PRODUCT TRUST

ABOUT THE TRUST

State Farm Variable Product Trust (the "Trust") is an open-end management
investment company organized as a business trust under the laws of the State of
Delaware on February 21, 1997. The Trust consists of six separate investment
portfolios (the "Funds" or a "Fund"), each of which is, in effect, a separate
mutual fund. The Trust issues a separate series of shares of beneficial interest
for each Fund representing fractional undivided interests in that Fund. By
investing in a Fund, you become entitled to a pro-rata share of all dividends
and distributions arising from the net income and capital gains on the
investments of that Fund. Likewise, you share pro-rata in any losses of that
Fund.

Pursuant to investment advisory agreements and subject to the authority of the
Trust's board of trustees, State Farm Investment Management Corp. ("SFIM")
serves as the Trust's investment adviser and conducts the business and affairs
of the Trust. SFIM has engaged Barclays Global Fund Advisors ("BGFA") as the
investment sub-adviser to provide day-to-day portfolio management for the Large
Cap, Small Cap, and International Equity Index Funds. (The term "investment
adviser" in this prospectus may mean either SFIM or BGFA, as appropriate.)

The Trust currently offers the shares of each Fund to separate accounts (the
"Accounts") of State Farm Life Insurance Company and State Farm Life and
Accident Assurance Company (collectively, "State Farm") as funding vehicles for
certain variable annuity and variable life insurance contracts (the "Contracts")
issued by State Farm through the Accounts. The Trust does not offer its shares
directly to the general public. The Accounts, like the Trust, are registered as
investment companies with the SEC and separate prospectuses, one of which
accompanies this prospectus, describe each Account and the Contract being
offered through that Account. The Trust may, in the future, offer its shares to
other registered and unregistered separate accounts of State Farm and its
affiliates supporting other variable annuity or variable life insurance
contracts and, subject to obtaining required regulatory approvals, to qualified
pension and retirement plans.

INVESTMENT OBJECTIVES AND POLICIES

Each Fund has one or more investment objectives and related investment policies
and uses various investment techniques to pursue these objectives and policies.
THERE CAN BE NO ASSURANCE THAT ANY OF THE FUNDS WILL ACHIEVE ITS INVESTMENT
OBJECTIVE OR OBJECTIVES. You should not consider any one Fund alone to be a
complete investment program. All of the Funds are subject to the risk of
changing economic conditions, as well as the risk inherent in the ability of the
Fund's investment adviser to make changes in the composition of the Fund in
anticipation of changes in economic, business, and financial conditions. As with
any security,

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a risk of loss is inherent in an investment in the shares of any of the Funds.

In addition to these general risks, the different types of securities,
investments, and investment techniques used by each Fund all have attendant
risks of varying degrees. With respect to equity securities, there can be no
assurance of capital appreciation and there is a substantial risk of decline.
With respect to debt instruments, there exists the risk that the issuer of the
security may not be able to meet its obligations on interest or principal
payments at the time required by the instrument. In addition, the value of debt
instruments generally rises and falls inversely with prevailing current interest
rates. Moreover, foreign investments and investments in small capitalization
issuers entail special additional risks. For a more detailed explanation of
these risks and a definition of "foreign investments," see "Foreign Investments"
in this prospectus and the statement of additional information ("SAI").

Certain types of investments and investment techniques common to one or more
Funds are described in greater detail, including the risks of each, under
"Investment Techniques" in this prospectus and in the SAI.

The investment objective or objectives of each Fund are fundamental and may not
be changed without the approval of a majority of the outstanding voting shares
of the series related to that Fund. Certain investment restrictions also are
fundamental and cannot be changed without shareholder approval. In contrast,
certain other investment restrictions as well as the investment policies and
techniques of each Fund are not fundamental and may be changed by the Trust's
board of trustees without shareholder approval. These investment objectives,
restrictions, policies and techniques are described below and in more detail in
the SAI.

THE 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. This Fund will
pursue its objective by investing exclusively in the following high quality
money market instruments:

1. U.S. Government securities (as defined in the SAI) and related custody
receipts;

2. obligations issued or guaranteed by U.S. banks (including certificates
of deposit, bank notes, loan participation interests, commercial
paper, unsecured promissory notes, time deposits, and bankers'
acceptances) that have more than $1 billion in total assets at the
time of purchase as well as debt obligations of U.S. subsidiaries of
such banks and, certificates of deposit and promissory notes issued by
Canadian affiliates of such banks, provided that such obligations are
guaranteed as to principal and interest by such banks;

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3. commercial paper (unsecured promissory notes including variable amount
master demand notes) issued or guaranteed by U.S. corporations or
other entities that are, at the time of purchase, rated in the highest
rating category for short-term debt obligations of at least one
nationally recognized statistical rating organization ("NRSRO");

4. asset-backed securities (including interests in pools of assets such
as motor vehicle installment purchase obligations and credit card
receivables);

5. other short-term obligations issued or guaranteed by U.S.
corporations, state and municipal governments or other entities;

6. unrated notes, paper, obligations or other instruments that SFIM
determines to be of comparable high quality; and

7. repurchase agreements with banks and government securities dealers
that are recognized as primary dealers by the Federal Reserve System,
provided that:

(a) at the time that the repurchase agreement is entered into, and
throughout the duration of the agreement, the collateral has a
market value at least equal to the value of the repurchase
agreement; and

(b) the collateral consists of U.S. Government securities or
instruments that are rated in the highest rating category by the
requisite NRSROs (as defined below).

The Money Market Fund may acquire any of the above securities on a forward
commitment or when-issued basis, and may lend portfolio securities and invest in
other investment companies. See "Investment Techniques" in this prospectus for
more detailed information.

The Money Market Fund will only invest in instruments denominated in U.S.
dollars that SFIM, under the supervision of the Trust's board of trustees,
determines present minimal credit risk and meet, at the time of acquisition,
certain minimum credit rating requirements described in the SAI.

The Money Market Fund will invest at least 95% of its total assets in securities
that are rated in the highest category by the requisite NRSROs or unrated
securities of comparable investment quality. Of securities not rated in the
highest category (or not of comparable quality), the Fund will not invest more
than the greater of 1% of its total assets or $1 million in the securities of
any single issuer. The Fund is diversified. Except as explained in the SAI, the
Fund will not invest more than 5% of its net assets in securities of any single
issuer

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(except U.S. Government securities or repurchase agreements collateralized by
such securities).

All portfolio instruments owned by the Money Market Fund will mature within 13
months or less of the time that they are acquired. The average maturity of the
portfolio securities owned by the Fund based on their dollar value will not
exceed 90 days at the time of each investment. If the disposition of a portfolio
security results in a dollar-weighted average portfolio maturity in excess of 90
days, the Money Market Fund will invest its available cash in such manner as to
reduce its dollar-weighted average portfolio maturity to 90 days or less as soon
as is reasonably practicable.

See Appendix A to the SAI for additional information on the types of money
market instruments in which the Money Market Fund may invest.

NRSROs include S&P, Moody's, Fitch Investors Service, Inc., Duff & Phelps, Inc.,
IBCA Limited and its affiliate IBCA Inc., and Thompson BankWatch. See Appendix B
to the SAI for a description of each NRSRO's rating categories.

THE EQUITY INDEX FUNDS

The Large Cap, Small Cap, and International Equity Index Funds are equity index
Funds that invest mostly in stocks, although each may also invest in futures
contracts on their benchmark indices and options on such futures contracts. By
investing in a broad range of stocks within a specific index (a "benchmark
index"), each of these Funds avoids the risks of individual stock selection and
instead, seeks to match the performance of its benchmark index, whether that
index goes up or down. These Funds do not have, and will not adopt, a defensive
investment strategy in times of generally declining stock prices, and you bear
the risk of such a market decline with an investment in any of these Funds.

What is an index? An index is a grouping of securities, such as stocks, bonds or
commodities, used to measure and report changes in a particular market. An index
may be comprised of many securities and designed to be representative of the
overall market, or made up of a smaller number of securities and designed to
reflect a particular industry or market sector. The composition and weighting of
securities in an index can, and often does, change.

Which indices do these Funds follow? While there are more than a hundred
different indices, each of the equity index Funds try to match the performance
of a very prominent stock index. Each equity index Fund has the fundamental
investment objective of seeking to match the investment return of its benchmark
index.

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The Large Cap Equity Index Fund's benchmark index is the S&P 500./1/ This Fund
will pursue its objective of seeking to match the return of that index by
investing primarily on a capitalization-weighted basis in the securities
comprising the index, i.e., by purchasing each of the stocks comprising the S&P
-----
500 in the same weighted proportions that such stocks have in the index. The S&P
500 tracks the common stock performance of large U.S. companies in the
manufacturing, utilities, transportation, and financial industries. It also
tracks the performance of common stocks issued by foreign and smaller U.S.
companies in similar industries. In total, the S&P 500 is comprised of 500
common stocks .

Like the S&P 500, the Large Cap Equity Index Fund will hold both dividend paying
and non-dividend paying common stocks.

The Small Cap Equity Index Fund's benchmark index is the Russell 2000./2/ This
Fund will pursue its objective of seeking to match the return of that index by
investing primarily in a diversified portfolio of common stocks that will
reflect, as a group, the total investment return of that index. The Russell 2000
tracks the common stock performance of 2,000 U.S. companies in various
industries that each have a market value below $1 billion. The Frank Russell
Company created the Russell 2000 in the 1980s to give investors an idea of how
the stocks of smaller companies generally perform. Most of the companies tracked
by the Russell 2000 have common stocks with a market value of $100 million to
$1 billion. The stocks comprising the Russell 2000 are updated annually
because many of the companies in the index either outgrow the index or fall in
value.

___________________________

/1/The Standard & Poor's Composite Index of 500 Stocks. "Standard &
Poor's," "S&P," and "S&P 500" are trademarks of Standard & Poor's ("S&P"). S&P's
only relationship to the Trust is the licensing of certain trademarks and trade
names of S&P and of the S&P 500 which is determined, composed and calculated by
S&P without regard to the Trust. S&P has no obligation to take your needs or the
needs of the Trust into consideration in determining, composing or calculating
the S&P 500. S&P is not responsible for and has not participated in the
determination of the prices or composition of the Large Cap Equity Index Fund or
the timing of the issuance or sale of the shares of that Fund. The Large Cap
Equity Index Fund is not sponsored, endorsed, sold or promoted by S&P, and S&P
makes no representation regarding the advisability of investment in this Fund.

/2/The Russell 2000 Small Stock Index is a trademark/service mark of the
Frank Russell Trust Company. The Small Cap Equity Index Fund is not promoted,
sponsored or endorsed by, nor in any way affiliated with the Frank Russell
Company. The Frank Russell Company is not responsible for and has not reviewed
the Fund or any associated literature or publications and makes no
representation or warranty, express or implied, as to their accuracy, or
completeness, or otherwise.

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The International Equity Index Fund's benchmark index is the EAFE./3/ This Fund
will pursue its objective of seeking to match the return of that index by
investing primarily in a diversified portfolio of common stocks that will
reflect, as a group, the total investment return of that index. The EAFE is a
diversified index developed by Morgan Stanley Capital International in 1970. As
of December 31, 1995, the EAFE included the common stocks (or equity securities
having investment characteristics of common stocks) of over 1,100 companies. The
EAFE currently measures the performance of stock markets of Europe (Austria,
Belgium, Denmark, Finland, France, Germany, Ireland, Italy, the Netherlands,
Norway, Spain, Sweden, Switzerland and the United Kingdom), Australia, New
Zealand, and the Far East (Hong Kong, Japan, Malaysia, and Singapore).

Since EAFE is an index of international stocks, BGFA may invest up to 100% of
the International Equity Index Fund's total assets in foreign stocks (listed and
over-the-counter) in the EAFE.

How are the index Funds managed? BGFA does not manage the equity index Funds
according to traditional methods of "active" investment management, which
involve the buying and selling of securities based upon economic, financial and
market analysis and investment judgment. Instead, BGFA utilizes a "passive" or
indexing investment approach for each equity index Fund, attempting to
approximate the investment performance of the appropriate benchmark index
through quantitative analytical procedures. Stocks are selected for inclusion in
an equity index Fund's portfolio in order to have aggregate investment
characteristics (based on market capitalization and industry weightings),
fundamental characteristics (such as return variability, earnings valuation and
yield) and liquidity measures similar to those of the benchmark index taken in
its entirety.

________________________

/3/The Morgan Stanley Capital International Europe, Australia and Far East
Index. EAFE is the property of Morgan Stanley & Co. Incorporated ("Morgan
Stanley"). Morgan Stanley Capital International ("MSCI") is a service mark of
Morgan Stanley and has been licensed for use by the Trust. The International
Equity Index Fund is not sponsored, endorsed, sold or promoted by Morgan
Stanley. Morgan Stanley makes no representation or warranty, express or implied,
to the owners of shares of the International Equity Index Fund or any member of
the public regarding the advisability of investing in securities generally or in
the shares of the International Equity Index Fund particularly or the ability of
EAFE to track general stock market performance. EAFE is determined, composed and
calculated without regard to the International Equity Index Fund or the Trust,
and Morgan Stanley does not have any obligation to take the needs of the issuer
of the International Equity Index Fund or the Trust into consideration in
determining, composing, calculating, or disseminating, the EAFE index.

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Each equity index Fund will attempt to remain as fully invested as practicable
in a pool of equity securities the performance of which is expected to
approximate the performance of its benchmark index taken in its entirety. An
equity index Fund will normally invest at least 95% of its total assets in
stocks that are represented in its benchmark index and will at all times invest
at least 65% of its total assets in such stocks.

Do the Funds hold every stock in their indices? The Large Cap Equity Index Fund
will generally hold every stock in the S&P 500. However, each of the Small Cap
and International Equity Index Funds generally will not hold all of the issues
that comprise its benchmark index, due in part to the costs involved and, in
certain instances, the potential illiquidity of certain securities. Instead,
each of the Small Cap and International Equity Index Funds will attempt to hold
a representative sample of the securities in its benchmark index, which will be
selected by BGFA utilizing quantitative analytical models in a technique known
as "portfolio sampling." Under this technique, each stock is considered for
inclusion in the equity index Fund based on its contribution to certain
capitalization, industry and fundamental investment characteristics. BGFA will
seek to construct the portfolio of each of the Small Cap and International
Equity Index Funds so that, in the aggregate, its capitalization, industry and
fundamental investment characteristics perform like those of its benchmark
index. Over time, the portfolio composition of these two Funds may be altered
(or "rebalanced") to reflect changes in the characteristics of its benchmark
index or with a view to bringing the performance and characteristics of the
equity index Fund more in line with that of its benchmark index. Such
rebalancings will require the equity index Fund to incur transaction costs and
other expenses. Each of the Small Cap and International Equity Index Funds
reserves the right to invest in all of the securities in the benchmark index.

What other investments do the Funds make? An equity index Fund may invest any
assets not invested in stocks that are represented in its benchmark index (its
"remaining assets") in the same type of short-term high quality debt securities
in which the Money Market Fund invests (described above), futures contracts on
its benchmark index, options on such futures contracts, and/or cash. Such
investments may be made to invest uncommitted cash balances or, in limited
circumstances, to assist in meeting shareholder redemptions. An equity index
Fund will not invest its remaining assets as part of a temporary defensive
strategy to protect against potential stock market declines.

When and why are these futures contracts and options on futures contracts used?
An equity index Fund may purchase futures contracts on its benchmark index or a
comparable stock index to simulate investment in its benchmark index. This may
be done to rapidly gain exposure to the securities comprising its benchmark
index in anticipation of purchasing such securities over time, to reduce
transaction costs, or to gain exposure to such securities at a lower cost than
by making direct investments in the cash market. If an equity index Fund cannot
sell a futures contract that it holds, it may write call and put options on the
contract to effectively close out or offset the contract. The equity index Funds
will not use futures contracts or options on futures contracts
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to leverage net assets. See "Financial Futures Contracts and Options on Such
Contracts" in this prospectus for more detailed information.

How closely can an index Fund match the performance of its benchmark index? All
three equity index Funds attempt to match the performance of their benchmark
indices, although the Trust cannot guarantee that any of the Funds will be able
to do so. Due to the use of the portfolio sampling technique described above, an
equity index Fund is not expected to track its benchmark index with the same
degree of accuracy as would an investment vehicle that invested in every
component security of the benchmark index. BGFA expects that, over time, the
"expected tracking error" of an equity index Fund relative to the performance of
its benchmark index will be less than 5% and that the tracking error will
generally be greater for equity index Funds that have benchmark indices with
fewer rather than greater numbers of component stocks. BGFA will monitor the
tracking error of each equity index Fund on an ongoing basis and will seek to
minimize tracking error to the extent possible. There can be no assurance that
any equity index Fund will achieve any particular level of tracking error
relative to the performance of the relevant benchmark index. For an explanation
of "expected tracking error" and more information on this subject, see the SAI.

What are some of the other risks associated with these Funds? The Small Cap
Equity Index Fund invests in many small U.S. companies, a technique that entails
special risks. For a discussion of the risks of investing in small
capitalization issuers, see "Investments in Securities of Small Capitalization
Issuers," in this prospectus. In addition, the Large Cap Equity Index and
International Equity Index Funds may make foreign investments, which may present
the potential for certain benefits not generally present in domestic equity
investments, but are also subject to special risks. See "Foreign Investments"
for a definition of, and more details on the benefits and risks of, foreign
investments.

THE BOND FUND

The Bond Fund seeks to realize over a period of years the highest yield
consistent with prudent investment management through current income and capital
gains. This Fund will pursue its objective by investing primarily in debt
securities rated A or better by Standard & Poor's or A or better by Moody's and
in U.S. Government securities. Under normal circumstances, at least 65% of the
Fund's total assets will be invested in debt securities that are rated A or
better or that are unrated but of equivalent quality.

The Bond Fund generally seeks to maintain a dollar weighted average portfolio
duration of less than six years. Duration represents the weighted average
maturity of expected cash flows on a debt obligation, discounted to present
value. The longer the duration of a debt obligation, the more sensitive its
value is to changes in interest rates. Maturity measures only the time final
payment is due on a bond or other debt security; it takes no account of the
pattern of a

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security's cash flows over time. In computing the duration of its portfolio, the
Bond Fund will have to estimate the duration of debt obligations that are
subject to prepayment or redemption by the issuer.

From time to time, up to 20% of the Fund's total assets may be invested in
unrated debt securities or debt securities which are rated lower than A by
Standard & Poor's or Moody's or in convertible debt securities, convertible
preferred stocks and nonconvertible preferred stocks rated within the three
highest grades of Standard & Poor's or Moody's applicable to such securities. To
the extent that the Fund invests in such securities, the Fund's investment
portfolio will be subject to relatively greater risk of loss of income and
principal. Securities rated BBB or lower by Standard & Poor's or Baa or lower by
Moody's are considered by those rating agencies to have varying degrees of
speculative characteristics. Consequently, although they can be expected to
provide higher yields, such securities may be subject to greater market value
fluctuations and risk of loss of income and principal than lower-yielding,
higher-rated fixed-income securities.

The Fund will not directly purchase common stocks. However, it may retain common
stocks acquired either by conversion of debt securities or by the exercise of
warrants attached to debt securities.

When warranted, in SFIM's opinion, by prevailing market or economic conditions,
the Fund for temporary defensive purposes may invest up to 100% of its total
assets in other types of securities, including securities in which the Money
Market Fund may invest, or it may retain funds in cash. See the description of
the Money Market Fund above and Appendix A to the SAI.

Although, in SFIM's opinion, the risk of loss of principal should be minimized
by the quality of the investments in which the Fund will primarily invest, any
holdings of longer maturities that typically provide the best yields may subject
the Fund to substantial price changes resulting from market yield fluctuations.

THE STOCK AND BOND BALANCED FUND

The Stock and Bond Balanced Fund seeks long-term growth of capital, balanced
with current income. This Fund will pursue its objective by investing primarily
in shares of the Trust's Large Cap Equity Index Fund and Bond Fund
(collectively, the "underlying Funds").

Under normal circumstances, the Stock and Bond Balanced Fund will attempt to
maintain approximately 60% of its net assets in shares of the Large Cap Equity
Index Fund and approximately 40% of its net assets in shares of the Bond Fund.
The Fund will never invest more than 75% of its net assets in either underlying
Fund. Though the Stock and Bond

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<PAGE>

Balanced Fund is not an asset allocation or market timing fund, it will, over
time, adjust the amount of its net assets invested in each underlying Fund
within the limits prescribed above as economic, market and financial conditions
warrant.

The Stock and Bond Balanced Fund may hold a portion of its assets in U.S.
Government securities, short-term paper, or may invest in the Money Market Fund
to provide flexibility in meeting redemptions, expenses, and the timing of new
investments, and serves as a short-term defense during periods of unusual
volatility. For temporary defensive purposes, the Fund may invest without
limitation in such securities.

Special Risk Considerations. To the extent that the Stock and Bond Balanced Fund
invests in shares of other Funds, the risks associated with those other Funds
are also associated with an investment in the Stock and Bond Balanced Fund.
Also, since the Fund's investments are concentrated in the underlying Funds, the
Stock and Bond Balanced Fund's performance is directly related to the
performance of the underlying Funds. The investment objectives, restrictions,
investment techniques and risks associated with each of the underlying Funds are
described elsewhere in this prospectus and in the SAI.

Diversification. The Stock and Bond Balanced Fund is a "nondiversified"
investment company for purposes of the Investment Company Act of 1940 because it
invests in the securities of a limited number of mutual funds. However, the
underlying Funds themselves are diversified investment companies, and the Stock
and Bond Balanced Fund intends to qualify as a diversified investment company
for the purposes of Subchapter M of the Internal Revenue Code.

INVESTMENT TECHNIQUES

In pursuing their investment objectives, the Funds may engage in the following
investment techniques.

LOANS OF PORTFOLIO SECURITIES

Each Fund may from time to time lend securities it holds to brokers, dealers,
and financial institutions, up to a maximum of 20% of the total value of that
Fund's assets. Such loans will be secured by collateral in the form of cash or
U.S. Treasury securities, which will be maintained in an amount at least equal
to the current market value of the loaned securities. Each Fund will continue to
receive interest and dividends on the loaned securities during the term of its
loans, and, in addition, will receive either a fee from the borrower or interest
earned from the investment of cash collateral in short-term securities. Each
Fund also will receive any gain or loss in the market value of its loaned
securities and of securities in which cash collateral is invested during the
term of the loan. The primary risk involved in lending

10
<PAGE>

securities is that the borrower will fail financially and return the loaned
securities at a time when the collateral is insufficient to replace the full
amount of the loan. In order to minimize this risk, each Fund will make loans of
securities only to firms determined by its investment adviser (under the
supervision of the board of trustees) to be creditworthy.

SHORT-TERM MONEY MARKET INSTRUMENTS

All of the Funds may, to varying degrees, also invest in short-term money market
instruments, including repurchase agreements, and when-issued and delayed-
delivery securities. A repurchase agreement is a transaction in which a Fund
buys a security at one price and simultaneously agrees to sell that same
security back to the original owner at a higher price. Each Fund's investment
adviser (under the supervision of the board of trustees) reviews the
creditworthiness of the other party to the agreement and must find it
satisfactory before engaging in a repurchase agreement. In the event of the
bankruptcy of the other party, the Fund could experience delays in recovering
its money, may realize only a partial recovery or even no recovery, and may also
incur disposition costs. When-issued and delayed delivery securities are
discussed in "Investment Techniques" in the SAI.

FOREIGN INVESTMENTS

Investing in the securities of companies organized outside the United States or
of companies whose securities are principally traded outside the United States
("foreign issuers") or investments in securities denominated or quoted in
foreign currency ("non-dollar securities") involves certain special
considerations, including those set forth below, which are not typically
associated with investing in securities of domestic issuers or U.S. dollar
denominated securities.

Each of the Large Cap Equity Index and International Equity Index Funds may
invest in non-dollar securities and the securities of foreign issuers
(collectively, "foreign investments"). These Funds will not concentrate their
investments in any particular foreign country. The Large Cap Equity Index Fund
may invest up to 20% of its total assets in foreign securities. The
International Equity Index Fund may invest all of its assets in non-dollar
securities and the securities of foreign issuers.

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<PAGE>

FOREIGN INVESTMENTS GENERALLY

Foreign investments may offer potential benefits not available from investments
solely in securities of domestic issuers. Such benefits may include the
opportunity to invest in foreign issuers that appear to offer better opportunity
for long-term capital appreciation or current earnings than investments in
domestic issuers, the opportunity to invest in foreign countries with economic
policies or business cycles different from those of the United States and the
opportunity to reduce fluctuations in portfolio value by taking advantage of
foreign securities markets that do not necessarily move in a manner parallel to
U.S. markets.

Making foreign investments involves significant risks that are not typically
associated with investing in securities of domestic issuers. Such investments
may be affected by changes in currency rates, changes in foreign or U.S. laws or
restrictions applicable to such investments and in exchange control regulations.
For example, a decline in the currency exchange rate would reduce the value of
certain portfolio investments. In addition, if the exchange rate for the
currency in which a Fund receives interest payments declines against the U.S.
dollar before such interest is paid as dividends to shareholders, the Fund may
have to sell portfolio securities to obtain sufficient cash to pay such
dividends. Some foreign stock markets may have substantially less volume than,
for example, the New York Stock Exchange and securities of some foreign issuers
may be less liquid than securities of comparable domestic issuers. Commissions
and dealer mark-ups on transactions in foreign securities may be higher than for
similar transactions in the U.S. In addition, clearance and settlement
procedures may be different in foreign countries and, in certain markets, on
certain occasions, such procedures have been unable to keep pace with the volume
of securities transactions, thus making it difficult to conduct such
transactions. For example, delays in settlement could result in temporary
periods when a portion of the assets of a Fund are uninvested and no return is
earned thereon. The inability of a Fund to make intended investments due to
settlement problems could cause it to miss attractive investment opportunities.
Inability to dispose of portfolio securities or other investments due to
settlement problems could result either in losses to a Fund due to subsequent
declines in value of the portfolio investment or, if the Fund has entered into a
contract to sell the investment, could result in possible liability to the
purchaser.

Foreign issuers are not generally subject to uniform accounting, auditing and
financial reporting standards comparable to those applicable to domestic
companies. There may be less publicly available information about a foreign
issuer than about a domestic one. In addition, there is generally less
government regulation of stock exchanges, brokers, and listed and unlisted
issuers in foreign countries than in the United States. Furthermore, with
respect to certain foreign countries, there is a possibility of expropriation or
confiscatory taxation, imposition of withholding taxes on dividend or interest
payments, limitations on the removal of portfolios or other assets of the Fund,
or political or social instability or diplomatic

12
<PAGE>

developments which could affect investments in those countries. Individual
foreign economies also may differ favorably or unfavorably from the United
States economy in such respects as growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payments position.

For more information on foreign investments, see "Foreign Investments" in the
SAI.

INVESTMENTS IN ADRS, EDRS AND GDRS

Many securities of foreign issuers are represented by sponsored or unsponsored
American depository receipts ("ADRs"), European depository receipts ("EDRs"),
and global depository receipts ("GDRs"). ADRs are receipts typically issued by a
U.S. bank or trust company which evidence ownership of underlying securities of
foreign corporate issuers. EDRs and GDRs are receipts issued by non-U.S.
financial institutions evidencing arrangements similar to ADRs. Generally, ADRs
are in registered form and are designed for trading in U.S. markets while EDRs
are in bearer form and are designed for trading in European securities markets.
GDRs are issued in either registered or bearer form and are designed for trading
on a global basis.

The Large Cap Equity Index Fund and International Equity Index Fund may both
invest in ADRs, EDRs and GDRs. ADRs represent the right to receive securities of
foreign issuers deposited in a domestic bank or a foreign correspondent bank.
Prices of ADRs are quoted in U.S. dollars, and ADRs are traded in the U.S. on
exchanges or over-the-counter and are sponsored and issued by domestic banks.
ADRs do not eliminate all the risk inherent in investing in the securities of
foreign issuers. To the extent that a Fund acquires ADRs through banks which do
not have a contractual relationship with the foreign issuer of the security
underlying the ADR to issue and service such ADRs, there may be an increased
possibility that the Fund would not become aware of and be able to respond to
corporate actions such as stock splits or rights offerings involving the foreign
issuer in a timely manner. In addition, the lack of information may result in
inefficiencies in the valuation of such instruments. However, by investing in
ADRs rather than directly in the stock of foreign issuers, a Fund will avoid
currency risks during the settlement period for either purchases or sales. In
general, there is a large, liquid market in the U.S. for ADRs quoted on a
national securities exchange or the NASD's national market system. The
information available for ADRs is subject to the accounting, auditing and
financial reporting standards of the domestic market or exchange on which they
are traded, which standards are more uniform and more exacting than those to
which many foreign issuers may be subject.

EDRs and GDRs are receipts evidencing an arrangement with a non-U.S. bank
similar to that for ADRs and are designed for use in non-U.S. securities
markets. EDRs and GDRs are not necessarily quoted in the same currency as the
underlying security.

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<PAGE>

STOCK INDEX FUTURES CONTRACTS AND OPTIONS ON SUCH CONTRACTS

Each equity index Fund may purchase and sell futures contracts on its benchmark
stock index as a way to gain exposure to the securities in the benchmark index.
A stock index futures contract is a contract to buy or sell a specified amount
of securities comprising the index to which it relates at a future time for a
fixed price.

An equity index Fund may write covered call options and purchase options on
futures contracts to offset futures contracts held by the Fund that become
illiquid. An option to sell a financial futures contract gives the purchaser
thereof the right to sell a position in the underlying futures contract, and,
therefore, can serve the same function as selling the futures contract directly.
When used to offset a futures contract already owned by a Fund, an option can
effectively close out the Fund's position with regard to that futures contract.

The Stock and Bond Balanced Fund may indirectly hold these types of securities
by virtue of its investment in the Large Cap Equity Index Fund.

None of the equity index Funds will enter into any financial futures contract or
purchase any option thereon, if, immediately thereafter, the total amount of its
assets required to be on deposit as margin to secure its obligations under open
futures contracts, plus the amount of premiums paid by the Fund for outstanding
options to purchase futures contracts, would exceed 5% of the market value of
the Fund's total assets.

The use of futures contracts by these Funds entails certain risks, including but
not limited to the following: no assurance that futures contract transactions
can be offset at favorable prices; possible reduction of a Fund's income due to
their use; possible reduction in value of the futures contract; possible lack of
liquidity due to daily limits on price fluctuations; imperfect correlation
between the futures contract and the securities held in the Fund or the
securities comprising the benchmark index; and potential losses in excess of the
amount initially invested in the futures contracts themselves. The use of
futures contracts and options on futures contracts requires special skills in
addition to those needed to select portfolio securities. A further discussion of
futures contracts and their associated risks is contained in the SAI.

RESTRICTED SECURITIES AND ILLIQUID INVESTMENTS

Each Fund's adviser is responsible for determining the value and liquidity of
investments held by that Fund. Investments may be illiquid because of the
absence of a trading market, making it difficult to value them or dispose of
them promptly at an acceptable price. The Large Cap Equity Index, Small Cap
Equity Index, International Equity Index, and Money Market Funds will each not
purchase or otherwise acquire any investment, if as a result, more than 10% of
its net assets (taken at current value) would be invested in instruments that
are illiquid by

14
<PAGE>

virtue of the absence of a readily available market. The International Equity
Index Fund will not purchase or otherwise acquire any investment, if as a
result, more than 15% of its net assets (taken at current value) would be
invested in instruments that are illiquid by virtue of the absence of a readily
available market or because they are "restricted securities."

Illiquid investments include most repurchase agreements maturing in more than
seven days, currency swaps, time deposits with a notice or demand period of more
than seven days, certain over-the-counter option contracts (and segregated
assets used to cover such options), participation interests in loans, and
restricted securities. A restricted security is one that has a contractual
restriction on resale or cannot be resold publicly until it is registered under
the Securities Act of 1933.

The foregoing illiquid security investment restrictions do not apply to
purchases of restricted securities by the International Equity Index Fund
eligible for sale to qualified institutional purchasers in reliance upon Rule
144A under the Securities Act of 1933 that are determined to be liquid by the
Trust's board of trustees or by a Fund's investment adviser under board-approved
procedures. Such guidelines would take into account trading activity for such
securities and the availability of reliable pricing information, among other
factors. To the extent that qualified institutional buyers become for a time
uninterested in purchasing these restricted securities, a Fund's holdings of
those securities may become illiquid. The foregoing investment restrictions also
do not apply to purchases by the International Equity Index Fund of securities
of foreign issuers offered and sold outside the United States in reliance upon
the exemption from registration provided by Regulation S under the Securities
Act of 1933.

BORROWING

From time to time, each Fund may borrow money from a bank up to a limit of 5% of
the market value of its assets, but only for temporary purposes (e.g., to
facilitate distributions to shareholders or to meet redemption requests prior to
the settlement of securities already sold or in the process of being sold by the
Fund).

INVESTMENTS IN SECURITIES OF SMALL CAPITALIZATION ISSUERS

Some of the Funds may invest in securities issued by small capitalization
companies. Some of these companies often do not have the financial strength
needed to do well in difficult times.

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<PAGE>

Also, they often sell limited numbers of products, which can make it harder for
them to compete with medium and large companies. However, because they are
small, their stock prices may fluctuate more over the short-term, but they have
more potential to grow. This means their stock value may offer greater potential
for appreciation.

INVESTMENTS IN OTHER INVESTMENT COMPANIES

Each Fund other than the Stock and Bond Balanced Fund may invest up to 5% of its
total assets in the securities of any single investment company and up to 10% of
its total assets in the securities of other investment companies in the
aggregate. However, no Fund (other than the Stock and Bond Balanced Fund) may
hold more than 3% of the total outstanding voting stock of any single investment
company.

The Stock and Bond Balanced Fund may invest 100% of its total assets in the
securities of other investment companies.

PERFORMANCE INFORMATION

From time to time the Trust may publish average annual total return figures for
one or more of the Funds in advertisements and communications to shareholders or
sales literature. Average annual total return is determined by computing the
annual percentage change in value of $1,000 invested for specified periods
ending with the most recent calendar quarter, assuming reinvestment of all
dividends and distributions at net asset value. The average annual total return
calculation assumes a complete redemption of the investment at the end of the
relevant period.

The Trust also may from time to time publish year-by-year total return,
cumulative total return and yield information for the Funds in advertisements,
communications to shareholders or sales literature. These may be provided for
various specified periods by means of quotations, charts, graphs or schedules.
Year-by-year total return and cumulative total return for a specified period are
each derived by calculating the percentage rate required to make a $1,000
investment in a Fund (assuming all distributions are reinvested) at the
beginning of such period equal to the actual total value of such investment at
the end of such period.

Yield is computed by dividing net investment income earned during a recent 30
day period by the product of the average daily number shares outstanding and
entitled to receive dividends during the period and the price per share on the
last day of the relevant period. The results are compounded on a bond equivalent
(semi-annual) basis and then annualized. Net investment income is equal to the
dividends and interest earned during the period, reduced by accrued expenses for
the period. The calculation of net investment income for these purposes may
differ from the net investment income determined for accounting purposes.

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<PAGE>

In addition, the Trust may from time to time publish performance of its Funds
relative to certain performance rankings and indices.

The investment results of the Funds will fluctuate over time and any
presentation of investment results for any prior period should not be considered
a representation of what an investment may earn or what a Fund's performance may
be in any future period.

DETERMINATION OF NET ASSET VALUE

The net asset value of each Fund is determined as of the time of the close of
trading on the New York Stock Exchange, (currently at 4:00 PM, New York City
time) on each day when the New York Stock Exchange is open except as noted
below. The New York Stock Exchange is scheduled to be open Monday through Friday
throughout the year, except for certain federal and other holidays. The net
asset value of each Fund will not be calculated on the Friday following
Thanksgiving or on December 26, 1997. The net asset value of a Fund is
determined by adding the values of all securities, cash and other assets
(including accrued but uncollected interest and dividends) of that Fund and
subtracting all liabilities (including accrued expenses but excluding capital
and surplus). The net asset value of a share is determined by dividing the net
asset value of a Fund by the number of outstanding shares of that Fund. Except
for the securities and assets of the Money Market Fund and short-term debt
securities with remaining maturities of 60 days or less, portfolio securities
generally will be valued based upon their market value. All of the securities
and assets of the Money Market Fund and short-term debt securities having
remaining maturities of 60 days or less held by any of the other Funds are
valued by the amortized cost method, which approximates market value. Expenses,
including the investment advisory fee payable to SFIM, are accrued daily.

The net asset value per share of the Stock and Bond Balanced Fund will be based,
in part, on the net asset value per share of each of the underlying Funds in
which it invests. Thus, while the net asset value per share of the Stock and
Bond Balanced Fund will be determined as described above, the pricing of the
Stock and Bond Balanced Fund's securities cannot occur until the net asset
values per share of the underlying Funds are determined.

OFFERING, PURCHASE AND REDEMPTION OF SHARES

Pursuant to a distribution agreement, SFIM acts without remuneration as the
Trust's distributor in the distribution of the shares of each Fund. See
"Investment Adviser" and "Service Providers" in this prospectus for more
information.

Shares of the Funds are sold in a continuous offering and are authorized to be
offered to the Accounts to support the Contracts. Net purchase payments under
the Contracts are placed in one or more subaccounts of the Accounts and the
assets of each subaccount are invested in the

17
<PAGE>

shares of the Fund corresponding to that subaccount. The Accounts purchase and
redeem shares of the Funds for its subaccounts at net asset value without sales
or redemption charges.

For each day on which a Fund's net asset value is calculated, the Accounts
transmit to the Trust any orders to purchase or redeem shares of the Fund(s)
based on the purchase payments, redemption (surrender) requests, and transfer
requests from Contract owners, annuitants and beneficiaries that have been
processed that day. The Accounts purchase and redeem shares of each Fund at the
Fund's net asset value per share calculated as of that same day although such
purchases and redemptions may be executed the next morning.

Please refer to the separate prospectuses for the Contracts and the Accounts for
a more detailed description of the procedures whereby a Contract owner,
annuitant or beneficiary may allocate his or her interest in the Account to a
subaccount using the shares of one of the Funds as an underlying investment
medium.

In the future, the Trust may offer shares of one or more of the Funds (including
new funds that might be added to the Trust) to other registered or unregistered
separate accounts of State Farm or its life insurance company affiliates to
support variable annuity or variable life insurance contracts (other than the
Contracts). Likewise, the Trust may also, in the future and subject to obtaining
required regulatory approvals, offer shares of one or more of the Funds directly
to qualified pension and retirement plans.

Because shares of the Funds are offered to Accounts supporting variable annuity
Contracts and Accounts supporting variable life insurance Contracts, a potential
for certain conflicts may exist between the interests of owners of variable
annuity Contracts and owners of variable life insurance Contracts. Likewise, in
the event that shares of any Fund are offered to qualified pension and
retirement plans, a potential for certain conflicts may exist between the
interests of variable annuity contract owners, variable life insurance contract
owners and plan participants. The Trust does not currently foresee any
disadvantage to owners of either variable annuity Contracts or variable life
insurance Contracts arising from the fact that shares of any Fund might be held
by such entities. The Trust's board of trustees, however, will monitor the Funds
in order to identify any material irreconcilable conflicts of interest which may
possibly arise, and to determine what action, if any, should be taken in
response to such conflicts.

DIVIDENDS, DISTRIBUTIONS AND TAXES

DIVIDENDS AND DISTRIBUTIONS

It is the Trust's intention to distribute, as dividends, substantially all of
the net investment income, if any, from each of the Funds. All dividends of a
Fund are subsequently reinvested

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<PAGE>

in additional shares of that Fund at net asset value, subject to redemption
rights discussed above.

The Bond Fund and the Money Market Fund intend to declare dividends from its net
investment income every day. Each Fund will distribute such dividends quarterly
by reinvesting them in additional Fund shares at net asset value.

TAXES

GENERAL TAX INFORMATION

The Trust intends that each of the Funds will qualify as a regulated investment
company under Subchapter M of Chapter 1 of the Internal Revenue Code of 1986
(the "Code"). Since the Trust intends to distribute substantially all of its net
income and gains to its shareholders, then under the provisions of Subchapter M,
the Trust should have little or no income taxable to it under the Code.

Each Fund of the Trust must meet several requirements to maintain its status as
a regulated investment company. These requirements include the following: (1) at
least 90% of the Fund's gross income must be derived from dividends, interest,
payments with respect to securities loaned, and gains from the sale or
disposition of securities; (2) the Fund's gains (without reduction for losses)
derived from sales of securities held for less than three months must account
for less than 30% of the Fund's gross income; and (3) at the close of each
quarter of the Fund's taxable year, (a) at least 50% of the value of the Fund's
total assets must consist of cash, U.S. Government securities and other
securities (no more than 5% of the value of the Fund may consist of such other
securities of any one issuer, and the Fund must not hold more than 10% of the
outstanding voting stock of any issuer), and (b) the Fund must not invest more
than 25% of the value of its total assets in the securities of any one issuer
(other than U.S. Government securities).

In order to maintain the qualification of a Fund's status as a regulated
investment company, the Trust may, in its business judgment, restrict a Fund's
ability to enter into futures contracts or options on futures contracts or
engage in short-term trading and transactions in securities (including futures
contracts and options on futures contracts). For the same reason, the Trust may,
in its business judgment, require a Fund to defer the closing out of a contract
beyond the time when it might otherwise be advantageous to do so.

Each of the Funds also intends to comply with section 817(h) of the Code and the
regulations issued thereunder, which impose certain investment diversification
requirements on life insurance companies' separate accounts (such as the
Accounts) that are used to fund benefits under variable life insurance and
variable annuity contracts. These requirements are in

19
<PAGE>

addition to the requirements of subchapter M and of the Investment Company Act
of 1940, and may affect the securities in which a Fund may invest. In order to
comply with the current or future requirements of section 817(h) (or related
provisions of the Code), the Trust may be required, e.g., to alter the
investment objectives of one or more of the Funds. No such change of investment
objectives will take place without notice to the shareholders of an affected
Fund, the approval of a majority of the outstanding voting shares, and the
approval of the Securities and Exchange Commission, to the extent legally
required.

TAXATION OF FOREIGN INVESTMENTS

Funds investing in foreign securities or currencies may be required to pay
withholding or other taxes to foreign governments. Foreign tax withholding from
dividends and interest, if any, is generally at a rate between 10% and 35%. The
investment yield of any Fund that invests in foreign securities or currencies
will be reduced by these foreign taxes. Shareholders will bear the cost of any
foreign tax withholding, but may not be able to claim a foreign tax credit or
deduction for these foreign taxes. Funds investing in securities of passive
foreign investment companies may be subject to U.S. Federal income taxes and
interest charges, and the investment yield of a Fund making such investments
will be reduced by these taxes and interest charges. Shareholders will bear the
cost of these taxes and interest charges, but will not be able to claim a
deduction for these amounts.

ADDITIONAL TAX CONSIDERATIONS

If a Fund failed to qualify as a regulated investment company, owners of
variable life insurance and annuity contracts based on the Fund (1) might be
taxed currently on the investment earnings under their contracts and thereby
lose the benefit of tax deferral, and (2) the Fund might incur additional taxes.
In addition, if a Fund failed to comply with the diversification requirements of
section 817(h) of the Code and the regulations thereunder, owners of variable
life insurance and annuity contracts based on the Fund would be taxed on the
investment earnings under their contracts and thereby lose the benefit of tax
deferral. Accordingly, compliance with the above rules is carefully monitored by
the Funds' investment advisers and it is intended that each Fund will comply
with these rules as they exist or as they may be modified from time to time.
Compliance with the tax requirements described above may result in a reduction
in the return under a Fund, since, to comply with the above rules, the
investments utilized (and the time at which such investments are entered into
and closed out) may be different from what the Fund's investment adviser might
otherwise believe to be desirable.

It is not feasible to comment on all of the federal tax consequences concerning
the Funds. Since the shareholders of the Funds are currently limited to the
Accounts, no further discussion of those consequences is included herein. For
information concerning the federal

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<PAGE>

income tax consequences to the owners of variable life insurance and annuity
contracts, see the prospectuses for the contracts.

MANAGEMENT OF THE TRUST

BOARD OF TRUSTEES

The Trust has a board of trustees, the members of which are elected by the
shareholders. The trustees are responsible for the overall management of the
Trust and their duties include reviewing the results of each of the Funds,
monitoring investment activities and techniques, and receiving and acting upon
future plans for the Trust.

It is possible that the interests of the Stock and Bond Balanced Fund could
diverge from the interests of one or more of the underlying Funds in which it
invests. If such interests were ever to become divergent, it is possible that a
conflict of interest could arise and affect how the Trustees and officers
fulfill their fiduciary duties to each Fund. The Trustees believe they have
structured each Fund to avoid these concerns. However, conceivably, a situation
could occur where proper action for the Stock and Bond Balanced Fund could be
adverse to the interests of an underlying Fund, or the reverse could occur. If
such a possibility arises, the affected Funds' investment adviser(s) and the
Trustees and officers of the Trust will carefully analyze the situation and take
all steps they believe reasonable to minimize and, where possible, eliminate the
potential conflict. Moreover, close and continuous monitoring will be exercised
to avoid, insofar as possible, these concerns.

INVESTMENT ADVISER

Pursuant to an investment advisory and management services agreement with the
Trust and subject to the authority of the Trust's board of trustees, SFIM serves
as the Trust's investment adviser and conducts the business and affairs of the
Trust. It is registered under the Investment Advisers Act of 1940 and its
principal office is located at One State Farm Plaza, Bloomington, Illinois
61710-0001. SFIM is wholly-owned by State Farm Mutual Automobile Insurance
Company ("SFMAIC"). Pursuant to a separate service agreement among SFMAIC, SFIM
and the Trust, SFMAIC provides SFIM with certain personnel, services and
facilities to enable SFIM to perform its obligations to the Trust.

Since its inception in 1967, SFIM's sole business has been to act as investment
adviser, principal underwriter, transfer agent and dividend disbursing agent for
the State Farm mutual funds. SFIM also provides all executive, administrative,
clerical and other personnel necessary to operate the Trust and pays the
salaries and other costs of employing all these persons. SFIM furnishes the
Trust with office space, facilities, and equipment and pays the day-to-day
expenses related to the operating and maintenance of such office space,
facilities

21
<PAGE>

and equipment. All expenses incurred in the organization of the Trust or of any
new Funds of the Trust, including legal and accounting expenses and certain
costs of registering securities of the Trust under federal and state securities
laws, are also paid by SFIM.

The Trust is responsible for payment of all expenses it may incur in its
operation and all of its general administrative expenses except those expressly
assumed by SFIM as described in the preceding paragraphs. These include (by way
of description and not of limitation), any share redemption expenses, expenses
of portfolio transactions, shareholder servicing costs, pricing costs, interest
on borrowings by the Trust, charges of the custodian and transfer agent, if any,
cost of auditing services, non-interested trustees' fees, all taxes and fees,
investment advisory fees (other than subadvisory fees), certain insurance
premiums, cost of maintenance of corporate existence, investor services
(including allocable personnel and telephone expenses), costs of printing and
mailing updated Trust prospectuses to shareholders, proxy statements and
shareholder reports, the cost of paying dividends and capital gains
distributions, costs of trustees and shareholder meetings, dues to trade
organizations, and any extraordinary expenses, including litigation costs in
legal actions involving the Trust, or costs related to indemnification of
trustees, officers and employees of the Trust. SFIM reimburses SFMAIC for such
costs, direct and indirect, as are fairly attributable to the services performed
and the facilities provided by SFMAIC under the separate service agreement.
Accordingly, the Trust makes no payment to SFMAIC under the service agreement.

The Trust pays SFIM monthly compensation in the form of an investment advisory
fee. The fee is based upon average daily net assets and is accrued daily and
paid to SFIM quarterly at the following annual rates for each of the Funds:

Large Cap Equity Index .26% of net assets
Small Cap Equity Index .40% of net assets
International Equity Index .55% of net assets
Bond .50% of net assets
Money Market .40% of net assets
Stock and Bond Balanced None

SFIM has agreed not to be paid an investment advisory fee for performing its
services for the Stock and Bond Balanced Fund and has agreed to bear any other
expenses incurred by the Stock and Bond Balanced Fund. However, SFIM will
receive investment advisory fees from managing the underlying Funds in which the
Stock and Bond Balanced Fund invests.

With respect to each of the Funds other than the Stock and Bond Balanced Fund,
SFIM has agreed to bear the expenses incurred by the Fund, other than the
investment advisory fee, that exceed .10% of such fund's average daily net
assets.

22
<PAGE>

INVESTMENT SUB-ADVISER

SFIM has engaged BGFA as the investment sub-adviser to provide day-to-day
portfolio management for the Large Cap, Small Cap, and International Equity
Index Funds. BGFA was created by the reorganization of Wells Fargo Nikko
Investment Advisors with and into an affiliate of Wells Fargo Institutional
Trust Company, N.A. BGFA is an indirect subsidiary of Barclays Bank PLC and is
located at 45 Fremont Street, San Francisco, California 94105. As of March 31,
1996, BGFA and its affiliates provided investment advisory services for over
$284 billion of assets.

BGFA determines which securities to buy and sell for each of these Funds,
selects the brokers and dealers to effect the transactions, and negotiates
commissions. For its services, SFIM pays BGFA monthly compensation in the form
of an investment sub-advisory fee. The fee is based upon the average daily net
assets and is accrued daily and paid to BGFA quarterly at the following annual
rates:

Large Cap Equity Index Fund
---------------------------
.15% of the first $50,000,000 of net assets
.10% of the next $50,000,000 of net assets
.08% thereafter

Small Cap Equity Index Fund
---------------------------
.20% of the first $50,000,000 of net assets
.15% of the next $50,000,000 of net assets
.12% thereafter

International Equity Index Fund
-------------------------------
.35% of the first $50,000,000 of net assets
.30% of the next $50,000,000 of net assets
.20% thereafter

THE BOND FUND AND THE STOCK AND BOND BALANCED FUND MANAGERS

The portfolios of the Bond Fund and the Stock and Bond Balanced Fund are each
managed by a team consisting of Kurt Moser, John Concklin, and Duncan Funk.

Mr. Moser is a Director and a Vice President of SFIM. In addition to his
offices with SFIM, Mr. Moser has held the following positions during the past
five years: Vice President -- Investments of SFMAIC, State Farm County Mutual
Insurance Company of Texas, State Farm Lloyds, Inc., and State Farm
International Services, Inc.; Director and Vice President -- Investments of
State Farm and State Farm Fire and Casualty Company ("SFFCC"), State

23
<PAGE>

Farm General Insurance Company, State Farm, State Farm Annuity and Life
Insurance Company, and State Farm Life and Accident Assurance Company;
Underwriter -- State Farm Lloyds, Inc.; and Vice President -- State Farm Growth
Fund, Inc., State Farm Balanced Fund, Inc., State Farm Interim Fund, Inc., and
State Farm Municipal Bond Fund, Inc.

Mr. Concklin is an Investment Officer of SFIM. In addition to his office with
SFIM, Mr. Concklin has held the following positions during the last five years:
Vice President -- Fixed Income, SFMAIC, State Farm, and SFFCC since 1995; Vice
President, State Farm Balanced Fund, Inc. and State Farm Interim Fund, Inc.
since 1995; and Investment Officer, SFMAIC, State Farm, and SFFCC until 1995.

Mr. Funk is an Investment Analyst for SFMAIC. Mr. Funk has held this position
for the last five years.

ADDITIONAL INFORMATION

ABOUT THE SHARES

The Trust is currently issuing six series of shares, each representing
beneficial interests in one of the six Funds. Each share (including fractional
shares) is entitled to one vote for each dollar of net asset value represented
by that share on all matters to which the holder of that share is entitled to
vote. All shares have equal proportional rights with regard to redemptions,
dividends, distributions, and liquidations with respect to the Fund in which
they represent an interest. When issued, shares are fully paid and
nonassessable and do not have preemptive or conversion rights or cumulative
voting rights.

CONTRACT OWNER VOTING RIGHTS

With regard to matters for which the Investment Company Act of 1940 requires a
shareholder vote, State Farm, as the legal owner of shares held by the Accounts,
typically votes Trust shares held by the Accounts in accordance with
instructions received from owners of Contracts (or annuitants or beneficiaries
thereunder) having a voting interest in the Accounts. Each share has one vote
for each dollar of net asset value represented by that share and votes are
counted on an aggregate basis except as to matters where the interests of Funds
differ (such as approval of an investment advisory agreement or a change in the
fundamental investment policies). In such a case, the voting is on a Fund-by-
Fund basis. Fractional shares are counted proportionally. Shares held by
Accounts for which no instructions are received are generally voted by State
Farm for or against any proposition, or in abstention, in the same proportion as
the shares for which instructions have been received. You should refer to the
separate prospectus, which accompanies this prospectus, describing your Contract
and the Account through which it is offered for more information on your voting
rights.

24
<PAGE>

ANNUAL AND SEMI-ANNUAL REPORTS

The Trust's annual and semi-annual reports to shareholders contain additional
performance information that will be made available upon request and without
charge.

SERVICE PROVIDERS

In addition to its role as investment adviser, SFIM acts as principal
underwriter for the Trust. See "Investment Adviser" for more information on
SFIM. [BANK OF NEW YORK], [ADDRESS], is the Trust's custodian for the assets of
the Bond Fund, Money Market Fund and Stock and Bond Balanced Fund. [BARCLAYS
TRUST COMPANY], [ADDRESS], is the Trust's custodian for the Large Cap, Small
Cap, and International Equity Index Funds. See the SAI for more information on
the Trust's service providers.

LEGAL MATTERS

Sutherland, Asbill & Brennan of Washington, D.C. is counsel for the Trust.
There are no material legal proceedings in which the Trust is a party.

25
<PAGE>

STATE FARM VARIABLE PRODUCT TRUST
One State Farm Plaza
Bloomington, Illinois 61710-0001
(309) 766-2029

STATEMENT OF ADDITIONAL INFORMATION
_________, 1997

This Statement of Additional Information is not a prospectus. Much of the
information contained in this Statement expands upon matters discussed in the
Prospectus and should, therefore, be read in conjunction with the Prospectus.
To obtain a copy of a Prospectus with the same date as this Statement of
Additional Information, contact State Farm Investment Management Corp., One
State Farm Plaza, Bloomington, Illinois 61710-0001, (309) 766-2029.
<PAGE>

TABLE OF CONTENTS

<TABLE>
<S> <C>
INVESTMENT TECHNIQUES AND RESTRICTIONS.............................................. B-1
Investment Techniques..................................................... B-1
The Money Market Fund................................................ B-1
When-Issued and Delayed Delivery Securities.......................... B-2
Loans of Portfolio Securities........................................ B-2
Convertible Securities............................................... B-3
Warrants............................................................. B-4
U.S. Government Securities........................................... B-4
Foreign Investments.................................................. B-5
Financial Futures Contracts.......................................... B-6
Options on Stock Index Futures Contracts............................. B-7
Certain Additional Risks of Futures Contracts and
Options on Futures Contracts..................................... B-8
Borrowing............................................................ B-9
Investment Restrictions................................................... B-10
Fundamental Restrictions............................................. B-10
Non-fundamental Restrictions......................................... B-12
Industry Concentrations.............................................. B-13

MANAGEMENT OF THE TRUST............................................................. B-14
Trustees and Officers..................................................... B-14
Investment Advisory Agreements............................................ B-14
Between the Trust and SFIM........................................... B-14
Between SFIM and BGFA................................................ B-16
Tracking Error............................................................ B-17
Securities Activities of the Investment Advisers.......................... B-17

PORTFOLIO TRANSACTIONS AND BROKERAGE................................................ B-18
Portfolio Turnover........................................................ B-18

DETERMINATION OF NET ASSET VALUE.................................................... B-19

PERFORMANCE INFORMATION............................................................. B-22

DIVIDENDS AND DISTRIBUTIONS......................................................... B-24

REDEMPTION OF SHARES................................................................ B-24
</TABLE>

i
<PAGE>

<TABLE>
<S> <C>
ADDITIONAL INFORMATION.............................................................. B-24
Service Providers......................................................... B-24
Code of Ethics............................................................ B-25
Independent Auditors...................................................... B-25
Legal Counsel............................................................. B-26
Shares.................................................................... B-26
Voting Rights............................................................. B-26
Other Information......................................................... B-27

AUDITED FINANCIAL STATEMENTS........................................................ B-27

APPENDIX A -- Description of Money Market Securities................................ B-28

APPENDIX B -- Ratings............................................................... B-31
</TABLE>

ii
<PAGE>

INVESTMENT TECHNIQUES AND RESTRICTIONS

INVESTMENT TECHNIQUES

The objectives, policies, and certain techniques by which the Funds will pursue
their objectives are generally set forth in the Prospectus. This section is
intended to augment the explanation found in the Prospectus.

THE MONEY MARKET FUND

1. rated in one of the two highest rating categories for short-term debt
obligations assigned by at least two NRSROs, or by only one NRSRO if
only one NRSRO has issued a rating with respect to the instrument
("requisite NRSROs"); or

2. in the case of an unrated instrument, that SFIM determines, under the
supervision of the Trust's board of trustees, to be of comparable
quality to the instruments described in paragraph 1 above; or

3. issued by an issuer that has received a rating of the type described
in paragraph 1 above on other securities that are comparable in
priority and security to the instrument.

Pursuant to Rule 2a-7 under the Investment Company Act of 1940 (the "Act"),
securities which are rated (or that have been issued by an issuer that has been
rated with respect to a class of short-term debt obligations, or any security
within that class, comparable in priority and quality with such security) in the
highest short-term rating category by at least two NRSROs are designated "First
Tier Securities." Securities rated in the top two short-term rating categories
by at least two NRSROs, but which are not rated in the highest short-term
category by at least two NRSROs, are designated "Second Tier Securities."
NRSROs are listed in the Prospectus and a description of their ratings are found
in Appendix A herein.

Pursuant to Rule 2a-7, the Money Market Fund may not invest more than 5% of its
assets taken at amortized cost in the securities of any one issuer (except the
U.S. Government, including repurchase agreements collateralized by U.S.
Government securities (defined below)). The Fund may, however, invest more than
5% of its assets in the First Tier Securities of a single issuer for a period of
up to three business days after the purchase thereof, although the Fund may not
make more than one such investment at any time.

B-1
<PAGE>

Further, the Fund will not invest more than the greater of (i) 1% of its total
assets; or (ii) one million dollars in the securities of a single issuer that
were Second Tier Securities when acquired by the Fund. In addition, the Fund
may not invest more than 5% of its total assets in securities which were Second
Tier Securities when acquired.

The foregoing policies are more restrictive than the fundamental investment
restriction number 1 set forth below, which would give the Fund the ability to
invest, with respect to 25% of its assets, more than 5% of its assets in any one
issuer. The Fund will operate in accordance with these policies to comply with
Rule 2a-7.

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES

From time to time, in the ordinary course of business, each Fund may purchase
securities on a when-issued basis or delayed-delivery basis, i.e., delivery and
payment can take place a month or more after the date of the transaction. The
securities so purchased are subject to market fluctuation, and no interest
accrues to the purchaser during this period. At the time a Fund makes the
commitment to purchase securities on a when-issued or delayed-delivery basis,
the Trust will record the transaction and thereafter reflect the value, each
day, of such security in determining the net asset value of that Fund. At the
time of delivery of the securities, the value may be more or less than the
purchase price. Each Fund will also establish a segregated account with the
Trust's custodian bank in which it will maintain cash or cash equivalents or
other liquid portfolio securities equal in value, marked to market on a daily
basis, to commitments for such when-issued or delayed-delivery securities. As a
general matter each Fund will hold less than 5% of its total assets in
commitments to purchase securities on a delayed-delivery or when-issued basis
and will not, under any circumstances, purchase securities on a when-issued or
delayed-delivery basis if, as a result, more than 10% of the net assets of the
Fund would be so invested.

LOANS OF PORTFOLIO SECURITIES

Each Fund may from time to time lend securities that it holds to brokers,
dealers and financial institutions, up to a maximum of 20% of the total value of
each Fund's assets. This percentage may not be increased without approval of a
majority of the outstanding voting securities of the respective Funds. See
"Fundamental Restrictions" on page 10. Such loans will be secured by
collateral in the form of cash or United States Treasury securities, or other
liquid securities as permitted by the Securities and Exchange Commission
("Commission"), which at all times while the loan is outstanding, will be
maintained in an amount at least equal to the current market value of the loaned
securities. The Fund making the loan will continue to receive interest and
dividends on the loaned securities during the term of the loan, and, in
addition, will receive a fee from the borrower or interest earned from the
investment of cash collateral in short-term securities. The Fund will also
receive any gain or loss in the market

B-2
<PAGE>

value of loaned securities and of securities in which cash collateral is
invested during the term of the loan.

The right to terminate a loan of securities, subject to appropriate notice, will
be given to either party. When a loan is terminated, the borrower will return
the loaned securities to the appropriate Fund. No Fund will have the right to
vote securities on loan, but each would terminate a loan and regain the right to
vote if the Trust's board of trustees deems it to be necessary in particular
instance.

For tax purposes, the dividends, interest and other distributions which a Fund
receives on loaned securities may be treated as other than qualified income for
the 90% test discussed under "Taxes" in the Prospectus. Each Fund intends to
lend portfolio securities only to the extent that this activity does not
jeopardize its, or the Trust's, status as a regulated investment company under
the Internal Revenue Code of 1986 (the "Code").

The primary risk involved in lending securities is that the borrower will fail
financially and return the loaned securities at a time when the collateral is
insufficient to replace the full amount of the loan. The borrower would be
liable for the shortage, but the Fund making the loan would be an unsecured
creditor with respect to such shortage and might not be able to recover all or
any of it. In order to minimize this risk, each Fund will make loans of
securities only to firms SFIM or, when appropriate, BGFA (under the supervision
of the board of trustees) deems creditworthy.

CONVERTIBLE SECURITIES

The Bond Fund may invest up to 20% of its total assets in convertible
securities. Convertible securities may include corporate notes or preferred
stock but are ordinarily a long-term debt obligation of the issuer convertible
at a stated exchange rate into common stock of the issuer. As with all debt
securities, the market value of convertible securities tends to decline as
interest rates increase and, conversely, to increase as interest rates decline.
Convertible securities generally offer lower interest or dividend yields than
non-convertible securities of similar quality. However, when the market price
of the common stock underlying a convertible security exceeds the conversion
price, the price of the convertible security tends to reflect the value of the
underlying common stock. As the market price of the underlying common stock
declines, the convertible security tends to trade increasingly on a yield basis,
and thus may not depreciate to the same extent as the underlying common stock.
Convertible securities generally rank senior to common stocks in an issuer's
capital structure and are consequently of higher quality and entail less risk of
declines in market value than the issuer's common stock. However, the extent to
which such risk is reduced depends in large measure upon the degree to which the
convertible security sells above its value as a fixed-income security. In
evaluating a convertible security, SFIM usually gives primary emphasis to the

B-3
<PAGE>

attractiveness of the underlying common stock. The convertible debt securities
in which the Bond Fund may invest are subject to the same rating criteria as its
investment in non-convertible debt securities.

Because the Stock and Bond Balanced Fund invests a portion of its assets in the
Bond Fund, the Stock and Bond Balanced Fund is subject to the same risks with
regard to investments in convertible securities.

WARRANTS

The Bond Fund and, indirectly, the Stock and Bond Balanced Fund, may invest in
warrants or rights (other than those acquired in units or attached to other
securities) which entitle the purchaser to buy equity securities at a specific
price for a specific period of time. Warrants and rights have no voting rights,
receive no dividends and have no rights with respect to the assets of the
issuer. The Bond Fund may retain up to 10% of the value of its total assets in
common stocks acquired by the exercise of warrants attached to debt securities.

U.S. GOVERNMENT SECURITIES

All of the Funds may purchase securities issued or guaranteed as to principal
and interest by the U.S. Government, its agencies, authorities or
instrumentalities ("U.S. Government Securities"). Some U.S. Government
Securities, such as Treasury bills, notes and bonds, which differ only in their
interest rates, maturities and times of issuance, are supported by the full
faith and credit of the United States. Others, such as obligations issued or
guaranteed by U.S. Government agencies, authorities or instrumentalities are
supported either by (a) the full faith and credit of the U.S. Government (such
as securities of the Small Business Administration), (b) the right of the issuer
to borrow from the Treasury (such as securities of the Federal Home Loan Banks),
(c) the discretionary authority of the U.S. Government to purchase the agency's
obligations (such as securities of the Federal National Mortgage Association),
or (d) only the credit of the issuer. No assurance can be given that the U.S.
Government will provide financial support to U.S. Government agencies,
authorities or instrumentalities in the future. U.S. Government Securities may
also include zero coupon bonds.

Securities guaranteed as to principal and interest by the U.S. Government, its
agencies, authorities or instrumentalities are considered to include (a)
securities for which the payment of principal and interest is backed by a
guarantee of or an irrevocable letter of credit issued by the U.S. Government,
its agencies, authorities or instrumentalities and (b) participation in loans
made to foreign governments or their agencies that are so guaranteed. The
secondary market for certain of these participations is limited. Such
participations may therefore be regarded as illiquid.

B-4
<PAGE>

FOREIGN INVESTMENTS

Each of the Large Cap and International Equity Index Funds may invest in non-
dollar securities and the securities of foreign issuers (collectively, "foreign
investments").

Investments in foreign issuers may involve currencies of foreign countries.
Since a Fund may temporarily hold funds in bank deposits in foreign currencies
during completion of investment programs, it may be subject to currency exposure
independent of its securities positions and may be affected favorably or
unfavorably by changes in currency rates and in exchange control regulations.
Accordingly, it may incur costs in connection with conversions between various
currencies.

Since foreign issuers are not subject to uniform accounting, auditing and
financial reporting standards, practices and requirements comparable to those
applicable to U.S. issuers, there may be less publicly available information
about a foreign issuer than about a domestic issuer. Volume and liquidity in
most foreign securities markets are less than in the United States and
securities of many foreign issuers are less liquid and more volatile than
securities of comparable domestic issuers. Fixed commissions on foreign
securities exchanges are generally higher than negotiated commissions on U.S.
exchanges, although a Fund making investments in securities of foreign issuers
will endeavor to achieve the most favorable net results on its portfolio
transactions. There is generally less government supervision and regulation of
securities exchanges, brokers, dealers and listed and unlisted issuers than in
the United States. Mail service between the United States and foreign countries
may be slower or less reliable than within the United States, thus increasing
the risk of delayed settlements of portfolio transactions or loss of
certificates for portfolio securities.

Foreign securities markets also have different clearance and settlement
procedures, and in certain markets there have been times when settlements have
been unable to keep pace with the volume of transactions, making it difficult to
conduct such transactions. Such delays in settlement could result in temporary
periods when a portion of the assets of a Fund making an investment on such a
market are uninvested and no return is earned on such assets. The inability of
such a Fund to make intended security purchases due to settlement problems could
cause the Fund to miss attractive investment opportunities. Moreover, inability
to dispose of portfolio investments due to settlement problems could result
either in losses to the Fund due

B-5
<PAGE>

to subsequent declines in value of the portfolio securities or, if the Fund has
entered into a contract to sell the securities, could result in possible
liability to the purchaser. In addition, with respect to certain foreign
countries, there is the possibility of expropriation or confiscatory taxation,
political or social instability, or diplomatic developments which could affect a
Fund's investments in those countries. Also, individual foreign economies may
differ favorably or unfavorably from the U.S. economy in such respects as growth
of gross national product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position.

FINANCIAL FUTURES CONTRACTS

The Large Cap, Small Cap, and International Equity Index Funds and, indirectly,
the Stock and Bond Balanced Fund may purchase and sell stock index futures
contracts and options on such futures contracts as described in the Prospectus.

Stock index futures contracts bind purchaser and seller to deliver, at a future
date specified in the contract, a cash amount equal to a multiple of the
difference between the value of a specified stock index on that date and the
settlement price specified by the contract. That is, the seller of the futures
contract must pay and the purchaser would receive a multiple of any excess of
the value of the index over the settlement price, and conversely, the purchaser
must pay and the seller would receive a multiple of any excess of the settlement
price over the value of the index. A public market currently exists for stock
index futures contracts based on the S&P 500 Index, the New York Stock Exchange
Composite Index, the Value Line Stock Index, and the Major Market Index. It is
expected that financial instruments related to broad-based indices, in addition
to those for which futures contracts are currently traded, will in the future be
the subject of publicly-traded futures contracts. Each Fund may purchase and
sell stock index futures contracts on its benchmark index.

Positions taken in the futures markets are not normally held until delivery or
cash settlement is required, but instead are liquidated through offsetting
transactions which may result in a gain or a loss. While futures positions
taken by a Fund are usually liquidated in this manner, a Fund may instead make
or take delivery of underlying securities whenever it appears economically
advantageous to do so. A clearing organization associated with the relevant
exchange assumes responsibility for closing out transactions and guarantees
that, as between the clearing members of the exchange, the sale and purchase
obligations will be performed with regard to all positions that remain open at
the termination of the contract.

When futures contracts are entered into by a Fund, either as the purchaser or
the seller of such contracts, the Fund is required to deposit with its custodian
in a segregated account in the name of the futures commission merchant ("FCM")
an initial margin of cash or U.S. Treasury bills equaling as much as 5% to 10%
or more of the contract settlement price. The nature of

B-6
<PAGE>

initial margin requirements in futures transactions differs from traditional
margin payments made in securities transactions in that initial margins for
futures contracts do not involve the borrowing of funds by the customer to
finance the transaction. Instead, a customer's initial margin on a futures
contract represents a good faith deposit securing the customer's contractual
obligations under the futures contract. The initial margin deposit is returned,
assuming these obligations have been met, when the futures contract is
terminated. In addition, subsequent payments to and from the FCM, called
"variation margin," are made on a daily basis as the price of the underlying
security or stock index fluctuates reflecting the change in value in the long
(purchase) or short (sale) positions in the financial futures contract, a
process known as "marking to market."

Futures contracts generally are not entered into to acquire the underlying asset
and generally are not held to term. Prior to the contract settlement date, a
Fund will normally close all futures positions by entering into an offsetting
transaction which operates to cancel the position held, and which usually
results in a profit or loss.

OPTIONS ON STOCK INDEX FUTURES CONTRACTS

The equity index Funds and, indirectly, the Stock and Bond Balanced Fund may
also purchase call and put options and write covered call and put options on
stock index futures contracts of the type which the particular Fund is
authorized to enter into. Covered put and call options on futures contracts
will be covered in the same manner as covered options on securities and
securities indices. The Funds may invest in such options for the purpose of
closing out a futures position that has become illiquid.

Options on futures contracts are traded on exchanges that are licensed and
regulated by the CFTC. A call option on a futures contract gives the purchaser
the right in return for the premium paid, to purchase a futures contract (assume
a "long" position) at a specified exercise price at any time before the option
expires. A put option gives the purchaser the right, in return for the premium
paid, to sell a futures contract (assume a "short" position), for a specified
exercise price, at any time before the option expires.

Unlike entering into a futures contract itself, purchasing options on futures
contracts allows a buyer to decline to exercise the option, thereby avoiding any
loss beyond forgoing the purchase price (or "premium") paid for the options.
Whether, in order to achieve a particular objective, the Fund enters into a
stock index futures contract, on the one hand, or an option contract on a stock
index futures contract, on the other, will depend on all the circumstances,
including the relative costs, liquidity, availability and capital requirements
of such futures and options contracts. Each Fund will consider the relative
risks involved, which may be quite different. These factors, among others, will
be considered in light of market conditions and the particular objective to be
achieved.

B-7
<PAGE>

CERTAIN ADDITIONAL RISKS OF FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS

In addition to the risks described in the Prospectus, the use of stock index
futures contracts and options on such futures contracts may entail the following
risks. First, although such instruments when used by a Fund are intended to
correlate with the Fund's portfolio securities, in many cases the futures
contracts or options on futures contracts used may be based on stock indices the
components of which are not identical to the portfolio securities owned or
intended to be acquired by the Fund. Second, due to supply and demand
imbalances and other market factors, the price movements of stock index futures
contracts and options thereon may not necessarily correspond exactly to the
price movements of the stock indices on which such instruments are based.
Accordingly, there is a risk that a Fund's transactions in those instruments
will not in fact offset the impact on the Fund of adverse market developments in
the manner or to the extent contemplated or that such transactions will result
in losses to the Fund which are not offset by gains with respect to
corresponding portfolio securities owned or to be purchased by that Fund.

To some extent, these risks can be minimized by careful management of these
strategies. For example, where price movements in a futures contract are
expected to be less volatile than price movements in the related portfolio
securities owned or intended to be acquired by a Fund, it may, in order to
compensate for this difference, use an amount of futures contracts which is
greater than the amount of such portfolio securities. Similarly, where the
price movement of a futures contract is anticipated to be more volatile, a Fund
may use an amount of such contracts which is smaller than the amount of
portfolio securities to which such contracts relate.

The risk that the hedging technique used will not actually or entirely offset an
adverse change in the value of a Fund's securities is particularly relevant to
futures contracts. A Fund, in entering into a futures purchase contract,
potentially could lose any or all of the contract's settlement price. In
addition, because stock index futures contracts require delivery at a future
date of an amount of cash equal to a multiple of the difference between the
value of a specified stock index on that date and the settlement price, an
algebraic relationship exists between any price movement in the underlying index
and the potential cost of settlement to a Fund. A small increase or decrease in
the value of the underlying index can, therefore, result in a much greater
increase or decrease in the cost to the Fund.

Although the Funds intend to establish positions in these instruments only when
there appears to be an active market, there is no assurance that a liquid market
for such instruments will exist when they seek to "close out" (i.e. terminate) a
particular stock index futures contract position. Trading in such instruments
could be interrupted, for example, because of a lack of either buyers or
sellers. In addition, the futures exchanges may suspend trading after the price
of such instruments has risen or fallen more than the maximum amount specified
by the

B-8
<PAGE>

exchange. A Fund may be able, by adjusting investment strategy in the cash or
other contract markets, to offset to some extent any adverse effects of being
unable to liquidate a futures position. Nevertheless, in some cases, a Fund may
experience losses as a result of such inability. Therefore it may have to
liquidate other more advantageous investments to meet its cash needs.

In addition, FCMs or brokers in certain circumstances will have access to the
Funds' assets posted as margin in connection with these transactions as
permitted under the Act. The Funds will use only FCMs or brokers in whose
reliability and financial soundness they have full confidence and have adopted
certain other procedures and limitations to reduce the risk of loss with respect
to any assets which brokers hold or to which they may have access. Nevertheless,
in the event of a broker's insolvency or bankruptcy, it is possible that a Fund
could experience a delay or incur costs in recovering such assets or might
recover less than the full amount due. Also the value of such assets could
decline by the time the Fund could effect such recovery.

The success of any Fund in using these techniques depends, among other things,
on BGFA's ability to predict the direction and volatility of price movements in
the futures markets as well as the securities markets and on its ability to
select the proper type, time, and duration of futures contracts. There can be
no assurance that these techniques will produce their intended results. In any
event, BGFA will use stock index futures contracts and options thereon only when
it believes the overall effect is to reduce, rather than increase, the risks to
which the Fund is exposed. These transactions also, of course, may be more,
rather than less, favorable to a Fund than originally anticipated.

B-9
<PAGE>

case.

INVESTMENT RESTRICTIONS

FUNDAMENTAL RESTRICTIONS

The Funds are subject to certain fundamental restrictions on their investments.
These restrictions may not be changed without the approval of the holders of a
majority of the outstanding voting shares of the Funds affected by the change.

1. Diversification. No Fund will make any investment inconsistent with
---------------
the Fund's classification as a diversified company under the Act. This
restriction does not apply to any Fund classified as a non-diversified
company under the Act.

2a. Industry Concentration -- Bond Fund. The Bond Fund will not invest
-----------------------------------
more than 25% of its total assets (taken at market value at the time
of each investment) in the securities of issuers primarily engaged in
the same industry (excluding the U.S. Government or any of its
agencies or instrumentalities).

2b. Industry Concentration -- Money Market Fund. The Money Market Fund
-------------------------------------------
will not invest more than 25% of its assets (taken at market value at
the time of each investment) other than U.S. Government securities,
obligations (other than commercial paper) issued or guaranteed by U.S.
banks and U.S. branches of foreign banks, and repurchase agreements
and securities loans collateralized by U.S. Government securities or
such bank obligations, in the securities of issuers primarily engaged
in the same industry.

2c. Industry Concentration -- Equity Index Funds. The Large Cap, Small
--------------------------------------------Cap, and International
Equity Index Funds will concentrate their investments in an industry
or industries if, and to the extent that, their benchmark indices
concentrates in such industry or industries, except where the
concentration of the relevant index is the result of a single stock.

3. Interests in Real Estate. No Fund will purchase real estate or any
------------------------
interest therein, except through the purchase of corporate or certain
government securities (including securities secured by a mortgage or a
leasehold interest or other interest in real estate). A security
issued by a real estate or mortgage investment trust is not treated as
an interest in real estate.

4. Underwriting. No Fund will underwrite securities of other issuers
------------
except insofar as the Trust may be deemed an underwriter under the
Securities Act of

B-10
<PAGE>

1933 in selling portfolio securities.

5. Borrowing. No Fund will borrow money, except that: (a) a Fund may
---------
borrow from banks (as defined in the Act) or through reverse
repurchase agreements in amounts up to 33 1/3% of its total assets
(including the amount borrowed), taken at market value at the time of
the borrowing; (b) a Fund may, to the extent permitted by applicable
law, borrow up to an additional 5% of its total assets (including the
amount borrowed), taken at market value at the time of the borrowing,
for temporary purposes; and (c) a Fund may obtain such short-term
credits as may be necessary for clearance of purchases and sales of
portfolio securities.

6. Lending. No Fund will lend any security or make any other loan,
-------
except through: (a) the purchase of debt obligations in accordance
with the Fund's investment objective or objectives and policies; (b)
repurchase agreements with banks, brokers, dealers, and other
financial institutions; and (c) loans of securities as permitted by
applicable law.

7. Commodities. No Fund will purchase or sell commodities or commodity
-----------
contracts, except that a Fund may invest in currency and financial
instruments and contracts that are commodities or commodities
contracts.

8. Senior Securities. No Fund will issue senior securities to the extent
-----------------
such issuance would violate applicable law.

9. Investments -- Stock and Bond Balanced Fund. The Stock and Bond
-------------------------------------------
Balanced Fund will not invest in securities other than securities of
other registered investment companies or registered unit investment
trusts that are part of the State Farm group of investment companies
(as defined in the Act), U.S. Government securities, or short-term
paper.

For the purposes of the restrictions relating to industry concentration, state
and municipal governments and their agencies, authorities, and instrumentalities
are not deemed to be industries; utilities will be divided according to their
services (for example, gas, gas transmission, electric and telephone each will
be considered a separate industry); personal credit finance companies and
business credit finance companies are deemed to be separate industries; and
wholly-owned finance companies are considered to be in the industry of their
parents if their activities are primarily related to financing the activities of
their parents.

NON-FUNDAMENTAL RESTRICTIONS

The Trust has also adopted the following additional investment restrictions
applicable (except as noted) to all Funds. These are not fundamental and may be
changed by the board of

B-11
<PAGE>

trustees without shareholder approval. Under these restrictions, no Fund may:

1. Financial Futures Contracts. No Fund may enter into a financial
---------------------------
futures contract (by exercise of any option or otherwise) or acquire
any options thereon, if, immediately thereafter, the total of the
initial margin deposits required with respect to all open futures
positions, at the time such positions were established, plus the sum
of the premiums paid for all unexpired options on futures contracts
would exceed 5% of the value of its total assets.

2. Margin Purchases. No Fund may purchase any securities on margin
----------------
except in connection with investments of certain Funds in futures
contracts or options on futures contracts.

3. Pledging Assets. No Fund may mortgage, pledge, hypothecate or in any
---------------
manner transfer, as security for indebtedness, any securities owned or
held by such Fund except: (a) as may be necessary in connection with
borrowings mentioned in fundamental restriction number 6 above, and
then such mortgaging, pledging or hypothecating may not exceed 10% of
the Fund's total assets, taken at market value at the time thereof, or
(b) in connection with investments of certain Funds in futures
contracts or options on futures contracts.

4a. Illiquid Securities and Repurchase Agreements -- All Funds Except the
---------------------------------------------------------------------
International Equity Index Fund. No Fund may purchase securities or
-------------------------------
enter into a repurchase agreement if, as a result, more than 15% of
its net assets would be invested in any combination of: (i) repurchase
agreements not entitling the holder to payment of principal and
interest within seven days, and (ii) securities that are illiquid by
virtue of legal or contractual restrictions on resale or the absence
of a readily available market. This restriction does not apply to the
International Equity Index Fund.

4b. Illiquid Securities and Repurchase Agreements -- Money Market Fund.
------------------------------------------------------------------
In addition to the non-fundamental restriction in 4a above, the Money
Market Fund will not invest in illiquid securities, including certain
repurchase agreements or time deposits maturing in more than seven
days, if, as a result thereof, more than 10% of the value of its total
assets would be invested in assets that are either illiquid or are not
readily marketable.

5. Investments in Other Investment Companies. No Fund may invest more
-----------------------------------------
than 5% of its total assets in the securities of any single investment
company or more

B-12
<PAGE>

than 10% of its total assets in the securities of other investment
companies in the aggregate, or hold more than 3% of the total outstanding
voting stock of any single investment company. These restrictions do not
apply to the Stock and Bond Balanced Fund.

State insurance laws and regulations may impose additional limitations on
borrowing, lending, and the use of futures contracts, options on futures
contracts and other derivative instruments. In addition, such laws and
regulations may require a Fund's investments in foreign securities to meet
additional diversification and other requirements.

INDUSTRY CONCENTRATIONS

The Stock and Bond Balanced Fund, because of its investment objective and
policies, will concentrate more than 25% of its total assets in the mutual fund
industry.

As a result of the equity index Funds' policy on concentration, each equity
index Fund will maintain at least 25% of the value of its total assets in
securities of issuers in each industry for which its benchmark index has a
concentration of more than 25% (except where the concentration of the index is
the result of a single stock). No equity index Fund will concentrate its
investments otherwise. If the benchmark index for an equity index Fund has a
concentration of more than 25% because of a single stock (i.e., if one stock in
the benchmark index accounts for more than 25% of the index and it is the only
stock in the index in its industry), the equity index Fund will invest less than
25% of its total assets in such stock and will reallocate the excess to stocks
in other industries. Changes in an equity index Fund's concentration (if any)
and non-concentration would be made "passively" -- that is, any such changes
would be made solely as a result of changes in the concentrations of the
benchmark index's constituents. Since the concentration of each equity index
Fund is based on that of its benchmark index, changes in the market values of
the equity index Fund's portfolio securities will not necessarily trigger
changes in the portfolio of such equity index Fund.

MANAGEMENT OF THE TRUST

TRUSTEES AND OFFICERS

The trustees and officers of the Trust and their principal occupations for the
last five years are set forth below. Unless otherwise noted, the address of
each trustee and officer is One State Farm Plaza, Bloomington, Illinois 61710.

B-13
<PAGE>

Principal Occupation(s)
Name and Age Position(s) Held with Trust During Past Five Years
- ------------ --------------------------- -----------------------

[TO BE COMPLETED BY AMENDMENT]

Trustees or officers who are interested persons of the Trust do not receive any
compensation from the Trust for their services to the Trust. The trustees who
are not interested persons of the Trust receive compensation from the Trust at a
rate of $500 per meeting, per Fund. In addition, trustees who are not
interested persons of the Trust are reimbursed for any out-of-pocket expenses
incurred in connection with affairs of the Trust.

Trustees and officers of the Trust do not receive any benefits from the Trust
upon retirement nor does the Trust accrue any expenses for pension or retirement
benefits.

Aggregate Compensation Total Compensation from Trust
Name from Trust/+/ and Other State Farm Funds/*/
---- ------------- -----------------------------

[TO BE COMPLETED BY AMENDMENT]

/*/ The "other State Farm funds" are ___________________.
/+/ Estimated compensation for the fiscal year ending _______, 1997.

INVESTMENT ADVISORY AGREEMENTS

BETWEEN THE TRUST AND SFIM

The duties and responsibilities of SFIM are specified in the Investment Advisory
and Management Services Agreement between the Trust and SFIM and the separate
Service Agreement among the Trust, SFIM and State Farm Mutual Automobile
Insurance Company ("SFMAIC") (collectively, the "Management Agreements"). The
Management Agreements were approved for each Fund by the board of trustees of
the Trust (including a majority of trustees who are not parties to the Agreement
or interested persons, as defined by the Act, of any such party) at a meeting
held for that purpose on _________ and the shareholders of each Fund at a
meeting held on _________. The Management Agreements are not assignable and each
may be terminated without penalty upon 60 days written notice at the option of
the Trust, SFIM or SFMAIC, as appropriate, or by a vote of shareholders. Each
Management Agreement provides that it can be continued for each Fund from year
to year so long as such continuance is specifically approved annually (a) by the
board of trustees of the Trust or by a majority of the outstanding voting shares
of the Fund and (b) by a majority vote of the trustees who are not parties to
the Agreement, or interested persons of any such party, cast in person at a
meeting held for that purpose.

B-14
<PAGE>

SFIM (under the supervision of the board of trustees) continuously furnishes an
investment program for the Funds other than the Large Cap, Small Cap, and
International Equity Index Funds, is responsible for the actual managing of the
investments of such Funds and has responsibility for making decisions governing
whether to buy, sell or hold any particular security. In carrying out its
obligations to manage the investment and reinvestment of the assets of these
Funds, SFIM performs research and obtains and evaluates pertinent economic,
statistical and financial data relevant to the investment policies of these
Funds.

As described below, SFIM has engaged Barclays Global Fund Advisors ("BGFA") as
the investment sub-adviser to provide day-to-day portfolio management for the
Large Cap, Small Cap, and International Equity Index Funds.

SFIM is responsible for payment of all expenses it may incur in performing the
services described. These expenses include costs incurred in providing
investment advisory services, compensating and furnishing office space for
officers and employees of SFIM connected with investment and economic research,
trading and investment management of the Trust and the payment of any fees to
interested trustees of the Trust. SFIM provides all executive, administrative,
clerical and other personnel necessary to operate the Trust and pays the
salaries and other employment related costs of employing those persons. SFIM
furnishes the Trust with office space, facilities and equipment and pays the
day-to-day expenses related to the operation and maintenance of such office
space facilities and equipment. All other expenses incurred in the organization
of the Trust or of new Funds of the Trust, including legal and accounting
expenses and costs of registering securities of the Trust under federal and
state securities laws, are also paid by SFIM.

Pursuant to the Service Agreement, SFMAIC provides SFIM with certain personnel,
services and facilities to enable SFIM to perform its obligations to the Trust.
SFIM reimburses SFMAIC for such costs, direct and indirect, as are fairly
attributable to the services performed and the facilities provided by SFMAIC
under the separate service agreement. Accordingly, the Trust makes no payment to
SFMAIC under the Service Agreement.

B-15
<PAGE>

capital gains distribution, capital stock certificates, costs of trustees and
shareholder meetings, dues to trade organizations, and any extraordinary
expenses, including litigation costs in legal actions involving the Trust, or
costs related to indemnification of trustees, officers and employees of the
Trust.

The board of trustees of the Trust determines the manner in which expenses are
allocated among the Funds of the Trust.

The Agreement also provides that SFIM shall not be liable to the Trust or to any
shareholder or contract owner for any error of judgment or mistake of law or for
any loss suffered by the Trust or by any shareholder in connection with matters
to which the such Agreements relate, except for a breach of fiduciary duty or a
loss resulting from willful misfeasance, bad faith, gross negligence, or
reckless disregard on the part of SFIM in the performance of its duties
thereunder.

BETWEEN SFIM AND BGFA

Pursuant to the separate sub-advisory agreement described below (the "Sub-
advisory Agreement"), SFIM has engaged BGFA as the investment sub-adviser to
provide day-to-day portfolio management for the Large Cap, Small Cap, and
International Equity Index Funds.

The Sub-Advisory Agreement was approved for each Fund by the board of trustees
of the Trust (including a majority of trustees who are not parties to such
Agreements or interested persons, as defined by the Act, of any such party) at a
meeting held for that purpose on _________ and the shareholders of each Fund at
a meeting held on _________. The Sub-advisory Agreement is not assignable and
may be terminated without penalty upon 60 days written notice at the option of
SFIM or BGFA, or by the board of trustees of the Trust or by a vote of a
majority of the outstanding shares of the class of stock representing an
interest in the appropriate Fund. The Sub-advisory Agreement provides that it
shall continue in effect for two years and can thereafter be continued for its
Fund from year to year so long as such continuance is specifically approved
annually (a) by the board of trustees of the Trust or by a majority of the
outstanding shares of the Fund and (b) by a majority vote of the trustees who
are not parties to the Agreement, or interested persons of any such party, cast
in person at a meeting held for that purpose.

BGFA manages the investments of the Large Cap, Small Cap, and International
Equity Index Funds, respectively, determining which securities or other
investments to buy and sell for each, selecting the brokers and dealers to
effect the transactions, and negotiating commissions. In placing orders for
securities transactions, BGFA follows SFIM's policy of seeking to obtain the
most favorable price and efficient execution available.

B-16
<PAGE>

TRACKING ERROR

SFIM and BGFA use the "expected tracking error" of an equity index Fund as a way
to measure the Funds' performance relative to the performance of its benchmark
index. An expected tracking error of 5% means that there is a 68% probability
that the net asset value of the equity index Fund will be between 95% and 105%
of the subject index level after one year, without rebalancing the portfolio
composition. A tracking error of 0% would indicate perfect tracking, which would
be achieved when the net asset value of the equity index Fund increases or
decreases in exact proportion to changes in its benchmark index. Factors such as
expenses of the Fund, taxes, the need to comply with the diversification and
other requirements of the Code and other requirements may adversely impact the
tracking of the performance of an equity index Fund to that of its benchmark
index. In the event that tracking error exceeds 5%, the Board of Trustees of the
Trust will consider what action might be appropriate to reduce the tracking
error.

SECURITIES ACTIVITIES OF THE INVESTMENT ADVISERS

Securities held by the Trust may also be held by separate accounts or mutual
funds for which SFIM or BGFA acts as an adviser, some of which may be affiliated
to SFIM or BGFA. Because of different investment objectives or other factors, a
particular security may be bought by SFIM or BGFA for one or more of its
clients, when one or more other clients are selling the same security. If
purchases or sales of securities for a Fund or other client of SFIM or BGFA
arise for consideration at or about the same time, transactions in such
securities will be allocated as to amount and price, insofar as feasible, for
the Fund and other clients in a manner deemed equitable to all. To the extent
that transactions on behalf of more than one client of SFIM or BGFA during the
same period may increase the demand for securities being purchased or the supply
of securities being sold, there may be an adverse effect on price. It is the
opinion of the Trustees of the Trust, however, that the benefits available to
the Trust outweigh any possible disadvantages that may arise from such
concurrent transactions.

On occasions when SFIM or BGFA (under the supervision of the board of trustees)
deems the purchase or sale of a security to be in the best interests of the
Trust as well as other accounts or companies, it may, to the extent permitted by
applicable laws and regulations, but will not be obligated to, aggregate the
securities to be sold or purchased for the Trust with those to be sold or
purchased for other accounts or companies in order to obtain favorable execution
and low brokerage commissions. In that event, allocation of the securities
purchased or sold, as well as the expenses incurred in the transaction, will be
made by SFIM or BGFA in the manner it considers to be most equitable and
consistent with its fiduciary obligations to the Trust and to such other
accounts or companies. In some cases this procedure may adversely affect the
size of the position obtainable for a Fund.

B-17
<PAGE>

In performing their functions, neither SFIM nor BGFA will execute private sales
of securities among the Funds or between a Fund and any other investment account
it manages.

PORTFOLIO TRANSACTIONS AND BROKERAGE

As described above, either SFIM or BGFA determines which securities to buy and
sell for the Funds, selects brokers and dealers to effect the transactions, and
negotiates commissions. Transactions in equity securities will usually be
executed through brokers who will receive a commission paid by the Fund. Fixed
income securities are generally traded with dealers acting as principals for
their own accounts without a stated commission. The dealer's margin is reflected
in the price of the security. Money market obligations may be traded directly
with the issuer. Underwritten offerings of stock may be purchased at a fixed
price including an amount of compensation to the underwriter.

In placing orders for securities transactions, SFIM's policy (followed by BGFA)
is to attempt to obtain the most favorable price and efficient execution
available. These entities, subject to the review of the Trust's board of
trustees, may pay higher than the lowest possible commission in order to obtain
better than average execution of transactions and/or valuable investment
research information described below, if, in their opinion, improved execution
and investment research information will benefit the performance of each of the
Funds.

When selecting broker-dealers to execute portfolio transactions, SFIM considers
factors including the rate of commission or size of the broker-dealer's
"spread", the size and difficulty of the order, the nature of the market for the
security, the willingness of the broker-dealer to position, the reliability,
financial condition and general execution and operational capabilities of the
broker-dealer, and the research, statistical and economic data furnished by the
broker-dealer to SFIM. In some cases, SFIM may use such information to advise
other investment accounts that it advises. Brokers or dealers which supply
research may be selected for execution of transactions for such other accounts,
while the data may be used by SFIM in providing investment advisory services
to the Trust. In addition, SFIM may select broker-dealers to execute
portfolio transactions based upon sales by that broker-dealer of State Farm
variable life insurance or annuity contracts and may select broker-dealers who
are affiliated with the Trust or SFIM. However, all such directed
brokerage will be subject to SFIM's policy to attempt to obtain the most
favorable price and efficient execution possible.

PORTFOLIO TURNOVER

There are no fixed limitations regarding the portfolio turnover rate for either
the Bond Fund, Stock and Bond Balanced Fund, or Money Market Fund, and
securities initially satisfying the

B-18
<PAGE>

objectives and policies of one of these Funds may be disposed of when they are
no longer deemed suitable. Consistent with each equity index Fund's investment
objective, the Large Cap, Small Cap, and International Equity Index Funds will
attempt to minimize portfolio turnover. The Stock and Bond Balanced Fund's
portfolio turnover is expected to be low. The Stock and Bond Balanced Fund will
purchase or sell securities to: (i) accommodate purchases and sales of its
shares; (ii) change the percentages of its assets invested in each of the
underlying Funds in response to market conditions; and (iii) maintain or modify
the allocation of its assets among the underlying Funds within the percentage
limits described in the Prospectus.

Since short term instruments are excluded from the calculation of a portfolio
turnover rate, no meaningful portfolio turnover rate can be estimated or
calculated for the Money Market Fund. Turnover rates may vary greatly from year
to year as well as within a particular year and may also be affected by cash
requirements for redemptions of a Fund's shares and by requirements, the
satisfaction of which enable the Trust to receive certain favorable tax
treatment.

DETERMINATION OF NET ASSET VALUE

The net asset value of each Fund is determined as of the time of the close of
regular session trading on the New York Stock Exchange, (currently at 4:00 PM,
New York City time) on each day when the New York Stock Exchange is open except
as noted below. The New York Stock Exchange is scheduled to be open Monday
through Friday throughout the year, except for certain federal and other
holidays. The net asset value of each Fund will not be calculated on the Friday
following Thanksgiving or on December 26, 1997. The net asset value per share is
computed by dividing the difference between the value of the Fund's assets and
liabilities by the number of shares outstanding. Interest earned on portfolio
securities and expenses, including fees payable to SFIM, are accrued daily.

Equity securities (including common stocks, preferred stocks, convertible
securities and warrants) and call options written on all portfolio securities,
listed or traded on a national exchange are valued at their last sale price on
that exchange prior to the time when assets are valued. In the absence of any
exchange sales on that day and for unlisted equity securities, such securities
are valued at the last sale price on the Nasdaq (National Association of
Securities Dealers Automated Quotations) National Market. In the absence of any
National Market sales on that day, equity securities are valued at the last
reported bid price.

Debt securities traded on a national exchange are valued at their last sale
price on that exchange prior to the time when assets are valued, or, lacking any
sales, at the last reported bid price. Debt securities other than money market
instruments traded in the over-the-counter market are valued at the last
reported bid price or at yield equivalent as obtained from one or more dealers
that make markets in the securities. Debt securities traded in both the
over-the-

B-19
<PAGE>

counter market. If the market quotations described above are not available, debt
securities, other than short-term debt securities, may be valued at fair value
as determined by one or more independent pricing services (each, a "Service").
The Service may use available market quotations and employ electronic data
processing techniques and/or a matrix system to determine valuations. Each
Service's procedures are reviewed by the officers of the Trust under the general
supervision of the Board of Trustees.

Debt instruments held with a remaining maturity of 60 days or less are generally
valued on an amortized cost basis. Under the amortized cost basis method of
valuation, the security is initially valued at its purchase price (or in the
case of securities purchased with more than 60 days remaining to maturity, the
market value on the 61st day prior to maturity), and thereafter by amortizing
any premium or discount uniformly to maturity. If for any reason the Trust
Trustees believe the amortized cost method of valuation does not fairly reflect
the fair value of any security, fair value will be determined in good faith by
or under the direction of the board of trustees of the Trust as in the case of
securities having a maturity of more than 60 days.

Securities that are primarily traded on foreign securities exchanges are
generally valued at the last sale price on the exchange where they are primarily
traded. All foreign securities traded on the over-the-counter market are valued
at the last sale quote, if market quotes are available, or the last reported bid
price if there is no active trading in a particular security on a given day.
Quotations of foreign securities in foreign currencies are converted, at current
exchange rates, to their U. S. dollar equivalents in order to determine their
current value. Forward currency contracts are valued at the current cost of
offsetting the contract. Because of the need to value foreign securities (other
than American Depositary Receipts) as of the close of trading on various
exchanges and over-the-counter markets throughout the world, the calculation of
the net asset value of Funds investing in foreign securities may not take place
contemporaneously with the valuation of such foreign securities in such Funds.
In addition, foreign securities held by the Large Cap and International Equity
Index Funds may be traded actively in securities markets which are open for
trading on days when those Funds do not calculate their net asset value.
Accordingly, there may be occasions when the Large Cap or International Equity
Index Fund does not calculate its net asset value but when the value of such
Fund's portfolio securities is affected by such trading activity.

Securities for which market quotations are not readily available are valued at
fair value as determined in good faith by or under the direction of the board of
trustees of the Trust, including valuations provided by a Service retained for
this purpose.

Exchange listed put options written and options purchased are valued on the
primary exchange on which they are traded. Over-the-counter options written or
purchased by a Fund are valued

B-20
<PAGE>

based upon prices provided by market-makers in such securities. Exchange-traded
financial futures contracts are valued at their settlement price established
each day by the board of trade or exchange on which they are traded.

All of the assets of the Money Market Fund are valued on the basis of amortized
cost in an effort to maintain a constant net asset value of $1.00 per share. The
Board of Trustees of the Trust (the "Board") has determined this to be in the
best interests of the Money Market Fund and its shareholders. Under the
amortized cost method of valuation, securities are valued at cost on the date of
their acquisition, and thereafter as adjusted for amortization of premium or
accretion of discount, regardless of the impact of fluctuating interest rates on
the market value of the security. While this method provides certainty in
valuation, it may result in periods in which value as determined by amortized
cost is higher or lower than the price the Fund would receive if it sold the
security. During such periods, the quoted yield to investors may differ somewhat
from that obtained by a similar fund or portfolio which uses available market
quotations to value all of its portfolio securities.

The Board has established procedures reasonably designed, taking into account
current market conditions and the Money Market Fund's investment objectives, to
stabilize the net asset value per share for purposes of sales and redemptions at
$1.00. These procedures include review by the Board, at such intervals as it
deems appropriate, to determine the extent, if any, to which the net asset value
per share calculated by using available market quotations deviates from $1.00
per share. In the event such deviation should exceed one half of one percent,
the Board will promptly consider initiating corrective action. If the Board
believes that the extent of any deviation from a $1.00 amortized cost price per
share may result in material dilution or other unfair results to new or existing
shareholders, it will take such steps as it considers appropriate to eliminate
or reduce these consequences to the extent reasonably practicable. Such steps
may include: selling portfolio securities prior to maturity; shortening the
average maturity of the portfolio; withholding or reducing dividends; or
utilizing a net asset value per share determined from available market
quotations. Even if these steps were taken, the Money Market Fund's net asset
value might still decline.

PERFORMANCE INFORMATION

The Trust may from time to time quote or otherwise use average annual total
return information for the Funds in advertisements, shareholder reports or sales
literature. Average annual total return values are computed pursuant to
equations specified by the Commission.

Average annual total return for a specified period is derived by calculating the
actual dollar amount of the investment return on a $1,000 investment in a Fund
made at the beginning of the period, and then calculating the annual compounded
rate of return which would produce that amount, assuming a redemption at the end
of the period. This calculation assumes a

B-21
<PAGE>

complete redemption of the investment. It also assumes that all dividends and
distributions are reinvested at net asset value on the reinvestment dates during
the period.

The Trust also may from time to time quote or otherwise use year-by-year total
return, cumulative total return and yield information for the Funds in
advertisements, shareholder reports or sales literature. Year-by-year total
return and cumulative total return for a specified period are each derived by
calculating the percentage rate required to make a $1,000 investment in a Fund
(assuming that all distributions are reinvested) at the beginning of such period
equal to the actual total value of such investment at the end of such period.

Yield is computed by dividing net investment income earned during a recent 30
day period by the product of the average daily number of shares outstanding and
entitled to receive dividends during the period and the price per share on the
last day of the relevant period. The results are compounded on a bond equivalent
(semi-annual) basis and then annualized. Net investment income is equal to the
dividends and interest earned during the period, reduced by accrued expenses for
the period. The calculation of net investment income for these purposes may
differ from the net investment income determined for accounting purposes.

Any performance data quoted for a Fund will represent historical performance and
the investment return and principal value of an investment will fluctuate so
that your shares, when redeemed, may be worth more or less than original cost.

From time to time the Trust may publish an indication of the Funds' past
performance as measured by independent sources such as (but not limited to)
Lipper Analytical Services, Incorporated, Weisenberger Investment Companies
Service, Donoghue's Money Fund Report, Barron's, Business Week, Changing Times,
Financial World, Forbes, Fortune, Money, Personal Investor, Sylvia Porter's
Personal Finance and The Wall Street Journal. The Trust may also advertise
information which has been provided to the NASD for publication in regional and
local newspapers. In addition, the Trust may from time to time advertise its
performance relative to certain indices and benchmark investments, including (a)
the Lipper Analytical Services, Inc. Mutual Fund Performance Analysis, Fixed-
Income Analysis and Mutual Fund Indices (which measure total return and average
current yield for the mutual fund industry and rank mutual fund performance);
(b) the CDA Mutual Fund Report published by CDA Investment Technologies, Inc.
(which analyzes price, risk and various measures of return for the mutual fund
industry); (c) the Consumer Price Index published by the U.S. Bureau of Labor
Statistics (which measures changes in the price of goods and services); (d)
Stocks, Bonds, Bills and Inflation published by Ibbotson Associates (which
provides historical performance figures for stocks, government securities and
inflation); (e) the Hambrecht & Quist Growth Stock Index; (f) the Nasdaq OTC
Composite Prime Return; (g) the Russell Midcap Index; (h) the Russell 2000
Index-Total Return; (i) the ValueLine Composite-Price Return; (j) the Wilshire
4600 Index; (k) the Salomon Brothers' World Bond Index (which

B-22
<PAGE>

measures the total return in U.S. dollar terms of government bonds, Eurobonds
and foreign bonds of ten countries, with all such bonds having a minimum
maturity of five years); (1) the Shearson Lehman Brothers Aggregate Bond Index
or its component indices (the Aggregate Bond Index measures the performance of
Treasury, US. Government agencies, mortgage and Yankee bonds); (m) the S&P Bond
indices (which measure yield and price of corporate, municipal and U.S.
Government bonds); (n) the J.P. Morgan Global Government Bond Index; (o)
Donoghue's Money Market Fund Report (which provides industry averages of 7-day
annualized and compounded yields of taxable, tax-free and U.S. Government money
market funds); (p) other taxable investments including certificates of deposit,
money market deposit accounts, checking accounts, savings accounts, money market
mutual funds and repurchase agreements; (q) historical investment data supplied
by the research departments of Goldman Sachs, Lehman Brothers, First Boston
Corporation, Morgan Stanley (including EAFE), Salomon Brothers, Merrill Lynch,
Donaldson Lufkin and Jenrette or other providers of such data; (r) the FT-
Actuaries Europe and Pacific Index; (s) mutual fund performance indices
published by Variable Annuity Research & Data Service; and (t) mutual fund
performance indices published by Morningstar, Inc. The composition of the
investments in such indices and the characteristics of such benchmark
investments are not identical to, and in some cases are very different from,
those of a Fund's portfolio. These indices and averages are generally unmanaged
and the items included in the calculations of such indices and averages may be
different from those of the equations used by the Trust to calculate a Fund's
performance figures.

The Trust may from time to time summarize the substance of discussions contained
in shareholder reports in advertisements and publish the Advisers' views as to
markets, the rationale for a Fund's investments and discussions of the Fund's
current asset allocation.

From time to time, advertisements or information may include a discussion of
certain attributes or benefits to be derived by an investment in a particular
Fund. Such advertisements or information may include symbols, headlines or other
material which highlight or summarize the information discussed in more detail
in the communication.

Such performance data will be based on historical results and will not be
intended to indicate future performance. The total return or yield of a Fund
will vary based on market conditions, portfolio expenses, portfolio investments
and other factors. The value of a Fund's shares will fluctuate and your shares
may be worth more or less than their original cost upon redemption.

DIVIDENDS AND DISTRIBUTIONS

It is the Trust's intention to distribute substantially all the net investment
income, if any, of a Fund. Dividends from net investment income of a Fund will
be paid at least semi-annually and are expected to be reinvested in additional
full and fractional shares of that Fund. Shares

B-23
<PAGE>

will begin accruing dividends on the day following the date on which the shares
are issued, the date of issuance customarily being the "settlement" date.

REDEMPTION OF SHARES

Shares are redeemed at the net asset value per share next determined after the
receipt of proper notice of redemption. Payment for redeemed shares will
generally occur within seven days of receipt of a proper notice of redemption.
The Trust reserves the right to redeem shares in kind.

The right to redeem shares or to receive payment with respect to any redemption
may be suspended for any period during which trading on the New York Stock
Exchange is restricted as determined by the Commission or when such Exchange is
closed (other than customary weekend and holiday closings) for any period during
which an emergency exists, as defined by the Commission, which makes disposal of
a Fund's securities or determination of the net asset value of a Fund not
reasonably practicable, and for any other periods as the Commission may by order
permit for the protection of shareholders of the Fund.

ADDITIONAL INFORMATION

SERVICE PROVIDERS

Pursuant to an underwriting agreement and in addition to its duties as
investment adviser, SFIM acts as principal underwriter for the Trust.

[BANK OF NEW YORK], [ADDRESS], acts as custodian of the assets of the Bond Fund,
Money Market Fund and Stock and Bond Balanced Fund. Under its custody agreement
with the Trust, Bank of New York maintains the portfolio securities acquired by
the Bond, Money Market, and Stock and Bond Balanced Funds, administers the
purchases and sales of portfolio securities, collects interest and dividends and
other distributions made on the securities held in the portfolios of these
Funds, and performs such other ministerial duties as are included in the custody
agreement, a copy of which is on file with the Commission. Similarly, [BARCLAYS
TRUST COMPANY], [ADDRESS], is the Trust's custodian for the Large Cap, Small
Cap, and International Equity Index Funds. Under its custody agreement with the
Trust, Barclays Trust Company maintains the portfolio securities acquired by the
Large Cap, Small Cap, and International Equity Index Funds, administers the
purchases and sales of portfolio securities, collects interest and dividends and
other distributions made on the securities held in the portfolios of these
Funds, and performs such other ministerial duties as are included in the custody
agreement, a copy of which is on file with the Commission.

Bank of New York and Barclays Trust Company (the "custodians") may hold
securities of the

B-24
<PAGE>

Funds in amounts sufficient to cover put and call options written on futures
contracts in a segregated account by transferring (upon the Trust's
instructions) assets from a Fund's general (regular) custody account. The
custodians also will hold certain assets of certain of the Funds constituting
margin deposits with respect to financial futures contracts at the disposal of
FCMs through which such transactions are effected.

CODE OF ETHICS

SFIM intends that: all of its activities function exclusively for the benefit of
the owners or beneficiaries of the assets it manages; assets under management or
knowledge as to current or prospective transactions in managed assets are not
utilized for personal advantage or for the advantage of anyone other than the
owners or beneficiaries of those assets; persons associated with SFIM and the
Trust avoid situations involving actual or potential conflicts of interest with
the owners or beneficiaries of managed assets; and situations appearing to
involve actual or potential conflicts of interest or impairment of objectivity
are avoided whenever doing so does not run counter to the interests of the
owners or beneficiaries of the managed assets. The Board of Trustees of the
Trust has adopted a Code of Ethics which imposes certain prohibitions,
restrictions, preclearance requirements and reporting rules on the personal
securities transactions of subscribers to the Code, who include the Trust's
officers and Trustees and the employees of SFIM. The Board of Trustees believes
that the provisions of the Code are reasonably designed to prevent subscribers
from engaging in conduct that violates these principles.

INDEPENDENT AUDITORS

Ernst & Young, LLP acts as independent auditors for the Trust. Its offices are
at 233 South Wacker Drive, Chicago, Illinois 60606. Ernst & Young, LLP performs
an audit of the financial statements of the Trust annually.

LEGAL COUNSEL

Sutherland, Asbill & Brennan, 1275 Pennsylvania Avenue, NW, Washington, DC 20004
- -2404, is counsel for the Trust.

The Trust was organized as a business trust pursuant to the laws of the State of
Delaware on February 21. The Trust is authorized to issue an unlimited number of
shares of beneficial interest in the Trust, all without par value. Shares are
divided into and may be issued in a designated series representing beneficial
interests in one of the Trust's Funds. There are currently six series of shares.

B-25
<PAGE>

Each share of a series issued and outstanding is entitled to participate equally
in dividends and distributions declared by such series and, upon liquidation or
dissolution, in net assets allocated to such series remaining after satisfaction
of outstanding liabilities. The shares of each series, when issued, will be
fully paid and non-assessable and have no preemptive or conversion rights.

State Farm Life Insurance Company ("State Farm") provided the initial capital
for the Trust by purchasing _________. Such shares were acquired for investment
and can only be disposed of by redemption. As of ________, 1997, State Farm
owns ______ shares.

VOTING RIGHTS

Each share (including fractional shares) is entitled to one vote for each dollar
of net asset value represented by that share on all matters to which the holder
of that share is entitled to vote. Only shares representing interests in a
particular Fund will be entitled to vote on matters affecting only that Fund.
The shares do not have cumulative voting rights. Accordingly, owners of variable
annuity or variable life insurance contracts or plan participants having shares
representing more than 50% of the assets of the Trust voting for the election of
trustees could elect all of the trustees of the Trust if they choose to do so,
and in such event, contract owners or plan participants having voting interests
in the remaining shares would not be able to elect any trustees.

Matters requiring separate shareholder voting by Fund shall have been
effectively acted upon with respect to any Fund if a majority of the outstanding
voting interests of that Fund vote for approval of the matter, notwithstanding
that: (1) the matter has not been approved by a majority of the outstanding
voting interests of any other Fund; or (2) the matter has not been approved by a
majority of the outstanding voting interests of the Trust.

OTHER INFORMATION

This Statement of Additional Information and the Prospectus for the Trust do not
contain all the information set forth in the registration statement and exhibits
relating thereto (the "Registration Statement"), which the Trust has filed with
the Commission, to which reference is hereby made.

AUDITED FINANCIAL STATEMENTS

The financial statements of the Trust appearing in the Registration Statement
have been audited by Ernst & Young, LLP, independent auditors, as set forth in
their reports thereon appearing in the registration statement, and are included
in reliance upon such reports given upon the authority of such firm as experts
in accounting and auditing.

B-26
<PAGE>

APPENDIX A -- DESCRIPTION OF MONEY MARKET SECURITIES

The following information includes a description of certain money market
instruments in which a Fund may invest to the extent consistent with its
investment objective.

Bank Money Instruments. These include instruments, such as certificates of
deposit and bankers' acceptances. Certificates of deposit are generally
short-term, interest-bearing negotiable certificates issued by commercial banks
or savings and loan associations against funds deposited in the issuing
institution. A bankers' acceptance is a time draft drawn on a commercial bank by
a borrower usually in connection with an international commercial transaction
(to finance the import, export, transfer or storage of goods). The borrower is
liable for payment as well as the bank, which unconditionally guarantees to pay
the draft at its face amount on the maturity date. Most acceptances have
maturities of six months or less and are traded in secondary markets prior to
maturity.

A Fund may not invest in any security issued by a commercial bank or a savings
and loan association unless the bank or association is organized and operating
in the United States, has total assets of at least one billion dollars and is a
member of the Federal Deposit Insurance Corporation, in the case of banks, or
the Federal Savings and Loan Insurance Corporation, in the case of savings and
loan associations provided that this limitation shall not prohibit investments
in foreign branches of banks which meet the foregoing requirements.

Government Agency Securities. These include debt securities issued by
government-sponsored enterprises, federal agencies or instrumentalities and
international institutions. Such securities are not direct obligations of the
U.S. Treasury but involve government sponsorship or guarantees. Thus the Trust
may not be able to assert a claim against the United States itself in the event
the agency or instrumentality does not meet its commitment.

U.S. Government Securities. These include marketable securities issued by the
U.S. Treasury, which consist of bills, notes and bonds. Such securities are
direct obligations of the U.S. government and differ mainly in the length of
their maturity. Treasury bills, the most frequently issued marketable government
security, have a maturity of up to one year and are issued on a discount basis.

Short-Term Corporate Debt Instruments. These include commercial paper (including
variable amount master demand notes), which refers to short-term unsecured
promissory notes issued by corporations to finance short-term credit needs.
Commercial paper is usually sold on a discount basis and has a maturity at the
time of issuance not exceeding nine months. Variable amount master demand notes
are demand obligations that permit the investment of fluctuating amounts at
varying market rates of interest pursuant to arrangements between the issuer and
a commercial bank acting as agent for the payees of such notes, whereby both
parties have the

B-27
<PAGE>

right to vary the amount of the outstanding indebtedness on the notes.

Because variable amount master notes are direct lending arrangements between the
lender and borrower, it is not generally contemplated that such instruments will
be traded and there is no secondary market for the notes. Typically, agreements
relating to such notes provide that the lender may not sell or otherwise
transfer the note without the borrower's consent. Such notes provide that the
interest rate on the amount outstanding is adjusted periodically, typically on a
daily basis in accordance with a stated short-term interest rate benchmark.
Since the interest rate of a variable amount master note is adjusted no less
often than every 60 days and since repayment of the note may be demanded at any
time, the Trust values such a note in accordance with the amortized cost basis
at the outstanding principal amount of the note. See "Determination of Net Asset
Value" on page 19.

Also included are nonconvertible corporate debt securities (e.g., bonds and
debentures) with no more than one year remaining to maturity at the date of
settlement. Corporate debt securities with a remaining maturity of less than one
year tend to become extremely liquid and are traded as money market securities.
Such issues with less than one year remaining to maturity tend to have greater
liquidity and considerably less market value fluctuations than longer term
issues.

Commercial paper investments at the time of purchase will be rated at least "A"
by Standard and Poor's or "Prime" by Moody's, or, if not rated, issued by
companies having an outstanding debt issue rated at least "A" by Standard and
Poor's or by Moody's. See "Corporate Bond Ratings" in Appendix B.

Repurchase Agreements. A repurchase agreement is an instrument under which the
purchaser (i.e., a Fund) acquires ownership of the obligation (debt security)
and the seller agrees, at the time of the sale, to repurchase the obligation at
a mutually agreed upon time and price, thereby determining the yield during the
purchaser's holding period. This results in a fixed rate of return insulated
from market fluctuations during such period. The underlying securities will
consist only of U.S. government or government agency securities, certificates of
deposit, commercial paper or bankers' acceptances.

Repurchase agreements usually are for short periods, such as under one week.
Repurchase agreements are considered to be loans under the Act, with the
security subject to repurchase, in effect, serving as "collateral" for the loan.
The Trust will require the seller to provide additional collateral if the market
value of the securities falls below the repurchase price at any time during the
term of the repurchase agreement. In the event of a default by the seller
because of bankruptcy or otherwise, the Trust may suffer time delays and incur
costs or losses in connection with the disposition of the collateral. Repurchase
agreements will be entered into with primary dealers for periods not to exceed
30 days and only with respect to

B-28
<PAGE>

underlying money market securities in which the Fund may otherwise invest.
Because a repurchase agreement maturing in more than seven days is deemed an
illiquid investment, investments in such repurchase agreements and other
illiquid assets cannot exceed 10% of the Fund's net assets.

B-29
<PAGE>

APPENDIX B -- RATINGS

DESCRIPTION OF CORPORATE BOND RATINGS

MOODY'S INVESTORS SERVICES, INC.

Aaa - Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt-
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.

Aa - Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.

A - Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.

Baa - Bonds which are rated Baa are considered as medium grade obligations i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

Ba - Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.

B - Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.

Caa - Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.

B-30
<PAGE>

Ca - Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.

C - Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.

Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a midrange ranking; and the modifier 3
indicates that the issue ranks in the lower end of its generic rating category.

STANDARD & POOR'S CORPORATION

AAA - This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.

AA - Bonds rated AA also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong, and in the majority of instances they
differ from AAA issues only in small degree.

A - Bonds rated A have a strong capacity to pay principal and interest, although
they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.

BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay principal and interest for bonds in this category
than for bonds in the A category.

BB-B-CCC-CC - Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB indicates
the lowest degree of speculation and CC the highest degree of speculation. While
such bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.

C - The rating C is reserved for income bonds on which no interest is being
paid.

D - Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.

B-31
<PAGE>

The ratings from "AA" to "B" may be modified by the addition of a plus or
minus sign to relative standing within the major rating categories.

DESCRIPTION OF COMMERCIAL PAPER RATINGS

Commercial paper rated A-1 by Standard & Poor's has the following
characteristics: Liquidity ratios are adequate to meet cash requirements. Long-
term senior debt is rated "A" or better, although in some cases "BBB" credits
may be allowed. The issuer has access to at least two additional channels of
borrowing. Basic earnings and cash flow have an upward trend with allowance made
for unusual circumstances. Typically, the issuer's industry is well established
and the issuer has a strong position within the industry. The reliability and
quality of management are unquestioned. Relative strength or weakness of the
above factors determine whether the issuer's commercial paper is rated A-1, A-2
or A-3.

The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Among the factors considered by Moody's in assigning ratings are the following:
(1) evaluation of the management of the issuer; (2) economic evaluation of the
issuer's industry or industries and an appraisal of speculative-type risks which
may be inherent in certain areas; (3) evaluation of the issuer's products in
relation to competition and customer acceptance; (4) liquidity; (5) amount and
quality of long-term debt; (6) trends of earnings over a period of ten years;
(7) financial strength of a parent company and the relationships which exist
with the issuer, and (8) recognition by the management of obligations which may
be present or may arise as a result of public interest questions and
preparations to meet such obligations.

B-32
<PAGE>

PART C OTHER INFORMATION
- ------

ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS

(a) Financial Statements*
--------------------

(b) Exhibits
--------

(1) Declaration of Trust

(2) Bylaws

(3) N/A

(4) N/A

(5)(a) Investment Advisory and Management Services Contract between
Registrant and State Farm Investment Management Corp.*

(5)(b) Investment Sub-Advisory Agreement between State Farm Investment
Management Corp. and Barclays Global Fund Advisors*

(5)(c) Service Agreement among Registrant, State Farm Investment
Management Corp., and State Farm Mutual Automobile Insurance
Company*

(6) Underwriting Agreement between Registrant and State Farm Investment
Management Corp.*

(7) N/A

(8)(a) Custodial Agreement between Registrant and [BANK OF NEW YORK]*

(8)(b) Custodial Agreement between Registrant and [BARCLAYS TRUST
COMPANY]*

(9) Form of Participation Agreement between Registrant and State Farm
Life Insurance Company Separate Accounts*

(10) Opinion and Consent of Sutherland, Asbill & Brennan, L.L.P.*

(11) (A) Consent of Sutherland, Asbill & Brennan, L.L.P.*
(B) Consent of Ernst & Young, LLP*

C-1
<PAGE>

(12) N/A

(13) Initial capital agreement*

(14) N/A

(15) N/A

(16) N/A

(17) Financial Data Schedule*

(18) N/A

__________
* To be filed by amendment.

ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT

[TO BE COMPLETED]

ITEM 26. NUMBER OF HOLDERS OF SECURITIES

Title of Class
--------------
Number of Record Holders
------------------------
Shares of Beneficial Interest
[TO BE COMPLETED]

ITEM 27. INDEMNIFICATION

As a Delaware business trust, Registrant's operations are governed by its
Declaration of Trust dated February 21, 1997 (the Declaration of Trust).
Generally, Delaware business trust shareholders are not personally liable for
obligations of the Delaware business trust under Delaware law. The Delaware
Business Trust Act (the DBTA) provides that a shareholder of a trust shall be
entitled to the same limitation of liability extended to shareholders of private
for-profit Delaware corporations. Registrant's Declaration of Trust expressly
provides that it has been organized under the DBTA and that the Declaration of
Trust is to be governed by Delaware law. It is nevertheless possible that a
Delaware business trust, such as Registrant, might become a party to an action
in another state whose courts refuse to apply Delaware law, in which case
Registrant's shareholders could be subject to personal liability.

C-2
<PAGE>

To protect Registrant's shareholders against the risk of personal
liability, the Declaration of Trust: (i) contains an express disclaimer of
shareholder liability for acts or obligations of Registrant and provides that
notice of such disclaimer may be given in each agreement, obligation and
instrument entered into or executed by Registrant or its Trustees; (ii) provides
for the indemnification out of Trust property of any shareholders held
personally liable for any obligations of Registrant or any series of Registrant;
and (iii) provides that Registrant shall, upon request, assume the defense of
any claim made against any shareholder for any act or obligation of Registrant
and satisfy any judgment thereon. Thus, the risk of a shareholder incurring
financial loss beyond his or her investment because of shareholder liability is
limited to circumstances in which all of the following factors are present: (i)
a court refuses to apply Delaware law; (ii) the liability arose under tort law
or, if not, no contractual limitation of liability was in effect; and (iii)
Registrant itself would be unable to meet its obligations. In the light of
Delaware law, the nature of Registrant's business and the nature of its assets,
the risk of personal liability to a shareholder is remote.

The Declaration of Trust further provides that Registrant shall indemnify
each of its Trustees and officers against liabilities and expenses reasonably
incurred by them, in connection with, or arising out of, any action, suit or
proceeding, threatened against or otherwise involving such Trustee or officer,
directly or indirectly, by reason of being or having been a Trustee or officer
of Registrant. The Declaration of Trust does not authorize Registrant to
indemnify any Trustee or officer against any liability to which he or she would
otherwise be subject by reason of or for willful misfeasance, bad faith, gross
negligence or reckless disregard of such person's duties.

Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to Trustees, officers and controlling persons, or
otherwise, Registrant has been advised that in the opinion of the Commission
such indemnification may be against public policy as expressed in the Act and
may be, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by Registrant of expenses
incurred or paid by a Trustee, officer or controlling person of Registrant in
the successful defense of any action, suit or proceeding) is asserted by such
Trustee, officer or controlling person in connection with the securities being
registered, Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER

[TO BE COMPLETED]

C-3
<PAGE>

ITEM 29. PRINCIPAL UNDERWRITERS

Name and Principal Positions and Offices Positions and Offices
Business Address with Underwriter with Registrant
---------------- ---------------- ---------------

[TO BE COMPLETED]

Net Underwriting Compensation on
Name of Discounts and Redemption and Brokerage Other
Principal Commissions Repurchase Commissions Compensation
Underwriter ----------- ---------- ----------- ------------
-----------

State Farm N/A N/A N/A [TO BE
Investment COMPLETED]
Management
Corp.

ITEM 30. LOCATION OF ACCOUNTS AND RECORDS

[TO BE COMPLETED]

ITEM 31. MANAGEMENT SERVICES

[TO BE COMPLETED]

ITEM 32. UNDERTAKINGS

(a) Inapplicable

(b) Inapplicable

(c) The Registrant hereby undertakes to furnish, upon request and without
charge, to each person to whom a prospectus for any Fund (other than the Money
Market Fund) is delivered a copy of the Registrant's latest annual report to
shareholders.

(d) The Registrant hereby undertakes, if requested to do so by the holders
of at least 10% of the Registrant's outstanding shares, to call a meeting of
shareholders for the purpose of voting upon any question of removal of a trustee
or trustees, and to assist in communications with other shareholders as required
by Section 16(c) of the Investment Company Act of 1940, as amended.

C-4
<PAGE>

SIGNATURES
----------

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, Registrant, State Farm Variable Product Trust,
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereto duly authorized, in the City of Bloomington and state of
Illinois, on the 21st day of February, 1997.

STATE FARM VARIABLE PRODUCT TRUST

By: /s/ Edward B. Rust, Jr.
-----------------------

Edward B. Rust, Jr.

President

Pursuant to the Securities Act of 1933, this registration statement has
been signed below by the following persons in the capacities and on the dates
indicated.

<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Edward B. Rust, Jr. Trustee, President and Chief February 21, 1997
- ------------------------- Executive Officer
Edward B. Rust, Jr. (principal executive officer)

/s/ Roger S. Joslin Trustee, Vice President, and February 21, 1997
- ------------------------- and Treasurer (principal
Roger S. Joslin financial and accounting
officer)
</TABLE>
<PAGE>

EXHIBIT INDEX
-------------

Exhibit Number Description
- -------------- -----------

(1) Declaration of Trust
(2) Bylaws

<PAGE>

DECLARATION OF TRUST

STATE FARM VARIABLE PRODUCT TRUST
<PAGE>

TABLE OF CONTENTS

<TABLE>
<S> <C>
ARTICLE 1 Name and Definitions....................................................... 1
1.1. Name....................................................................... 1
1.2. Definitions................................................................ 1

ARTICLE 2 Nature and Purpose of Trust................................................ 3
2.1. Nature of Trust............................................................ 3
2.2. Purpose of Trust........................................................... 3
2.3. Interpretation of Declaration of Trust..................................... 3
2.3.1. Governing Instrument............................................... 3
2.3.2. No Waiver of Compliance with Applicable Law........................ 3
2.3.3. Power of the Trustees Generally.................................... 3

ARTICLE 3 Registered Agent; Offices.................................................. 3
3.1. Registered Agent........................................................... 3
3.2. Offices.................................................................... 3

ARTICLE 4 Shares of Beneficial Interest.............................................. 4
4.1. Shares of Beneficial Interest.............................................. 4
4.2. Number of Authorized Shares................................................ 4
4.3. Ownership and Certification of Shares...................................... 4
4.4. Status of Shares........................................................... 4
4.4.1. Fully Paid and Non-assessable...................................... 4
4.4.2. Personal Property.................................................. 4
4.4.3. Party to Declaration of Trust...................................... 4
4.4.4. Death of Shareholder............................................... 4
4.4.5. Title to Trust; Right to Accounting................................ 5
4.5. Determination of Shareholders.............................................. 5
4.6. Shares Held by Trust....................................................... 5
4.7. Shares Held by Persons Related to Trust.................................... 5
4.8. Preemptive and Appraisal Rights............................................ 5
4.9. Series and Classes of Shares............................................... 5
4.9.1. Generally.......................................................... 5
4.9.2. Establishment and Designation...................................... 5
4.9.3. Conversion Rights.................................................. 6
4.9.4. Separate and Distinct Nature....................................... 6
4.9.5. Rights and Preferences............................................. 6
4.9.5.1. Assets and Liabilities "Belonging" to a Series........... 6
4.9.5.2. Treatment of Particular Items............................ 7
4.9.5.3. Limitation on Interseries Liabilities.................... 7
4.9.5.4. Dividends................................................ 7
4.9.5.5. Redemption by Shareholder................................ 8
</TABLE>

i
<PAGE>

<TABLE>
<S> <C>
4.9.5.6. Redemption by Trust..................................... 8
4.9.5.7. Prevention of Personal Holding Company Status........... 8
4.9.5.8. Net Asset Value......................................... 8
4.9.5.9. Maintenance of Stable Net Asset Value................... 8
4.9.5.10. Transfer of Shares...................................... 9
4.9.5.11. Equality of Shares...................................... 9
4.9.5.12. Fractional Shares....................................... 9
4.9.6. Rights and Preferences of Classes.................................. 9

ARTICLE 5 Trustees................................................................... 10
5.1. Management of the Trust.................................................... 10
5.2. Qualification.............................................................. 10
5.3. Number..................................................................... 10
5.4. Term and Election.......................................................... 11
5.5. Composition of the Board of Trustees....................................... 11
5.6. Resignation and Retirement................................................. 11
5.7. Removal.................................................................... 11
5.8. Vacancies.................................................................. 11
5.9. Ownership of Assets of the Trust........................................... 12
5.10. Powers..................................................................... 12
5.10.1. Bylaws............................................................ 12
5.10.2. Officers, Agents, and Employees................................... 12
5.10.3. Committees........................................................ 12
5.10.3.1. Generally.............................................. 12
5.10.3.2. Executive Committee.................................... 13
5.10.4. Advisers, Administrators, Depositories, and Custodians............ 13
5.10.5. Compensation...................................................... 13
5.10.6. Delegation of Authority........................................... 13
5.10.7. Suspension of Sales............................................... 13
5.11. Certain Additional Powers.................................................. 13
5.11.1. Investments....................................................... 14
5.11.2. Disposition of Assets............................................. 14
5.11.3. Ownership......................................................... 14
5.11.4. Subscription...................................................... 14
5.11.5. Payment of Expenses............................................... 14
5.11.6. Form of Holding................................................... 14
5.11.7. Reorganization, Consolidation, or Merger.......................... 14
5.11.8. Compromise........................................................ 15
5.11.9. Partnerships...................................................... 15
5.11.10. Borrowing......................................................... 15
5.11.11. Guarantees........................................................ 15
5.11.12. Insurance......................................................... 15
5.11.13. Pensions.......................................................... 15
</TABLE>

ii
<PAGE>

<TABLE>
<S> <C>
5.12. Meetings and Vote of Trustees.............................................. 16
5.12.1. Regular Meetings.................................................. 16
5.12.2. Special Meetings.................................................. 16
5.12.3. Telephonic Meetings............................................... 16
5.12.4. Quorum............................................................ 16
5.12.5. Required Vote..................................................... 16
5.12.6. Consent in Lieu of a Meeting...................................... 16

ARTICLE 6 Service Providers.......................................................... 16
6.1. Investment Adviser......................................................... 16
6.2. Underwriter and Transfer Agent............................................. 17
6.3. Custodians................................................................. 17
6.4. Administrator.............................................................. 17
6.5. Other Contracts............................................................ 17
6.6. Parties to Contracts....................................................... 17

ARTICLE 7 Shareholders' Voting Powers and Meetings................................... 18
7.1. Voting Powers.............................................................. 18
7.1.1. Matters Requiring Shareholders Action.............................. 18
7.1.2. Separate Voting by Series and Class................................ 18
7.1.3. Number of Votes.................................................... 18
7.1.4. Cumulative Voting.................................................. 19
7.1.5. Voting of Shares; Proxies.......................................... 19
7.1.6. Actions Prior to the Issuance of Shares............................ 19
7.2. Meetings of Shareholders................................................... 19
7.2.1. Annual or Regular Meetings......................................... 19
7.2.2. Special Meetings................................................... 19
7.2.3. Notice of Meetings................................................. 19
7.2.4. Call of Meetings................................................... 20
7.3. Record Dates............................................................... 20
7.4. Quorum..................................................................... 20
7.5. Required Vote.............................................................. 20
7.6. Adjournments............................................................... 20
7.7. Actions by Written Consent................................................. 20
7.8. Inspection of Records...................................................... 21
7.9. Additional Provisions...................................................... 21

ARTICLE 8 Limitation of Liability and Indemnification................................ 21
8.1. General Provisions......................................................... 21
8.1.1. General Limitation of Liability.................................... 21
8.1.2. Notice of Limited Liability........................................ 21
8.1.3. Liability Limited to Assets of the Trust........................... 21
8.2. Liability of Trustees...................................................... 22
</TABLE>

iii
<PAGE>

<TABLE>
<S> <C>
8.2.1. Liability for Own Actions.......................................... 22
8.2.2. Liability for Actions of Others.................................... 22
8.2.3. Advice of Experts and Reports of Others............................ 22
8.2.4. Bond............................................................... 22
8.2.5. Declaration of Trust Governs Issues of Liability................... 22
8.3. Liability of Third Persons Dealing with Trustees........................... 22
8.4. Liability of Shareholders.................................................. 23
8.4.1. Limitation of Liability............................................ 23
8.4.2. Indemnification of Shareholders.................................... 23
8.5. Indemnification............................................................ 23
8.5.1. Indemnification of Covered Persons................................. 23
8.5.2. Exceptions......................................................... 23
8.5.3. Rights of Indemnification.......................................... 24
8.5.4. Expenses of Indemnification........................................ 24
8.5.5. Certain Defined Terms Relating to Indemnification.................. 25

ARTICLE 9 Termination or Reorganization.............................................. 25
9.1. Termination of Trust or Series............................................. 25
9.1.1. Termination........................................................ 25
9.1.2. Distribution of Assets............................................. 25
9.1.3. Certificate of Cancellation........................................ 26
9.2. Reorganization............................................................. 26
9.3. Merger or Consolidation.................................................... 26
9.3.1. Authority to Merge or Consolidate.................................. 26
9.3.2. No Shareholder Approval Required................................... 26
9.3.3. Subsequent Amendments.............................................. 27
9.3.4. Certificate of Merger or Consolidation............................. 27

ARTICLE 10 Amendments................................................................. 27
10.1. Generally.................................................................. 27
10.2. Certificate of Amendment................................................... 27
10.3. Prohibited Retrospective Amendments........................................ 27

ARTICLE 11 Miscellaneous Provisions................................................... 27
11.1. Certified Copies........................................................... 27
11.2. Certain Internal References................................................ 27
11.3. Headings................................................................... 28
11.4. Resolution of Ambiguities.................................................. 28
11.5. Signatures................................................................. 28
11.6. Governing Law.............................................................. 28
11.7. Severability............................................................... 28
</TABLE>

iv
<PAGE>

DECLARATION OF TRUST
OF
STATE FARM VARIABLE PRODUCT TRUST

This DECLARATION OF TRUST is made as of this day, February 21, 1997 by the
Trustees hereunder.

WHEREAS, the Trustees desire to establish a trust for the purpose of
carrying on the business of an open-end management investment company; and

WHEREAS, in furtherance of such purpose, the Trustees and any successor
Trustees elected in accordance with Article 5 hereof are acquiring and may
hereafter acquire assets which they will hold and manage as trustees of a
Delaware business trust in accordance with the provisions hereinafter set forth;
and

WHEREAS, this Trust is authorized to issue its shares of beneficial
interest in one or more separate series and classes of series, all in accordance
with the provisions set forth in this Declaration of Trust;

NOW, THEREFORE, the Trustees hereby declare that they will hold in trust
all cash, securities, and other assets which they may from time to time acquire
in any manner as Trustees hereunder, and that they will manage and dispose of
the same upon the following terms and conditions for the benefit of the holders
of shares of beneficial interest in this Trust as hereinafter set forth.

ARTICLE 1
NAME AND DEFINITIONS

SECTION 1.1. NAME. This Trust shall be known as the "State Farm Variable
Product Trust" and the Trustees shall conduct the business of the Trust under
that name or any other name or names as they may from time to time determine.
The Trust acknowledges that it has adopted its name through permission of State
Farm Mutual Automobile Insurance Company, an Illinois mutual insurance company
("State Farm Mutual"), and acknowledges that State Farm Mutual has the sole and
exclusive right to use or license the use of the name "State Farm" in commerce.
The Trust agrees that at the request of State Farm Mutual the Trust shall take
all requisite action to amend this Declaration of Trust to eliminate the name
"State Farm" from the Trust's name and from the designations of its shares of
beneficial interest. The Trust further acknowledges that State Farm Mutual
reserves the right to grant the non-exclusive right to use the name "State Farm"
to any other corporation, trust, partnership, or other person, including other
investment companies, whether now in existence or hereafter created.

SECTION 1.2. DEFINITIONS. Whenever used herein, unless otherwise
required by the context or specifically provided below:
<PAGE>

(a) The "Trust" shall mean the Delaware business trust established by this
Declaration of Trust, as amended from time to time;

(b) "Trustee" and "Trustees" shall mean each signatory to this Declaration
of Trust so long as such signatory shall continue in office in accordance with
the terms hereof, and all other individuals who at the time in question have
been duly elected or appointed and qualified in accordance with Article 5
hereof and are then in office;

(c) "Shares" shall mean the shares of beneficial interest in the Trust
described in Article 4 hereof and shall include fractional and whole Shares;

(d) "Shareholder" shall mean a beneficial owner of Shares, except that
with regard to Shares owned by insurance company separate accounts or trusts
established in connection with employee benefit plans, "Shareholder" shall mean
the separate account or trust;

(e) The "1940 Act" refers to the Investment Company Act of 1940 (and any
successor statute) and the rules and regulations thereunder, all as amended from
time to time;

(f) "Person," "Interested Person," and "Principal Underwriter" shall have
the meanings given them in the 1940 Act;

(g) "Commission" shall mean the United States Securities and Exchange
Commission (or any successor agency thereto);

(h) "Declaration of Trust" or "Declaration" shall mean this Declaration of
Trust as amended or restated from time to time;

(i) "By-Laws" shall mean the By-Laws of the Trust as amended from time to
time;

(j) "Series" shall mean any of the separate series of Shares established
and designated under or in accordance with the provisions of Article 4 and to
which the Trustees have allocated assets and liabilities of the Trust in
accordance with Article 4;

(k) The "DBTA" refers to the Delaware Business Trust Act, Chapter 38 of
Title 12 of the Delaware Code (and any successor statute), as amended from time
to time; and

(l) The "Code" refers to the Internal Revenue Code of 1986 (and any
successor statute) and the rules and regulations thereunder, all as amended from
time to time.

2
<PAGE>

ARTICLE 2
NATURE AND PURPOSE OF TRUST

SECTION 2.1. NATURE OF TRUST. The Trust is a business trust of the type
referred to in the DBTA. The Trustees shall file a certificate of trust in
accordance with Section 3810 of the DBTA. The Trust is not intended to be,
shall not be deemed to be, and shall not be treated as, a general or a limited
partnership, joint venture, corporation or joint stock company, nor shall the
Trustees or Shareholders or any of them for any purpose be deemed to be, or be
treated in any way whatsoever as though they were, liable or responsible
hereunder as partners or joint venturers.

SECTION 2.2. PURPOSE OF TRUST. The purpose of the Trust is to engage in,
operate and carry on the business of an open-end management investment company
and to do any and all acts or things as are necessary, convenient, appropriate,
incidental or customary in connection therewith.

SECTION 2.3. INTERPRETATION OF DECLARATION OF TRUST.

SECTION 2.3.1. GOVERNING INSTRUMENT. This Declaration of Trust
shall be the governing instrument of the Trust and shall be governed by and
construed according to the laws of the State of Delaware.

SECTION 2.3.2. NO WAIVER OF COMPLIANCE WITH APPLICABLE LAW. No
provision of this Declaration shall be effective to require a waiver of
compliance with any provision of the Securities Act of 1933, as amended, or the
1940 Act, or of any valid rule, regulation or order of the Commission
thereunder.

SECTION 2.3.3. POWER OF THE TRUSTEES GENERALLY. Except as otherwise
set forth herein, the Trustees may exercise all powers of trustees under the
DBTA on behalf of the Trust.

ARTICLE 3
REGISTERED AGENT; OFFICES

SECTION 3.1. REGISTERED AGENT. The name of the registered agent of the
Trust is Corporation Service Company and the registered agent's business address
in Delaware is 1013 Centre Road, Wilmington, Delaware 19805.

SECTION 3.2. OFFICES. The Trust shall maintain an office within the
State of Delaware which shall be identical to the business office of the
Registered Agent of the Trust as set forth in Section 3.1. The Trustees may, at
any time, establish branch or subordinate offices at any place or places where
the Trust intends to do business.

3
<PAGE>

ARTICLE 4
SHARES OF BENEFICIAL INTEREST

SECTION 4.1. SHARES OF BENEFICIAL INTEREST. The beneficial interests in
the Trust shall be divided into Shares, all without par value. The Trustees
shall have the authority from time to time to divide the Shares into two (2) or
more separate and distinct series of Shares ("Series") as provided in Section
4.9 of this Article 4, and to divide each such Series of Shares into two (2) or
more classes of Shares ("Classes").

SECTION 4.2. NUMBER OF AUTHORIZED SHARES. The Trustees are authorized to
issue an unlimited number of Shares. The Trustees may issue Shares for such
consideration and on such terms as they may determine (or for no consideration
if pursuant to a Share dividend or split), all without action or approval of the
Shareholders.

SECTION 4.3. OWNERSHIP AND CERTIFICATION OF SHARES. The Secretary of the
Trust, or the Trust's transfer or similar agent, shall record the ownership and
transfer of Shares of each Series and Class separately on the record books of
the Trust. The record books of the Trust, as kept by the Secretary of the Trust
or any transfer or similar agent, shall contain the name and address of and the
number of Shares held by each Shareholder, and such record books shall be
conclusive as to who are the holders of Shares and as to the number of Shares
held from time to time by such Shareholders. No certificates certifying the
ownership of Shares shall be issued except as the Trustees may otherwise
determine from time to time. The Trustees may make such rules as they consider
appropriate for the issuance of share certificates, transfer of Shares, and
similar matters for the Trust or any Series.

SECTION 4.4. STATUS OF SHARES.

SECTION 4.4.1. FULLY PAID AND NON-ASSESSABLE. All Shares when
issued on the terms determined by the Trustees shall be fully paid and non-
assessable.

SECTION 4.4.2. PERSONAL PROPERTY. Shares shall be deemed to be
personal property giving only the rights provided in this Declaration of Trust.

SECTION 4.4.3. PARTY TO DECLARATION OF TRUST. Every Person by
virtue of having become registered as a Shareholder shall be held to have
expressly assented and agreed to the terms of this Declaration of Trust and to
have become a party thereto.

SECTION 4.4.4. DEATH OF SHAREHOLDER. The death of a Shareholder
during the continuance of the Trust shall not operate to terminate the Trust nor
entitle the representative of any deceased Shareholder to an accounting or to
take any action in court or elsewhere against the Trust or the Trustees. The
representative shall be entitled to the same rights as the decedent under this
Trust.

4
<PAGE>

SECTION 4.4.5. TITLE TO TRUST; RIGHT TO ACCOUNTING. Ownership of
Shares shall not entitle the Shareholder to any title in or to the whole or any
part of the Trust property or right to call for a partition or division of the
same or for an accounting.

SECTION 4.5. DETERMINATION OF SHAREHOLDERS. The Trustees may from time
to time close the transfer books or establish record dates and times for the
purposes of determining the Shareholders entitled to be treated as such, to the
extent provided or referred to in Section 7.3.

SECTION 4.6. SHARES HELD BY TRUST. The Trustees may hold as treasury
shares, reissue for such consideration and on such terms as they may determine,
or cancel, at their discretion from time to time, any Shares of any Series or
Class reacquired by the Trust.

SECTION 4.7. SHARES HELD BY PERSONS RELATED TO TRUST. Any Trustee,
officer or other agent of the Trust, and any organization in which any such
person is interested may acquire, own, hold and dispose of Shares to the same
extent as if such person were not a Trustee, officer or other agent of the
Trust; and the Trust may issue and sell or cause to be issued and sold and may
purchase Shares from any such person or any such organization subject only to
the general limitations, restrictions or other provisions applicable to the sale
or purchase of such Shares generally.

SECTION 4.8. PREEMPTIVE AND APPRAISAL RIGHTS. Shareholders shall not, as
Shareholders, have any right to acquire, purchase or subscribe for any Shares or
other securities of the Trust which it may hereafter issue or sell, other than
such right, if any, as the Trustees in their discretion may determine.
Shareholders shall have no appraisal rights with respect to their Shares and,
except as otherwise determined by resolution of the Trustees in their sole
discretion, shall have no exchange or conversion rights with respect to their
Shares. No action may be brought by a Shareholder on behalf of the Trust unless
Shareholders owning no less than a majority of the then outstanding Shares, or
Series or Class thereof, join in the bringing of such action. A Shareholder
shall not be entitled to participate in a derivative or class action lawsuit on
behalf of any other Series or any other Class or on behalf of the Shareholders
in any other Series or any other Class of the Trust than the Series or Class of
Shares owned by such Shareholder.

SECTION 4.9. SERIES AND CLASSES OF SHARES.

SECTION 4.9.1. GENERALLY. In addition to the Series and Class
established and designated in Section 4.9.2, the Shares of the Trust shall be
divided into one or more separate and distinct Series or Classes of a Series as
the Trustees shall from time to time establish and designate.

SECTION 4.9.2. ESTABLISHMENT AND DESIGNATION. The Trustees shall
have exclusive power without the requirement of Shareholder approval to
establish and designate separate and distinct Series of Shares and with respect
to any Series of Shares, to establish and

5
<PAGE>

designate separate and distinct Classes of Shares. The establishment and
designation of any Series (in addition to those established and designated in
this Section below) or Class shall be effective upon the execution by a majority
of the Trustees of an instrument setting forth such establishment and
designation and the relative rights and preferences of the Shares of such Series
or Class, or as otherwise provided in such instrument. Each such instrument
shall have the status of an amendment to this Declaration of Trust. Without
limiting the authority of the Trustees to establish and designate any further
Series or Classes, the Trustees hereby establish and designate the following six
initial Series, the shares of which shall all be of one Class: Money Market
Fund, Large Cap Equity Index Fund, Small Cap Equity Index Fund, International
Equity Index Fund, Bond Fund, and Stock and Bond Balanced Fund.

SECTION 4.9.3. CONVERSION RIGHTS. Subject to compliance with the
requirements of the 1940 Act, the Trustees shall have the authority to provide
that holders of Shares of any Series or Class within a Series shall have the
right to convert such Shares into Shares of one or more other Series or Classes
in accordance with such requirements and procedures as may be established by the
Trustees.

SECTION 4.9.4. SEPARATE AND DISTINCT NATURE. Each Series, including
without limitation Series specifically established in Section 4.9.2, shall be
separate and distinct from any other Series and shall maintain separate and
distinct records on the books of the Trust, and the assets belonging to any such
Series shall be held and accounted for separately from the assets of the Trust
or any other Series.

SECTION 4.9.5. RIGHTS AND PREFERENCES OF SERIES. The Trustees shall
have exclusive power without the requirement of Shareholder approval to fix and
determine the relative rights and preferences as between the Shares of the
separate Series. The initial Series and any further Series that may from time
to time be established and designated by the Trustees shall (unless the Trustees
otherwise determine with respect to some further Series at the time of
establishing and designating the same) have relative rights and preferences as
set forth in this Section 4.9.5.

SECTION 4.9.5.1. ASSETS AND LIABILITIES "BELONGING" TO A SERIES.
All consideration received by the Trust for the issue or sale of Shares of a
particular Series, together with all assets in which such consideration is
invested or reinvested, all income, earnings, profits, and proceeds thereof,
including any proceeds derived from the sale, exchange or liquidation of such
assets, and any funds or payments derived from any reinvestment of such proceeds
in whatever form the same may be, shall be held and accounted for separately
from the other assets of the Trust and of every other Series and may be referred
to herein as "assets belonging to" that Series. The assets belonging to a
particular Series shall belong to that Series for all purposes, and to no other
Series, subject only to the rights of creditors of that Series. Such
consideration, assets, income, earnings, profits, and proceeds thereof,
including any proceeds derived from the sale, exchange or liquidation of such
assets, and any funds or payments which are not readily identifiable as
belonging to any particular

6
<PAGE>

Series (collectively "General Items"), the Trustees shall allocate to and among
any one or more of the Series in such manner and on such basis as they, in their
sole discretion, deem fair and equitable. Any General Items so allocated to a
particular Series shall belong to that Series. Each such allocation by the
Trustees shall be conclusive and binding upon all Shareholders for all purposes.
The assets belonging to each particular Series shall be charged with the
liabilities in respect of that Series and all expenses, costs, charges and
reserves attributable to that Series, and any general liabilities, expenses,
costs, charges or reserves of the Trust which are not readily identifiable as
belonging to any particular Series shall be allocated and charged by the
Trustees to and among any one or more of the Series established and designated
from time to time in such manner and on such basis as the Trustees in their sole
discretion deem fair and equitable. Each allocation of liabilities, expenses,
costs, charges and reserves by the Trustees shall be conclusive and binding upon
all Shareholders for all purposes.

SECTION 4.9.5.2. TREATMENT OF PARTICULAR ITEMS. The Trustees shall
have full discretion, to the extent consistent with the 1940 Act and consistent
with generally accepted accounting principles, to determine which items shall be
treated as income and which items as capital; and each such determination and
allocation shall be conclusive and binding upon the Shareholders.

SECTION 4.9.5.3. LIMITATION ON INTERSERIES LIABILITIES. Subject to
the right of the Trustees in their discretion to allocate general liabilities,
expenses, costs, charges or reserves as provided in Section 4.9.5.1, the debts,
liabilities, obligations and expenses incurred, contracted for or otherwise
existing with respect to a particular Series shall be enforceable against the
assets of such Series only, and not against the assets of any other Series.
Notice of this limitation on liabilities between and among Series shall be set
forth in the certificate of trust of the Trust (whether originally or by
amendment) as filed or to be filed in the Office of the Secretary of State of
the State of Delaware pursuant to the DBTA, and upon the giving of such notice
in the certificate of trust, the statutory provisions of Section 3804 of the
DBTA relating to limitations on liabilities between and among series (and the
statutory effect under Section 3804 of setting forth such notice in the
certificate of trust) shall become applicable to the Trust and each Series.

SECTION 4.9.5.4. DIVIDENDS. Dividends and capital gains
distributions on Shares of a particular Series may be paid with such frequency,
in such form, and in such amount as the Trustees may determine by resolution
adopted from time to time, or pursuant to a standing resolution or resolutions
adopted only once or with such frequency as the Trustees may determine. All
dividends and distributions on Shares of a particular Series shall be
distributed pro rata to the holders of Shares of that Series in proportion to
the number of Shares of that Series held by such holders at the date and time of
record established for the payment of such dividends or distributions. Such
dividends and distributions may be paid in cash, property or additional Shares
of that Series, or a combination thereof, as determined by the Trustees or
pursuant to any program that the Trustees may have in effect at the time for the

7
<PAGE>

election by each Shareholder of the form in which dividends or distributions are
to be paid to that Shareholder. Any such dividend or distribution paid in Shares
shall be paid at the net asset value thereof as determined in accordance with
Section 4.9.5.8.

SECTION 4.9.5.5. REDEMPTION BY SHAREHOLDER. Each Shareholder shall
have the right at such times as may be permitted by the Trust and as otherwise
required by the 1940 Act to require the Trust to redeem all or any part of such
Shareholder's Shares of a Series at a redemption price per Share equal to the
net asset value per Share of such Series next determined in accordance with
Section 4.9.5.8 after the Shares are properly tendered for redemption, less such
redemption fee (not to exceed 1.0% of the net asset value of the Shares
redeemed), if any, as may be established by the Trustees in its sole discretion.
Payment of the redemption price shall be in cash; provided, however, that the
Trust may, subject to the requirements of the 1940 Act, make payment wholly or
partly in securities or other assets belonging to the Series of which the Shares
being redeemed are part at the value of such securities or assets used in such
determination of net asset value. Notwithstanding the foregoing, the Trust may
postpone payment of the redemption price and may suspend the right of the
holders of Shares of any Series to require the Trust to redeem Shares of that
Series during any period or at any time when and to the extent permissible under
any applicable provision of the 1940 Act.

SECTION 4.9.5.6. REDEMPTION BY TRUST. The Trustees may cause the
Trust to redeem at net asset value the Shares of any Series held by a
Shareholder upon such conditions as may from time to time be determined by the
Trustees. Upon redemption of Shares pursuant to this Section 4.9.5.6, the Trust
shall promptly cause payment of the full redemption price to be made to such
Shareholder for Shares so redeemed.

SECTION 4.9.5.7. PREVENTION OF PERSONAL HOLDING COMPANY STATUS. The
Trust may reject any purchase order, refuse to transfer any Shares, and compel
the redemption of Shares if, in its opinion, any such rejection, refusal, or
redemption would prevent the Trust from becoming a personal holding company as
defined by the Code.

SECTION 4.9.5.8. NET ASSET VALUE. The net asset value per Share of
any Series shall be determined in accordance with the methods and procedures
established by the Trustees from time to time and, to the extent required by
applicable law, as disclosed in the then current prospectus or statement of
additional information for the Series.

SECTION 4.9.5.9. MAINTENANCE OF STABLE NET ASSET VALUE. The
Trustees may determine to maintain the net asset value per Share of any Series
at a designated constant dollar amount and in connection therewith may adopt
procedures not inconsistent with the 1940 Act for the continuing declarations of
income attributable to that Series as dividends payable in additional Shares of
that Series at the designated constant dollar amount and for the handling of any
losses attributable to that Series. Such procedures may provide that in the
event of any loss each Shareholder shall be deemed to have contributed to the
capital of the
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Trust attributable to that Series his or her pro rata portion of
the total number of Shares required to be canceled in order to permit the net
asset value per Share of that Series to be maintained, after reflecting such
loss, at the designated constant dollar amount. Each Shareholder of the Trust
shall be deemed to have agreed, by his investment in any Series with respect to
which the Trustees shall have adopted any such procedure, to make the
contribution referred to in the preceding sentence in the event of any such
loss. The Trustees may delegate any of their powers and duties under this
Section 4.9.5.9 with respect to appraisal of assets and liabilities in the
determination of net asset value or with respect to a suspension of the
determination of net asset value to an officer or officers or agent or agents of
the Trust designated from time to time by the Trustees.

SECTION 4.9.5.10. TRANSFER OF SHARES. Except to the extent that
transferability is limited by applicable law or such procedures as may be
developed from time to time by the Trustees or the appropriate officers of the
Trust, Shares shall be transferable on the records of the Trust only by the
record holder thereof or by his agent thereunto duly authorized in writing, upon
delivery to the Trustees or the Trust's transfer agent of a duly executed
instrument of transfer, together with a Share certificate, if one is
outstanding, and such evidence of the genuineness of each such execution and
authorization and of such other matters as may be required by the Trustees.
Upon such delivery the transfer shall be recorded on the register of the Trust.

SECTION 4.9.5.11. EQUALITY OF SHARES. All Shares of each particular
Series shall represent an equal proportionate interest in the assets belonging
to that Series (subject to the liabilities belonging to that Series), and each
Share of any particular Series shall be equal in this respect to each other
Share of that Series. This Section 4.9.5.11 shall not restrict any distinctions
otherwise permissible under this Declaration of Trust with respect to any
Classes within a Series.

SECTION 4.9.5.12. FRACTIONAL SHARES. Any fractional Share of any
Series, if any such fractional Share is outstanding, shall carry proportionately
all the rights and obligations of a whole Share of that Series, including rights
and obligations with respect to voting, receipt of dividends and distributions,
redemption of Shares, and liquidation of the Trust or any Series.

SECTION 4.9.6. RIGHTS AND PREFERENCES OF CLASSES. The Trustees shall
have exclusive power without the requirement of Shareholder approval to fix and
determine the relative rights and preferences as between the separate Classes
within any Series. The initial Class and any further Classes that may from time
to time be established and designated by the Trustees shall (unless the Trustees
otherwise determine with respect to some further Class at the time of
establishing and designating the same) have relative rights and preferences as
set forth in this Section 4.9.6. If a Series is divided into multiple Classes,
the Classes may be invested with one or more other Classes in the common
investment portfolio comprising the Series. Notwithstanding the provisions of
Section 4.9.5, if two or more Classes are invested

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in a common investment portfolio, the shares of each such Class shall be subject
to the following preferences, conversion and other rights, voting powers,
restrictions, conditions of redemption, and, if there are other Classes invested
in a different investment portfolio comprising a different Series, shall also be
subject to the provisions of Section 4.9.5 at the Series level as if the Classes
invested in the common investment portfolio were one Class:

(a) The income and expenses of the Series shall be allocated among the
Classes comprising the Series in such manner as may be determined by the
Trustees in accordance with applicable law;

(b) As more fully set forth in this Section 4.9.6, the liabilities and
expenses of the Classes comprising the Series shall be determined separately
from those of each other and, accordingly, the net asset values, the dividends
and distributions payable to Shareholders, and the amounts distributable in the
event of liquidation of the Trust or termination of a Series to Shareholders may
vary within the classes comprising the Series. Except for these differences and
certain other differences set forth in this Section 4.9.6 or elsewhere in this
Declaration of Trust, the Classes comprising a Series shall have the same
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption.

(c) The dividends and distributions of investment income and capital gains
with respect to the Classes comprising a Series shall be in such amounts as may
be declared from time to time by the Trustees, and such dividends and
distributions may vary among the Classes comprising the Series to reflect
differing allocations of the expenses and liabilities of the Trust among the
Classes and any resultant differences between the net asset values per Share of
the Classes, to such extent and for such purposes as the Trustees may deem
appropriate. The allocation of investment income, capital gains, expenses, and
liabilities of the Trust among the Classes comprising a Series shall be
determined by the Trustees in a manner that is consistent with applicable law.

ARTICLE 5
TRUSTEES

SECTION 5.1. MANAGEMENT OF THE TRUST. The business and affairs of the
Trust shall be managed by the Trustees, and they shall have all powers necessary
and desirable to carry out that responsibility, including those specifically set
forth in Sections 5.10 and 5.11 herein.

SECTION 5.2. QUALIFICATION. Each Trustee shall be a natural person. A
Trustee need not be a Shareholder, a citizen of the United States, or a resident
of the State of Delaware.

SECTION 5.3. NUMBER. The number of Trustees which shall constitute the
entire Board of Trustees shall be not less than three (3) nor more than fifteen
(15), which number may be

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<PAGE>

increased or decreased by the Trustees, but shall never be less than the minimum
number permitted by the DBTA. No decrease in the number of Trustees shall have
the effect of removing any Trustee from office prior to the expiration of his or
her term, but the number of Trustees may be decreased in conjunction with the
removal of a Trustee pursuant to Section 5.7.

SECTION 5.4. TERM AND ELECTION. Each Trustee shall hold office until the
next meeting of Shareholders called for the purpose of considering the election
or re-election of such Trustee or of a successor to such Trustee, and until his
or her successor is elected and qualified, and any Trustee who is appointed by
the Trustees in the interim to fill a vacancy as provided hereunder shall have
the same remaining term as that of his or her predecessor, if any, or such term
as the Trustees may determine.

SECTION 5.5. COMPOSITION OF THE BOARD OF TRUSTEES. No election or
appointment of any Trustee shall take effect if such election or appointment
would cause the number of Trustees who are Interested Persons to exceed the
number permitted by Section 10 of the 1940 Act.

SECTION 5.6. RESIGNATION AND RETIREMENT. Any Trustee may resign or
retire as a Trustee (without need for prior or subsequent accounting) by an
instrument in writing signed by such Trustee and delivered or mailed to the
Chairman, if any, the President, or the Secretary of the Trust. Such
resignation or retirement shall be effective upon such delivery, or at a later
date according to the terms of the instrument.

SECTION 5.7. REMOVAL. Any Trustee may be removed with or without cause
at any time: (1) by written instrument signed by two-thirds (2/3) of the number
of Trustees in office prior to such removal, specifying the date upon which such
removal shall become effective, or (2) by the affirmative vote of Shareholders
holding not less than two-thirds (2/3) of Shares outstanding, cast in person or
by proxy at any meeting called for that purpose.

SECTION 5.8. VACANCIES. Any vacancy or anticipated vacancy resulting for
any reason, including without limitation the death, resignation, retirement,
removal, or incapacity of any of the Trustees, or resulting from an increase in
the number of Trustees may (but need not unless required by the 1940 Act) be
filled by a majority of the Trustees then in office, subject to the provisions
of Section 16 of the 1940 Act, through the appointment in writing of such other
person as such remaining Trustees in their discretion shall determine. The
appointment shall be effective upon the written acceptance of the person named
therein to serve as a trustee and agreement by such person to be bound by the
provisions of this Declaration of Trust, except that any such appointment in
anticipation of a vacancy occurring by reason of the resignation, retirement, or
increase in number of Trustees to be effective at a later date shall become
effective only at or after the effective date of such resignation, retirement,
or increase in number of Trustees.

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SECTION 5.9. OWNERSHIP OF ASSETS OF THE TRUST. The assets of the Trust
shall be held separate and apart from any assets now or hereafter held in any
capacity other than as Trustee hereunder by the Trustees or any successor
Trustees. Legal title to all the Trust property shall be vested in the Trust as
a separate legal entity under the DBTA, except that the Trustees shall have the
power to cause legal title to any Trust property to be held by or in the name of
one or more of the Trustees or in the name of any other Person on behalf of the
Trust on such terms as the Trustees may determine. In the event that title to
any part of the Trust property is vested in one or more Trustees, the right,
title and interest of the Trustees in the Trust property shall vest
automatically in each person who may hereafter become a Trustee upon his or her
due election and qualification. Upon the resignation, removal or death of a
Trustee he or she shall automatically cease to have any right, title or interest
in any of the Trust property, and the right, title and interest of such Trustee
in the Trust property shall vest automatically in the remaining Trustees. To
the extent permitted by law, such vesting and cessation of title shall be
effective whether or not conveyancing documents have been executed and
delivered. No Shareholder shall be deemed to have a severable ownership in any
individual asset of the Trust or any right of partition or possession thereof.

SECTION 5.10. POWERS. Subject to the provisions of this Declaration of
Trust, the business of the Trust shall be managed by the Trustees, and they
shall have all powers necessary or convenient to carry out that responsibility
and the purpose of the Trust including, but not limited to, those enumerated in
this Section 5.10.

SECTION 5.10.1 BYLAWS. The Trustees may adopt By-Laws not
inconsistent with this Declaration of Trust providing for the conduct of the
business and affairs of the Trust and may amend and repeal them to the extent
that such By-Laws do not reserve that right to the Shareholders.

SECTION 5.10.2 OFFICERS, AGENTS, AND EMPLOYEES. The Trustees may,
as they consider appropriate, elect and remove officers and appoint and
terminate agents and consultants and hire and terminate employees, any one or
more of the foregoing of whom may be a Trustee, and may provide for the
compensation of all of the foregoing.

SECTION 5.10.3 COMMITTEES.

SECTION 5.10.3.1 GENERALLY. The Trustees, by vote of a
majority of the Trustees then in office, may elect from their number an Audit
Committee, Executive Committee, Nominating Committee, or any other committee,
and may delegate thereto some or all of their powers except those which by law,
by this Declaration of Trust, or by the Bylaws may not be delegated. Except as
the Trustees may otherwise determine, any such committee may make rules for the
conduct of its business, but unless otherwise provided by the Trustees or in
such rules, its business shall be conducted so far as possible in the same
manner as is provided by this Declaration of Trust or the Bylaws of the Trust
for the Trustees themselves. All members of such committees shall hold such
offices at the pleasure of the

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<PAGE>

Trustees. The Trustees may abolish any committee at any time. Any committee to
which the Trustees delegate any of their powers or duties shall keep records of
its meetings and shall report its actions to the Trustees. The Trustees shall
have power to rescind any action of any committee, but no such rescission shall
have retroactive effect.

SECTION 5.10.3.2. EXECUTIVE COMMITTEE. The Executive
Committee, if there shall be one, shall have all of the powers and authority of
the Trustees that may lawfully be exercised by an executive committee, except
the power to: (i) declare dividends or distributions on Shares; (ii) issue
Shares; (iii) recommend to the Shareholders any action which requires the
Shareholders' approval; or (iv) approve any merger, reorganization, or share
exchange which does not require Shareholder approval. Notwithstanding the
foregoing, the Trustees may limit the powers and authority of the Executive
Committee at any
time.

SECTION 5.10.4. ADVISERS, ADMINISTRATORS, DEPOSITORIES, AND
CUSTODIANS. The Trustees may, in accordance with Article 6, employ one or more
advisers, administrators, depositories, custodians, and other persons and may
authorize any depository or custodian to employ subcustodians or agents and to
deposit all or any part of such assets in a system or systems for the central
handling of securities and debt instruments, retain transfer, dividend,
accounting or Shareholder servicing agents or any of the foregoing, provide for
the distribution of Shares by the Trust through one or more distributors,
principal underwriters or otherwise, and set record dates or times for the
determination of Shareholders.

SECTION 5.10.5. COMPENSATION. The Trustees may compensate or
provide for the compensation of the Trustees, officers, advisers,
administrators, custodians, other agents, consultants and employees of the Trust
or the Trustees on such terms as they deem appropriate.

SECTION 5.10.6. DELEGATION OF AUTHORITY. In general, the Trustees
may delegate to any officer of the Trust, to any committee of the Trustees and
to any employee, adviser, administrator, distributor, depository, custodian,
transfer and dividend disbursing agent, or any other agent or consultant of the
Trust such authority, powers, functions and duties as they consider desirable or
appropriate for the conduct of the business and affairs of the Trust, including
without implied limitation, the power and authority to act in the name of the
Trust and of the Trustees, to sign documents and to act as attorney-in-fact for
the Trustees.

SECTION 5.10.7. SUSPENSION OF SALES. The Trustees shall have the
authority to suspend or terminate the sales of Shares of any Series or Class at
any time or for such periods as the Trustees may from time to time decide.

SECTION 5.11. CERTAIN ADDITIONAL POWERS. Without limiting the foregoing
and to the extent not inconsistent with the 1940 Act, other applicable law, and
the fundamental policies and limitations of the applicable Series or Class, the
Trustees shall have power and authority

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<PAGE>

for and on behalf of the Trust and each separate Series or Class as enumerated
in this Section 5.11.

SECTION 5.11.1. INVESTMENTS. The Trustees shall have the power to
invest and reinvest cash and other property, and to hold cash or other property
uninvested without in any event being bound or limited by any present or future
law or custom in regard to investments by trustees.

SECTION 5.11.2. DISPOSITION OF ASSETS. The Trustees shall have the
power to sell, exchange, lend, pledge, mortgage, hypothecate, write options on
and lease any or all of the assets of the Trust.

SECTION 5.11.3. OWNERSHIP. The Trustees shall have the power to
vote, give assent, or exercise any rights of ownership with respect to
securities or other property; and to execute and deliver proxies or powers of
attorney to such person or persons as the Trustees shall deem proper, granting
to such person or persons such power and discretion with relation to securities
or other property as the Trustees shall deem proper.

SECTION 5.11.4. SUBSCRIPTION. The Trustees shall have the power to
exercise powers and rights of subscription or otherwise which in any manner
arise out of ownership of securities.

SECTION 5.11.5. PAYMENT OF EXPENSES. The Trustees shall have the
power to pay or cause to be paid all expenses, fees, charges, taxes and
liabilities incurred or arising in connection with the Trust or any Series or
Class thereof, or in connection with the management thereof, including, but not
limited to, the Trustees' compensation and such expenses and charges for the
Trust's officers, employees, investment advisers, administrator, distributor,
principal underwriter, auditor, counsel, depository, custodian, transfer agent,
dividend disbursing agent, accounting agent, shareholder servicing agent, and
such other agents, consultants, and independent contractors and such other
expenses and charges as the Trustees may deem necessary or proper to incur.

SECTION 5.11.6. FORM OF HOLDING. The Trustees shall have the power
to hold any securities or other property in a form not indicating any trust,
whether in bearer, unregistered or other negotiable form, or in the name of the
Trustees or of the Trust or of any Series or in the name of a custodian,
subcustodian or other depositary or a nominee or nominees or otherwise.

SECTION 5.11.7. REORGANIZATION, CONSOLIDATION, OR MERGER. The
Trustees shall have the power to consent to or participate in any plan for the
reorganization, consolidation or merger of any corporation or issuer, any
security of which is or was held in the Trust, and to consent to any contract,
lease, mortgage, purchase or sale of property by

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<PAGE>

such corporation or issuer, and to pay calls or subscriptions with respect to
any security held in the Trust.

SECTION 5.11.8. COMPROMISE. The Trustees shall have the power to
arbitrate or otherwise adjust claims in favor of or against the Trust, any
Series, or Class on any matter in controversy, including but not limited to
claims for taxes.

SECTION 5.11.9. PARTNERSHIPS. The Trustees shall have the power to
enter into joint ventures, general or limited partnerships and any other
combinations or associations.

SECTION 5.11.10. BORROWING. The Trustees shall have the power to
borrow funds and to mortgage and pledge the assets of the Trust or any Series or
any part thereof to secure obligations arising in connection with such
borrowing, consistent with the provisions of the 1940 Act.

SECTION 5.11.11. GUARANTEES. The Trustees shall have the power to
endorse or guarantee the payment of any notes or other obligations of any
person; to make contracts of guaranty or suretyship, or otherwise assume
liability for payment thereof; and to mortgage and pledge the Trust property (or
Series property) or any part thereof to secure any of or all such obligations.

SECTION 5.11.12. INSURANCE. The Trustees shall have the power to
purchase and pay for entirely out of Trust property such insurance as they may
deem necessary or appropriate for the conduct of the business, including,
without limitation, insurance policies insuring the assets of the Trust and
payment of distributions and principal on its portfolio investments, and
insurance policies insuring the Shareholders, Trustees, officers, employees,
agents, consultants, investment advisers, managers, administrators,
distributors, principal underwriters, or independent contractors, or any thereof
(or any person connected therewith), of the Trust individually against all
claims and liabilities of every nature arising by reason of holding, being or
having held any such office or position, or by reason of any action alleged to
have been taken or omitted by any such person in any such capacity, including
any action taken or omitted that may be determined to constitute negligence,
whether or not the Trust would have the power to indemnify such person against
such liability.

SECTION 5.11.13. PENSIONS. The Trustees shall have the power to pay
pensions for faithful service, as deemed appropriate by the Trustees, and to
adopt, establish and carry out pension, profit-sharing, share bonus, share
purchase, savings, thrift and other retirement, incentive and benefit plans,
including the purchasing of life insurance and annuity contracts as a means of
providing such retirement and other benefits, for any or all of the Trustees,
officers, employees and agents of the Trust.

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<PAGE>

SECTION 5.12. MEETINGS AND VOTE OF TRUSTEES.

SECTION 5.12.1. REGULAR MEETINGS. The Trustees from time to time
may provide for the holding of regular meetings of the Trustees and fix their
time and place.

SECTION 5.12.2. SPECIAL MEETINGS. Special meetings of the Trustees
may be called by the President of the Trust on twenty-four (24) hours notice to
each Trustee, either personally, by mail, by telegram, or by facsimile
transmission. Special meetings shall be called by the President or Secretary in
like manner and on like notice on the written request of a majority of the
Trustees then in office or a majority of the members of any executive (or
comparable) committee of the Trustees.

SECTION 5.12.3. TELEPHONIC MEETINGS. Trustees may participate in a
meeting of the Trustees by means of a conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other at the same time. Except to the extent that the 1940
Act has been interpreted otherwise, participation by such means shall constitute
presence in person at the meeting.

SECTION 5.12.4. QUORUM. A majority of the Trustees then in office
being present in person or by proxy shall constitute a quorum.

SECTION 5.12.5. REQUIRED VOTE. Except as otherwise provided by the
1940 Act or other applicable law, this Declaration of Trust, or the By-Laws, any
action to be taken by the Trustees on behalf of the Trust or any Series or Class
may be taken by a majority of the Trustees present at a meeting of Trustees at
which a quorum is present.

SECTION 5.12.6. CONSENT IN LIEU OF A MEETING. Except as otherwise
provided by the 1940 Act or other applicable law, the Trustees may, by unanimous
written consent of the Trustees then in office, take any action which may have
been taken at a meeting of the Trustees or any committee thereof.

ARTICLE 6
SERVICE PROVIDERS

SECTION 6.1. INVESTMENT ADVISER. The Trust may enter into written
contracts with one or more persons to act as investment adviser or investment
subadviser to each of the Series, and as such, to perform such functions as the
Trustees may deem reasonable and proper, including, without limitation,
investment advisory, management, research, valuation of assets, clerical and
administrative functions, under such terms and conditions, and for such
compensation, as the Trustees may in their discretion deem advisable.

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<PAGE>

SECTION 6.2. UNDERWRITER AND TRANSFER AGENT. The Trust may enter into
written contracts with one or more persons to act as principal underwriter or
underwriter or distributor whereby the Trust may either agree to sell Shares to
the other party or parties to the contract or appoint such other party or
parties its sales agent or agents for such Shares and with such other provisions
as the Trustees may deem reasonable and proper, and the Trustees may in their
discretion from time to time enter into transfer agency, dividend disbursement,
and/or shareholder service contract(s), in each case with such terms and
conditions, and providing for such compensation, as the Trustees may in their
discretion deem advisable.

SECTION 6.3. CUSTODIANS. The Trust may enter into written contracts with
one or more persons to act as custodian to perform such functions as the
Trustees may deem reasonable and proper, under such terms and conditions, and
for such compensation, as the Trustees may in their discretion deem advisable.
Each such custodian shall be a bank or trust company having an aggregate
capital, surplus, and undivided profits of at least two million dollars
($2,000,000).

SECTION 6.4. ADMINISTRATOR. The Trust may enter into written contracts
with one or more persons to act as an administrator to perform such functions,
including accounting functions, as the Trustees may deem reasonable and proper,
under such terms and conditions, and for such compensation, as the Trustees may
in their discretion deem advisable.

SECTION 6.5. OTHER CONTRACTS. The Trust may enter into such other
written contracts as the Trustees deem necessary and desirable, including
contracts with one or more persons for the coordination or supervision of
persons providing services to the Trust under one or more of the contracts
described in Sections 6.1, 6.2, 6.3, and 6.4.

SECTION 6.6. PARTIES TO CONTRACTS. Any contract of the character
described in Sections 6.1, 6.2, 6.3, and 6.4 or in Article 8 hereof may be
entered into with any corporation, firm, partnership, trust or association,
including, without limitation, the investment adviser, any investment
subadviser, or any affiliated person of the investment adviser or investment
subadviser, although one or more of the Trustees or officers of the Trust may be
an officer, director, trustee, shareholder, or member of such other party to the
contract, or may otherwise be interested in such contract, and no such contract
shall be invalidated or rendered voidable by reason of the existence of any such
relationship, nor shall any person holding such relationship be liable merely by
reason of such relationship for any loss or expense to the Trust under or by
reason of said contract or be accountable for any profit realized directly or
indirectly therefrom; provided, however, that the contract when entered into was
not inconsistent with the provisions of this Article 6, Article 8, or the
Bylaws. The same person (including a firm, corporation, partnership, trust or
association) may provide more than one of the services identified in this
Article 6.

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ARTICLE 7
SHAREHOLDERS' VOTING POWERS AND MEETINGS

SECTION 7.1. VOTING POWERS. The Shareholders shall have power to vote
only with respect to matters expressly enumerated in Section 7.1.1 or with
respect to such additional matters relating to the Trust as may be required by
the 1940 Act, this Declaration of Trust, the By-Laws, any registration of the
Trust with the Commission or any state, or as the Trustees may otherwise deem
necessary or desirable.

SECTION 7.1.1. MATTERS REQUIRING SHAREHOLDERS ACTION. Action by
the Shareholders shall be required as to the following matters:

(a) The election or removal of Trustees as provided in Sections 5.4 and
5.7;

(b) The approval to a contract with a third party provider of services as
to which Shareholder approval is required by the 1940 Act;

(d) The amendment of this Declaration of Trust to the extent and as
provided in Section 10.5; and

(e) Any court action, proceeding or claim brought or maintained
derivatively or as a class action on behalf of the Trust, any Series or Class
thereof or the Shareholders of the Trust; provided, however, that a shareholder
of a particular Series or Class shall not be entitled to vote upon a derivative
or class action on behalf of any other Series or Class or shareholder of any
other Series or Class.

SECTION 7.1.2. SEPARATE VOTING BY SERIES AND CLASS. On any matter
submitted to a vote of the Shareholders, all Shares shall be voted separately by
individual Series, except: (i) when required by the 1940 Act, Shares shall be
voted in the aggregate and not by individual Series or Class; and (ii) when the
Trustees have determined that the matter affects the interests of more than one
Series, then the Shareholders of all such Series shall be entitled to vote
thereon. The Trustees may also determine that a matter affects only the
interests of one or more Classes within a Series, in which case any such matter
shall only be voted on by such Class or Classes.

SECTION 7.1.3. NUMBER OF VOTES. On any matter submitted to a vote
of the Shareholders, each Shareholder shall be entitled to one vote for each
dollar of net asset value standing in such Shareholder's name on the books of
each Series and Class in which such Shareholder owns Shares which are entitled
to vote on the matter.

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<PAGE>

SECTION 7.1.4. CUMULATIVE VOTING. There shall be no cumulative
voting in the election of Trustees.

SECTION 7.1.5. VOTING OF SHARES; PROXIES. Votes may be cast in
person or by proxy. A proxy with respect to Shares held in the name of two or
more persons shall be valid if executed by any one of them unless at or prior to
exercise of the proxy the Trust receives a specific written notice to the
contrary from any one of them. A proxy purporting to be executed by or on behalf
of a Shareholder shall be deemed valid unless challenged at or prior to its
exercise, and the burden of proving the invalidity of a proxy shall rest on the
challenger. No proxy shall be valid more than eleven months after its date,
unless it provides for a longer period.

SECTION 7.1.6. ACTIONS PRIOR TO THE ISSUANCE OF SHARES. Until
Shares are issued, the Trustees may exercise all rights of Shareholders and may
take any action required by law, this Declaration of Trust or the Bylaws to be
taken by Shareholders.

SECTION 7.2. MEETINGS OF SHAREHOLDERS.

SECTION 7.2.1. ANNUAL OR REGULAR MEETINGS. No annual or regular
meetings of Shareholders are required to be held.

SECTION 7.2.2. SPECIAL MEETINGS. Special meetings of Shareholders
may be called by the President of the Trust or the Trustees from time to time
for the purpose of taking action upon any matter requiring the vote or authority
of the Shareholders as herein provided or upon any other matter upon which
Shareholder approval is deemed by the Trustees to be necessary or desirable. A
special meeting shall be called by the Secretary of the Trust upon (i) the
request of a majority of the Trustees then in office, or (ii) the written
request of Shareholders entitled to cast at least ten percent (10%) of all the
votes entitled to be cast at such meeting, provided that (a) such request shall
state the purpose or purposes of the meeting and the matters proposed to be
acted upon at such meeting, and (b) the Shareholders requesting such meeting
shall have paid to the Trust the reasonably estimated cost of preparing and
mailing the notice thereof, which the Secretary shall determine and specify to
such Shareholders. Upon payment of these costs to the Trust, the Secretary shall
notify each Shareholder entitled to notice of the meeting. Unless requested by
Shareholders entitled to cast at least a majority of all the votes entitled to
be cast at such meeting, a special meeting need not be called to consider any
matter which is substantially the same as a matter voted on at any special
meeting of Shareholders held during the preceding twelve (12) months.

SECTION 7.2.3. NOTICE OF MEETINGS. Written notice of any meeting
of Shareholders shall be given or caused to be given by the Trustees by mailing
or transmitting such notice not less than ten (10) nor more than ninety (90)
days before such meeting, postage prepaid, stating the time, place and purpose
of the meeting, to each Shareholder at the Shareholder's address as it appears
on the records of the Trust.

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<PAGE>

SECTION 7.2.4. CALL OF MEETINGS. The Trustees shall promptly call
and give notice of a meeting of Shareholders for the purpose of voting upon
removal of any Trustee of the Trust when requested to do so in accordance with
Section 7.2.2. For all other matters, the Trustees shall call or give notice of
a meeting within thirty (30) days after written application by Shareholders
entitled to cast at least ten percent (10%) of all the votes entitled to be cast
on the matter requesting a meeting be called.

SECTION 7.3. RECORD DATES. For the purpose of determining the
Shareholders who are entitled to vote or act at any meeting or any adjournment
thereof, or who are entitled to participate in any dividend or distribution, or
for the purpose of any other action, the Trustees may from time to time fix a
date and time not more than ninety (90) days nor less than ten (10) days prior
to any meeting of Shareholders or other action as the date and time of record
for the determination of Shareholders entitled to vote at such meeting or any
adjournment thereof or to be treated as Shareholders of record for purposes of
such other action. Any Shareholder who was a Shareholder at the date and time
so fixed shall be entitled to vote at such meeting or any adjournment thereof or
to be treated as a Shareholder of record for purposes of such other action, even
though such Shareholder has since that date and time disposed of its Shares, and
no Shareholder becoming such after that date and time shall be so entitled to
vote at such meeting or any adjournment thereof or to be treated as a
Shareholder of record for purposes of such other action.

SECTION 7.4. QUORUM. Except as otherwise required by the 1940 Act or
other applicable law, this Declaration of Trust, or the By-Laws, the presence in
person or by proxy of Shareholders entitled to cast at least thirty percent
(30%) of the votes entitled to be cast on any particular matter shall be a
quorum as to such matter; provided, however, that any lesser number shall be
sufficient for matters upon which the Shareholders vote at adjournments.

SECTION 7.5. REQUIRED VOTE. Notwithstanding any provision of law
requiring the authorization of any matter by a greater proportion, any matter
upon which the Shareholders vote shall be approved by the affirmative vote of a
majority of the votes cast on such matter at a meeting of the Shareholders at
which a quorum is present, except that Trustees shall be elected by the
affirmative vote of a plurality of the votes cast at such a meeting.

SECTION 7.6. ADJOURNMENTS. Adjourned meetings may be held within a
reasonable time after the date set for the original meeting without the
necessity of further notice.

SECTION 7.7. ACTIONS BY WRITTEN CONSENT. Except as otherwise required by
the 1940 Act or other applicable law, this Declaration of Trust, or the By-Laws,
any action taken by Shareholders may be taken without a meeting if Shareholders
entitled to cast at least a majority of all the votes entitled to be cast on the
matter (or such larger proportion thereof as shall be required by the 1940 Act
or by any express provision of this Declaration of Trust or the By-Laws) consent
to the action in writing and such written consents are filed with the records

20
<PAGE>

of the meetings of Shareholders. Such consent shall be treated for all purposes
as a vote taken at a meeting of Shareholders.

SECTION 7.8. INSPECTION OF RECORDS. The records of the Trust shall be
open to inspection by Shareholders to the same extent as is required for
stockholders of a Delaware business corporation under the Delaware General
Corporation Law.

SECTION 7.9. ADDITIONAL PROVISIONS. The By-Laws may include further
provisions for Shareholders' votes and meetings and related matters not
inconsistent with the provisions hereof.

ARTICLE 8
LIMITATION OF LIABILITY AND INDEMNIFICATION

SECTION 8.1. GENERAL PROVISIONS.

SECTION 8.1.1. GENERAL LIMITATION OF LIABILITY. No personal
liability for any debt or obligation of the Trust shall attach to any Trustee of
the Trust. Without limiting the foregoing, a Trustee shall not be responsible
for or liable in any event for any neglect or wrongdoing of any officer, agent,
employee, investment adviser, subadviser, principal underwriter or custodian of
the Trust, nor shall any Trustee be responsible or liable for the act or
omission of any other Trustee. Every note, bond, contract, instrument,
certificate, Share or undertaking and every other act or thing whatsoever
executed or done by or on behalf of the Trust or the Trustees or any Trustee in
connection with the Trust shall be conclusively deemed to have been executed or
done only in or with respect to their or his or her capacity as Trustees or
Trustee and neither such Trustees or Trustee nor the Shareholders shall be
personally liable thereon.

SECTION 8.1.2. NOTICE OF LIMITED LIABILITY. Every note, bond,
contract, instrument, certificate or undertaking made or issued by the Trustees
or by any officers or officer shall recite that the same was executed or made by
or on behalf of the Trust by them as Trustees or Trustee or as officers or
officer and not individually and that the obligations of such instrument are not
binding upon any of them or the Shareholders individually but are binding only
upon the assets and property of the Trust or belonging to a Series thereof, and
may contain such further recitals as they or he may deem appropriate, but the
omission thereof shall not operate to bind any Trustees or Trustee or officers
or officer or Shareholders or Shareholder individually.

SECTION 8.1.3. LIABILITY LIMITED TO ASSETS OF THE TRUST. All
persons extending credit to, contracting with or having any claim against the
Trust shall look only to the assets of the Trust or belonging to a Series
thereof, as appropriate, for payment under such credit, contract or claim, and
neither the Shareholders nor the Trustees nor any of the Trust's

21
<PAGE>

officers, employees or agents, whether past, present or future, shall be
personally liable therefor.

SECTION 8.2. LIABILITY OF TRUSTEES. The exercise by the Trustees of
their powers and discretion hereunder shall be binding upon the Trust, the
Shareholders, and any other person dealing with the Trust. The liability of the
Trustees, however, shall be limited by this Section 8.2.

SECTION 8.2.1. LIABILITY FOR OWN ACTIONS. A Trustee shall be liable
to the Trust or the Shareholders only for his own willful misfeasance, bad
faith, gross negligence, or reckless disregard of the duties involved in the
conduct of the office of Trustee, and for nothing else, and shall not be liable
for errors of judgment or mistakes of fact or law.

SECTION 8.2.2. LIABILITY FOR ACTIONS OF OTHERS. The Trustees shall
not be responsible or liable in any event for any neglect or wrongdoing of any
officer, agent, employee, consultant, adviser, administrative distributor,
principal underwriter, custodian, transfer agent, dividend disbursing agent,
Shareholder servicing agent, or accounting agent of the Trust, nor shall any
Trustee be responsible for any act or omission of any other Trustee.

SECTION 8.2.3. ADVICE OF EXPERTS AND REPORTS OF OTHERS. The
Trustees may take advice of counsel or other experts with respect to the meaning
and operation of this Declaration of Trust and their duties as Trustees
hereunder, and shall be under no liability for any act or omission in accordance
with such advice or for failing to follow such advice. In discharging their
duties, the Trustees, when acting in good faith, shall be entitled to rely upon
the books of account of the Trust and upon written reports made to the Trustees
by any officer appointed by them, any independent public accountant and (with
respect to the subject matter of the contract involved) any officer, partner or
responsible employee of any other party to any contract entered into hereunder.

SECTION 8.2.4. BOND. The Trustees shall not be required to give any
bond as such, nor any surety if a bond is required.

SECTION 8.2.5. DECLARATION OF TRUST GOVERNS ISSUES OF LIABILITY.
The provisions of this Declaration of Trust, to the extent that they restrict
the duties and liabilities of the Trustees otherwise existing at law or in
equity, are agreed by the Shareholders and all other Persons bound by this
Declaration of Trust to replace such other duties and liabilities of the
Trustees.

SECTION 8.3. LIABILITY OF THIRD PERSONS DEALING WITH TRUSTEES. No person
dealing with the Trustees shall be bound to make any inquiry concerning the
validity of any transaction made or to be made by the Trustees or to see to the
application of any payments made or property transferred to the Trust or upon
its order.

22
<PAGE>

SECTION 8.4. LIABILITY OF SHAREHOLDERS. Without limiting the provisions
of this Section 8.4 or the DBTA, the Shareholders shall be entitled to the same
limitation of personal liability extended to stockholders of private
corporations organized for profit under the General Corporation Law of the State
of Delaware.

SECTION 8.4.1. LIMITATION OF LIABILITY. No personal liability for
any debt or obligation of the Trust shall attach to any Shareholder or former
Shareholder of the Trust, and neither the Trustees, nor any officer, employee or
agent of the Trust shall have any power to bind any Shareholder personally or to
call upon any Shareholder for the payment of any sum of money or assessment
whatsoever other than such as the Shareholder may at any time personally agree
to pay by way of subscription for any Shares or otherwise.

SECTION 8.4.2. INDEMNIFICATION OF SHAREHOLDERS. In case any
Shareholder or former Shareholder of the Trust shall be held to be personally
liable solely by reason of being or having been a Shareholder and not because of
such Shareholder's acts or omissions or for some other reason, the Shareholder
or former Shareholder (or, in the case of a natural person, his or her heirs,
executors, administrators or other legal representatives or, in the case of a
corporation or other entity, its corporate or other general successor) shall be
entitled out of the assets of the Trust to be held harmless from and indemnified
against all loss and expense arising from such liability; provided, however,
there shall be no liability or obligation of the Trust arising hereunder to
reimburse any Shareholder for taxes paid by reason of such Shareholder's
ownership of any Shares or for losses suffered by reason of any changes in value
of any Trust assets. The Trust shall, upon request by the Shareholder or former
Shareholder, assume the defense of any claim made against the Shareholder for
any act or obligation of the Trust and satisfy any judgment thereon.

SECTION 8.5. INDEMNIFICATION.

SECTION 8.5.1. INDEMNIFICATION OF COVERED PERSONS. Subject to the
exceptions and limitations contained in Section 8.5.2, every person who is, or
has been, a Trustee, officer, employee or agent of the Trust, including persons
who serve at the request of the Trust as directors, trustees, officers,
employees or agents of another organization in which the Trust has an interest
as a shareholder, creditor or otherwise (hereinafter referred to as a "Covered
Person"), shall be indemnified by the Trust to the fullest extent permitted by
law against liability and against all expenses reasonably incurred or paid by
him in connection with any claim, action, suit or proceeding in which he becomes
involved as a party or otherwise by virtue of his being or having been such a
Trustee, director, officer, employee or agent and against amounts paid or
incurred by him in settlement thereof.

SECTION 8.5.2. EXCEPTIONS. No indemnification shall be provided
hereunder to a Covered Person:

23
<PAGE>

(a) For any liability to the Trust or its Shareholders arising out of a
final adjudication by the court or other body before which the proceeding was
brought that the Covered Person engaged in willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office;

(b) With respect to any matter as to which the Covered Person shall have
been finally adjudicated not to have acted in good faith in the reasonable
belief that his or her action was in the best interests of the Trust; or

(c) In the event of a settlement or other disposition not involving a final
adjudication (as provided in paragraph (a) or (b) of this Section 8.5.2) and
resulting in a payment by a Covered Person, unless there has been either a
determination that such Covered Person did not engage in willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office by the court or other body approving the settlement or
other disposition, or a reasonable determination, based on a review of readily
available facts (as opposed to a full trial-type inquiry), that he or she did
not engage in such conduct, such determination being made by: (i) a vote of a
majority of the Disinterested Trustees (as such term is defined in Section
8.5.5) acting on the matter (provided that a majority of Disinterested Trustees
then in office act on the matter); or (ii) a written opinion of independent
legal counsel.

SECTION 8.5.3. RIGHTS OF INDEMNIFICATION. The rights of
indemnification herein provided may be insured against by policies maintained by
the Trust, and shall be severable, shall not affect any other rights to which
any Covered Person may now or hereafter be entitled, shall continue as to a
person who has ceased to be a Covered Person, and shall inure to the benefit of
the heirs, executors and administrators of such a person. Nothing contained
herein shall affect any rights to indemnification to which Trust personnel other
than Covered Persons may be entitled by contract or otherwise under law.

SECTION 8.5.4. EXPENSES OF INDEMNIFICATION. Expenses of preparation
and presentation of a defense to any claim, action, suit or proceeding subject
to a claim for indemnification under this Section 8.5 shall be advanced by the
Trust prior to final disposition thereof upon receipt of an undertaking by or on
behalf of the recipient to repay such amount if it is ultimately determined that
he or she is not entitled to indemnification under this Section 8.5, provided
that either:

(a) Such undertaking is secured by a surety bond or some other appropriate
security or the Trust shall be insured against losses arising out of any such
advances; or

(b) A majority of the Disinterested Trustees acting on the matter (provided
that a majority of the Disinterested Trustees then in office act on the matter)
or independent legal counsel in a written opinion shall determine, based upon a
review of the readily available facts

24
<PAGE>

(as opposed to the facts available upon a full trial), that there is reason to
believe that the recipient ultimately will be found entitled to indemnification.

SECTION 8.5.5. CERTAIN DEFINED TERMS RELATING TO INDEMNIFICATION.
As used in this Section 8.5, the following words shall have the meanings set
forth below:

(a) A "Disinterested Trustee" is one (i) who is not an Interested Person of
the Trust (including anyone, as such Disinterested Trustee, who has been
exempted from being an Interested Person by any rule, regulation or order of the
Commission), and (ii) against whom none of such actions, suits or other
proceedings or another action, suit or other proceeding on the same or similar
grounds is then or has been pending;

(b) "Claim," "action," "suit" or "proceeding" shall apply to all claims,
actions, suits, proceedings (civil, criminal, administrative or other, including
appeals), actual or threatened; and

(c) "Liability" and "expenses" shall include without limitation, attorneys'
fees, costs, judgments, amounts paid in settlement, fines, penalties and other
liabilities.

ARTICLE 9
TERMINATION OR REORGANIZATION

SECTION 9.1. TERMINATION OF TRUST OR SERIES. Unless terminated as
provided herein, the Trust and each Series designated and established pursuant
to this Declaration of Trust shall continue without limitation of time.

SECTION 9.1.1. TERMINATION. Subject to approval by the affected
Shareholders, the Trust, any Series, or any Class (and the establishment and
designation thereof) may be terminated by an instrument executed by a majority
of the Trustees then in office; provided, however, that no approval of affected
Shareholders is necessary if a majority of the trustees then in office
determines that the continuation of the Trust, Series, or Class is not in the
best interests of the Trust, such Series, such Class, or the affected
Shareholders as a result of factors or events adversely affecting the ability of
the Trust, Series, or Class to conduct its business and operations in an
economically viable manner.

SECTION 9.1.2. DISTRIBUTION OF ASSETS. Upon termination of the
Trust or any Series or Class, after paying or otherwise providing for all
charges, taxes, expenses and liabilities, whether due or accrued or anticipated,
as may be determined by the Trustees, the Trust shall, in accordance with such
procedures as the Trustees consider appropriate, reduce the remaining assets of
the Trust to distributable form in cash or other securities, or any combination
thereof, and distribute the proceeds to the affected Shareholders in the manner
set forth by resolution of the Trustees. To the extent permitted by the 1940 Act
or other
25
<PAGE>

applicable law, the Trustees may require affected Shareholders to receive Shares
of any remaining Series or Class in lieu of such proceeds.

SECTION 9.1.3. CERTIFICATE OF CANCELLATION. Upon termination of the
Trust, the Trustees shall file a certificate of cancellation in accordance with
Section 3810 of the DBTA.

SECTION 9.2. REORGANIZATION. The Trustees may sell, convey, merge and
transfer the assets of the Trust, or the assets belonging to any one or more
Series, to another trust, partnership, association or corporation organized
under the laws of any state of the United States, or to the Trust to be held as
assets belonging to another Series of the Trust, in exchange for cash, shares or
other securities (including, in the case of a transfer to another Series of the
Trust, Shares corresponding to such other Series) with such transfer either (i)
being made subject to, or with the assumption by the transferee of, the
liabilities belonging to each Series the assets of which are so transferred, or
(ii) not being made subject to, or not with the assumption of, such liabilities.
Following such transfer, the Trustees shall distribute such cash, Shares or
other securities (giving due effect to the assets and liabilities belonging to
and any other differences among the various Series the assets belonging to which
have so been transferred) among the Shareholders of the Series corresponding to
the Series the assets belonging to which have been so transferred. If all of
the assets of the Trust have been so transferred, the Trust shall be terminated.

SECTION 9.3. MERGER OR CONSOLIDATION.

SECTION 9.3.1. AUTHORITY TO MERGE OR CONSOLIDATE. The Trust, or any
one or more Series, may, either as the successor, survivor, or non-survivor, (i)
consolidate with one or more other trusts, partnerships, associations or
corporations organized under the laws of the State of Delaware or any other
state of the United States, to form a new consolidated trust, partnership,
association or corporation under the laws under which any one of the constituent
entities is organized, or (ii) merge into one or more other trusts,
partnerships, associations or corporations organized under the laws of the State
of Delaware or any other state of the United States, or have one or more such
trusts, partnerships, associations or corporations merged into it, any such
consolidation or merger to be upon such terms and conditions as are specified in
an agreement and plan of reorganization entered into by the Trust, or one or
more Series as the case may be, in connection therewith. The terms "merge" or
"merger" as used herein shall also include the purchase or acquisition of any
assets of any other trust, partnership, association or corporation which is an
investment company organized under the laws of the State of Delaware or any
other state of the United States.

SECTION 9.3.2. NO SHAREHOLDER APPROVAL REQUIRED. Any such
consolidation or merger shall not require the vote of the Shareholders affected
thereby, unless such vote is required by the 1940 Act or other applicable laws,
or unless such merger or consolidation would result in an amendment of this
Declaration of Trust which would otherwise require the approval of such
Shareholders.

26
<PAGE>

SECTION 9.3.3. SUBSEQUENT AMENDMENTS. In accordance with Section
3815(f) of DBTA, an agreement of merger or consolidation may effect any
amendment to this Declaration of Trust or the By-Laws or effect the adoption of
a new declaration of trust or By-Laws of the Trust if the Trust is the surviving
or resulting business trust.

SECTION 9.3.4. CERTIFICATE OF MERGER OR CONSOLIDATION. Upon
completion of the merger or consolidation, the Trustees shall file a certificate
of merger or consolidation in accordance with Section 3810 of the DBTA.

ARTICLE 10
AMENDMENTS

SECTION 10.1. GENERALLY. Except as otherwise specifically provided herein
or as required by the 1940 Act or other applicable law, this Declaration of
Trust may be amended at any time by an instrument in writing signed by a
majority of the Trustees then in office.

SECTION 10.2. CERTIFICATE OF AMENDMENT. In the event of any amendment to
this Declaration of Trust which affects the certificate of trust filed by the
Trust in accordance with Section 2.1, the Trustees shall file a certificate of
amendment in accordance with Section 3810 of the DBTA.

SECTION 10.3. PROHIBITED RETROSPECTIVE AMENDMENTS. No amendment of this
Declaration of Trust or repeal of any of its provisions shall limit or eliminate
the limitation of liability provided to Trustees and officers hereunder with
respect to any act or omission occurring prior to such amendment or repeal.

ARTICLE 11
MISCELLANEOUS PROVISIONS

SECTION 11.1. CERTIFIED COPIES. The original or a copy of this
Declaration of Trust and of each amendment hereto shall be kept in the office of
the Trust where it may be inspected by any Shareholder. Anyone dealing with the
Trust may rely on a certificate by an officer or Trustee of the Trust as to
whether or not any such amendments have been made and as to any matters in
connection with the Trust hereunder, and with the same effect as if it were the
original, may rely on a copy certified by an officer or Trustee of the Trust to
be a copy of this Declaration of Trust or of any such amendments.

SECTION 11.2. CERTAIN INTERNAL REFERENCES. In this Declaration of Trust
or in any such amendment, references to this Declaration of Trust, and all
expressions like "herein," "hereof" and "hereunder," shall be deemed to refer to
this Declaration of Trust as a whole and as amended or affected by any such
amendment.

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<PAGE>

SECTION 11.3. HEADINGS. Headings are placed herein for convenience of
reference only, and in case of any conflict, the text of this instrument, rather
than the headings, shall control. This instrument may be executed in any number
of counterparts, each of which shall be deemed an original.

SECTION 11.4. RESOLUTION OF AMBIGUITIES. The Trustees may construe any
of the provisions of this Declaration insofar as the same may appear to be
ambiguous or inconsistent with any other provisions hereof, and any such
construction hereof by the Trustees in good faith shall be conclusive as to the
meaning to be given to such provisions. In construing this Declaration, the
presumption shall be in favor of a grant of power to the Trustees.

SECTION 11.5. SIGNATURES. To the extent permitted by applicable law, any
instrument signed pursuant to a validly executed power of attorney shall be
deemed to have been signed by the Trustee or officer executing the power of
attorney.

SECTION 11.6. GOVERNING LAW. This Declaration of Trust is executed and
delivered with reference to DBTA and the laws of the State of Delaware by all of
the Trustees whose signatures appear below, and the rights of all parties and
the validity and construction of every provision hereof shall be subject to and
construed according to DBTA and the laws of the State of Delaware (unless and to
the extent otherwise provided for and/or preempted by the 1940 Act or other
applicable federal securities laws); provided, however, that there shall not be
applicable to the Trust, the Trustees, or this Declaration of Trust (a) the
provisions of Section 3540 of Title 12 of the Delaware Code or (b) any
provisions of the laws (statutory or common) of the State of Delaware (other
than the DBTA) pertaining to trusts which are inconsistent with the rights,
duties, powers, limitations or liabilities of the Trustees set forth or
referenced in this Declaration of Trust. All references to sections of the DBTA
or the 1940 Act, or any rules or regulations thereunder, refer to such sections,
rules, or regulations in effect as of the date of this Declaration of Trust, or
any successor sections, rules, or regulations thereto.

SECTION 11.7. SEVERABILITY. The provisions of this Declaration of Trust
are severable, and if the Trustees shall determine, with the advice of counsel,
that any of such provision is in conflict with the 1940 Act, the DBTA, or with
other applicable laws and regulations, the conflicting provision shall be deemed
never to have constituted a part of this Declaration of Trust; provided,
however, that such determination shall not affect any of the remaining
provisions of this Declaration of Trust or render invalid or improper any action
taken or omitted prior to such determination. If any provision of this
Declaration of Trust shall be held invalid or unenforceable in any jurisdiction,
such invalidity or unenforceability shall attach only to such provision in such
jurisdiction and shall not in any manner affect such provision in any other
jurisdiction or any other provision of this Declaration of Trust in any
jurisdiction.

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<PAGE>

IN WITNESS WHEREOF, the undersigned, being the Trustees of the Trust, have
executed this Declaration of Trust as of the date first written above.

/s/ Edward B. Rust, Jr.
-----------------------
Edward B. Rust, Jr., Trustee

/s/ Roger S. Joslin
-------------------
Roger S. Joslin, Trustee

<PAGE>

BYLAWS

STATE FARM VARIABLE PRODUCT TRUST
<PAGE>

TABLE OF CONTENTS

<TABLE>
<S> <C>
ARTICLE 1 Officers........................................................ 1
1.1. Enumeration..................................................... 1
1.2. Qualification................................................... 1
1.3. Election........................................................ 1
1.4. Term of Office.................................................. 1
1.5. Powers.......................................................... 2
1.6. Titles and Duties............................................... 2
1.6.1. Chairperson of the Board; President..................... 2
1.6.2. Vice President.......................................... 2
1.6.3. Treasurer............................................... 2
1.6.4. Assistant Treasurer..................................... 2
1.6.5. Secretary............................................... 2
1.6.6. Assistant Secretary..................................... 3
1.6.7. Temporary Secretary..................................... 3
1.7. Resignation, Retirement, and Removal............................ 3
1.8. Vacancies....................................................... 3

ARTICLE 2 Transactions with Officers and Trustees......................... 3
2.1. Purchase and Redemption of Shares of the Trust.................. 3
2.2. Purchase and Sale of Other Securities........................... 4
2.3. Concentration in Any One Issuer................................. 4

ARTICLE 3 Miscellaneous Provisions........................................ 4
3.1. Fiscal Year..................................................... 4
3.2. Seal............................................................ 4
3.3. Execution of Papers............................................. 4
3.4. Amendments...................................................... 4

</TABLE>
<PAGE>

BYLAWS
OF
STATE FARM VARIABLE PRODUCT TRUST

These BYLAWS, made as of this day, February 21, 1997, shall be subject to
the Declaration of Trust, as from time to time in effect, of the State Farm
Variable Product Trust (the "Trust"), a Delaware business trust established on
February 21, 1997, by a declaration of trust (the "Declaration of Trust"). In
the event of any inconsistency between the terms hereof and the terms of the
Declaration of Trust, the terms of the Declaration of Trust shall control.
Capitalized terms are used as defined in the Declaration of Trust, except as
specifically defined herein.

ARTICLE 1
OFFICERS

SECTION 1.1. ENUMERATION. The officers of the Trust shall be a
President, one or more Vice Presidents, a Treasurer, and a Secretary. The
Trustees may also appoint such other officers, including a Chairperson of the
Board, Assistant Treasurers, and/or Assistant Secretaries. The Trust may also
have such agents as the Trustees from time to time may in their discretion
appoint. Any two or more offices may be held by the same person except that the
same person may not be both President and Vice President, and that a person who
holds more than one office may not act in more than one capacity to execute,
acknowledge, or verify an instrument required by law to be executed,
acknowledged, or verified by more than one officer.

SECTION 1.2. QUALIFICATION. The Chairperson of the Board, if there shall
be one, shall be a Trustee and may, but need not be, a shareholder. Any other
officer may, but need not be, a Trustee or shareholder.

SECTION 1.3. ELECTION. The President, Treasurer, and Secretary shall be
elected by the Trustees at the first meeting of the Trustees. Other officers,
if any, may be elected or appointed by the Trustees at any meeting of the
Trustees or at any other time. The President, all Vice Presidents, the
Treasurer, and the Secretary shall be elected at each annual meeting of the
Trustees.

SECTION 1.4. TERM OF OFFICE. The Chairperson of the Board, the
President, the Treasurer, and the Secretary shall hold office until their
respective successors are chosen and qualified, or in each case until he or she
sooner dies, resigns, is removed, or becomes disqualified. Each other officer
shall hold office and each agent shall retain authority at the pleasure of the
Trustees.
<PAGE>

SECTION 1.5. POWERS. Subject to the other provisions of these Bylaws,
each officer shall have, in addition to the duties and powers set forth herein
and in the Declaration of Trust, such duties and powers as are commonly incident
to the office occupied by such officer as if the Trust were organized as a
Delaware business corporation and such other duties and powers as the Trustees
may from time to time designate.

SECTION 1.6. TITLES AND DUTIES.

SECTION 1.6.1 CHAIRPERSON OF THE BOARD; PRESIDENT. Unless the
Trustees otherwise provide, the Chairperson of the Board, or, if there is no
Chairperson or in the absence of the Chairperson, the President, shall preside
at all meetings of the shareholders and of the Trustees. Unless the Trustees
otherwise provide, the President shall be the Chief Executive Officer of the
Trust. The Chairperson of the Board and the President shall each also perform
such other duties and have such other powers as the Board of Trustees may from
time to time prescribe.

SECTION 1.6.2 VICE PRESIDENT. In the absence of the President or in
the event of his or her inability or refusal to act, the Vice President, or if
there is more than one Vice President, the Vice Presidents in their order of
election or in such other order as determined by the Trustees, shall perform the
duties of the President, and when so acting shall have all the powers of and be
subject to all the restrictions upon the President. The Vice Presidents shall
also perform such other duties and have such other powers as the Board of
Trustees or the President may from time to time prescribe.

SECTION 1.6.3 TREASURER. The Treasurer shall be the chief financial
and accounting officer of the Trust, and shall, subject to the provisions of the
Declaration of Trust and to any arrangement made by the Trustees with a
custodian, investment adviser or manager, or transfer, shareholder servicing or
similar agent, be in charge of the valuable papers, books of account and
accounting records of the Trust. The Treasurer shall also perform such other
duties and have such other powers as the Board of Trustees or the President may
from time to time prescribe.

SECTION 1.6.4 ASSISTANT TREASURER. In the absence of the Treasurer
or in the event of his or her inability or refusal to act, the Assistant
Treasurer, or if there is more than one, the Assistant Treasurers in their order
of election or in such other order as determined by the Trustees, shall perform
the duties of the Treasurer, and when so acting shall have all the powers of and
be subject to all the restrictions upon the Treasurer. The Assistant Treasurers
shall also perform such other duties and have such other powers as the Board of
Trustees or the President may from time to time prescribe.

SECTION 1.6.5 SECRETARY. The Secretary shall record all proceedings
of the shareholders and the Trustees in books to be kept for such purposes,
which books or a copy thereof shall be kept at the principal office of the Trust
or at such other place as designated by

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the Trustees. The Secretary shall also perform such other duties and have such
other powers as the Board of Trustees or the President may from time to time
prescribe.

SECTION 1.6.6 ASSISTANT SECRETARY. In the absence of the Secretary
or in the event of his or her inability or refusal to act, the Assistant
Secretary, or if there is more than one, the Assistant Secretaries in their
order of election or in such other order as determined by the Trustees, shall
perform the duties of the Secretary, and when so acting shall have all the
powers of and be subject to all the restrictions upon the Secretary. The
Assistant Secretaries shall also perform such other duties and have such other
powers as the Board of Trustees or the President may from time to time
prescribe.

SECTION 1.6.7 TEMPORARY SECRETARY. In the absence of the
Secretary and all Assistant Secretaries from any meeting of the shareholders or
Trustees, the Trustees may appoint a temporary secretary at such meeting, who
shall perform the duties of the Secretary for the purposes of such meeting.

SECTION 1.7. RESIGNATION, RETIREMENT, AND REMOVAL. Any officer may
resign at any time by written instrument signed by him or her delivered to the
Chairperson of the Board, President, or Secretary or delivered to a meeting of
the Trustees. Such resignation shall be effective upon receipt unless specified
to be effective at some other time. The Trustees may remove any officer elected
by them with or without cause by the vote or written consent of a majority of
the Trustees then in office. To the extent that any officer or Trustee of the
Trust receives compensation from the Trust and except as may otherwise be
expressly provided in a written agreement with the Trust, no Trustee or officer
resigning and no officer removed shall have any right to any compensation for
any period following his or her resignation or removal, or any right to damages
on account of such removal.

SECTION 1.8. VACANCIES. Any vacancy or anticipated vacancy resulting for
any reason, including without limitation the death, resignation, retirement,
removal, or incapacity of the Chairperson of the Board, the President, the
Treasurer, or the Secretary may be filled by a majority of the Trustees then in
office through the appointment in writing of such other person as such remaining
Trustees in their discretion shall determine. The appointment shall be
effective upon the written acceptance of the person named therein to serve as in
the capacity named therein. Other vacancies may be filled, if at all, by the
Trustees at a meeting of the Trustees or at any other time.

ARTICLE 2
TRANSACTIONS WITH OFFICERS AND TRUSTEES

SECTION 2.1. PURCHASE AND REDEMPTION OF SHARES OF THE TRUST. Any
Trustee, officer or other agent of the Trust may acquire, own and dispose of
Shares to the same extent as if he were not a Trustee, officer or agent, and the
Trustees may accept subscriptions to

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purchase Shares or orders to redeem Shares from any firm or company in which any
Trustee, officer or other agent of the Trust may have an interest.

SECTION 2.2. PURCHASE AND SALE OF OTHER SECURITIES. The Trust shall not
purchase any securities (other than Shares) from, or sell any securities (other
than Shares) to, any Trustee or officer of the Trust, or any director, trustee,
officer, or partner of any firm which acts as investment adviser or principal
underwriter for the Trust acting as principal, except to the extent permitted by
the 1940 Act or the rules or regulations thereunder or by appropriate order or
written advice of the Commission.

SECTION 2.3. CONCENTRATION IN ANY ONE ISSUER. The Trust shall not
purchase or retain securities of a company if all of the Trustees and officers
of the Trust and the directors, trustees, officers, or partners of of its
investment adviser who individually own beneficially more than 1/2% of the
securities of the company collectively own more than 5% of such securities.

ARTICLE 3
MISCELLANEOUS PROVISIONS

SECTION 3.1. FISCAL YEAR. The fiscal year of the Trust shall end on
December 31, or such other date as fixed by resolution of the Trustees.

SECTION 3.2. SEAL. No official seal of the Trust shall be required to
execute any instruments on behalf of the Trust in accordance with Section 33.

SECTION 3.3. EXECUTION OF PAPERS. Except as the Trustees may generally
or in particular cases authorize the execution thereof in some other manner, all
deeds, leases, contracts, notes and other obligations made by the Trustees shall
be signed by the President, any Vice President, Treasurer, any Assistant
Treasurer, Secretrary, or any Assistant Secretary, or any officer authorized to
do so by the Trustees or any of the foregoing.

SECTION 3.4. AMENDMENTS. Except as otherwise specifically provided herein
or as required by the 1940 Act or other applicable law, these Bylaws may be
amended or repealed, in whole or in part, by majority of the Trustees then in
office at any meeting of the Trustees, or by one or more writings signed by such
a majority.

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The foregoing Bylaws were adopted by the Board of Trustees on February 21, 1997.

/s/ Patricia L. Dysart
----------------------
Patricia L. Dysart, Assistant Secretary

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