STATE FARM VARIABLE PRODUCT TRUST, 485BPOS, 1998-05-01

STATE FARM VARIABLE PRODUCT TRUST
485BPOS, 1998-05-01

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File Nos. 333-22467, 811-08073

As filed with the Securities and Exchange Commission on May 1, 1998

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

FORM N-1A

Registration Statement Under the Securities Act of 1933 [_]
Pre-Effective Amendment No. [_]

Post-Effective Amendment No. 1 [X]

and

Registration Statement Under the Investment Company Act of 1940 [_]
Amendment No. 2 [X]

(Check appropriate box or boxes.)

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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 LLP
1275 Pennsylvania Avenue, N.W.
Washington, D. C. 20004-2415

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

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It is proposed that this filing will become effective (check appropriate box)
[_] immediately upon filing pursuant to paragraph (b)
[X] on May 1, 1998 pursuant to paragraph (b)
[_] 60 days after filing pursuant to paragraph (a) (1)
[_] on (date) pursuant to paragraph (a) (1)
[_] 75 days after filing pursuant to paragraph (a) (2)
[_] on (date) pursuant to paragraph (a) (2) of rule 485
If appropriate, check the following box:
[_] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.

Title of securities being registered: Shares of beneficial interest

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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 Brokerage 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 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
MAY 1, 1998

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-Registered Trademark- Composite Index of 500 Stocks (the "S&P
500-Registered Trademark-"). 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-Registered Trademark- Small Stock Index (the "Russell 2000"). 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 Free Index (the
"EAFE Free"). 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, dated May 1,
1998, 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 SEC maintains an Internet site at http://www.sec.gov
that contains the Statement of Additional Information, material incorporated by
reference, reports, and other information regarding the Trust and the Funds. 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.
<PAGE>
TABLE OF CONTENTS

<TABLE>
<S> <C>
Financial Highlights 2
About the Trust 3

Investment Objectives and Policies 3
The Money Market Fund 4
The Equity Index Funds 4
The Bond Fund 7
The Stock and Bond Balanced Fund 8

Investment Techniques 8
Loans of Portfolio Securities 8
Short-term Money Market Instruments 9
Foreign Investments 9
Foreign Investments Generally 9
Investments in ADRs, EDRs and GDRs 10
Forward Currency Contracts 10
Stock Index Futures Contracts and Options on Such Contracts 11
Restricted Securities And Illiquid Investments 11
Borrowing 11
Investments in Securities of Small Capitalization Issuers 12
Investments in Other Investment Companies 12

Performance Information 12

Determination of Net Asset Value 12

Offering, Purchase and Redemption of Shares 13

Dividends, Distributions and Taxes 13
Dividends and Distributions 13
Taxes 13
General Tax Information 13
Taxation of Foreign Investments 14
Additional Tax Considerations 14

Management of the Trust 14
Board of Trustees 14
Investment Adviser 15
Investment Sub-adviser 15
The Bond Fund and the Stock and Bond Balanced Fund Managers 16
Use of Certain Brokers 16

Additional Information 16
About The Shares 16
Contract Owner Voting Rights 17
Annual and Semi-annual Reports 17
Service Providers 17
Preparing for Year 2000 17
</TABLE>

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STATE FARM VARIABLE PRODUCT TRUST
FINANCIAL HIGHLIGHTS

The financial highlights table is intended to help you understand the Trust's
financial performance for the period of the Trust's operations. Certain
information reflects financial results for a single Fund share. The total
returns in the table represent the rate that an investor would have earned or
lost on an investment in the fund (assuming reinvestment of all dividends and
distributions). This information is unaudited. The Trust's unaudited financial
statements are included in the SAI, which is available upon request.

PER SHARE INCOME AND CAPITAL CHANGES (FOR A SHARE OUTSTANDING)
PERIOD ENDED MARCH 31, 1998

<TABLE>
<CAPTION>
STOCK & BOND
LARGE CAP SMALL CAP INTERNATIONAL BALANCED BOND MONEY MARKET
(1-22-98) (1-29-98) (1-22-98) (1-29-98) (1-22-98) (1-29-98)
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, inception (inception
dates shown in parentheses)........ $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 1.00

INCOME FROM INVESTMENT OPERATIONS
Net investment income................ 0.03 0.02 0.04 0.01 0.10 0.01
Net gain or loss on securities (both
realized and unrealized)........... 1.44 1.10 1.17 0.35 (0.08) --
------------ ------------ ------------ ------------ ------------ ------------
Total from investment operations..... 1.47 1.12 1.21 0.36 0.02 0.01

LESS DISTRIBUTIONS
Dividends (from Net Investment
Income)............................ -- -- -- -- (0.10) (0.01)
Distributions (from Capital gains)... -- -- -- -- -- --
Returns of Capital................... -- -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
Total distributions -- -- -- -- (0.10) (0.01)
Net asset value, end of period....... $ 11.47 $ 11.12 $ 11.21 $ 10.36 $ 9.92 $ 1.00
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
TOTAL RETURN (NOT ANNUALIZED)........ 14.10% 11.20% 12.10% 3.60% 0.18% 0.86%

RATIOS/SUPPLEMENTAL DATA
Net assets, end of period............ $ 17,740,180 $ 33,617,109 $ 60,777,296 $ 28,147 $ 10,080,949 $10,093,100
Ratio of expenses to average
net assets (a)..................... 0.36% 0.50% 0.74% 0.00% 0.60% 0.50%
Ratio of expenses to average net
assets, absent expense limitation
(a)................................ 0.49% 0.59% 1.07% 107.34% 0.85% 0.77%
Ratio of net investment income to
average net assets (a)............. 1.60% 1.30% 1.80% 2.00% 5.14% 5.05%
Portfolio turnover rate (a).......... 3.08% 9.68% 1.27% 41.12% 86.80% N/A
Number of shares outstanding at end
of period.......................... 1,546,366 3,023,970 5,423,366 2,717 1,016,225 10,093,100
Average commission rate paid per
share on stock transactions $ 0.0239 $ 0.0300 $ 0.0257 N/A N/A N/A
</TABLE>

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(a) Determined on an annualized basis.

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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 of State
Farm Life Insurance Company as funding vehicles for certain variable annuity and
life insurance contracts (the "Contracts") issued by State Farm Life Insurance
Company through such separate accounts. The Trust also intends to offer shares
of each Fund to separate accounts of State Farm Life and Accident Assurance
Company as funding vehicles for certain variable annuity and life insurance
contracts issued by State Farm Life and Accident Assurance Company through such
separate accounts. (State Farm Life Insurance Company and State Farm Life and
Accident Assurance Company are collectively referred to herein as "State Farm";
the variable annuity and variable life insurance contracts issued by State Farm
are collectively referred to herein as the "Contracts"; and the State Farm
separate accounts are collectively referred to as 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. The Bond Fund and Stock and Bond Balanced Fund are
also subject to 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, 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 the
risks associated with 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.

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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;

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 two highest
rating categories 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 (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 stock index
futures contracts 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

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4
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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.

The Large Cap Equity Index Fund's benchmark index is the S&P
500-Registered Trademark-.(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-Registered Trademark-.(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 the 2,000
smallest U.S. companies in the Russell 3000 Index, which represents
approximately 10% of the total capitalization of the Russell 3000 Index. 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. As of the latest
reconstitution of the Russell 2000, the average market capitalization was
approximately $467 million, the median market capitalization was approximately
$395 million, and the largest company in the index had an approximate market
capitalization of $1.1 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.

The International Equity Index Fund's benchmark index is the
EAFE-Registered Trademark- Free.(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 Free is a diversified index developed
by Morgan Stanley Capital International in 1970. As of December 31, 1997, the
EAFE Free included the common stocks (or equity securities having investment
characteristics of common stocks) of approximately 1,100 companies. The EAFE
Free currently measures the performance of stock markets of Europe (Austria,
Belgium, Denmark, Finland, France, Germany, Ireland, Italy, the Netherlands,
Norway, Portugal, Spain, Sweden, Switzerland and the United Kingdom), Australia,
New Zealand, and the Far East (Hong Kong, Japan, Malaysia, and Singapore).
Unlike MSCI's standard indices, the Free indices take into account local market
restrictions on share ownership by foreigners. EAFE Free is meant to reflect
actual opportunities for foreign investors in a local market.

Since EAFE Free 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) that comprise the EAFE Free.

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

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(1) Standard & Poor's-Registered Trademark-, S&P-Registered Trademark-, S&P
500-Registered Trademark-, Standard & Poor's 500 and 500 are trademarks of
The McGraw-Hill Companies, Inc. and have been licensed for use by the Trust.
Neither the Large Cap Equity Index Fund nor the Stock and Bond Balanced Fund
(the "Funds") is sponsored, endorsed, sold or promoted by Standard & Poor's,
and Standard & Poor's makes no representation regarding the advisability of
investing in the Funds. (For more information regarding the S&P 500 Index,
see the SAI.)

(2) The Russell 2000-Registered Trademark- Index is a trademark/service mark of
the Frank Russell Company. Russell-TM- is a trademark of the Frank Russell
Company. The Small Cap Equity Index Fund (the "Fund") is not sponsored,
endorsed, sold or promoted by the Frank Russell Company, and the Frank
Russell Company makes no representation regarding the advisability of
investing in the Fund. (For more information regarding the Russell 2000
Index, see the SAI.)

(3) The Morgan Stanley Capital International Europe, Australia and Far East Free
(EAFE-Registered Trademark- Free) Index is the exclusive property of Morgan
Stanley & Co. Incorporated ("Morgan Stanley"). Morgan Stanley Capital
International is a service mark of Morgan Stanley and has been licensed for
use by the Trust. The International Equity Index Fund (the "Fund") is not
sponsored, endorsed, sold or promoted by Morgan Stanley and Morgan Stanley
makes no representation regarding the advisability of investing in the Fund.
(For more information regarding the Morgan Stanley Capital International EAFE
Free Index, see the SAI.)

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<PAGE>
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.

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 90% of its total assets in
stocks that are represented in its benchmark index and will at all times invest
a substantial portion of its total assets in such stocks.

Do the index 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,
the Small Cap Equity Index Fund 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 Fund based
on its contribution to certain capitalization, industry and fundamental
investment characteristics. The International Equity Index Fund will hold
securities which will be selected by BGFA utilizing a quantitative model known
as minimum variance optimization. Under this technique, stocks are selected for
inclusion if the fundamental investment characteristics of the security reduce
the portfolio's predicted tracking error against the benchmark index. 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.

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What other investments do the index 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), stock index
futures contracts, options on such futures contracts, and/ or cash. Such
investments may be made to invest uncommitted cash balances and to assist in
meeting shareholder redemptions. The International Equity Index Fund may also
enter into foreign currency forward and foreign currency futures contracts to
facilitate settlements in local markets, in connection with stock index futures
positions, and to protect against currency exposure in connection with its
distributions to shareholders, but may not enter into such contracts for
speculative purposes or as a way of protecting against anticipated adverse
changes in exchange rates between foreign currencies and the U.S. dollar. A
foreign currency forward contract is an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract agreed upon by the parties, at a price set at the time
of the contract. 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 stock index 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 buy 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 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 and optimization techniques
described above, the Small Cap and International Equity Index Funds are not
expected to track their benchmark indicies with the same degree of accuracy as
would an investment vehicle that invested in every component security of its
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%. 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 the index Funds? The Small Cap
Equity Index Fund invests in many small U.S. companies, which entail 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 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 35% of the Bond Fund's total assets may be invested in
debt securities which are rated lower than A by Standard & Poor's or Moody's or
comparable unrated debt securities 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

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applicable to such securities. To the extent that the Bond Fund invests in such
securities, the Bond 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 greater risk of loss of income
and principal than lower-yielding, higher-rated fixed-income securities.

The Bond 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 appropriate, in SFIM's opinion, based upon prevailing market or economic
conditions, the Bond 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 lessened by
the quality of the investments in which the Bond Fund will primarily invest, the
Bond Fund may be subject to substantial price changes resulting from market
yield fluctuations with respect to holdings of longer maturities that typically
provide the best yields.

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 Stock and Bond Balanced Fund will never invest more than 75% of its net
assets in either underlying Fund. Though the Stock and Bond 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 Stock and Bond Balanced 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 Stock and Bond Balanced 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 33% 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 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.

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SHORT-TERM MONEY MARKET INSTRUMENTS

All of the Funds may, to varying degrees, 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 generally not
concentrate their investments in any particular foreign country, except to the
extent that the Fund's benchmark index concentrates in such 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.

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 may reduce the value of
certain portfolio investments. Many 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 for the
Fund.

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 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.

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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 may invest in ADRs and the International Equity
Index Fund may 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.

FORWARD CURRENCY CONTRACTS

As described above, the International Equity Index Fund may enter into foreign
currency forward and foreign currency futures contracts. Such contracts are
subject to special risks. For example, contracts to sell foreign currency could
limit any potential gain which might be realized by the Fund if the value of the
hedged currency increased. In addition, forward contracts are subject to the
risk that the counterparty to such contract will default on its obligations.
Since a forward foreign currency exchange contract is not guaranteed by an
exchange or clearinghouse, a default on the contract would deprive the Fund of
unrealized profits, transaction costs or the benefits of a currency hedge or
force the Fund to cover its purchase or sale commitments, if any, at the current
market price.

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STOCK INDEX FUTURES CONTRACTS AND OPTIONS ON SUCH CONTRACTS

Each equity index Fund may purchase and sell futures contracts on its benchmark
stock index or a similar stock index as a way to gain exposure to the securities
in the benchmark index or to simulate full investment in the underlying
benchmark equities. 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 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, Bond, Stock and Bond Balanced, and Money Market
Funds will each not purchase or otherwise acquire any investment if, as a
result, more than 15% (10% in the case of the Money Market Fund) of its net
assets (taken at current value) would be invested in instruments that are
illiquid, except as described below.

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 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 or through reverse
repurchase agreements in amounts up to 33 1/3% of its total assets (including
the amount borrowed). Each Fund may also borrow up to an additional 5% of its
total assets (including the amount borrowed), 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). Each Fund may also obtain such short-term credits as
may be necessary for clearance of purchases and sales of portfolio securities.

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INVESTMENTS IN SECURITIES OF SMALL CAPITALIZATION ISSUERS

The Small Cap and International Equity Index 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.

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 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.

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 24, 1998. 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 (other than U.S.
Treasury bills), 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 (other
than U.S. Treasury bills) 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

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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 an underwriting agreement, SFIM acts without remuneration as the
Trust's underwriter 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 shares of the Fund corresponding
to that subaccount. The Accounts purchase and redeem shares of the Funds for
their 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 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 their
net investment income every day. Each of these Funds 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"). If each of the Funds qualifies as a regulated investment company
and the Trust distributes substantially all of its net income and gains to its
shareholders (which it intends to do), 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; and (2) 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).

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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 stock index futures contracts or options on such futures
contracts or engage in short-term trading and transactions in securities
(including stock index futures contracts and options on such 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 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 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.

- ---------
14
<PAGE>
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 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 custodians 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 and contractholders,
preparing, printing and mailing proxy statements and shareholder reports to
shareholders and contractholders, the cost of paying dividends and capital gains
distributions, costs of Trustee 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:

<TABLE>
<S> <C>
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
</TABLE>

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. (This expense limitation
arrangement is voluntary and may be eliminated by SFIM at any time.) 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
and the International Equity Index 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. With respect to the International
Equity Index Fund, SFIM has agreed to bear the expenses incurred by the Fund,
other than the investment advisory fee, that exceed .20% of the Fund's average
daily net assets. These expense limitation arrangements are voluntary and may be
eliminated by SFIM at any time.

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 December
31, 1997, BGFA and its affiliates provided investment advisory services for over
$504 billion of assets.

15-------
<PAGE>
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 an investment sub-advisory fee
equal to a percentage of the average daily net assets of each index Fund at the
rates set forth below less certain credits also described below. The fee is
accrued daily and paid to BGFA quarterly. The rates upon which the fee is based
are as follows:

<TABLE>
<S> <C>
Large Cap Equity Index Fund .15% of the first $50,000,000 of net assets
- -----------------------------------
.09% of the next $50,000,000 of net assets

.07% thereafter

Small Cap Equity Index Fund .20% of the first $50,000,000 of net assets
- -----------------------------------
.14% of the next $50,000,000 of net assets

.11% 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
</TABLE>

The quarterly fee payable by SFIM to BGFA with respect to each index Fund will
be reduced by certain credits. The fee with respect to the Large Cap Equity
Index Fund and Small Cap Equity Index Fund will be reduced by $875 and $2,875
per quarter, respectively. The fee with respect to the International Equity
Index Fund will be reduced by $3,750 per quarter and an additional amount based
upon such Fund's international custody charges.

THE BOND FUND AND THE STOCK AND BOND BALANCED FUND MANAGERS

The Bond Fund's portfolio is managed by a team consisting of Kurt Moser, Donald
E. Heltner, and Duncan Funk. The Stock and Bond Balanced Fund's portfolio is
managed by a team consisting of Kurt Moser, John Concklin, Donald E. Heltner,
and Duncan Funk.

Mr. Moser is a Director and, since 1997, a Senior Vice President of SFIM (prior
to 1997, Mr. Moser was a Director and a Vice President of SFIM). Mr. Moser is
also a Vice President of the Trust. In addition to his offices with SFIM and the
Trust, Mr. Moser has held the following positions during the past five years:
Vice President of State Farm Growth Fund, Inc., State Farm Balanced Fund, Inc.,
State Farm Interim Fund, Inc., and State Farm Municipal Bond Fund, Inc.;
Director of State Farm VP Management Corp. since 1997; 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 Life Insurance Company, State
Farm Fire and Casualty Company ("SFFCC"), State Farm General Insurance Company,
State Farm Annuity and Life Insurance Company, and State Farm Life and Accident
Assurance Company; Investment Officer of State Farm Indemnity Company; and
Underwriter of State Farm Lloyds.

Mr. Concklin is an Investment Officer of SFIM. Mr. Concklin is also a Vice
President of the Trust. In addition to his offices with SFIM and the Trust, Mr.
Concklin has held the following positions during the last five years: Vice
President -- Common Stocks of SFMAIC, State Farm Life Insurance Company, and
SFFCC since 1997; Vice President of State Farm Balanced Fund, Inc. and State
Farm Interim Fund, Inc. since 1995; Vice President -- Fixed Income of SFMAIC,
State Farm Life Insurance Company, and SFFCC from 1995 to 1997; and Investment
Officer of SFMAIC, State Farm Life Insurance Company, and SFFCC until 1995.

Mr. Heltner is an Investment Officer of SFIM and is a Vice President of the
Trust (since March, 1998). Mr. Heltner is also a Vice President of State Farm
Balanced Fund, Inc. (since March, 1998) and State Farm Interim Fund, Inc. (since
March, 1998) and is Vice President -- Taxable Fixed Income of SFMAIC (since
February, 1998). From 1989 to February, 1998, Mr. Heltner was a Vice President
of Century Investment Management Co.

Mr. Funk is an Assistant Vice President of the Trust (since 1998) and since
1997, Mr. Funk has been an Investment Officer of SFMAIC. In addition to his
offices with SFMAIC and the Trust, Mr. Funk has held the following position
during the last five years: Investment Analyst of SFMAIC.

USE OF CERTAIN BROKERS

SFIM or BGFA may use brokerage firms that are affiliated with State Farm or BGFA
to execute portfolio trades for the funds, but only when SFIM or BGFA, as
appropriate, believes that no other firm offers a better combination of quality
execution (i.e., timeliness and completeness), favorable price and value of
research services.

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

- ---------
16
<PAGE>
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.

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 and fund accountant for certain
Funds (listed below), SFIM acts as underwriter for the Trust. See "Investment
Adviser" for more information on SFIM.

The following companies provide custody and/or fund accounting services to the
Trust:

<TABLE>
<CAPTION>
FUND CUSTODIAN FUND ACCOUNTANT
<S> <C> <C>
Money Market The Chase Manhattan Bank (1) SFIM

Large Cap Equity Index Barclays Global Investors (2) SFIM

Small Cap Equity Index Barclays Global Investors (2) SFIM

International Equity Index Investors Bank and Trust Company (3) Investors Bank and Trust Company (3)

Bond The Chase Manhattan Bank (1) SFIM

Stock and Bond Balanced The Chase Manhattan Bank (1) SFIM
</TABLE>

(1) North American Insurance Securities Services, 3 Chase MetroTech Center, 6th
Floor, Brooklyn, New York 11245.

(2) 45 Fremont Street, San Francisco, California 94105.

(3) 200 Clarendon Street, Boston, Massachusetts 02116.

PREPARING FOR YEAR 2000

Like other mutual funds, financial and business organizations and individuals
around the world, SFIM and the Trust could be adversely affected if the computer
systems used by SFIM and other service providers do not properly process and
calculate date-related information from and after January 1, 2000. SFIM is
taking steps that it believes are reasonably designed to address this problem in
the computer systems that it uses and to obtain satisfactory assurances that
comparable steps are being taken by each of the Trust's other major service
providers. At this time, however, there can be no assurance that these steps
will be sufficient to avoid any adverse impact on SFIM and the Trust, or that
interaction with other service providers will not impact SFIM's and the Trust's
services at that time.

17-------
<PAGE>

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

STATEMENT OF ADDITIONAL INFORMATION

May 1, 1998

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.

231-3556 Printed in U.S.A.

<PAGE>

TABLE OF CONTENTS

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

MANAGEMENT OF THE TRUST. . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Trustees and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Investment Advisory Agreements. . . . . . . . . . . . . . . . . . . . . . 13
Between the Trust and SFIM . . . . . . . . . . . . . . . . . . . . . . 13
Between SFIM and BGFA. . . . . . . . . . . . . . . . . . . . . . . . . 15
Tracking Error. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Securities Activities of the Investment Advisers. . . . . . . . . . . . . 16

PORTFOLIO TRANSACTIONS AND BROKERAGE . . . . . . . . . . . . . . . . . . . . 16
Portfolio Turnover. . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

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

PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . 19

DIVIDENDS AND DISTRIBUTIONS. . . . . . . . . . . . . . . . . . . . . . . . . 21

REDEMPTION OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Service Providers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Relationships with the Companies that Maintain the Benchmark Indices. . . 22
Standard & Poor's. . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Frank Russell Company. . . . . . . . . . . . . . . . . . . . . . . . . 23
Morgan Stanley & Co. Incorporated. . . . . . . . . . . . . . . . . . . 23

Code of Ethics. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Independent Auditors. . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

UNAUDITED FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . 25
APPENDIX A -- Description of Money Market Securities . . . . . . . . . . . .
APPENDIX B -- Ratings. . . . . . . . . . . . . . . . . . . . . . . . . . . .

<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 is found in
Appendix B 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.

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.

<PAGE>

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 segregate 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 33% 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 7. 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 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 a 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.

<PAGE>

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
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

<PAGE>

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.

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 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 for the Fund. 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.

<PAGE>

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 or similar 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 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

<PAGE>

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.

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.

<PAGE>

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 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.

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.

<PAGE>

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 concentrate 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 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.

<PAGE>

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 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 5 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. 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.

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 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.

<PAGE>

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.

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

Edward B. Rust, Jr.*, Trustee, Chairman of the Board, President
Age 47 President, and CEO - State Farm Mutual
and CEO Automobile Insurance Company;
Director and President - State Farm
Life Insurance Company, State Farm
Life and Accident Assurance
Company, State Farm Annuity and
Life Insurance Company, State Farm
Investment Management Corp., State
Farm Growth Fund, Inc., State Farm
Balanced Fund, Inc., State Farm
Interim Fund, Inc., and State Farm
Municipal Bond Fund, Inc.;
President, CEO and Director - State
Farm VP Management Corp. (since
1997); President and CEO - State
Farm Fire and Casualty Company and
State Farm General Insurance
Company; President - State Farm
County Mutual Insurance Company of
Texas; Director - State Farm
Lloyds, Inc. and State Farm
International Services, Inc.;
Chairman of the Board, President
and Treasurer - State Farm
Companies Foundation.

Albert H. Hoopes, Trustee Attorney
Age 83
1001 North Main Street
Bloomington, IL 61701

<PAGE>

Roger S. Joslin*, Trustee, Vice Director, Senior Vice President and
Age 61 President and Treasurer - State Farm Mutual
Treasurer Automobile Insurance Company;
Director - State Farm Life
Insurance Company, State Farm Life
and Accident Assurance Company, and
State Farm Annuity and Life
Insurance Company; Director, Vice
President and Treasurer - State
Farm Investment Management Corp.,
State Farm Growth Fund, Inc., State
Farm Balanced Fund, Inc., State
Farm Interim Fund, Inc., State Farm
Municipal Bond Fund, Inc., State
Farm General Insurance Company,
State Farm Lloyds, Inc., and State
Farm International Services, Inc.;
Director, Vice President and
Treasurer - State Farm VP
Management Corp. (since 1997);
Director, Chairman of the Board,
and Treasurer - State Farm Fire and
Casualty Company; Treasurer -State
Farm County Mutual Insurance
Company of Texas; Assistant
Treasurer - State Farm Companies
Foundation.

Thomas M. Mengler Trustee Dean, University of Illinois
Age 44 College of Law (August 1993 -
504 East Pennsylvania Present); Professor of Law,
Avenue University of Illinois (1991 -
Champaign, IL 61820 Present)

Davis U. Merwin, Trustee Investor
Age 69
P.O. Box 8
Bloomington, IL 61702

James A. Shirk, Trustee Director and President, Beer Nuts,
Age 54 Inc.
103 N. Robinson
Bloomington, IL 61701

Kurt G. Moser, Vice President Vice President --Investments -
Age 53 State Farm Mutual Automobile
Insurance Company; Director and
Vice President -- Investments -
State Farm Life Insurance Company,
State Farm Life and Accident
Assurance Company, State Farm
Annuity and Life Insurance Company,
State Farm Fire and Casualty
Company, and State Farm General
Insurance Company; Director and
Senior Vice President - State Farm
Investment Management Corp. (since
1997: prior to 1997, Director and
Vice President); Vice President -
State Farm Growth Fund, Inc., State
Farm Balanced Fund, Inc., State
Farm Interim Fund, Inc., and State
Farm Municipal Bond Fund, Inc.;
Director - State Farm VP

<PAGE>

Management Corp. (since 1997); Vice
President -- Investments -State
Farm County Mutual Insurance
Company of Texas, State Farm
Lloyds, Inc., and State Farm
International Services, Inc.;
Investment Officer - State Farm
Indemnity Company; Underwriter -
State Farm Lloyds.

Paul N. Eckley, Vice President Vice President -- Common Stocks -
Age 43 State Farm Mutual Automobile
Insurance Company, State Farm Life
Insurance Company, and State Farm
Fire and Casualty Company (since
1995: prior to 1995, Investment
Officer); Senior Vice President -
State Farm Investment Management
Corp. (since 1997: prior to 1997,
Investment Officer); Vice President
- State Farm Growth Fund, Inc. and
State Farm Balanced Fund, Inc.
(since 1995).

John S. Concklin, Vice President Vice President -- Common Stocks -
Age 51 State Farm Mutual Automobile
Insurance Company, State Farm Life
Insurance Company, and State Farm
Fire and Casualty Company (since
1997: from 1995 - 1997, Vice
President -- Fixed Income and prior
to 1995, Investment Officer);
Investment Officer - State Farm
Investment Management Corp. (since
1995); Vice President - State Farm
Balanced Fund, Inc. and State Farm
Interim Fund, Inc. (since 1995);
Vice President - State Farm Growth
Fund, Inc. (since 1998).

Donald E. Heltner, Vice President Vice President -- Taxable Fixed
Age 50 Income - State Farm Mutual
Automobile Insurance Company
(since 1998); Investment Officer -
State Farm Investment Management
Corp. (since 1998); Vice President
- State Farm Balanced Fund, Inc.
and State Farm Interim Fund, Inc.
(since 1998); Vice President -
Century Investment Management Co.
(from 1989-1998).

Duncan Funk, Assistant Vice Investment Officer - State Farm
Age 36 President Mutual Automobile Insurance
Company (since 1997; prior to
1997, Investment Analyst).

David R. Grimes, Assistant Vice Assistant Vice President of
Age 55 President and Accounting - State Farm Mutual
Secretary Automobile Insurance Company;
Assistant Vice President and
Secretary - State Farm Investment
Management Corp., State Farm Growth
Fund, Inc., State Farm Balanced
Fund, Inc., State Farm Interim
Fund, Inc., and State Farm
Municipal Bond Fund, Inc. (since
1994); Assistant Vice President and
Secretary - State Farm VP
Management Corp. (since 1997).

Michael L. Tipsord, Assistant Executive Assistant -- Operations
Age 38 Secretary - State Farm Mutual Automobile
Insurance Company (since 1997:
from 1996 - 1997, Assistant
Controller; from 1995 - 1996,
Director of Accounting and from
1991 - 1995, Staff Associate in the
Controller's Department);
Assistant Secretary - State Farm
Investment Management Corp.,
State Farm Growth Fund, Inc., State
Farm Balanced Fund, Inc., State
Farm Interim Fund, Inc., and State
Farm Municipal Bond Fund, Inc.;
Treasurer - Insurance Placement
Services, Inc. (since 1996).

Jerel S. Chevalier, Assistant Director of Mutual Funds - State
Age 59 Secretary- Farm Mutual Automobile Insurance
Treasurer Company; Assistant
Secretary-Treasurer - State Farm
Invest-

<PAGE>

ment Management Corp., State Farm
Growth Fund, Inc., State Farm
Balanced Fund, Inc., State Farm
Interim Fund, Inc., and State Farm
Municipal Bond Fund, Inc. (since
1994).

Patricia L. Dysart, Assistant Assistant Counsel - State Farm
Age 34 Secretary Mutual Automobile Insurance
Company; Assistant Secretary -
State Farm Investment Management
Corp., State Farm Growth Fund,
Inc., State Farm Balanced Fund,
Inc., State Farm Interim Fund,
Inc., and State Farm Municipal Bond
Fund, Inc. (since 1995); Assistant
Secretary - State Farm VP
Management Corp. (since 1997).

* Trustee who is an "interested person" of the Trust or SFIM, as defined in
the 1940 Act.

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 $300 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.

<TABLE>
<CAPTION>
Aggregate
Compensation Total Compensation From the Trust
Name from the Trust(1) and Other State Farm Funds (2)
- ---- ----------------- ------------------------------
<S> <C> <C>
Edward B. Rust, Jr. None(3) None(3)
Albert H. Hoopes $5,400 $12,000
Roger S. Joslin None(3) None(3)
Thomas M. Mengler None(4) None (4)
Davis U. Merwin $5,400 $12,000
James A. Shirk $5,400 $12,000

</TABLE>

(1) Compensation for the fiscal year ending December 31, 1997.

(2) The "other State Farm Funds" are State Farm Growth Fund, Inc., State
Farm Balanced Fund, Inc., State Farm Interim Fund, Inc., and State
Farm Municipal Bond Fund, Inc.
(3) Non-compensated interested trustee.
(4) Did not serve as a trustee of the Trust or as a director of the other
State Farm Funds during 1997.

INVESTMENT ADVISORY AGREEMENTS

BETWEEN THE TRUST AND SFIM

The duties and responsibilities of SFIM are specified in the Investment Advisory
and Management Services

<PAGE>

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
September 12, 1997 and the shareholders of each Fund at a meeting held on
January 30, 1998. 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 shall continue in effect for two years and
can thereafter 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.

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.

<PAGE>

contractholders, costs of preparing, printing, and mailing proxy statements and
shareholder reports to shareholders and contractholders, the cost of paying
dividends and capital gains distribution, capital stock certificates, costs of
Trustee 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 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 September 12, 1997 and the shareholders of each
Fund at a meeting held on January 30, 1998. 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 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 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.

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

<PAGE>

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
with 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.

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.

<PAGE>

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 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 or the Money Market Fund, and securities initially satisfying the
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 24, 1998. 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.

<PAGE>

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. 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 (other than
U.S. Treasury bills) 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 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 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

<PAGE>

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 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.

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 shares, when redeemed, may be worth more or less than original cost.

<PAGE>

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 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 "Free"), 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.

<PAGE>

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 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.

The Chase Manhattan Bank, North American Insurance Securities Services, 3 Chase
MetroTech Center, 6th Floor, Brooklyn, New York 11245 ("Chase Manhattan"), acts
as custodian of the assets of the Money Market Fund, Bond Fund, and Stock and
Bond Balanced Fund. Under its custody agreement with the Trust, Chase Manhattan
maintains the portfolio securities acquired by the Money Market, Bond, 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 Global Investors, 45 Fremont
Street, San Francisco, California 94105 ("BGI"), is the Trust's custodian for
the Large Cap and Small Cap Equity Index Funds. Under its custody agreement with
the Trust, BGI maintains the portfolio securities acquired by the Large Cap and
Small Cap 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. Investors Bank and Trust Company, 200 Clarendon
Street, Boston, Massachusetts 02116 ("IBT"), is the Trust's custodian for the
International Equity Index Fund. Under its custody agreement with the Trust,
IBT maintains the portfolio securities acquired by the International Equity
Index Fund, administers the purchases and sales of portfolio securities,
collects interest and dividends and other distributions made on the securities
held in the portfolios

<PAGE>

of this Fund, and performs such other ministerial duties as are included in the
custody agreement, a copy of which is on file with the Commission.

Chase Manhattan, BGI, and IBT (the "custodians") may hold securities of the
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.

SFIM performs fund accounting services, including the valuation of portfolio
securities and the calculation of net asset value, for each of the Funds other
than the International Equity Index Fund. IBT performs fund accounting services
for the International Equity Index Fund.

RELATIONSHIPS WITH THE COMPANIES THAT MAINTAIN THE BENCHMARK INDICES

STANDARD & POOR'S

"Standard & Poor's-Registered Trademark- ", "S&P-Registered Trademark-", "S&P
500-Registered Trademark-", "Standard & Poor's 500", and "500" are trademarks
of The McGraw-Hill Companies, Inc. and have been licensed for use by the
Trust. Neither the Large Cap Equity Index Fund nor the Stock and Bond
Balanced Fund (the "Funds") are sponsored, endorsed, sold or promoted by
Standard & Poor's, a division of The McGraw-Hill Companies, Inc. ("S&P").
S&P makes no representation regarding the advisability of investing in the
Funds.

S&P makes no representation or warranty, express or implied, to the owners of
the Funds or any member of the public regarding the advisability of investing in
securities generally or in the Funds particularly or the ability of the S&P 500
Index to track general stock market performance. 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 Index which is determined, composed and calculated by S&P without regard
to the Trust or the Funds. S&P has no obligation to take the needs of the Trust
or the owners of the Funds into consideration in determining, composing or
calculating the S&P 500 Index. S&P is not responsible for and has not
participated in the determination of the prices and amount of the Funds or the
timing of the issuance or sale of the Funds or in the determination or
calculation of the equation by which the Funds are to be converted into cash.
S&P has no obligation or liability in connection with the administration,
marketing or trading of the Funds.

S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500 INDEX
OR ANY DATA INCLUDED THEREIN AND S&P SHALL HAVE NO LIABILITY FOR ANY ERRORS,
OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR IMPLIED,
AS TO RESULTS TO BE OBTAINED BY THE TRUST, OWNERS OF THE FUNDS, OR ANY OTHER
PERSON OR ENTITY FROM THE USE OF THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN.
S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH
RESPECT TO THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY
OF THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL,
PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF
NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.

<PAGE>

FRANK RUSSELL COMPANY

The Russell 2000-Registered Trademark- Index is a trademark/service mark of
the Frank Russell Company. Russell-Trademark- is a trademark of the Frank
Russell Company.

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

Frank Russell Company reserves the right, at any time and without notice, to
alter, amend, terminate or in any way change its Index(es). Frank Russell
Company has no obligation to take the needs of any particular fund or its
participants or any other product or person into consideration in determining,
composing or calculating the Index(es).

Frank Russell Company's publication of the Index(es) in no way suggests or
implies an opinion by Frank Russell Company as to the attractiveness or
appropriateness of investment in any or all securities upon which the Index(es)
is (are) based. FRANK RUSSELL COMPANY MAKES NO REPRESENTATION, WARRANTY, OR
GUARANTEE AS TO THE ACCURACY, COMPLETENESS, RELIABILITY, OR OTHERWISE OF THE
INDEX(ES) OR ANY DATA INCLUDED IN THE INDEX(ES). FRANK RUSSELL COMPANY MAKES NO
REPRESENTATION OR WARRANTY REGARDING THE USE, OR THE RESULTS OF USE, OF THE
INDEX(ES) OR ANY DATA INCLUDED THEREIN, OR ANY SECURITY (OR COMBINATION THEREOF)
COMPRISING THE INDEX(ES). FRANK RUSSELL COMPANY MAKES NO OTHER EXPRESS OR
IMPLIED WARRANTY, AND EXPRESSLY DISCLAIMS ANY WARRANTY, OF ANY KIND, INCLUDING,
WITHOUT MEANS OF LIMITATION, ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE WITH RESPECT TO THE INDEX(ES) OR ANY DATA OR ANY SECURITY (OR
COMBINATION THEREOF) INCLUDED THEREIN.

MORGAN STANLEY & CO. INCORPORATED

The Morgan Stanley Capital International EAFE-Registered Trademark- Free
Index is the exclusive property of Morgan Stanley & Co. Incorporated ("Morgan
Stanley"). Morgan Stanley Capital International 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 this fund or any member of the public regarding the
advisability of investing in funds generally or in this fund particularly or the
ability of the Morgan Stanley Capital International EAFE(R) Free Index to track
general stock market performance. Morgan Stanley is the licensor of certain
trademarks, service marks and trade names of Morgan Stanley and of the Morgan
Stanley Capital International EAFE(R) Free Index which is determined, composed
and calculated by Morgan Stanley without regard to the issuer of this fund.
Morgan Stanley has no obligation to take the needs of the issuer of this fund or
the owners of this fund into consideration in determining, composing or
calculating the Morgan Stanley Capital International EAFE(R) Free Index. Morgan
Stanley is not responsible for and has not participated in the determination of
the timing of, prices at, or quantities of this fund to be issued or in the
determination or calculation of the equation by which this fund is redeemable
for cash. Morgan Stanley has no obligation or liability to owners of this fund
in connection with the administration, marketing or trading of this fund.

<PAGE>

ALTHOUGH MORGAN STANLEY SHALL OBTAIN INFORMATION FOR INCLUSION IN OR FOR USE IN
THE CALCULATION OF THE INDEXES FROM SOURCES WHICH MORGAN STANLEY CONSIDERS
RELIABLE, NEITHER MORGAN STANLEY NOR ANY OTHER PARTY GUARANTEES THE ACCURACY
AND/OR THE COMPLETENESS OF THE INDEXES OR ANY DATA INCLUDED THEREIN. NEITHER
MORGAN STANLEY NOR ANY OTHER PARTY MAKES ANY WARRANTY, EXPRESS OR IMPLIED, AS TO
RESULTS TO BE OBTAINED BY THE TRUST, THE TRUST'S CUSTOMERS AND COUNTERPARTIES,
OWNERS OF THE FUND, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE INDEXES OR
ANY DATA INCLUDED THEREIN IN CONNECTION WITH THE RIGHTS LICENSED HEREUNDER OR
FOR ANY OTHER USE. NEITHER MORGAN STANLEY NOR ANY OTHER PARTY MAKES ANY EXPRESS
OR IMPLIED WARRANTIES, AND MORGAN STANLEY HEREBY EXPRESSLY DISCLAIMS ALL
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT
TO THE INDEXES OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE
FOREGOING, IN NO EVENT SHALL MORGAN STANLEY OR ANY OTHER PARTY HAVE ANY
LIABILITY FOR ANY DIRECT, INDIRECT, SPECIAL, PUNITIVE, CONSEQUENTIAL OR ANY
OTHER DAMAGES (INCLUDING LOST PROFITS) EVEN IF NOTIFIED OF THE POSSIBILITY OF
SUCH DAMAGES.

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. Barclays has adopted a similar
Code of Ethics relating to its employees, and the Board of Trustees of the Trust
has adopted Barclays' Code of Ethics insofar as it relates to Barclays'
employees' activities in connection with the Trust. The Board of Trustees
believes that the provisions of its Code of Ethics and Barclays' Code of Ethics
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.

<PAGE>

The Trust was organized as a business trust pursuant to the laws of the State of
Delaware on February 21, 1997. 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.

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 $15,000,000, $30,000,000, $54,000,000, $10,000,000,
and $10,000,000 of shares in the Large Cap Equity Index, Small Cap Equity Index,
International Equity Index, Bond, and Money Market Funds, respectively. Such
shares were acquired for investment and can only be disposed of by redemption.

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 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.

UNAUDITED FINANCIAL STATEMENTS

The unaudited financial statements of the Trust for the period ended March
31, 1998 appear on the following pages.

25
<PAGE>

STATE FARM VP TRUST LARGE CAP EQUITY INDEX FUND
PORTFOLIO OF INVESTMENTS
MARCH 31, 1998
(UNAUDITED)

SHARES OR
PRINCIPAL
AMOUNT VALUE
$
<S> <C> <C> <C>
COMMON STOCK 99.30%

AEROSPACE/DEFENSE 1.00%
2,036.00 Boeing Company 106,126
126.00 General Dynamics Corporation 10,852
403.00 Lockheed Martin Corporation 45,337
133.00 Northrop Grumman Corporation 14,289
-----------
176,604

AGRICULTURE, FOODS, & BEVERAGE 6.33%
1,004.00 Anheuser-Busch Companies Inc. 46,498
1,159.00 Archer-Daniels-Midland Company 25,426
302.00 Bestfoods 35,296
138.00 Brown-Forman Corporation Class B 7,590
939.00 Campbell Soup Company 53,288
5,050.00 The Coca-Cola Company 391,059
963.00 ConAgra Inc. 30,936
74.00 Coors (Adolph) Company Class B 2,590
331.00 General Mills Inc. 25,156
758.00 Heinz (H.J.) Company 44,248
300.00 Hershey Foods Corporation 21,488
831.00 Kellogg Company 35,837
3,095.00 PepsiCo Inc. 132,118
131.00 Pioneer Hi-Bred International 12,781
277.00 Quaker Oats Company 15,858
213.00 Ralston Purina Co. 22,578
974.00 Sara Lee Corporation 60,023
722.00 Seagram Company Ltd. 27,571
120.00 Supervalu Inc. 5,595
684.00 Sysco Corporation 17,528
1,314.00 Unilever N.V. 90,173
0.40 Vlasic Foods International 10
232.00 Wrigley (Wm.) Jr. Company 18,966
-----------
1,122,613

AIRLINES 0.40%
182.00 AMR Corporation 26,060
148.00 Delta Air Lines Inc. 17,501
447.00 Southwest Airlines 13,215
182.00 US Airways Group 13,491
-----------
70,267

AUTOMOTIVE 2.39%
56.00 Aeroquip-Vickers Inc. 3,237
1,333.00 Chrysler Corporation 55,403
157.00 Cooper Tire & Rubber Company 3,729
76.00 Cummins Engine Company 4,190
210.00 Dana Corporation 12,219
126.00 Echlin Inc. 6,607
2,447.00 Ford Motor Company 158,596
1,448.00 General Motors Corporation 97,650
</TABLE>

<PAGE>

SHARES OR
PRINCIPAL
AMOUNT VALUE
$
<S> <C> <C> <C>
382.00 Genuine Parts Company 14,564
327.00 Goodyear Tire & Rubber Company 24,770
237.00 ITT Industries, Inc. 9,021
150.00 Navistar International 5,250
155.00 Paccar Inc. 9,232
122.00 Snap-On, Incorporated 5,566
246.00 TRW Inc. 13,561
-----------
423,595

BANKS 8.99%
232.00 Ahmanson (H.F.) & Company 17,980
293.00 BB&T Corporation 19,832
1,319.00 Banc One Corporation 83,427
777.00 Bank of New York Company Inc. 48,805
1,415.00 BankAmerica Corporation 116,914
305.00 Bank of Boston Corporation 33,626
196.00 Bankers Trust New York Corporation 23,581
867.00 Chase Manhattan Corporation 116,937
937.00 Citicorp 133,054
210.00 Comerica, Inc. 22,221
410.00 CoreStates Financial Corporation 36,798
318.00 Fifth Third Bancorp 27,189
591.00 First Chicago NBD Corporation 52,082
1,319.00 First Union Corporation 74,853
553.00 Fleet Financial Group Inc. 47,040
113.00 Golden West Financial Corporation 10,827
407.00 Hunting Bancshares Inc. 14,830
888.00 KeyCorp 33,578
518.00 Mellon Bank Corporation 32,893
269.00 Mercantile Bancorporation 14,745
370.00 Morgan (J.P.) & Company 49,696
427.00 National City Corporation 31,304
1,918.00 NationsBank Corporation 139,894
222.00 Northern Trust Co. 16,594
1,549.00 Norwest Corporation 64,380
619.00 PNC Bank Corporation 37,101
109.00 Republic New York Corporation 14,538
336.00 State Street Corporation 22,869
366.00 Summit Bancorp 18,323
436.00 SunTrust Banks Inc. 32,863
375.00 Synovus Financial Corporation 13,922
500.00 U.S. Bancorp 62,375
418.00 Wachovia Corporation 35,452
524.00 Washington Mutual Inc. 37,581
173.00 Wells Fargo & Company 57,306
-----------
1,595,410

BUILDING MATERIALS & CONSTRUCTION 0.36%
81.00 Armstrong World Industries Inc. 7,012
189.00 Black & Decker Corporation 10,029
118.00 Centex Corporation 4,499
</TABLE>

<PAGE>

SHARES OR
PRINCIPAL
AMOUNT VALUE
$
<S> <C> <C> <C>
72.00 Fleetwood Enterprises 3,353
78.00 Kaufman & Broad Home Corporation 2,540
345.00 Masco Corporation 20,528
107.00 Owens Corning 3,845
42.00 Pulte Corporation 1,953
178.00 Stanley Works 9,923
-----------
63,682

CHEMICALS 2.53%
239.00 Air Products & Chemicals Inc. 19,807
468.00 Dow Chemical Company 45,513
2,310.00 Du Pont (E.I.) De Nemours and Company 157,080
157.00 Eastman Chemical Company 10,588
258.00 Ecolab Inc. 7,482
314.00 Engelhard Corporation 5,966
73.00 FMC Corporation 5,730
143.00 Goodrich (B.F.) Company 7,302
148.00 Grace (W.R.) & Company 12,386
120.00 Great Lakes Chemical Corporation 6,480
193.00 Hercules Inc. 9,529
218.00 International Flavors & Fragrances Inc. 10,273
1,219.00 Monsanto Company 63,388
266.00 Morton International Inc. 8,728
133.00 Nalco Chemical Company 5,395
371.00 PPG Industries Inc. 25,205
315.00 Praxair, Inc. 16,203
122.00 Rohm & Haas Company 12,604
200.00 Sigma-Aldrich Corporation 7,450
246.00 Union Carbide Corporation 12,331
-----------
449,440

COMMERCIAL SERVICE/SUPPLY 1.89%
208.00 Block (H & R) Inc. 9,893
1,660.00 Cendant Corporation 65,778
339.00 Cognizant Corporation 19,450
162.00 Deluxe Corporation 5,336
316.00 Donnelley (R.R.) & Sons Company 12,976
365.00 Dun & Bradstreet Corporation 12,479
659.00 Eastman Kodak Company 42,753
307.00 Federal Express Corporation 21,835
62.00 Harland (J.H.) Company 965
252.00 Interpublic Group of Companies, Inc. 15,656
177.00 Moore Corporation Ltd. 2,942
589.00 Pitney Bowes Inc. 29,560
90.00 Polaroid Corporation 3,960
513.00 Service Corporation International 21,770
661.00 Xerox Corporation 70,355
-----------
335,708

COMPUTERS 4.62%
736.00 3Com Corporation 26,450
</TABLE>

<PAGE>

SHARES OR
PRINCIPAL
AMOUNT VALUE
$
<S> <C> <C> <C>
274.00 Apple Computer Inc. 7,535
443.00 Bay Networks, Inc. 12,016
341.00 Cabletron Systems 4,966
2,080.00 Cisco Systems Inc. 142,220
3,089.00 Compaq Computer Corporation 79,928
96.00 Data General Corporation 1,698
1,339.00 Dell Computer Corporation 90,717
295.00 Digital Equipment Corporation 15,432
1,016.00 EMC Corporation 38,418
2,118.00 Hewlett-Packard Company 134,228
275.00 Ikon Office Solutions 9,505
1,982.00 International Business Machines Corporation 205,880
513.00 Seagate Technology, Inc. 12,953
399.00 Silicon Graphics, Inc. 5,561
783.00 Sun Microsystems Inc. 32,666
-----------
820,173

COMPUTER SOFTWARE & SERVICES 4.23%
146.00 Adobe Systems Inc. 6,597
97.00 Autodesk Inc. 4,183
619.00 Automatic Data Processing Inc. 42,131
153.00 Ceridian Corporation 8,252
1,117.00 Computer Associates International 64,507
325.00 Computer Sciences Corporation 17,875
865.00 First Data Corporation 28,113
437.00 HBO & Co. 26,384
169.00 Kla-Tencor Corporation 6,464
4,968.00 Microsoft Corporation 444,636
698.00 Novell Inc. 7,482
2,008.00 Oracle Corporation 63,377
518.00 Parametric Technology Corp. 17,256
50.00 Shared Medical Systems Corporation 3,919
499.00 Unisys Corporation 9,481
-----------
750,657

CONSUMER & MARKETING 4.16%
112.00 Alberto-Culver Company 3,409
147.00 American Greetings Corporation Class A 6,762
264.00 Avon Products Inc. 20,592
199.00 Brunswick Corporation 6,940
206.00 Clorox Company 17,652
601.00 Colgate-Palmolive Company 52,062
331.00 Darden Restaurants Inc. 5,151
442.00 Fort James Corporation 20,249
1,144.00 The Gillette Company 135,779
253.00 Hasbro Inc. 8,934
78.00 Jostens Inc. 1,872
1,138.00 Kimberly-Clark Corporation 57,042
591.00 Mattel Inc. 23,418
190.00 Maytag Corporation 9,084
1,414.00 McDonald's Corporation 84,840
</TABLE>

<PAGE>

SHARES OR
PRINCIPAL
AMOUNT VALUE
$
<S> <C> <C> <C>
318.00 Newell Company 15,403
2,749.00 The Procter & Gamble Company 231,947
299.00 Rubbermaid Inc. 8,521
0.75 Sodexho Marriott Services 20
303.00 Tricon Global Restaurants 9,109
122.00 Tupperware Corporation 3,248
289.00 Wendy's International Inc. 6,448
150.00 Whirlpool Corporation 10,284
-----------
738,766

CONTAINERS & PACKAGING 0.24%
60.00 Ball Corporation 1,965
106.00 Bemis Company Inc. 4,783
256.00 Crown Cork & Seal Inc. 13,696
281.00 Owens-Illinois Inc. 12,153
198.00 Stone Container Corporation 2,475
113.00 Temple-Inland Inc. 7,020
-----------
42,092

ELECTRIC UTILITIES 2.51%
274.00 Ameren Corporation 11,542
394.00 American Electric Power Company Inc. 19,798
295.00 Baltimore Gas & Electric Company 9,643
300.00 Carolina Power & Light Company 13,575
474.00 Central & Southwest Corporation 12,679
340.00 Cinergy Corporation 12,580
479.00 Consolidated Edison of New York 22,393
290.00 DTE Energy Co. 11,401
393.00 Dominion Resources Inc. 16,506
729.00 Duke Energy Corp. 43,421
772.00 Edison International 22,677
497.00 Entergy Corporation 14,786
378.00 FPL Group Inc. 24,287
470.00 Firstenergy Corporation 14,482
266.00 GPU, Inc. 11,771
570.00 Houston Industries Incorporated 16,388
288.00 Niagara Mohawk Power Corporation 3,744
149.00 Northern States Power Company 8,791
469.00 Peco Energy Company 10,377
886.00 PG&E Corporation 29,238
331.00 PP&L Resources Inc. 7,820
602.00 Pacificorp 14,824
473.00 Public Service Enterprises 17,915
1,403.00 Southern Company 38,846
502.00 Texas Utilities Company (Holding Co.) 19,735
442.00 Unicom Corporation 15,470
-----------
444,689

ELECTRONIC/ELECTRICAL MANUFACTURING 6.48%
283.00 Advanced Micro Devices, Inc. 8,225
449.00 AMP Inc. 19,672
</TABLE>

<PAGE>

SHARES OR
PRINCIPAL
AMOUNT VALUE
$
<S> <C> <C> <C>
738.00 Applied Materials, Inc. 26,061
90.00 EG&G Inc. 2,615
911.00 Emerson Electric Company 59,386
6,691.00 General Electric Company 576,681
99.00 General Signal Corporation 4,628
99.00 Grainger (W.W.), Inc. 10,178
254.00 Honeywell Inc. 21,003
3,348.00 Intel Corporation 261,353
283.00 LSI Logic Corporation 7,146
432.00 Micron Technology, Inc. 12,555
326.00 National Semiconductor Corporation 6,826
103.00 Perkin-Elmer Corporation 7,448
172.00 Raychem Corporation 7,149
687.00 Raytheon Company 40,104
417.00 Rockwell International Corporation 23,925
101.00 Tektronix, Inc. 4,507
804.00 Texas Instruments Inc. 43,516
110.00 Thomas & Betts Corporation 7,040
-----------
1,150,018

ENGINEERING & CONSTRUCTION 0.09%
167.00 Fluor Corporation 8,308
81.00 Foster Wheeler Corporation 2,475
112.00 McDermott International, Inc. 4,627
-----------
15,410

ENVIRONMENTAL CONTROLS 0.31%
395.00 Browning-Ferris Industries 12,887
681.00 Laidlaw Inc. 10,811
117.00 Safety-Kleen Corporation 3,320
919.00 Waste Management Inc. 28,317
-----------
55,335

FINANCIAL SERVICES 3.64%
953.00 American Express Company 87,497
517.00 American General Corporation 33,443
106.00 Beneficial Corporation 13,177
216.00 Countrywide Credit Industries, Inc. 11,488
300.00 Equifax Inc. 10,950
1,418.00 Federal Home Loan Mortgage Corporation 67,266
2,174.00 Federal National Mortgage Association 137,505
272.00 Green Tree Financial Corporation 7,735
214.00 Household International, Inc. 29,479
204.00 Lehman Brothers Holding Inc. 15,274
199.00 MBIA Inc. 15,423
1,026.00 MBNA Corporation 36,744
228.00 MGIC Investment Corporation 14,977
675.00 Merrill Lynch & Company 56,025
1,218.00 Morgan Stanley Dean Witter 88,762
540.00 Schwab Charles Corporation 20,520
-----------
646,265
</TABLE>

<PAGE>

SHARES OR
PRINCIPAL
AMOUNT VALUE
$
<S> <C> <C> <C>
FOREST PRODUCTS 0.66%
112.00 Boise Cascade Corporation 4,039
192.00 Champion International Corporation 10,428
185.00 Georgia-Pacific Corporation 11,979
614.00 International Paper Company 28,743
219.00 Louisiana-Pacific Corporation 5,092
209.00 The Mead Corporation 7,485
58.00 Potlatch Corporation 2,498
139.00 Union Camp Corporation 8,305
204.00 Westvaco Corporation 6,273
414.00 Weyerhaeuser Company 23,391
222.00 Willamette Industries 8,339
-----------
116,572

HEALTH CARE 11.12%
1,568.00 Abbott Laboratories 118,090
130.00 Allergan Inc. 4,940
171.00 Alza Corporation 7,663
1,333.00 American Home Products Corporation 127,135
114.00 Bard (C.R.) Inc. 4,189
110.00 Bausch & Lomb Inc. 5,026
569.00 Baxter International Inc. 31,366
244.00 Becton, Dickinson and Company 16,607
223.00 Biomet Inc. 6,690
404.00 Boston Scientific Corporation 27,270
2,026.00 Bristol-Myers Squibb Company 211,337
218.00 Cardinal Health Inc. 19,225
1,318.00 Columbia/HCA Healthcare 42,505
306.00 Guidant Corporation 22,453
796.00 Healthsouth Corporation 22,338
327.00 Humana Inc. 8,114
2,751.00 Johnson & Johnson 201,683
2,291.00 Lilly (Eli) & Company 136,601
146.00 Mallinckrodt Inc. 5,767
127.00 Manor Care Inc. 4,699
962.00 Medtronic Inc. 49,904
2,443.00 Merck & Company 313,620
2,648.00 Pfizer Inc. 263,972
1,028.00 Pharmacia & Upjohn Inc. 44,975
183.00 St Jude Medical Inc. 6,119
1,502.00 Schering-Plough Corporation 122,695
620.00 Tenet Healthcare Corporation 22,514
391.00 United Healthcare Corporation 25,317
151.00 United States Surgical Corporation 4,983
559.00 Warner-Lambert Company 95,205
-----------
1,973,002

INSURANCE 4.62%
312.00 Aetna Incorporated 26,032
881.00 The Allstate Corporation 80,997
</TABLE>

<PAGE>

SHARES OR
PRINCIPAL
AMOUNT VALUE
$
<S> <C> <C> <C>
1,436.00 American International Group Inc. 180,846
350.00 Aon Corporation 22,662
355.00 Chubb Corporation 27,823
148.00 Cigna Corporation 30,340
110.00 Cincinnati Financial Corporation 13,778
391.00 Conseco Inc. 22,140
157.00 General Re Corporation 34,638
236.00 Hartford Financial Services Group 25,606
142.00 Jefferson-Pilot Corporation 12,629
204.00 Lincoln National Corporation 17,315
230.00 Loews Corporation 23,977
354.00 Marsh & McLennan Companies, Inc. 30,909
144.00 Progressive Corporation 19,395
190.00 Providian Financial Corporation 10,913
282.00 Safeco Corporation 15,413
167.00 The St. Paul Companies 14,884
420.00 Sunamerica Inc. 20,107
280.00 Torchmark Corporation 12,828
126.00 Transamerica Corporation 14,679
2,340.00 Travelers Group Inc. 140,400
277.00 Unum Corporation 15,287
225.00 USF&G Corporation 5,611
-----------
819,209

LODGING & GAMING 0.28%
227.00 Harrah's Entertainment Inc. 5,576
510.00 Hilton Hotels Corporation 16,256
255.00 Marriott International Inc. Class A 9,132
255.00 Marriott International 9,483
358.00 Mirage Resorts Inc. 8,704
-----------
49,151

MACHINERY & MANUFACTURING 3.12%
1,162.00 Allied Signal Inc. 48,804
205.00 Avery Dennison Corporation 10,942
50.00 Briggs & Stratton Corporation 2,291
150.00 Case Corporation 10,219
754.00 Caterpillar Inc. 41,517
80.00 Cincinnati Milacron, Inc. 2,550
242.00 Cooper Industries Inc. 14,384
487.00 Corning Inc. 21,550
92.00 Crane Company 4,876
504.00 Deere & Company 31,216
454.00 Dover Corporation 17,252
154.00 Eaton Corporation 14,659
99.00 Harnischfeger Industries Inc. 3,384
508.00 Illinois Tool Works 32,893
331.00 Ingersoll-Rand Company 15,867
167.00 Johnson Controls Inc. 10,135
87.00 Millipore Corporation 3,023
841.00 Minnesota Mining & Manufacturing Company 76,689
</TABLE>

<PAGE>

SHARES OR
PRINCIPAL
AMOUNT VALUE
$
<S> <C> <C> <C>
16.00 Nacco Industries 2,144
86.00 National Service Industries Inc. 5,058
254.00 Pall Corporation 5,461
223.00 Parker-Hannifin Corporation 11,429
340.00 Tenneco Inc. 14,514
343.00 Textron Inc. 26,411
327.00 Thermo Electron Corporation 13,203
126.00 Timken Company 4,260
1,170.00 Tyco International, Ltd. 63,911
480.00 United Technologies Corporation 44,310
-----------
552,952

MEDIA & BROADCASTING 3.29%
1,456.00 CBS Corporation 49,413
211.00 Clear Channel Communications 20,678
707.00 Comcast Corporation 24,966
1,378.00 The Walt Disney Company 147,101
192.00 Dow Jones & Company 10,164
577.00 Gannett Company 41,472
146.00 King World Productions, Inc. 4,271
169.00 Knight-Ridder, Inc. 9,443
198.00 The McGraw-Hill Companies, Inc. 15,060
106.00 Meredith Corporation 4,465
192.00 New York Times Company 13,440
332.00 Omnicom Group 15,625
1,038.00 Tele Communications Inc. Class A 32,275
1,182.00 Time Warner Inc. 85,104
177.00 Times Mirror Company 11,217
246.00 Tribune Company 17,343
1,237.00 US West Media Group 42,986
715.00 Viacom Inc. 38,431
-----------
583,454

MINING & METALS 0.86%
464.00 Alcan Aluminium Ltd. 14,500
397.00 Allegheny Teledyne 11,041
359.00 Aluminum Company of America 24,704
216.00 Armco Inc. 1,269
81.00 Asarco, Inc 2,162
769.00 Barrick Gold Corporation 16,630
459.00 Battle Mountain Gold Co 2,926
225.00 Bethlehem Steel Corporation 3,052
187.00 Cyprus Amax Minerals Company 3,109
386.00 Freeport-McMoran Copper & Gold 7,696
293.00 Homestake Mining 3,186
359.00 Inco Ltd. 6,709
98.00 Inland Steel Industries Inc. 2,707
313.00 Newmont Mining Corporation 9,566
176.00 Nucor Corporation 9,581
117.00 Phelps Dodge Corporation 7,554
528.00 Placer Dome Inc. 6,963
</TABLE>

<PAGE>

SHARES OR
PRINCIPAL
AMOUNT VALUE
$
<S> <C> <C> <C>
148.00 Reynolds Metals Company 9,093
172.00 USX-US Steel Group 6,493
193.00 Worthington Industries 3,498
-----------
152,439

PHARMACEUTICALS 0.18%
6.00 Allergan Specialty Therapeutic 73
536.00 Amgen Inc. 32,629
-----------
32,702

OIL, GAS, & OTHER ENERGY 8.31%
183.00 Amerada Hess Corporation 10,671
998.00 Amoco Corporation 86,202
120.00 Anadarko Petroleum Corporation 8,280
206.00 Apache Corporation 7,571
150.00 Ashland Inc. 8,494
651.00 Atlantic Richfield Company 51,185
347.00 Baker-Hughes Inc. 13,967
353.00 Burlington Resources Inc. 16,922
1,347.00 Chevron Corporation 108,181
212.00 Coastal Corporation 13,806
111.00 Columbia Gas System 8,630
191.00 Consolidated Natural Gas Company 11,018
375.00 Dresser Industries, Inc. 18,023
41.00 Eastern Enterprises 1,763
635.00 Enron Corporation 29,448
5,035.00 Exxon Corporation 340,492
533.00 Halliburton Company 26,750
100.00 Helmerich & Payne Inc. 3,125
95.00 Kerr-McGee Corporation 6,608
1,607.00 Mobil Corporation 123,136
97.00 Nicor Inc. 4,098
687.00 Occidental Petroleum Corporation 20,138
62.00 Oneok Inc. 2,527
211.00 Oryx Energy Company 5,486
167.00 Pacific Enterprises 6,816
95.00 Pennzoil Company 6,139
70.00 Peoples Energy Corporation 2,546
536.00 Phillips Petroleum Company 26,767
173.00 Rowan Companies, Inc. 5,017
4,373.00 Royal Dutch Petroleum Company 248,441
1,024.00 Schlumberger Ltd. 77,568
243.00 Sonat Inc. 10,571
143.00 Sun Inc. 5,845
1,120.00 Texaco Inc. 67,480
586.00 USX-Marathon Group 22,048
532.00 Union Pacific Resources Group Inc. 12,702
502.00 Unocal Corporation 19,421
109.00 Western Atlas Inc. 8,434
864.00 The Williams Companies, Inc. 27,648
-----------
1,473,964
</TABLE>

<PAGE>

SHARES OR
PRINCIPAL
AMOUNT VALUE
$
<S> <C> <C> <C>
RETAILERS 5.20%
500.00 Albertson's Inc. 26,313
555.00 American Stores Company 14,430
312.00 Autozone Inc. 10,569
212.00 Charming Shoppes Inc. 1,007
197.00 Circuit City Stores-Carmax 8,422
359.00 CVS Corporation 27,104
214.00 Consolidated Stores 9,189
434.00 Costco Companies Inc. 23,219
461.00 Dayton Hudson Corporation 40,568
221.00 Dillards Department Stores 8,163
444.00 Federated Deptartment Stores 23,005
803.00 The GAP Inc. 36,135
120.00 Giant Food Inc 4,635
76.00 Great Atlantic & Pacific Tea Company 2,299
141.00 Harcourt General Inc. 7,808
1,501.00 Home Depot Inc. 101,224
999.00 KMart Corporation 16,671
519.00 Kroger Company 23,971
553.00 The Limited, Inc. 15,864
77.00 Longs Drug Stores Inc. 2,344
364.00 Lowe's Companies 25,548
477.00 May Department Stores Company 30,289
73.00 Mercantile Stores Company Inc. 4,905
154.00 Nordstrom Inc. 9,827
509.00 Penney (J.C.), Inc. 38,525
127.00 Pep Boys-Manny, Moe & Jack 2,945
518.00 Rite Aid Corporation 17,741
808.00 Sears Roebuck and Company 46,410
370.00 Sherwin-Williams Company 13,135
326.00 TJX Companies Inc. 14,752
206.00 Tandy Corporation 9,682
570.00 Toys 'R' Us Inc. 17,136
4,581.00 Wal-Mart Stores 232,772
1,003.00 Walgreen Company 35,293
297.00 Winn-Dixie Stores, Inc. 13,773
270.00 Woolworth Corporation 6,750
-----------
922,423

TELECOM & TELECOM EQUIPMENT 9.15%
1,033.00 Airtouch Communications Inc. 50,552
370.00 Alltel Corporation 16,164
2,236.00 Ameritech Corporation 110,542
180.00 Andrew Corporation 3,566
3,324.00 AT&T Corporation 218,138
1,591.00 Bell Atlantic Corporation 163,077
2,021.00 BellSouth Corporation 136,544
261.00 DSC Communications Corporation 4,747
328.00 Frontier Corporation 10,680
295.00 General Instrument Corporation 6,177
</TABLE>

<PAGE>

SHARES OR
PRINCIPAL
AMOUNT VALUE
$
<S> <C> <C> <C>
1,952.00 GTE Corporation 116,876
159.00 Harris Corporation 8,288
1,327.00 Lucent Technologies Inc. 169,690
1,421.00 MCI Communications Corporation 70,340
1,227.00 Motorola, Inc. 74,387
1,072.00 Northern Telecom Ltd. 69,278
3,742.00 SBC Communications Inc. 163,245
158.00 Scientific-Atlanta Inc. 3,091
883.00 Sprint Corporation 59,768
377.00 Tellabs Inc. 25,306
990.00 US West Communications Group 54,203
2,066.00 Worldcom Inc. 88,967
-----------
1,623,626

TEXTILES, CLOTHING & FABRICS 0.32%
146.00 Fruit of the Loom Inc. 4,471
133.00 Liz Claiborne Inc. 6,633
590.00 Nike Inc. 26,108
112.00 Reebok International Ltd. 3,416
73.00 Russell Corporation 1,957
40.00 Springs Industries 2,197
244.00 V.F. Corporation 12,825
-----------
57,607

TOBACCO 1.32%
368.00 Fortune Brands Inc. 14,674
4,942.00 Philip Morris Companies Inc. 206,020
393.00 UST Inc. 12,674
-----------
233,368

TRANSPORTATION 0.70%
327.00 Burlington Northern Santa Fe 34,008
451.00 CSX Corporation 26,834
763.00 Norfolk Southern Corporation 28,517
153.00 Ryder System Inc. 5,814
519.00 Union Pacific Corporation 29,161
-----------
124,334
-----------

Total common stocks (cost: $15,446,029) 17,615,527

SHORT-TERM INVESTMENTS 0.84%
$150,000.00 U.S. Treasury bills, 4.985% to 5.36%
effective yield, due April 1998 149,568
-----------

Total short-term investments
(cost: $149,584) 149,568
-----------

TOTAL INVESTMENTS (COST: $15,595,613) 100.14% 17,765,095

CASH AND OTHER ASSETS, LESS LIABILITIES -0.14% (24,915)
-----------

NET ASSETS 100.00% $17,740,180
-----------
-----------
</TABLE>

<PAGE>

Note: At March 31, 1998, net unrealized appreciation of $2,169,482 consisted of
gross unrealized appreciation of $2,231,990 and gross unrealized
depreciation of $62,508 based on cost of $15,595,613 for federal income
tax purposes.

<PAGE>

STATE FARM VP TRUST SMALL CAP EQUITY INDEX FUND
PORTFOLIO OF INVESTMENTS
MARCH 31, 1998
(UNAUDITED)

SHARES OR
PRINCIPAL
AMOUNT VALUE

$
<C> <S> <C> <C>
COMMON STOCK 99.65%

COMMERCIAL SERVICE/SUPPLY 0.28%
600.00 Big Flower Holdings Inc. 18,225
1,800.00 Mack Cali Realty Corp. 70,312
800.00 Telespectrum Worldwide 5,800
94,337

CONSUMER & MARKETING 0.27%
800.00 Arvin Industries 32,750
1,400.00 Jostens, Inc. 33,600
300.00 Kenneth Cole Productions A 6,037
100.00 Mine Safety Appliances Company 6,900
200.00 Systems Corp. 2,825
400.00 Talbots Inc. 7,825
89,937

CONSUMER DISCRETIONARY 16.75%
300.00 Abacus Direct Corp 15,675
300.00 Abercrombie & Fitch Co 12,619
600.00 ABM Industries Inc. 18,638
1,400.00 Acclaim Entertainment Inc. 9,275
300.00 Ackerley Group Inc. 6,131
2,000.00 Acnielsen Corp 52,875
500.00 Action Performance Companies Inc. 17,594
400.00 Activision Inc New 4,300
200.00 Administaff Inc 8,612
800.00 Advo Inc 22,100
600.00 Alberto Culver Co. 18,263
500.00 Alternative Resources Corp 10,531
200.00 Amazon Com Inc. 17,106
200.00 AMC Entertainment Inc. 4,775
400.00 Amerco 12,300
800.00 American Business Inform Class B 11,400
1,500.00 American Media Inc. 11,812
1,500.00 American Mgmt Sys Inc. 41,250
800.00 American Radio Sys Corp 50,750
400.00 American Safety Razor Co. 7,050
800.00 Ames Dept Stores Inc 16,900
200.00 Anchor Gaming 14,850
900.00 Anntaylor Stores Corp 14,794
600.00 Apac Teleservices Inc. 7,763
1,000.00 Apple South Inc. 14,812
1,100.00 Applebee's Intl Inc. 25,438
200.00 Applied Graphics Technology 9,625
500.00 Arron Rents Inc. 12,156
1,000.00 Ascent Entertainment Group Inc. 10,312
600.00 Authentic Fitness Corp. 11,925
200.00 Aviation Sales Co. 8,200
1,600.00 Aztar Corp. 13,800
100.00 Bacou USA Inc. 1,638
500.00 Bassett Furniture Industries Inc. 15,344
100.00 Berlitz Intl Inc New 2,706

<PAGE>

SHARES OR
PRINCIPAL
AMOUNT VALUE

$
<C> <S> <C> <C>
1,200.00 Best Buy Inc. 79,950
200.00 Bet Holdings Inc. 12,225
1,300.00 BJ's Wholesale Club Inc. 50,700
1,500.00 Bob Evans Farms Inc. 31,781
400.00 Borg Warner Sec Corp. 7,875
700.00 Bowne & Co Inc. 28,962
1,200.00 Boyd Gaming Corp 8,625
200.00 BRC Holdings Inc. 7,850
1,800.00 Brightpoint Inc. 30,938
2,300.00 Brinker Intl Inc. 50,312
1,600.00 Bristol Hotel Co. 44,000
700.00 Broderbund Software Inc. 12,775
600.00 Brown Group Inc. 8,625
200.00 Brylane Inc. 11,213
300.00 BT Office Prods Intl Inc. 3,581
100.00 Buckle Inc. 5,013
700.00 Budget Group Inc. 26,250
1,600.00 Buffets Inc. 22,000
700.00 Burlington Coat Factory 12,162
300.00 Bush Industries Inc. 8,513
900.00 Capstar Hotel Co. 31,219
400.00 Caribiner Intl Inc. 15,400
300.00 Carmike Cinemas Inc. 9,638
800.00 Cash Amer Intl Inc. 13,000
700.00 Catalina Marketing Corp 36,837
400.00 CDI Corp 17,225
500.00 Cellstar Corp 16,000
800.00 Cellular Technical Services Inc. 1,250
900.00 Central Garden & Pet Co. 35,156
300.00 Central Parking Corp 14,325
3,700.00 Charming Shoppes Inc. 17,575
400.00 Cheesecake Factory Inc 13,325
1,700.00 Choice Hotels Intl Inc. 31,238
500.00 Cidco Inc. 4,719
500.00 Circuit City Stores-Carmax 5,781
1,700.00 CKE Restaurants Inc. 62,475
200.00 CKS Group Inc. 3,762
1,600.00 Claire's Stores Inc. 36,700
300.00 Claremont Technology Group Inc 4,350
300.00 Cnet Inc. 8,063
500.00 Coinmach Laundry Corp. 10,562
500.00 Cole National Corp New 19,312
300.00 Coleman Inc New 9,244
1,000.00 Computer Horizons Corp 50,250
400.00 Computer Learning Centers Inc. 6,700
700.00 Computer Task Group Inc. 28,831
200.00 Consolidated Cigar Holdings Inc. 3,163
300.00 Consolidated Graphics Inc. 17,362
700.00 Consolidated Prods Inc. 13,475
600.00 Converse Inc Del 3,900
1,300.00 Coors Adolph Co Class B 45,500
300.00 Copart Inc. 5,025
300.00 Cost Plus Inc Calif. 9,534

<PAGE>

SHARES OR
PRINCIPAL
AMOUNT VALUE

$
<C> <S> <C> <C>
300.00 Cox Radio Inc. 14,550
500.00 CPI Corp 12,656
300.00 Cross A T Co - CL A 3,488
100.00 Cross-Continent Auto Retail 712
200.00 CSS Industries Inc. 6,563
400.00 Daisytek Intl Corp 9,750
400.00 Dames & Moore Group Inc. 5,325
100.00 Dart Group Corp - CL A 13,700
200.00 Data Processing Resources Corp 6,212
400.00 Day Runner Inc. 8,900
133.00 Del Labs Inc 4,256
100.00 Delia's Inc. 2,400
700.00 Department 56 Inc. 26,600
200.00 Devon Group Inc New. 11,750
300.00 Discount Auto Parts Inc. 7,275
400.00 Donna Karan Intl Inc. 5,325
100.00 Dover Downs Entertainment Inc. 2,950
600.00 Dress Barn Inc. 17,250
800.00 Eagle Hardware Garden 14,100
300.00 Educational Mgmt Corp 10,200
400.00 Einstein/Noah Bagel Corp 1,625
300.00 Emmis Broadcasting Corp 15,825
900.00 Employee Solutions Inc. 4,444
300.00 Equity Corp Intl 7,181
1,000.00 Ethan Allen Interiors Inc. 59,750
600.00 Fabri Centers Amer Inc. - CL A 18,675
300.00 Family Golf Centers Inc. 12,150
1,200.00 Fedders Corp 6,900
1,600.00 Fingerhut Companies Inc. 41,500
600.00 Finish Line Inc. 14,250
200.00 Firearms Training Sys Inc. 1,800
1,400.00 First Brands Corp 34,912
1,200.00 Florida Panthers Holdings Inc. 26,700
1,400.00 Foodmaker Inc New 27,125
1,000.00 Footstar Inc. 36,000
200.00 Fossil Inc. 6,475
900.00 Franklin Covey Co. 21,881
400.00 Friedmans Inc CL A 8,125
1,900.00 Furniture Brands Intl Inc. 61,156
700.00 G & K Services Inc- CL A 30,712
300.00 Gadzooks Inc. 6,713
600.00 Galoob Toys Inc. 5,962
600.00 Garden Ridge Corp 12,975
200.00 GC Companies Inc. 10,463
900.00 Genesco Inc. 16,312
2,400.00 Geotek Communications 2,550
300.00 Getty Realty Corp 6,881
600.00 Gibson Greetings Inc. 16,575
500.00 Global Directmail Corp 9,250
900.00 Golden Books Family Entertainment Inc.10,350
200.00 Goody's Family Clothing Inc. 8,850
1,100.00 Grand Casinos Inc 18,769
900.00 GT Interactive Software Corp 6,412

<PAGE>

SHARES OR
PRINCIPAL
AMOUNT VALUE

$
<C> <S> <C> <C>
200.00 Guess Inc. 1,363
500.00 Guitar Center Mgmt Inc. 11,813
900.00 Gymboree Corp 23,288
600.00 Ha-Lo Industries Inc 20,962
700.00 Hancock Fabrics Inc. 10,894
1,100.00 Handleman Co Del 8,800
1,100.00 Harland John H Co. 17,119
700.00 Harman Intl Industries Inc. 30,800
800.00 Hartmarx Corp 6,650
800.00 Heftel Broadcasting Cor - CL A 35,800
2,000.00 Heilig Meyers Co 28,125
400.00 Herballife Intl Inc. 10,100
1,000.00 Hollywood Entertainment Corp 14,000
700.00 Hollywood Pk Inc New 8,225
500.00 Homestead Vlg Pptys Inc. 7,563
1,200.00 Host Mariot Services Corp 16,950
1,100.00 Houghton Mifflin Co 35,063
400.00 Huffy Corp 6,475
300.00 IHOP Corp 11,513
500.00 Inacom Corp 13,812
900.00 Innkeepers USA Tr. 14,738
1,400.00 Interim Services Inc 47,250
800.00 Interstate Hotels Co 28,700
300.00 Iron Mountain Inc Del 11,250
100.00 ITT Educational Services Inc. 2,800
1,800.00 Jacor Communications Inc. 106,200
1,700.00 Journal Register Co. 35,488
800.00 Just For Feet Inc. 16,300
600.00 Justin Industries Inc 8,438
500.00 K2 Inc. 11,156
800.00 Kellwood Co 24,700
600.00 Kelly Services Inc CL A 22,500
600.00 La Z Boy Inc. 29,963
2,100.00 Laidlaw Environmental Services Inc 7,875
750.00 Lamar Advertising Co. 26,250
800.00 Landry's Seafood Restaurants 24,600
500.00 Lands End Inc. 18,438
400.00 Learning Tree Intl Inc. 8,850
600.00 Libbey Inc. 22,350
500.00 Linens n Things Inc. 27,469
600.00 Lo-Jack Corp 8,625
1,200.00 Lone Star Steakhouse Saloon 27,225
800.00 Luby's Cafeterias Inc. 15,200
500.00 Lycos Inc. 22,125
600.00 Mail-Well Inc. 22,725
1,700.00 Malibu Entertainment Worldwide Inc. 6,906
700.00 Marcus Corp 12,338
700.00 Marvel Entertainment Group Inc. 437
400.00 May & Speh Inc. 5,750
600.00 McClatchy Newspapers Inc. 17,888
400.00 Media General Inc CL A 19,675
400.00 Memberworks Inc. 11,950
500.00 Mens Wearhouse Inc. 18,500

<PAGE>

SHARES OR
PRINCIPAL
AMOUNT VALUE

$
<C> <S> <C> <C>
500.00 Merrill Corp 11,000
1,000.00 Metamor Worldwide Inc. 37,562
300.00 Metro Networks Inc. 12,900
400.00 Metromail Corp New 13,850
200.00 Metzler Group Inc. 9,950
900.00 Michales Stores Inc. 33,638
1,200.00 Micro Warehouse Inc. 19,575
200.00 Midway Games Inc. 4,588
300.00 Mikasa Inc. 4,050
400.00 Morrison Health Care Inc. 8,250
400.00 National Auto Cr Inc. New 550
800.00 National Media Corp 2,050
200.00 National Preston Industries Inc. 8,612
1,200.00 Nautica Enterprises Inc. 36,900
200.00 NCO Group Inc. 5,000
400.00 Nelson Thomas Inc. 5,500
700.00 NFO Worldwide Inc. 14,700
500.00 Norrell Corp GA 11,281
400.00 North Face Inc. 9,700
300.00 NPC International Inc. 3,975
400.00 Nu Skin Asia Inc. 10,300
700.00 Oakley Inc. 8,094
800.00 Object Design Inc. 5,125
400.00 OHM Corp 5,375
400.00 On Assignment Inc. 11,850
400.00 On Command Corp 5,350
500.00 Oneida Ltd. 15,250
300.00 Oshkosh B Gosh Inc CL A 11,981
500.00 O'Sullivan Industries Holdings Inc. 6,375
900.00 Outdoor Sys Inc. 31,556
200.00 Oxford Industries Inc. 6,275
500.00 Pacific Sunwear Calif. Inc. 20,750
600.00 Panavision Inc. 15,788
700.00 Papa Johns Intl Inc. 26,863
300.00 Paragon Trade Brands 1,594
400.00 Paul Harris Stores Inc 4,475
600.00 Paxson Communications Corp 6,675
200.00 Penn National Gaming Inc. 2,212
200.00 Penske Motorsports Inc. 6,450
800.00 Personnel Group Amer Inc. 18,200
700.00 Petco Animal Supplies 13,650
800.00 Phillips Van Heusen Corp 9,850
2,400.00 Pier 1 Imports Inc. 65,100
100.00 Pillowtex Corp 4,844
300.00 Pinkertons Inc New 6,919
300.00 Pixar Inc 10,462
600.00 Plantronics Inc New 24,562
600.00 Playboy Enterprises Inc. 10,500
800.00 Pre Paid Legal Services Inc. 28,400
200.00 Precision Response Corp 1,825
400.00 Premier Pks Inc. 23,200
200.00 Primadonna Resorts Inc. 3,150
1,400.00 Prime Hospitality Corp 27,300

<PAGE>

SHARES OR
PRINCIPAL
AMOUNT VALUE

$
<C> <S> <C> <C>
2,600.00 Proffitts Inc. 94,250
400.00 Pulitzer Publishing Co 31,950
300.00 Quickresponses Services Inc. 16,050
200.00 Quiksilver Inc. 7,150
100.00 Quintel Entertainment Inc. 550
800.00 Rainforest Cafe Inc. 12,000
300.00 Rare Hospitality Intl 3,563
1,000.00 Red Roof Inns Inc. 18,250
600.00 Regis Corp Minn 18,000
300.00 Rental Service Corp 6,975
500.00 Renters Choice Inc. 12,250
600.00 Rio Hotel & Casino Inc. 15,562
300.00 Rockshox Inc. 2,278
700.00 Rollins Inc 14,613
700.00 Romac Intl Inc. 19,250
800.00 Royal Appliance Mfg. Co 4,800
500.00 Ruby Tuesday Inc. 15,750
500.00 Rural/Metro Corp 16,438
400.00 Russ Berrie & Co 12,125
1,600.00 Ryans Family Steak House Inc. 14,500
2,100.00 Safety-Kleen Corp 59,588
300.00 Saga Communications 6,262
600.00 Samsonite Corp New 17,625
500.00 Sbarro Inc 14,750
500.00 Scholastic Corp 21,125
300.00 Scientific Games Holdings Corp 6,281
500.00 Seattle Filmworks Inc. 4,563
3,500.00 Service Merchandise Inc. 7,000
300.00 SFX Broadcasting Inc CL A 29,213
1,500.00 Shoneys Inc. 7,781
500.00 Shopko Stores Inc. 15,844
500.00 Showbiz Pizza Time 16,656
600.00 Signature Resorts Inc. 11,850
300.00 Sinclair Broadcasting Group In 17,288
1,600.00 Sitel Corp 20,400
600.00 Snyder Communications Inc. 28,125
300.00 Sodak Gaming Inc. 2,119
400.00 Sonic Corp 13,400
500.00 Source Services Corp 13,812
400.00 Speedway Motorsports Inc. 10,725
700.00 Spelling Entertainment Group Inc. 6,300
500.00 Spiegel Inc CL A 2,875
1,100.00 Sports Authority Inc. 18,012
500.00 Springs Industries Inc. 27,469
600.00 St Johns Knits Inc. 28,350
500.00 Staffmark Inc. 20,500
1,000.00 Stage Stores Inc. 51,625
600.00 Stanhome Inc. 16,162
700.00 Station Casinos Inc. 10,325
300.00 Stein Mart Inc. 10,687
200.00 Strayer Ed Inc. 6,650
1,700.00 Stride Rite Corp 23,056
700.00 Sturm Ruger & Co Inc. 14,437

<PAGE>

SHARES OR
PRINCIPAL
AMOUNT VALUE

$
<C> <S> <C> <C>
300.00 Suburban Lodges Amer Inc. 4,762
500.00 Sunburst Hospitality Corp 4,375
1,900.00 Sunglass Hut Intl Inc. 19,950
700.00 Superior Services Inc. 21,831
700.00 Sylan Learning Sys Inc. 32,988
500.00 Thermolase Corp 3,094
400.00 Ticketmaster Group Inc. 12,050
200.00 Timerland Co 14,300
300.00 TMP Worldwide Inc. 9,562
1,600.00 Topps Inc. 4,100
400.00 Toro Co 15,325
300.00 Toy Biz Inc. 3,056
700.00 True North Communications Inc. 23,100
800.00 Trump Hotels & Casino Resort 7,350
1,000.00 Tultex Corp 3,812
300.00 Ugly Duckling Corp 3,244
300.00 Unifirst Corp Mass 8,400
500.00 United Auto Group Inc. 6,656
200.00 United Nat Foods Inc. 5,987
600.00 United Stationers Inc. 37,088
200.00 United Television Inc. 21,675
400.00 United Video Satellite CL A 17,000
300.00 Unitog Co New 6,937
300.00 Urban Outfitters Inc. 5,625
1,000.00 Vail Resorts Inc. 29,250
300.00 Value City Dept Stores Inc. 5,081
700.00 Veterinary Centers Amer Inc. 11,287
100.00 Vincam Group Inc. 2,900
200.00 Vistana Inc. 5,300
300.00 Volt Information Services Inc. 16,725
400.00 Wackenhut Corp 9,550
400.00 Wackenhut Corrections Corp 10,025
100.00 Waverly Inc. 3,825
300.00 West Marine Inc. 8,738
600.00 West Teleservices Corp 10,050
900.00 Westwood One Inc. 27,900
400.00 Wet Seal Inc CL A 15,125
500.00 Wiley John & Sons Inc CL A 27,531
700.00 Williams Sonoma Inc. 40,512
400.00 Wilmar Industries Inc. 9,950
600.00 Windmere-Durable Holdings 15,600
700.00 WMS Industries Inc. 21,919
1,400.00 World Color Press Inc Del 48,650
400.00 Young Broadcasting Inc CL A 20,000
1,300.00 Zale Corp New 37,538
1,000.00 Zenith Electrs Corp 6,625
----------
5,632,187

CONSUMER STAPLES 2.53%
200.00 99 Cents Only Stores 6,988
1,500.00 Arbor Drugs Inc. 35,344
200.00 Block Drug Inc. Class A 8,400
400.00 Boston Beer Inc. 4,175

<PAGE>

SHARES OR
PRINCIPAL
AMOUNT VALUE

$
<C> <S> <C> <C>
200.00 Bush Boake Allen Inc. 6,375
600.00 Canadaigua Brands Inc. Class A 34,275
600.00 Church & Dwight Inc. 18,150
100.00 Coca Cola Bottling Co Cons. 5,775
1,400.00 Dimon Inc. 23,362
500.00 Dominicks Supermarkets Inc. 22,750
800.00 Dreyers Grand Ice Cream Inc. 17,600
800.00 Earthgrains Co. 35,350
1,300.00 Fleming Companies Inc. 25,756
600.00 General Cigar Holdings Inc. 9,188
300.00 Genovese Drug Stores In-Class A 6,637
600.00 Great Atlantic & Pacific Tea Inc. 18,150
1,100.00 Homebase Inc. 9,213
200.00 Ingles Markets Inc Class A 2,700
600.00 International Multifoods Corp. 17,962
600.00 Lance Inc. 13,650
1,100.00 Longs Drug Stores Inc. 33,481
500.00 Michael Food Inc. New 13,375
100.00 Mondavi Robert Corp. 4,125
400.00 Nash Finch Co. 7,950
100.00 National Beverage Corp. 1,013
500.00 Natures Sunshine Products Inc. 13,406
400.00 Performance Food Group Inc. 8,250
100.00 Pilgrims Pride Corp. 1,456
900.00 Playtex Products Inc. 13,275
1,200.00 Ralcorp Holdings Inc. New 24,900
1,700.00 Richfood Holdings Inc. 54,400
200.00 Riviana Foods Inc. 4,550
1,000.00 Ruddick Inc. 18,562
200.00 Sanderson Farms Inc. 2,525
600.00 Schweitzer-Mauduit Intl Inc. 20,700
400.00 Smart & Final Inc. 7,750
1,100.00 Smithfield Foods Inc. 37,950
800.00 Smucker J M Co Class A 20,950
700.00 Suiza Foods Corp. 43,050
700.00 Twinlab Corp. 28,350
1,000.00 Universal Foods Corp. 49,000
1,300.00 US Foodservice 47,856
200.00 USA Detergents Inc. 2,738
300.00 Valhi Inc. New 2,944
900.00 Whole Foods Mkt Inc. 62,775
300.00 Worthington Foods Inc. 4,988
----------
852,119

DURABLE PRODUCTS 7.66%
200.00 ADE Corp Mass 3,388
100.00 Advanced Energy Industries 1,456
200.00 AFC Cable Sys Inc. 7,775
300.00 Alamo Group Inc. 5,437
800.00 Allen Telecom Inc. 12,600
400.00 Allied Prods Corp Del 9,325
3,600.00 Allied Waste Industries Inc. 89,888
600.00 Alpine Group Inc. 12,113

<PAGE>

SHARES OR
PRINCIPAL
AMOUNT VALUE

$
<C> <S> <C> <C>
400.00 American Homestar Corp 9,075
1,200.00 Ametek Inc. 35,925
900.00 Antec Corp 13,500
1,000.00 Applied Power Inc. 38,500
1,800.00 Aspect Telecommunications Co 48,262
400.00 Asyst Technology Corp 9,300
900.00 Baldor Electric Co 24,244
300.00 Banner Aerospace Inc. 3,506
700.00 Blount Intl Inc CL A 20,825
400.00 Brown & Sharpe Mfg. Co 4,750
200.00 C&D Technologies Inc. 10,413
500.00 California Microwave Inc. 10,687
300.00 Cascade Corp 4,856
200.00 CFM Technologies Inc. 2,988
1,600.00 Champion Enterprises Inc. 42,700
200.00 Chart Industries Inc. 5,950
1,300.00 Cincinnati Milacron Inc. 41,437
1,200.00 Cognex Corp 25,650
300.00 Cohu Inc. 11,400
400.00 Columbus Mckinnon Corp NY 11,000
1,200.00 Computer Prods Inc. 27,975
800.00 Credence Systems Corp 23,150
700.00 CTS Corp. 23,756
900.00 Culligan Water Technologies Inc. 53,606
600.00 Cuno Inc. 13,200
200.00 Curtiss Wright Corp 7,750
1,000.00 Cymer Inc. 20,188
500.00 Daniel Industries Del 10,031
300.00 Detroit Diesel Corp 6,581
400.00 Dionex Corp 22,300
1,400.00 Donaldson Inc. 36,050
800.00 DR Horton Inc 17,000
300.00 DT Industries Inc. 11,513
200.00 Ducommun Inc Del 5,850
200.00 Dupont Photomasks Inc. 8,650
600.00 Dynatech Corp 28,912
1,600.00 EG & G Inc. 46,500
300.00 Elctro Scientific Industries 11,588
600.00 Electroglas Inc. 9,600
400.00 Essex Intl Inc Del 15,800
500.00 FEI Co 6,250
1,500.00 Flowerserve Corp 48,937
500.00 Fluke Corp 11,938
200.00 Franklin Electric Inc. 13,700
800.00 FSI Intl Inc. 8,800
400.00 Gardner Denver Machinery Inc. 11,850
200.00 General Binding 6,512
600.00 General Cable Corp Del New 27,225
600.00 General Datacomm Industries Inc. 3,563
1,000.00 Genrad Inc. 31,063
300.00 Gleason Corp 10,519
600.00 Graco Inc 18,187
600.00 Helix Technology Corp 12,000

<PAGE>

SHARES OR
PRINCIPAL
AMOUNT VALUE

$
<C> <S> <C> <C>
200.00 Hirsch Intl Corp 1,850
400.00 Holophane Corp 9,600
1,100.00 Idex Corp 40,013
700.00 Inter Tel Inc. 18,856
1,700.00 Interdigital Communications 9,775
100.00 Intevac Inc. 769
400.00 Itron Inc. 7,775
1,500.00 JLG Industries Inc. 24,937
100.00 JPM Co 1,475
1,400.00 Kaufman & Broad Home Corp 45,588
900.00 Kennametal Inc 47,362
900.00 Kent Electrs Corp 18,956
1,300.00 Kimball Intl Inc CL B 29,900
400.00 Knoll Inc. 15,425
600.00 Kuhlman Corp 29,213
800.00 Kulicke & Soffa Industries Inc. 17,400
1,500.00 Lennar Corp 51,656
900.00 Lincoln Electric Co CL A 40,725
300.00 Lindsay Mfg. Co 13,669
900.00 Magnetek Inc 16,931
600.00 Manitowoc Inc. 23,175
200.00 Matthews Intl Corp 8,000
300.00 Micros Sys Inc. 18,038
300.00 Moog Inc CL A 12,638
600.00 MTS Sys Corp 9,600
200.00 Nacco Industries Inc. 26,800
500.00 Nordson Corp 24,938
300.00 NVR Inc 9,469
600.00 Oak Industries Inc. 19,500
1,700.00 Oakwood Homes Corp 62,263
600.00 OEA Inc. 10,913
500.00 Omniquip Intl Inc. 12,375
100.00 Optical Cable Corp 1,112
1,200.00 Orbital Sciencs Corp 53,850
500.00 Palm Harbor Homes 18,438
300.00 Perceptron Inc. 6,019
1,300.00 Picturetel Corp 8,775
400.00 PRI Automation Inc. 10,475
500.00 Pulte Corp 23,250
700.00 Regal Beloit Corp 22,225
300.00 Robbins & Myers Inc. 11,437
700.00 Robotic Vision Sys Inc. 7,788
400.00 Rofin Sinar Technologies Inc. 7,700
1,100.00 Roper Industries Inc New 32,656
500.00 Ryland Group Inc. 13,812
400.00 Scotsman Industries Inc. 11,500
1,100.00 Silicon VY Group Inc. 21,450
400.00 Specialty Equip Companies Inc. 8,150
1,000.00 Standard Pacific Corp New 15,188
300.00 Starrett L S Co 11,662
1,100.00 Stewart & Stevenson Services Inc. 26,469
250.00 Superior Telecom Inc. 10,438
500.00 Symmetricom Inc. 3,562

<PAGE>

SHARES OR
PRINCIPAL
AMOUNT VALUE

$
<C> <S> <C> <C>
500.00 Technitrol Inc. 19,594
300.00 Tennant Co 12,338
400.00 Terex Corp New 10,825
300.00 Thermadyne Holdings Corp New 10,162
100.00 Thermedics Detection Inc. 1,144
600.00 Thermedics Inc. 10,687
400.00 Thermo Fibertek Inc. 5,000
100.00 Thermo Terratech Inc. 712
800.00 Toll Brothers Inc. 22,500
400.00 Truimph Group Inc New 17,750
200.00 Turbochef Inc 1,600
600.00 Ultratech Stepper Inc. 12,225
1,200.00 Uniphase Corp 50,475
400.00 US Home Corp New 18,325
4,600.00 US Office Prods Co 87,400
300.00 Veeco Instruments Inc Del 11,156
1,100.00 Vicor Corp 31,006
900.00 Waters Corp 44,944
700.00 Watts Industries Inc. 20,912
600.00 Wireless Telecom Group Inc. 4,350
400.00 Woodhead Industries Inc. 7,550
300.00 Woodward Governor Co 8,362
500.00 X-Rite Inc. 6,312
500.00 Zurn Industries Inc. 23,687
300.00 Zygo Corp. 4,350
----------
2,576,400

ELECTRONIC/ELECTRICAL MANUFACTURING 0.32%
1600 Checkfree Holdings Corp. 35,400
1000 Devry Inc. 34,188
900 DII Group Inc 19,350
700 Tetra Tech Inc. New 16,975
----------
105,913

FINANCIAL SERVICES 24.51%
800.00 Aames Finl Corp. 11,100
400.00 Acceptance Ins 9,525
100.00 Advent Software Inc. 4,750
1,300.00 Affiliated Computer Services 43,144
400.00 Albank Finl Corp. 20,050
300.00 Alexandria Real Estate Eq. 9,506
700.00 Alfa Corp. 12,075
800.00 Allied Group Inc. 25,800
400.00 Ambassador Apartments Inc. 8,200
800.00 Amcore Finl Inc. 21,600
300.00 American Annuity Group Inc. 6,712
800.00 American General Hospitality Corp. 22,150
800.00 American Health Properties Inc. 21,200
600.00 American Heritage Life Invt. 12,375
1,100.00 Americredit Corp. 30,250
800.00 Amerin Corp. 24,100
100.00 Ameritrade Holding Corp. 2,775
600.00 Amours Life Holdings Inc. 19,425

<PAGE>

SHARES OR
PRINCIPAL
AMOUNT VALUE

$
<C> <S> <C> <C>
500.00 AMLI Residential Properties Tr. 11,469
1,500.00 Amresco Inc. 49,125
300.00 Anchor Bancorp Wis. Inc. 13,200
1,500.00 Apartment Invt & Mgmt Co. 57,750
1,300.00 Arcadia Finl Ltd. 8,206
1,300.00 Arden Realty Group Inc. 37,050
400.00 Area Bancshares Corp New 11,400
700.00 Argonaut Group Inc. 25,287
1,800.00 Associated Banc Corp. 97,087
400.00 Associated Estates Realty Corp. 8,350
900.00 Astoria Finl Corp. 55,631
1,400.00 Avalon Properties Inc. 40,600
200.00 BA Merchant Services Inc. 3,625
400.00 Baldwin & Lyons Inc. Class B 8,600
100.00 Bancfirst Corp. 3,975
700.00 Bancorpsouth Inc. 30,756
800.00 Banctec Inc. 19,700
300.00 Bank of Granite Corp. 9,600
700.00 Bank Plus Corp. 10,456
1,000.00 Bank UTD Corp. 50,000
400.00 Bankatlantic Bancorp 5,800
300.00 Banknorth Group Inc. Del 21,900
400.00 Barra Inc. 11,400
900.00 Bay Apt Communities Inc. 33,412
400.00 Bay View Cap Corp Del 13,900
800.00 Bedford Property Investments Inc. 15,450
800.00 Berkley W R Corp. 37,900
1,200.00 Berkshire Realty Inc. 14,400
1,200.00 Billing Information Concepts 31,125
900.00 Bisys Group Inc. 31,725
400.00 Blanch E W Holdings Inc. 15,350
200.00 BOK Finl Corp. 9,775
300.00 Boykin Lodging Co. 7,387
800.00 Bradley Real Estate Inc. 16,700
1,500.00 Bre Properties Inc. 42,656
400.00 Brenton Banks Inc. 8,500
300.00 BSB Bancorp 9,300
200.00 BT Finl Corp. 11,150
800.00 Burham Pacific Property Inc. 11,700
1,100.00 Camden Property Tr. 32,587
100.00 Capital City Bank Group Inc 4,750
100.00 Capital Factors Holding Inc. 1,812
400.00 Capital Re Corp. 25,700
300.00 Capitol Transamerica Corp. 6,319
2,000.00 Capstead Mortgage Corp. 39,500
600.00 Capstone Cap Corp. 14,588
800.00 CBL & Association Properties Inc. 19,600
200.00 CBT Corp. 6,975
700.00 CCC Information Services Group 19,250
600.00 Centerpoint Properties Tr. 20,812
800.00 Century Business Services 14,150
900.00 CFX Corp. 28,687
300.00 Chartwell Re Corp. 10,162

<PAGE>

SHARES OR
PRINCIPAL
AMOUNT VALUE

$
<C> <S> <C> <C>
900.00 Chateau Communities Inc. 26,775
500.00 Chelsea GCA Realty Inc. 18,500
400.00 Chemical Finl Corp. 17,800
500.00 Chittenden Corp. 18,687
500.00 Citfed Bancorp Inc. 28,125
200.00 Citizens Bancshares Inc. 15,200
800.00 Citizens Bk. Corp Mich. 28,550
200.00 Citizens Corp. 6,225
600.00 Cityscape Financial Corp. 319
800.00 CMAC Invt Corp. 53,400
1,200.00 CNA Surety Corp. 19,125
700.00 CNB Bancshares Inc. 34,169
700.00 Coast Federal Litigation 11,375
1,100.00 Colonial Bancgroup Inc. 39,738
800.00 Colonial Properties Tr. 25,450
600.00 Commerce Bancorp Inc. NJ 33,038
700.00 Commerce Group Inc. Mass 24,675
1,200.00 Commercial Federal Corp. 43,650
900.00 Commercial Net Lease Realty Inc. 15,863
600.00 Commonwealth Bancorp Inc. 12,788
300.00 Community Bk. Sys Inc. 10,200
700.00 Community First Bankshares 35,700
300.00 Community Tr. Bancorp Inc. 9,600
3,400.00 Cornerstone Properties Inc. 61,837
1,200.00 Cornerstone Realty Income Tr. 14,925
500.00 Cort Business Services Corp. 23,750
300.00 Corus Bankshares Inc. 13,162
900.00 Cousins Properties Inc. 27,788
300.00 CPB Inc. 5,775
1,200.00 Crawford & Co Class B 22,650
700.00 Credit Accept Corp Mich. 6,519
1,400.00 Crimi Mae Inc. 21,612
1,000.00 Crown Amer. Realty Tr. 9,375
800.00 Cullen Frost Bankers Inc. 47,250
300.00 CVB Finl Corp. 7,800
400.00 Dain Rauscher Corp. 23,025
300.00 Data Transmission Network Co. 10,350
500.00 Delphi Finl Group Inc. 26,625
100.00 Delta Financial Corp. 1,731
900.00 Developers Diversified Realty 36,787
400.00 Dime Cmnty Bancorp Inc. 9,800
500.00 Doral Finl Corp. 15,062
700.00 Downey Finl Corp. 22,663
1,600.00 Dynex Cap Inc. 19,200
1,200.00 E Trade Group Inc. 29,925
600.00 Eastgroup Property Inc. 12,375
500.00 Eaton Vance Corp. 24,094
300.00 Electro Rent Corp. 14,325
500.00 Enhance Finl Services Group Inc. 34,719
600.00 Envoy Corp new 25,800
1,300.00 Equity Inns Inc. 20,069
500.00 Essex Property Tr. Inc. 17,156
200.00 Everen Capital Corp. 8,825

<PAGE>

SHARES OR
PRINCIPAL
AMOUNT VALUE

$
<C> <S> <C> <C>
800.00 Excel Realty Tr. Inc. 28,500
400.00 Executive Risk Inc. 28,500
400.00 F & M Bancorporation Inc. 16,700
700.00 F & M Natl. Corp. 23,975
200.00 Factset Resh Sys Inc. 7,100
400.00 Fair Isaac & Co Inc. 15,100
600.00 FBL Finl Group Inc. 30,375
1,400.00 Federal Realty Invt Tr. 34,388
1,200.00 Felcor Suite Hotels Inc. 44,475
500.00 Fidelity Natl. Finl Inc. 18,375
300.00 Financial Fed Corp. 7,650
1,100.00 Financial Sec Assurn Hldgs 60,088
500.00 First Amern Finl Corp. 32,000
600.00 First Colo Bancorp Inc. 17,400
400.00 First Commerce Bancshare Cl B 11,400
800.00 First Comwlth Finl Corp Pa 23,200
400.00 First Ctzns Bancshares Cl A 45,800
300.00 First Fed Cap Corp. 9,900
600.00 First Finl Bancorp Oh 34,800
300.00 First Finl Bankshares 12,075
200.00 First Finl Corp Ind 10,800
400.00 First Finl Hldgs Inc. 10,450
360.00 First Ind Corp. 9,675
1,300.00 First Industrial Realty Trus 46,800
600.00 First Midwest Bancorp Del 26,100
300.00 First Rep Bk San Francisco 10,800
300.00 First Source Bancorp Inc. 12,750
330.00 First Source Corporation 12,004
400.00 First Svgs Bk Wash Bancorp 10,525
1,000.00 First Un Real Est Eq & Mtg Inv 11,750
300.00 First Utd Bancshares Inc. Ark 16,050
400.00 First Western Bancorp Inc. 12,075
600.00 Firstbank IL Co 26,850
500.00 Firstbank PR San Juan 23,031
400.00 Firstfed Finl Corp. 16,750
200.00 Firstfederal finl Svcs Corp. 7,700
1,000.00 Firstplus finl Group Inc. 42,000
200.00 Flagstar Bancorp Inc. 5,300
500.00 FNB Corp Pa 19,375
800.00 Foremost Corp of Amer 19,600
1,500.00 Franchise Fin Corp Amer 41,719
900.00 Fremont Gen Corp. 52,931
1,000.00 Frontier Ins Group Inc New 27,625
1,400.00 Fulton Finl Corp Pa 45,850
200.00 Fund Amern Enterprises Hldgs 27,050
800.00 Gables Residential Tr. 21,750
600.00 Gainsco Inc. 4,912
600.00 Gallagher Arthur J & Co. 25,988
300.00 GBC Bancorp Calif 20,044
1,200.00 General Growth Pptys Inc. 44,250
1,100.00 Glenborough Rlty Tr Inc. 32,038
800.00 Glimcher Rlty Tr. 17,500
300.00 Grand Premier Finl Inc. 5,681

<PAGE>

SHARES OR
PRINCIPAL
AMOUNT VALUE

$
<C> <S> <C> <C>
500.00 Great Lakes Reit Inc. 9,656
300.00 Guarantee Life Cos Inc. 8,925
600.00 Hambrecht & Quist Group Inc. 20,963
300.00 Hamilton Bancorp Inc. Fla 9,900
300.00 Hancock Hldg Co. 18,450
1,201.00 Harbor Florida Bancshares, Inc 14,262
400.00 Harleysville Group Inc. 10,400
300.00 Harleysville Natl Corp Pa 12,900
300.00 Harris Finl Inc. 7,987
900.00 Hartford Life Inc. 41,906
1,300.00 HCC Ins Hldgs Inc. 29,900
1,000.00 Health Care Ppty Invs Inc. 36,937
900.00 Health Care Reit Inc. 24,750
600.00 Healthcare Rlty Tr 16,950
400.00 Henry Jack & Assoc Inc. 14,400
400.00 Heritage Finl Svcs Inc. 13,000
600.00 HFNC Finl Corp. 7,912
500.00 Highlands Ins Group Inc. 13,438
1,800.00 Highwoods Pptys Inc. 63,562
400.00 Hilb Rogal & Hamilton Co. 7,425
300.00 Home Pptys NY Inc. 8,325
600.00 Horizon Group Inc. 7,387
800.00 Hospitality Pptys Tr. 28,350
700.00 HSB Group Inc. 47,075
800.00 Hubco Inc. 30,650
400.00 IBS Finl Corp. 7,775
900.00 IMC Mtg Co. 12,037
400.00 IMPAC Mtg Hldgs Inc 6,825
1,200.00 Imperial Bancorp 38,700
800.00 Imperial Cr Inds Inc. 18,950
1,800.00 INMC Mtg Hldgs Inc. 45,000
500.00 Interpool Inc. 7,750
300.00 Interwest Bancorp Inc. 13,538
100.00 Investment Technology Group 3,275
200.00 Investors Finl Services Corp. 11,000
1,000.00 IRT Ppty Co. 11,625
600.00 Irvine Apt Cmntys Inc. 18,900
200.00 Irwin Finl Corp. 11,250
700.00 JDN Rlty Corp. 23,931
600.00 Jefferies Group Inc. 33,900
900.00 John Alden Finl Corp. 19,406
200.00 John Nuveen Co. 7,325
600.00 JP Realty Inc. 15,225
300.00 JSB Financial Inc. 16,781
100.00 Kansas City Life Ins Co. 8,650
1,900.00 Keystone Financial Inc. 77,900
700.00 Kilroy Rlty Corp. 19,994
300.00 Klamath First Bancorp Inc. 6,900
800.00 Koger Equity Inc. 18,000
800.00 Legg Mason Inc. 47,450
400.00 Liberty Corp SC 20,400
1,800.00 Liberty Ppty Tr. 48,375
300.00 Life Re Corp. 22,125

<PAGE>

SHARES OR
PRINCIPAL
AMOUNT VALUE

$
<C> <S> <C> <C>
600.00 Life USA Hldg Inc. 9,188
700.00 Long Beach Finl Corp. 8,925
900.00 Long Is Bancorp Inc. 56,925
900.00 LTC Pptys Inc. 17,381
800.00 Macerich Co. 23,800
500.00 MAF Bancorp Inc. 19,031
1,200.00 Magna Group 69,675
400.00 Mainstreet Bankgroup Inc. 12,600
800.00 Manufactured Home Cmntys Inc. 20,700
200.00 Markel Corp. 34,588
600.00 McDonald & Co Invts Inc. 17,925
400.00 McGrath Rentcorp 7,950
200.00 Meadowbrook Ins Group Inc. 6,125
800.00 Medical Assurn Inc. 23,150
300.00 Merchants N Y Bancorp Inc. 12,600
5,400.00 Mercury Fin Co. 4,050
1,100.00 Meridian Indl Tr Inc. 26,400
1,400.00 Merry Ld & Invt Inc. 31,325
100.00 Metris Cos Inc. 4,350
500.00 MGI Pptys Inc. 12,281
900.00 Mid Am Inc. 24,975
600.00 Mid Amer Apt Cmntys Inc. 16,912
300.00 Mid Amer Bancorp 9,638
800.00 Mills Corp. 20,950
200.00 Mississippi VY Bancshares Inc. 8,350
400.00 MMI Companies 9,625
500.00 Moneygram Payment 7,562
800.00 Morgan Keegan Inc. 17,450
500.00 Nac Re Corp. 26,219
200.00 National Bancorp Alaska 30,400
400.00 National City Bancshares Inc. 16,200
450.00 National City Corp. 32,991
400.00 National Golf Pptys Inc. 12,750
800.00 National Health Invs Inc. 31,900
300.00 National Penn Bancshares Inc. 10,650
200.00 National Processing Inc. 2,475
100.00 National Westn Life Ins Cl A 10,556
100.00 Nationwide Finl Svcs Inc. 4,338
1,500.00 Nationwide Health Pptys Inc. 37,500
300.00 NBT Bancorp Inc. 8,400
714.00 North Fork Bancorporation 27,578
700.00 Nova Corp GA 21,044
56.00 NSC Corp 112
200.00 Nymagic Inc. 5,925
500.00 Oasis Residential Inc. 11,094
300.00 Ocean Finl Corp. 11,100
700.00 Ocwen Asset Investment 11,944
900.00 Ocwen Finl corp. 24,975
1,000.00 Old Natl Bancorp Ind 47,750
300.00 Omega Finl Corp. 10,875
700.00 Omega Healthcare Invs Inc. 27,300
500.00 Onbancorp Inc. 34,625
1,000.00 One Valley Bancorp Inc. 37,813

<PAGE>

SHARES OR
PRINCIPAL
AMOUNT VALUE

$
<C> <S> <C> <C>
400.00 Oriental Finl Group Inc. 14,850
1,000.00 Orion Cap Corp. 54,687
500.00 Pacific Gulf Pptys Inc. 11,469
200.00 Park Natl Corp. 19,000
200.00 Penn Treaty Amern Corp. 5,850
1,000.00 Penncorp Finl Group Inc. 28,875
300.00 Pennsylvania Rl Estate Invt. 7,350
400.00 People First Corp. 14,800
1,000.00 Peoples Heritage Finl Group 48,250
600.00 PFF Bancorp Inc. 12,375
200.00 Philadelphia Cons Hldg Corp. 4,300
1,500.00 Phoenix Duff & Phelps Corp. 14,063
800.00 Pioneer Group Inc. 25,000
400.00 Piper Jaffray Cos Inc. 14,800
1,600.00 PMT Services Inc. 28,700
300.00 Poe & Brown Inc. 10,650
600.00 Policy Management Sys. 48,188
1,100.00 Post Pptys Inc. 43,931
1,000.00 Prentiss Pptys Tr. 26,125
900.00 Presidential Life Corp. 17,044
400.00 Price Reit Inc. 17,925
900.00 Prime Retail Inc. 13,444
300.00 Profit Recovery Group Intl Inc 6,488
800.00 Provident Bankshares Corp. 28,300
400.00 PXRE Corp. 12,400
400.00 Queens Cnty Bancorp Inc. 17,600
900.00 Raymond James Financial Inc. 39,206
900.00 Realty Income Corp. 24,469
1,100.00 Reckson Assocs Rlty Corp. 29,012
500.00 Redwood Tr Inc. 11,750
800.00 Regency Rlty Corp 21,150
900.00 Reinsurance Group Amer Inc. 45,000
400.00 Reliance Bancorp Inc 15,500
600.00 Republic Bancorp Inc. 12,188
400.00 Resource Bancshares Mtg Group 6,350
700.00 RFS Hotel Invs Inc. 12,775
700.00 Riggs Natl Corp Wash DC 19,775
100.00 Rightchoice Managed Care Inc. 981
600.00 Risk Cap Hldgs Inc. 14,400
200.00 RLI Corp 10,800
1,800.00 Rollins Truck Leasing Corp 24,863
1,500.00 Roslyn Bancorp Inc 35,250
400.00 S & T Bancorp Inc. 22,150
200.00 Santa Barbara Bancorp Calif 10,800
300.00 Saul Ctrs Inc. 5,419
500.00 Scipe Hldgs Inc 15,500
700.00 Security Cap Atlantic Inc. 14,700
400.00 SEI Investments Co 27,300
1,000.00 Selective Ins Group Inc 26,875
1,000.00 Shurgard Storage Ctrs Inc 28,125
400.00 Silicon VY Bancshares 24,425
1,000.00 Smith Charles E Resdntl Rlty 33,250
1,500.00 Sotherbys Hldgs Inc. 34,875

<PAGE>

SHARES OR
PRINCIPAL
AMOUNT VALUE

$
<C> <S> <C> <C>
300.00 Southern Pac Fdg Corp 4,612
400.00 Southwest Bancorporation Tex 15,850
4,857.60 Sovereign Bancorp Inc. 88,348
300.00 Sovran Self Storage Inc. 8,906
300.00 SPS Transactions Svcs Inc. 8,325
200.00 St Francis Cap Corp 9,100
1,200.00 St Paul Bancorp Inc 30,450
200.00 State Auto Finl Corp 7,950
750.00 Sterling Bancshares Inc 12,750
500.00 Storage Tr Rlty 12,344
1,000.00 Storage USA Inc 38,375
100.00 Student Ln Corp 4,781
100.00 Sumitomo Bank Calif 3,750
700.00 Summit Pptys Inc. 14,088
600.00 Sun Communities Inc. 20,850
1,500.00 Sunstone Hotel Invs Inc 24,000
800.00 Susquehanna Bancshares Inc P 29,700
600.00 T R Finl Corp 20,850
300.00 Tanger Factory Outlet Ctrs 8,738
1,200.00 Taubamn Ctrs Inc 15,675
500.00 Texas Regl Bancshares Inc. 16,781
700.00 Thornburg Mtg Asset Corp 11,113
500.00 Town & Ctry Tr 8,531
400.00 Trans Finl Inc 17,300
400.00 Trenwick Group Inc 15,000
500.00 Triad Gty Inc 20,500
500.00 Triangle Bancorp Inc. 15,500
700.00 Trinet Corp Rlty Tr Inc. 26,819
600.00 Trust Co NJ New Jersey City Ne 16,800
800.00 Trustco Bk Corp NY 22,700
2,400.00 Trustmark Corp 54,900
600.00 UMB Finl Corp 36,600
1,000.00 United Bankshares Inc West V 25,750
900.00 United Cos Finl Coep 16,031
300.00 United Fire & Cas Co 13,088
300.00 Universal Health Rlty Incm T 6,488
600.00 Urban Shopping Ctrs Inc 19,800
700.00 US Tr Corp New 46,025
200.00 Usbancorp Inc PA 15,425
900.00 UST Corp 25,537
100.00 Value Line Inc 4,287
500.00 Vermont Finl Svcs Corp 13,812
500.00 Vesta Ins Group Inc 26,812
500.00 Walden Residential Pptys Inc 12,625
1,200.00 Washington Real Estate Invt 20,625
500.00 Webster Finl Corp Conn 34,750
600.00 Weeks Corp 19,613
600.00 Wesbanco Inc 16,650
500.00 West Coast Bancorp Ore New 12,688
1,500.00 Westamerica Bancorporation 50,063
300.00 Westcorp Inc 5,025
600.00 Western Invt Real Estate Tr 8,963
1,600.00 Westernbank Puerto Rico 24,200

<PAGE>

SHARES OR
PRINCIPAL
AMOUNT VALUE

$
<C> <S> <C> <C>
200.00 WFS Finl Inc 2,050
200.00 White Riv Corp 18,000
700.00 Whitney Hldg Corp 42,000
600.00 Winston Hotels Inc. 7,950
400.00 WSFS Finl Corp 8,600
500.00 Xtra Corp 32,250
400.00 Zenith Natl Ins Corp 11,575
----------
8,239,838

HEALTH CARE 9.79%
800.00 ABR Informations Svcs Inc 22,500
500.00 AXYS Pharmaceuticals Inc. 4,375
700.00 Access Health Inc 25,725
800.00 Acuson Corp. 14,500
1,300.00 Acxiom Corp. 33,313
700.00 ADAC Labs 16,187
1,200.00 Advanced Tissue Sciences Inc. 11,213
800.00 Affymetrix Inc. 27,850
1,100.00 Agouron Pharmaceuticals Inc. 41,662
400.00 Algos Pharmaceutical Corp 12,100
700.00 Alkermes Inc 17,413
1,100.00 Alliance Pharmaceutical Corp 8,319
500.00 Alpharma Inc. 10,844
600.00 Alternative Living Svcs Inc. 19,875
400.00 American Homepatient Inc. 7,775
1,000.00 American Oncology Res Inc. 15,250
800.00 Amerisource Health Corp. 48,100
1,000.00 Amylin Pharmaceuticals Inc. 2,750
300.00 Andrx Corp 8,362
200.00 Aphton Corp 2,538
300.00 Applied Analytical Inds Inc. 4,838
1,800.00 Apria Healthcare Group Inc. 15,975
500.00 Arrow Intl Inc. 17,187
2,200.00 Arterial Vascular Engr Inc. 80,575
500.00 ATL Ultrasound Inc. 25,438
300.00 Atria Cmntys Inc. 5,775
1,000.00 Ballard Medical Products 27,000
300.00 Barr Labs Inc. 12,112
400.00 Bindley Westn Inds Inc 15,175
300.00 Bio Rad Labs Inc Cl -A 8,063
1,600.00 Bio Technology Gen Corp. 13,600
400.00 Biomatrix Inc. 11,950
200.00 Cadus Pharmaceutical Corp. 1,662
400.00 Cardiothoracic Sys Inc. 2,650
300.00 Carematrix Corp. 9,225
900.00 Cephalon Inc. 12,600
900.00 Cerner Corp. 19,294
400.00 Clintrials Research Inc. 2,850
200.00 Closure Med Corp. 4,325
600.00 CNS Inc. 3,338
1,000.00 Columbia Labs Inc. 13,812
300.00 Compdent Corp. 4,613
1,200.00 Concentra Managed Care 36,900

<PAGE>

SHARES OR
PRINCIPAL
AMOUNT VALUE

$
<C> <S> <C> <C>
500.00 Conmed Corp. 11,937
500.00 Cooper Cos Inc. 21,219
800.00 Cor Therapeutics Inc. 9,900
2,000.00 Covance Inc. 49,125
1,200.00 Coventry Health Care Inc. 19,275
1,100.00 Creative Biomolecules Inc. 9,075
500.00 Curative Health Svcs 16,656
700.00 Cygnus Inc. 11,550
1,500.00 Cytogen Corp. 3,234
500.00 Cytyc Corp. 12,500
500.00 Datascope Corp. 13,000
400.00 Diagnostic Prod. 11,150
400.00 Emisphere Technologies 7,150
700.00 Enzo Biochem Inc. 11,025
300.00 Express Scripts Inc. 25,434
300.00 Fisher Scientific Intl Inc. 23,250
1,000.00 FPA Medical Management Inc. 15,438
500.00 Fuisz Technologies Ltd. 6,219
500.00 Geltex Pharmaceuticals Inc. 13,500
2,600.00 Gensia Sicor Inc. 13,000
1,100.00 Gilead Sciences Inc. 39,600
700.00 Graham Field Health Prods Inc. 5,600
600.00 Guilford Pharmaceuticals Inc. 13,200
800.00 Gulford Mls Inc. 23,600
800.00 Haemonetics Corp. 14,350
400.00 HCIA Inc. 5,900
400.00 Healthplan Svcs Corp. 10,525
500.00 Heartport Inc. 5,500
400.00 Henry Schein Inc 16,600
400.00 Hologic Inc. 11,100
800.00 Human Genome Sciences 31,850
2,100.00 ICN Pharmaceuticals Inc. New 103,425
1,200.00 ICOS Corp. 18,300
700.00 IDEC Pharmaceuticals Corp. 30,975
1,200.00 IDEXX Labs Corp. 21,600
200.00 IDX Sys Corp. 8,700
2,700.00 Imatron Inc. 6,581
800.00 Immunomedics Inc. 4,050
700.00 Incyte Pharmaceuticals Inc. 32,725
600.00 Inhale Therapeutic Sys. 16,275
1,400.00 Integrated Health Svcs Inc. 55,038
1,000.00 Interneuron Pharmaceuticals 10,437
1,000.00 Invacare Corp. 26,000
900.00 ISIS Pharmaceuticals Inc. 13,725
500.00 I-Stat Corp. 6,688
800.00 Jones Med Inds Inc. 28,950
300.00 K V Pharmaceutical Co Cl B 8,362
200.00 KOS Pharmaceuticals Inc. 1,875
200.00 Lab Hldgs Inc. 4,700
100.00 Labone Inc. 1,663
1,600.00 Laboratory Corp Amer Hldgs 3,100
300.00 Landauer Inc. 8,100
400.00 Life Technologies Inc. 15,400

<PAGE>

SHARES OR
PRINCIPAL
AMOUNT VALUE

$
<C> <S> <C> <C>
1,000.00 Ligand Pharmaceuticals Inc. 15,938
1,300.00 Liposome Co Inc. 7,231
200.00 Lunar Corp. 3,987
1,000.00 Magellan Health Svcs. 26,000
800.00 Mariner Health Group 13,700
500.00 Marquette Med Sys Inc. 13,875
500.00 Martek biosciences Corp. 7,594
600.00 Maxicare Health Plans Inc. 6,600
2,600.00 Medaphis Corporation 27,138
800.00 Meddimmune Inc. 44,100
300.00 Medical Manager Corp. 8,700
400.00 Medical Res Inc. 2,113
600.00 Medicis Pharmaceutical Corp. 26,175
400.00 Mediq Inc. 5,450
400.00 Medquist Inc. 14,725
900.00 Mentor Corp Minn 24,862
1,700.00 Mid Atlantic Med Svcs Inc. 21,038
900.00 Millennum Pharmaceuticals I 16,762
300.00 Minimed Inc. 13,275
200.00 Miravant Med Technologies 6,350
300.00 Myriad Genetics Inc. 6,713
1,100.00 NABI Inc. 3,369
600.00 National Surgery Ctrs Inc. 15,338
600.00 NBTY Inc. 36,450
700.00 NCS Healthcare Inc. 23,450
500.00 Neopath Inc. 6,875
800.00 Neoprobe Corp 3,650
600.00 Neurex Corp. 14,325
400.00 Neurogen Corp. 6,150
1,000.00 Neuromedical Sys Inc. 2,563
900.00 Nexstar Pharmaceuticals Inc. 10,350
2,100.00 Novacare Corp. 31,237
500.00 OEC-Medical Sys Inc. 11,813
800.00 Organogenesis Inc. 27,100
1,200.00 Orthodontic Ctrs Amer Inc. 26,025
900.00 Owens & Minor Inc. New 16,256
200.00 Oxigene Inc. 2,975
800.00 Paracelcus Healthcare Corp. 3,700
2,700.00 Paragon Health Network Inc. 53,662
700.00 Parexel Intl Corp. 21,875
500.00 Pathogenesis Corp. 16,750
750.00 Patterson Dental Co. 23,250
400.00 Pediatrix Med Group 18,600
200.00 Perclose Inc. 5,663
2,300.00 Perrigo Co. 28,175
600.00 Pharmaceutical Prod Dev Inc. 14,025
800.00 Pharmerica Inc. 11,900
200.00 PHP Healthcare Corp 3,300
600.00 Phymatrix Corp. 6,712
1,100.00 Physician Computer Network 1,891
800.00 Physician Reliance Nwk 11,000
1,000.00 Physicians Resource Group Inc 3,687
600.00 Physio-Control Intl Corp. 10,500

<PAGE>

SHARES OR
PRINCIPAL
AMOUNT VALUE

$
<C> <S> <C> <C>
400.00 Possis Medical Inc. 6,388
500.00 Prime Med Svcs Inc. New 5,875
600.00 Protein Design Labs 23,550
2,275.00 PSS World Medical, Inc. 53,462
500.00 Psychemedics Corp 2,781
1,000.00 Quest Diagnostics Inc. 16,813
700.00 Regeneron Pharmaceutcl 5,162
800.00 Renal Care Group Inc. 30,400
300.00 Res-Care Inc. 11,175
1,068.00 Respironics Inc. 30,905
1,200.00 Rexall Sundown Inc. 40,875
700.00 Roberts Pharmaceutical Corp. 9,975
300.00 Sabratek Corp. 10,500
600.00 Safeskin Corp. 44,325
600.00 Sangstat Med Corp. 19,125
1,300.00 Scios Inc. 15,844
1,000.00 Sepracor Inc. 42,625
1,100.00 Sequus Pharmaceuticals 11,619
600.00 Serologicals Corp. 16,950
600.00 Sierra Health Svcs Inc. 23,925
900.00 Sola Intl Inc. 37,294
200.00 Sonus Pharmaceuticals Inc. 4,900
300.00 Spacelabs Medical Inc. 6,638
400.00 Staar Surgical Co. 6,350
1,100.00 Summit Technology Inc. 5,981
1,500.00 Sun Healthcare Group Inc. 27,937
100.00 Sunquest Information Inc. 969
300.00 Sunrise Assisted Living Inc. 13,425
600.00 Sunrise Med Inc. 9,562
200.00 Superior Consultant Hldgs Co. 7,175
600.00 Techne Corp. 11,625
400.00 Theragenics Corp. 25,475
500.00 Theratech Inc. Del 4,937
700.00 Thermo Cardiosystems Inc. 18,944
2,468.00 Total Renal Care Hldgs Inc. 82,215
600.00 Transition Sys Inc. Mass 12,225
700.00 Transkaryotic Therapies Inc. 22,662
200.00 Trex Med Corp. 3,762
500.00 Triangle Pharmaceuticals Inc. 7,875
1,500.00 Trigon Healthcare Inc. 45,094
300.00 United Wis Svcs Inc. 9,956
800.00 U.S. Bioscience Inc. 8,100
900.00 Vertex Pharmaceuticals Inc. 28,744
500.00 Vical Inc. 7,875
400.00 Visx Inc. Del 10,000
200.00 Vital Signs Inc. 4,525
500.00 Vitalink Pharmacy Svcs Inc. 10,781
1,200.00 Vivus Inc. 14,100
100.00 Wesley Jessen Visioncare Inc. 3,287
500.00 West Inc. 15,062
1,000.00 Zila Inc. 7,469
----------
3,289,899

<PAGE>

SHARES OR
PRINCIPAL
AMOUNT VALUE

$
<C> <S> <C> <C>
MACHINERY & MANUFACTURING 0.10%
800.00 Applied Industrial Tech Inc 21,550
300.00 Osmonics, Inc. 4,969
800.00 Rohn Industries Inc. 4,500
100.00 Thermospectra Corp. 944
----------
31,963

MATERIALS & PROCESSES 9.18%
400.00 Acme Metals Inc. 3,675
300.00 Advanced Ltg Technologies 7,763
100.00 AEP Inds Inc. 3,425
1,900.00 AK Stl Hldg Corp. 40,137
700.00 Albany Intl Corp. 18,288
800.00 Albemarle Corp. 20,200
100.00 Alexanders Inc. 9,344
300.00 Alltrista Corp. 8,400
300.00 Amcast Indl Corp. 6,487
900.00 Amcol Intl Corp. 13,613
400.00 American Business Prods GA 8,850
900.00 American Pad & Paper Co New 6,525
500.00 American Residential Svcs Inc. 4,969
100.00 Ameron Intl Inc. 5,844
1,900.00 Amax Gold Inc. 5,819
1,000.00 Apogee Enterprises Inc. 13,250
600.00 Aptargroup Inc. 36,038
3,300.00 Armco Inc. 19,387
400.00 Arqule Inc. 8,900
200.00 Avatar Hldgs Inc. 5,500
1,100.00 Ball Corp. 36,025
1,100.00 Banta Corp. 34,031
600.00 Barnett Inc. 12,900
900.00 Belden Inc. 37,688
1,000.00 Birmingham Stl Corp. 16,375
1,000.00 BMC Inds Inc. Minn 19,437
700.00 Brady Wh Co Cl A 23,450
500.00 Brush Wellman Inc. 14,250
1,000.00 Buckeye Technologies Inc. 21,250
2,000.00 Burlington Inds Inc. 35,125
200.00 Butler Mfg Co Del 7,200
1,200.00 Calgon Carbon Corp. 14,025
700.00 Calmat Co. 19,338
400.00 Cambrex Corp. 20,150
900.00 Caraustar Inds Inc. 29,700
300.00 Carbide/Graphite Group Inc. 9,000
700.00 Carpenter Technology Corp. 37,800
500.00 Castle & Cooke Inc New 8,406
400.00 Castle AM & Co. 9,250
500.00 CB Coml Real Estate Svcs Group 20,000
400.00 Centex Construction Products 14,575
700.00 Century Alum Co. 10,500
300.00 Chase Inds Inc. 9,281
300.00 Chemed Corp. 12,300
700.00 Chemfirst Inc. 18,550

<PAGE>

SHARES OR
PRINCIPAL
AMOUNT VALUE

$
<C> <S> <C> <C>
700.00 Chesapeake Corp. 24,150
200.00 Citation Corp Ala 4,487
400.00 Cleveland Cliffs Inc. 21,500
700.00 Coeur D alene Mines Corp Ida 9,013
2,100.00 Collins & Aikman Corp New 19,162
500.00 Commercial Metals Co. 17,500
500.00 Commonwealth Inds Inc. Del 8,719
800.00 Cone Mls Corp NC 7,150
200.00 Culp Inc. 4,100
1,200.00 Dal-Tile Intl Inc. 15,525
1,100.00 DeKalb Genetics Corp 73,563
1,300.00 Delta & Pine Ld Co. 67,600
400.00 Deltic Timber Corp. 11,975
800.00 Dexter Corp. 33,100
500.00 Elcor Corp. 13,438
300.00 Encore Wire Corp. 9,712
200.00 Fab Inds Inc. 6,375
1,200.00 Fairfield Cmntys Inc. 26,475
1,400.00 Ferro Corp. 41,125
500.00 Florida Rock Inds Inc. 14,281
500.00 Foamex Intl Inc. 8,781
200.00 Forest City Enterprises-Cl A 11,288
600.00 Furon Co. 14,137
400.00 Galey & Lord Inc. 9,200
1,800.00 Gaylord Container Corp. 13,388
400.00 General Chem Group Inc. 11,575
800.00 Geon Co. 17,900
1,200.00 Georgia Gulf Corp. 32,550
900.00 Getchell Gold Corp. 18,787
300.00 Giant Cement Hldg Inc. 8,025
100.00 Gibraltar Stl Corp. 2,138
900.00 Glatfelter PH Co. 16,256
400.00 Granite Constr Inc. 11,200
500.00 Greif Bros Corp Cl A 19,375
700.00 Grubb & Ellis Co. 7,088
500.00 H.B. Fuller Company 29,938
200.00 Hach Co. 1,850
400.00 Handy & Harman 14,075
1,600.00 Hanna MA Co. 39,100
1,900.00 Hecla Mng Co. 12,587
700.00 Hexcel Corp New 19,250
500.00 Hughes Supply Inc. 18,094
300.00 Hunt Corp. 7,369
500.00 Imco Recycling Inc. 8,687
700.00 Insignia Finl Group Inc. 17,500
800.00 Interface Inc. Cl A 33,250
600.00 Intermet Corp. 13,500
600.00 Ionics Inc. 25,838
600.00 J & L Specialty Steel 5,700
800.00 Jacobs Engr Group Inc. Del 25,900
600.00 Juno Ltg Inc. 12,675
800.00 Kaiser Aluminum Corp. 8,050
1,200.00 Kaydon Corp. 49,050

<PAGE>

SHARES OR
PRINCIPAL
AMOUNT VALUE

$
<C> <S> <C> <C>
300.00 Laearonal Inc. 8,738
200.00 Lawson Prods Inc. 5,350
1,100.00 Lawter International 12,237
400.00 Layne Christensen Co. 6,050
800.00 Lilly Inds Inc. 15,800
100.00 Liqui Box Corp. 4,600
900.00 LNR Ppty Corp. 24,075
400.00 Lone Star Inds Inc. 27,775
800.00 Lone Star Technologies Inc. 19,000
1,800.00 Longview Fibre Co. 28,013
500.00 Lukens Inc. Del 16,344
600.00 Lydall Inc. Del 10,837
600.00 Macdermid Inc. 17,250
500.00 Material Sciencies Corp. 5,469
300.00 Maverick Tube Corp. 5,306
200.00 Maxxam Inc. 12,250
200.00 McWhortor Technologies Inc. 5,063
600.00 Medusa Corp. 36,675
100.00 Mestek Inc. 2,156
800.00 Minerals Technologies Inc. 40,300
1,000.00 Mississippi Chem Corp. 20,063
1,200.00 Mohawk Inds Inc. 37,800
400.00 Morrison Knudsen Corp New 4,475
600.00 Mueller Inds Inc. 37,988
600.00 Mycogen Corp. 10,913
700.00 National Stl Corp. 11,988
100.00 NCH Corp. 7,069
200.00 NCI Building Sys Inc. 9,700
400.00 New England Business Svc Inc. 13,700
800.00 NL Inds Inc. 13,950
400.00 NN Ball & Roller Inc. 4,325
300.00 Nortek Inc. 9,600
800.00 OM Group Inc. 33,700
800.00 Oregon Stl Mls Inc. 17,600
1,400.00 Paxar Corp. 19,862
100.00 Penn Engr & Mfg Corp Cl A 2,413
1,000.00 Polymer Group Inc. 13,062
500.00 Pope & Talbot Inc. 7,594
400.00 Price Enterprises Inc. 7,650
200.00 Puerto Rican Cem Inc. 10,213
500.00 Quanex Corp. 15,031
400.00 Reliance Steel & Aluminum Co. 15,400
300.00 Republic Group Inc. 6,113
500.00 RMI Titanium Co. 10,813
1,200.00 Rock-Tenn Co. 19,125
200.00 Rouge Inds Inc. Del 3,112
200.00 Ryerson Tull Inc. 3,850
1,300.00 Schulman A Inc. 32,825
700.00 Scotts Co. 24,237
400.00 Service Experts Inc. 12,575
300.00 Shaw Group Inc. 7,481
200.00 Shiloh Inds Inc. 4,500
500.00 Shorewood Packaging Corp. 13,406

<PAGE>

SHARES OR
PRINCIPAL
AMOUNT VALUE

$
<C> <S> <C> <C>
700.00 Silgan Holdings Inc. 24,587
200.00 Simpson Manufacturing Co. Inc. 8,150
900.00 Southdown Inc. 62,719
400.00 Spartech Corp. 8,775
100.00 Special Metals Corp. 1,625
400.00 SPS Technologies Inc. 21,575
500.00 Standard Register Co. 16,969
400.00 Standex Intl Corp. 12,250
300.00 Stepan Co. 9,112
600.00 Stillwater Mng Co. 15,187
200.00 Stone & Webster Inc. 9,350
600.00 Synetic Inc. 31,125
300.00 Synthetic Inds Inc. 7,500
300.00 Tejon Ranch Co. Del 8,962
1,400.00 Terra Inds Inc. 15,312
400.00 Tetra Technologies Inc. Del 9,900
800.00 Texas Inds Inc. 46,250
500.00 Thomas Inds Inc. 11,125
600.00 Titanium Metals Corp. 16,275
500.00 TJ Intl Inc. 16,000
100.00 Tractor Supply Co. 2,062
300.00 Tredegar Inds Inc. 21,731
200.00 Tremont Corp. 11,625
500.00 Triangle Pac Corp Del 19,000
400.00 U S Can Corp. 7,100
400.00 Universal Forest Prods Inc. 6,800
600.00 Valence Technology Inc. 2,962
700.00 Valmont Inds Inc. 16,975
600.00 Watsco Inc. 16,125
1,700.00 Wausau-Mosinee Paper Co. 39,206
500.00 WD-40 Co. 15,219
500.00 Webb Del Corp. 15,250
1,000.00 Wellman Inc. 21,625
500.00 Wolverine Tube Inc. 20,062
700.00 Wyman Gordon Co. 16,012
400.00 Zero Corp Del 11,300
400.00 Zoltek Companies Inc. 14,000
----------
3,085,294

MINING & METALS 0.15%
777.00 Allegheny Teledyne Inc. 21,610
1,300.00 Steel Dynamics Inc. 27,625
----------
49,235

OIL, GAS, & OTHER ENERGY 3.76%
400 ABT Bldg Prods Corp. 6,600
500 ACX Technologies Inc. 11,969
100 Ag Chem Equip Inc. 1,675
800 Arch Coal Inc. 21,600
400 Atwood Oceanics Inc. 21,625
1100 Barrett Resources Corp. 38,431
300 Belco Oil & Gas Corp. 5,063
1000 Benton Oil & Gas Co. 11,062

<PAGE>

SHARES OR
PRINCIPAL
AMOUNT VALUE

$
<C> <S> <C> <C>
600 Berry Pete Co. 9,075
900 Brown Tom Inc. 20,138
800 Cabot Oil & Gas Corp 18,100
700 Calpine Corp. 12,469
200 Carbo Ceramics Inc. 7,800
1860 Chesapeake Energy Corp. 10,927
600 Cliffs Drilling Co. 24,788
900 COHO Energy Inc. 7,031
800 Comstock Res Inc. 8,700
1200 Cross Timbers Oil Co. 24,150
800 Devon Energy Corp. 31,100
100 DLB Oil & Gas Inc. 888
1300 Equitable Res Inc. 43,225
500 Forcenergy Inc. 13,250
1000 Forest Oil Corp. 15,437
1900 Global Inds Ltd. 38,713
2500 Grey Wolf Inc. 11,250
3700 Harken Energy Corp. 23,819
200 Holly Corp 5,425
300 Houston Expl Co. 6,469
500 HS Res Inc. 7,812
1400 Input/Output Inc. 32,725
900 KCS Energy Inc. 14,400
3400 Kelly Oil & Gas Corp. 7,225
600 Key Energy Group Inc. 9,788
700 Lomak Pete Inc. 11,462
600 Louis Dreyfus Nat Gas Corp. 10,950
1800 Marine Drilling Cos Inc. 38,925
1200 Meridian Resource Corp. 9,600
1800 National Oilwell Inc. 59,063
1100 Newfield Expl Co. 28,669
2200 Newpark Res Inc. 40,150
300 North Carolina Nat Gas Corp. 8,119
700 Nuevo Energy Co. 25,069
1170 Ocean Energy Inc. 27,568
800 Oceaneering Intl Inc. 15,800
900 Oneok Inc. 36,675
2400 Parker Drilling Co. 25,200
800 Patterson Energy Inc. 9,200
600 Plains Res Inc. 10,200
700 Pool Energy Svcs Co. 16,362
1500 Pride Intl. Inc. 35,812
1200 Quaker St. Corp. 22,575
400 RPC Inc. 4,900
200 Rutherford-Moran Oil Corp. 4,650
500 Seacor Smit Inc. 29,094
800 Seitel Inc. 12,100
1000 Snyder Oil Corp. 20,375
400 St Mary Ld & Expl Co. 15,287
400 Stone Energy Corp. 15,625
600 Swift Energy Co. 10,237
900 Tesoro Pete Corp 16,088
100 Thermo Ecotek Corp. 1,931

<PAGE>

SHARES OR
PRINCIPAL
AMOUNT VALUE

$
<C> <S> <C> <C>
1100 Titan Expl Inc. 8,937
800 Transmontaigne Oil Co. 11,200
700 Trico Marine Services Inc. 14,744
100 Trigen Energy Corp. 1,512
1600 Tuboscope Inc. 30,400
800 Unit Corp. 6,500
1200 Varco Intl. Inc. 30,900
800 Veritas DGC Inc. 40,450
1100 Vintage Pete Inc. 23,100
600 Zeigler Coal Hldg Co. 10,275
----------
1,262,433

TECHNOLOGY 11.55%
100.00 Act Mfg Inc. 1,013
700.00 Actel Corp. 10,325
700.00 Adtran Inc. 20,781
800.00 Alliance Semiconductor 6,000
300.00 Alliant Techsystems 18,825
500.00 Altron Inc. 7,625
1,300.00 Ampex Corp Del 3,331
600.00 Amphenol Corp New 34,612
500.00 Anadigics Inc. 6,531
300.00 Analogic Corp. 12,075
800.00 Analysts Intl Corp. 23,400
1,200.00 Anixter Intl Inc. 22,125
200.00 APEX PC Solutions Inc. 5,375
800.00 Applied Magnetics CP Del 9,250
700.00 Apsen Technology Inc. 28,875
400.00 Arbor Software Corp. 18,450
300.00 Aspect Dev Inc. 16,463
600.00 ATMI Inc. 18,150
900.00 Auspex Sys Inc. 7,875
800.00 Avant Corp. 16,700
900.00 Avid Technology Inc. 37,012
500.00 Aware Inc. Mass 7,563
600.00 BEA Sys Inc. 16,875
56.60 BMC Software 4,744
400.00 Benchmark Electrs Inc. 9,525
600.00 Berg Electrs Corp. 15,412
600.00 Black Box Corp Del 22,125
900.00 Boole & Babbage Inc. 22,050
1,300.00 Borland Intl Inc. 11,659
1,350.00 Burr Brown Corp. 33,750
900.00 Cable Design Technologies Co. 27,113
300.00 CACI Intl Inc. 6,600
1,800.00 Caseys Gen Stores Inc. 28,800
1,200.00 C-Cube Microsystems Inc. 22,350
300.00 CDW Computer Ctrs Inc. 17,962
1,200.00 Cellnet Data Sys Inc. 13,200
1,200.00 Checkpoint Systems Inc. 25,500
450.00 Chicago Miniature Lamp Inc. 17,494
1,100.00 CHS Electronics Inc. 20,625
400.00 Ciber Inc. 27,975

<PAGE>

SHARES OR
PRINCIPAL
AMOUNT VALUE

$
<C> <S> <C> <C>
2,100.00 Cirrus Logic Corp 21,263
1,350.00 Citrix Sys Inc. 73,153
700.00 Clarify Inc. 10,413
800.00 Coherent Inc. 19,350
300.00 Coherent Communication Sys Corp. 13,837
200.00 Complete Business Solutions 7,175
700.00 Compucom Sys Inc. 5,775
100.00 Computer Mgmt Sciences Inc. 2,769
1,500.00 Comverse Technology Inc. 73,313
1,700.00 Copytele Inc. 5,737
900.00 CSG Sys Intl Inc. 40,725
200.00 Cubic Corp. 4,700
300.00 Cybermedia Inc. 2,063
300.00 Data Dimensions Inc. 3,881
1,600.00 Data Gen Corp. 28,300
300.00 Davox Corp. 9,337
200.00 DBT Online Inc. 4,500
200.00 Deltek Sys Inc. 3,550
300.00 Dialogic Corp. 12,806
1,200.00 Diamond Multmedia Sys. 17,850
200.00 Digital Lightwave Inc. 1,219
200.00 Digital Link Corp. 2,200
1,400.00 Digital Microwave Corp. 20,650
400.00 Documentum Inc. 21,650
1,400.00 DSP Communications Inc. 23,887
400.00 Edify Corp. 8,075
200.00 Eltron Intl Inc. 4,900
400.00 Encad Inc. 5,225
500.00 ESS Technology Inc. 3,188
300.00 Esterline Technologies Corp. 12,656
800.00 ETEC Systems Inc. 47,200
300.00 Evans & Sutherland Computer 8,775
800.00 Exabyte Corp. 6,900
300.00 Exar Corp. 6,487
600.00 Filenet Corp. 29,325
500.00 Fonix Corp Del 2,781
100.00 Forrester Resh Inc. 3,550
600.00 Forte Software Inc. 4,500
1,000.00 FTP Software Inc. 3,344
300.00 Geotel Communications Corp. 8,287
700.00 Gerber Scientific Inc. 18,244
2,100.00 Glenayre Technologies 26,250
400.00 HADCO Corp. 15,850
700.00 Harbinger Corp. 26,425
1,300.00 HMT Technology Corp. 16,819
600.00 HNC Software Inc. 22,575
700.00 Hutchinson Technology Inc. 18,550
700.00 Hyperion Software Inc. 30,975
200.00 I2 Technologies Inc. 13,125
600.00 Identix Inc. 5,100
300.00 IKOS Systems Inc. 2,025
1,400.00 Imation Corp. 25,900
300.00 Imnet Sys Inc. 6,750

<PAGE>

SHARES OR
PRINCIPAL
AMOUNT VALUE

$
<C> <S> <C> <C>
800.00 In Focus Sys Inc. 7,200
300.00 Indus Intl Inc. 3,075
900.00 Industri-Matematik Intl Corp. 28,237
200.00 Information Mgmt Res Inc. 11,775
1,000.00 Information Res Inc. 16,250
500.00 Innovex Inc. 12,188
300.00 INSO Corporation 5,325
400.00 Integrated Circuit Sys Inc. 8,375
2,800.00 Integrated Device Tech 39,375
600.00 Integrated Process Equip Corp. 12,075
500.00 Integrated Sys Inc. 10,781
1,500.00 Intergraph Corp. 12,703
700.00 International Network Svcs. 20,475
1,800.00 International Rectifier Corp. 21,150
700.00 Intersolv Inc. 12,556
500.00 Intervoice Inc. 4,656
300.00 JDA Software Group Inc. 15,938
1,300.00 Kemet Corp. 24,131
300.00 Kronos Inc. 10,537
1,400.00 Learning Company Inc. 32,375
200.00 Lecroy Corp. 4,250
600.00 Legato Systems Inc. 35,625
1,050.00 Level One Communications Inc. 24,675
300.00 LHS Group Inc. 27,656
700.00 Littelfuse Inc. 18,200
1,300.00 LTX Corp. 6,297
1,100.00 Macromedia Inc. 16,363
600.00 Manugistics Group Inc. 33,638
600.00 Marshall Inds. 20,025
200.00 Mastech Corp. 10,194
2,100.00 Mentor Graphics Corp. 20,606
600.00 Mercury Interactive CP 21,900
1,000.00 Methode Electrs Inc. - Cl A 14,937
200.00 Metro Information Services 6,825
400.00 Micrel Inc. 15,175
400.00 Micro Linear Corp. 2,675
500.00 Microage Inc. 6,313
1,000.00 Microprose Inc. New 2,125
300.00 Microtouch Sys Inc. 5,775
700.00 MRV Communications Inc. 16,362
700.00 Mylex Corp. 5,513
1,000.00 National Computer Sys Inc. 22,500
500.00 National Instrs Corp. 17,062
400.00 National Microsystems Corp. 15,850
500.00 National Techteam Inc. 5,063
300.00 Neomagic Corp. 5,662
1,000.00 Network Appliance Inc. 35,500
500.00 Network Computing Devices Inc. 5,250
700.00 Network Equip Technologies 11,375
1,200.00 Newport News Shipbuilding Inc. 32,025
400.00 Nichols Resh Corp. 11,200
500.00 Nimbus CD Intl Inc. 5,094
1,300.00 Oak Technology Inc. 8,206

<PAGE>

SHARES OR
PRINCIPAL
AMOUNT VALUE

$
<C> <S> <C> <C>
300.00 Objective Sys Integrators Inc. 4,125
300.00 ODS Networks Inc. 1,800
600.00 OIS Optical Imaging Sys Inc. 712
600.00 Open Mkt Inc. 12,375
400.00 Park Electrochemical Corp. 10,325
1,300.00 P-Com Inc. 26,000
100.00 Pegaystems Inc. 1,825
500.00 Periphonics Corp. 6,422
500.00 Phoenix Technology Ltd. 6,000
600.00 Photronics Inc. 16,800
900.00 Pioneer Std Electrs Inc. 11,025
2,300.00 Platinum Technology Inc. 59,225
500.00 Plexus Corp. 9,938
1,100.00 PMC-Sierra Inc. 41,800
500.00 Powertel Inc. 10,797
100.00 Powerwave Technologies Inc. 1,325
800.00 Premiere Technologies Inc. 27,700
900.00 Premisys Communications Inc. 25,819
400.00 Progress Software Corp. 12,000
300.00 Project Software & Dev. Inc. 7,200
300.00 Proxim Inc. 4,575
1,200.00 Psinet Inc. 13,350
200.00 Radiant Systems Inc. 4,950
200.00 Radisys Corp. 5,025
400.00 Rambus Inc. Del 17,500
1,000.00 Ramtron Intl Corp. 4,375
2,700.00 Rational Software Corp. 35,100
1,600.00 Read-Rite Corp 22,100
600.00 Remec Inc. 17,213
700.00 Remedy Corp 13,737
600.00 Renaissance Worldwide Inc. 16,463
300.00 Rogers Corp. 12,450
1,700.00 S3 Inc. 12,006
800.00 Sabre Group Hldgs Inc. 28,700
1,000.00 Safeguard Scientifics Inc. 37,625
600.00 Sandisk Corp. 14,925
700.00 Sanmina Corp. 48,956
600.00 Santa Cruz Operation 3,075
200.00 Sapient Corp. 9,475
200.00 Sawtek Inc. 5,075
700.00 Scopus Technology Inc. 14,088
400.00 SDL Inc. 9,500
200.00 Seachnage Intl. Inc. 1,400
400.00 Semtech Corp. 10,200
1,500.00 Sequent Computer Sys Inc. 27,375
300.00 Sheldahl Co. 3,337
1,000.00 Shiva Corp. 10,000
1,400.00 Siebel Sys Inc. 40,250
400.00 Siliconix Inc. 15,000
300.00 Sipex Corp. 9,900
900.00 Smart Modular Tech Inc. 20,531
400.00 Spectrian Corp. 6,650
200.00 Speedfam Intl Inc. 5,163

<PAGE>

SHARES OR
PRINCIPAL
AMOUNT VALUE

$
<C> <S> <C> <C>
400.00 Splash Technology Hldgs Inc. 6,700
200.00 SPSS Inc. 4,700
400.00 Stanford Telecommunications 6,750
1,000.00 Stratus Computer Inc. 44,062
1,200.00 Structural Dynamics Resh Corp. 29,850
400.00 Supertex Inc. 4,450
300.00 Sykes Enterprises Inc. 6,300
2,000.00 Symantec Corp. 53,875
1,000.00 System Software Assoc Inc. 7,719
600.00 Systems & Computer Technology 24,750
700.00 Systemsoft Corp. 2,581
200.00 Tech Sym Corp. 5,625
900.00 Technology Solutions Co. 23,850
400.00 Tekelec 18,150
500.00 Telxon Corp. 13,250
100.00 Thermo Optek Corp. 1,750
100.00 Thermoquest Corp. 1,800
300.00 Thermotrex Corp. 6,337
600.00 Tracor Inc. New 19,238
300.00 Transaction Network Svcs Inc. 5,306
400.00 Trident Microsystems Inc. 2,975
800.00 Trimble Navigation Ltd. 14,250
300.00 Triquint Semiconductor Inc. 6,788
800.00 Unitrode Corp. 14,900
200.00 Urie Sys. Inc. 4,837
700.00 USCS Intl Inc. 14,919
1,500.00 Vanstar Corp. 18,750
300.00 Vantive Corp. 10,969
1,000.00 Veritas Software Co. 59,125
700.00 Viasoft Inc. 19,163
400.00 Videoserver Inc. 4,994
800.00 Visio Corp. 34,400
500.00 VWR Scientific Prods Corp. 17,656
500.00 Walker Interactive Sys Inc. 9,781
300.00 Wall Data Inc. 4,500
1,300.00 Wang Labs Inc. New 40,219
300.00 Watkins Johnson Co. 8,119
500.00 Westell Technologies Inc. 6,375
300.00 Whittman-Hart Inc. 13,575
700.00 Wind River Systems Inc. 27,825
500.00 Wonderware Corp. 11,938
700.00 World Access Inc. 22,750
800.00 Xircom Inc. 11,050
1,100.00 Xylan Corp. 26,813
800.00 Yahoo Inc. 73,950
600.00 Zebra Technologies Corp. 23,100
500.00 Zitel Corp. 7,156
300.00 Zoran Corp. 4,050
----------
3,884,344

TRANSPORTATION 4.12%
900.00 AAR Corp 24,525
600.00 Aftermarket Technology Corp 13,275

<PAGE>

SHARES OR
PRINCIPAL
AMOUNT VALUE

$
<C> <S> <C> <C>
1,100.00 Air Express Intl Corp 29,219
1,800.00 Airborne Fght Corp 67,725
300.00 Airnet Sys Inc. 8,700
1,300.00 Airtran Hldgs Inc New 9,100
700.00 Alaska Air Group Inc. 37,931
1,400.00 America West Hldg Corp 35,875
700.00 American Freightways Corp 7,700
700.00 Arctic Cat Inc. 6,519
700.00 Arnold Inds Inc. 11,812
800.00 ASA Hldgs Inc. 29,450
300.00 Atlas Air Inc. 9,769
500.00 Aviall Inc New 7,500
400.00 Avondale Inds INc. 11,500
400.00 Barnes Group INc. 13,325
800.00 BE Aerospace Inc. 22,500
500.00 Breed Technologies Inc. 11,656
400.00 Circle Intl Group Inc. 10,600
600.00 Coach USA Inc 26,100
500.00 Coachman Inds INc. 13,500
800.00 Consolidated Freightways Cor 13,600
400.00 Covenant Trans Inc. 8,763
300.00 Eagle USA Airfreight Inc. 8,100
300.00 Excel Inds Inc. 6,187
600.00 Exide Corp 10,162
900.00 Expeditors Intl Wash Inc 38,588
1,400.00 Federal Mogul Corp 74,463
1,000.00 Fleetwood Enterprises Inc. 46,562
100.00 Florida East Coast Inds. 11,113
800.00 Fritz Cos INc. 12,700
1,300.00 Gentex Corp 44,119
1,600.00 Greyhound Lines Inc. 7,600
200.00 Halter Marine Group Inc. 3,175
900.00 Hayes Lemmerz 29,700
600.00 Heartland Express Inc. 16,650
800.00 Hunt J B Transport SVC 22,750
400.00 Hvide Marine Inc. 7,050
800.00 Kirby Corp 19,250
100.00 Kitty Hawk Inc. 2,200
100.00 Knight Transn Inc 3,200
400.00 Landstar Systems Inc. 12,900
900.00 Mascotech Inc 20,756
300.00 Mesava Hldgs Inc. 9,431
300.00 Midwest Express Hldgs Inc. 14,700
1,000.00 Miller Inds Inc Tenn 7,313
800.00 Modine Mfg Co 27,800
600.00 Motivepower Inds INc. 16,575
300.00 MS Carriers Inc. 10,162
500.00 Myers Inds Inc. 10,438
800.00 Offshore Logistics Inc. 15,900
1,300.00 OMI Corp 11,700
400.00 O'Reilly Automotive Inc. 11,025
900.00 Overseas Shipholding Group 19,238
700.00 Pittston Co 10,937

<PAGE>

SHARES OR
PRINCIPAL
AMOUNT VALUE

$
<C> <S> <C> <C>
900.00 Polaris Industries Inc. 33,300
400.00 Roadway Express Inc Del 9,825
600.00 Simpson Inds iNc. 8,400
300.00 Skyline Corp 9,150
400.00 Smith A O 17,900
400.00 SPX Corp 30,525
300.00 Standard Mtr Prods Inc. 5,756
600.00 Standard Prods Co 19,763
700.00 Superior Inds Intl Inc. 23,231
750.00 Swift Transn Co 18,000
800.00 TBC Corp 8,000
200.00 Thor Inds INc 8,188
600.00 Titan Intl Inc Ill 11,550
600.00 Tower automotive Inc 27,000
1,800.00 Trans World Airlines Inc. 22,162
900.00 US Freightways Corp 32,400
300.00 US Rentals Inc 8,288
700.00 Wabash Natl Corp 20,300
300.00 Walbro Corp 3,675
800.00 Werner Enterprises Inc. 20,400
500.00 Westinghouse Air Brake Co NE 14,844
500.00 Winnebago Industries 5,906
700.00 Wynns Intl Inc 15,925
1,000.00 Yellow Corp 19,125
----------
1,386,701

UTILITIES 7.30%
600.00 ACC Corp. 31,950
200.00 Aerial Communications Inc. 1,550
2,000.00 AGL Res Inc. 43,000
1,300.00 Aliant Communications Inc. 44,200
500.00 American Mobile Satellite Co. 7,125
300.00 Aquarion Co. 9,731
200.00 Aquila Gas Pipeline Corp. 3,250
500.00 Associated Group Inc. Cl A 19,250
1,000.00 Atmos Energy Corp. 29,625
500.00 Bay St. Gas Co. 18,844
750.00 Black Hills Corp. 17,391
1,200.00 Cablevision Sys Corp. 78,900
400.00 California Water 10,825
400.00 Cellular Communications Intl. 27,200
600.00 Centennial Cellular Corp. 15,769
600.00 Central Hudson Gas & Elec Co. 26,175
800.00 Central La Elec Inc. 27,400
1,100.00 Central Maine Pwr Co. 19,387
1,100.00 Century Communications Corp. 14,094
400.00 CFW Communication Co. 10,700
500.00 Cilcorp Inc. 24,125
300.00 Colonial Gas Co. 8,606
700.00 Commonwealth Energy Sys 27,913
400.00 Commonwealth Tel Entrp. 11,250
1,800.00 Comsat Corp. 61,987
3,600.00 Conectiv 78,975

<PAGE>

SHARES OR
PRINCIPAL
AMOUNT VALUE

$
<C> <S> <C> <C>
400.00 Connecticut Energy Corp. 12,300
400.00 Corecomm Inc. 6,662
200.00 CTG Res Inc. 5,138
300.00 E Town Corp. 10,406
700.00 Eastern Utils Assoc. 19,075
300.00 Echostar Communications New 6,600
2,100.00 El Paso Elec Co. 17,981
600.00 Empire Dist Elec Co. 12,975
1,000.00 Energen Corp. 22,000
300.00 General Communications Cl A 2,381
1,100.00 Hawaiian Elec Industries 45,650
800.00 Highwaymaster Communications 5,100
1,100.00 IES Inds Inc. 40,906
800.00 Indiana Energy Inc. 24,350
600.00 Intermedia Communications 47,775
500.00 Interstate Pwr Co. 17,906
600.00 IXC Communications Inc. 34,238
500.00 Jones Intercable Inc Cl A 9,125
600.00 Laclede Gas Co. 15,038
600.00 Madison Gas & Elec Co. 13,050
1,300.00 McLeodusa Inc. 54,925
1,000.00 MDU Res Group Inc. 37,312
1,200.00 Minnesota Pwr & Lt Co. 51,000
1,800.00 Mobile Telecommun Tech 40,275
1,800.00 Nevada Power Co. 48,150
600.00 New Jersey Res. 23,513
500.00 North Pittsburgh Sys Inc. 8,062
800.00 Northwest Nat Gas Co. 22,500
600.00 Northwestern Pub Svc Co. 13,763
1,000.00 NTL Inc. 43,250
400.00 NUI Corp. 10,950
1,100.00 Omnipoint Corp. 32,450
500.00 Orange & Rockland Utils Inc. 22,437
400.00 Otter Tail Pwr Co. 15,050
300.00 Pacific Gateway Exchange Inc. 17,175
1,400.00 Pagemart Wireless Inc. 12,163
3,600.00 Paging Network Inc. 55,350
300.00 Pennsylvania Enterprises Inc. 7,575
800.00 Philadelphia Subn Corp. 17,250
1,100.00 Piedmont Nat Gas Inc. 38,225
500.00 Pricellular Corp. 6,375
500.00 Primus Telecommunications Gr. 14,500
1,500.00 Public Svc Co N Mex 36,656
700.00 Public Svc Co NC Inc. 14,350
600.00 RCN Corp. 30,075
1,400.00 Rochester Gas & Elec Corp. 45,500
400.00 Semco Energy Inc. 6,750
1,100.00 Sierra Pac Res 41,319
800.00 Sigcorp Inc. 25,550
300.00 Smartalk Teleservices Inc. 9,581
300.00 South Jersey Inds Inc. 8,906
300.00 Southern California Wtr Co. 7,800
300.00 Southern Un Co New 7,200

<PAGE>

SHARES OR
PRINCIPAL
AMOUNT VALUE

$
<C> <S> <C> <C>
1,000.00 Southwest Gas Corp. 20,875
900.00 Southwestern Energy Co. 9,563
600.00 TCA Cable TV Inc. 35,475
1,800.00 TCI Satellite Entmt Inc. Cl A 12,825
1,200.00 Tel-Save Hldgs Inc. 27,300
400.00 TNP Enterprises Inc. 13,225
1,200.00 UGI Corp New 33,900
1,100.00 Unisource Energy Corp Hld Co. 19,113
500.00 United Illum Co. 24,187
900.00 United Intl Hldgs Inc Cl A 15,075
1,300.00 United Sts Satellite 11,944
900.00 United Wtr Res Inc. 16,256
1,300.00 Vanguard Cellular Sys I-Cl A 23,644
1,600.00 Washington Gas Lt Co. 43,800
2,000.00 Washington Wtr Pwr Co. 49,000
700.00 Western Gas Res Inc. 13,300
2,500.00 Western Wireless Corp. 57,500
700.00 Wicor Inc. 33,863
1,200.00 Winstar Communications 51,300
1,100.00 WPL Hldgs Inc. 37,056
900.00 WPS Resources Corp. 29,981
400.00 Yankee Energy Sys Inc. 9,825
----------
2,452,822

OTHER 1.38%
500.00 Bell & Howell Co New 13,719
900.00 Carlisle Cos Inc. 44,213
800.00 Carter Wallace Inc. 14,550
100.00 Christiana Cos INc. 3,650
600.00 Clarcor Inc. 19,950
500.00 Commercial Intertech Corp 11,937
600.00 Cylink Corp. 8,662
700.00 Eastern Enterprises 30,100
500.00 Fairchild Corp 10,781
600.00 Figgie Intl Inc Del CL A 8,325
1,200.00 Gencorp Inc. 36,900
800.00 Global Indl Technologies INc. 13,200
1,100.00 Griffon Corp 17,463
200.00 Insilco Corp 8,600
600.00 Kaman Corp CL A 11,025
400.00 Mastec Inc. 12,600
1,500.00 Metromedia Intl Group Inc. 22,781
1,800.00 Ogden Corp 51,750
200.00 Pec Israel Economic Corp 4,587
900.00 Primark Corp 38,475
300.00 Sequa Corporation CL A 22,181
600.00 Showboat Inc. 17,963
600.00 Triarc Companies Inc. 15,750
1,200.00 Walter Inds Inc. 25,650
----------
464,812
----------

Total common stocks (cost: $30,232,663) 33,498,234

<PAGE>

SHARES OR
PRINCIPAL
AMOUNT VALUE

$
<C> <S> <C> <C>
SHORT-TERM INVESTMENTS 0.34%

$117,000.00 U.S. Treasury bills, 4.985% to 5.36%
effective yield, due April 1998 116,625
----------
Total short-term investments
(cost: $116,641) 116,625
----------

TOTAL INVESTMENTS (COST: $30,349,304) 99.99% 33,614,859

CASH AND OTHER ASSETS, LESS LIABILITIES 0.01% 2,250
----------

NET ASSETS 100.00% $33,617,109
----------
----------

</TABLE>

Note: At March 31, 1998, net unrealized appreciation of $3,265,555 consisted of
gross unrealized appreciation of $3,771,778 and gross unrealized
depreciation of $506,223 based on cost of $30,349,304 for federal income
tax purposes.

<PAGE>

STATE FARM VP TRUST INTERNATIONAL EQUITY INDEX FUND
PORTFOLIO ANALYSIS BY COUNTRY
03/31/1998

SHARES SECURITY DESCRIPTION % NET ASSETS MARKET VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
840 BANK AUSTRIA AG 0.09% 56,879.09
360 OEMV AG 0.08% 46,401.62
620 OEST ELEKTRIZATSWIRTS 0.12% 71,002.77
360 VA TECHNOLOGIE AG 0.09% 56,722.32
---------------------------
TOTAL AUSTRIA 0.38% 231,005.80

6,800 AMATIL LTD COCA COLA 0.09% 53,436.44
2,500 BRAMBLES INDUSTRIES LTD 0.09% 52,140.50
19,200 BROKEN HILL PROPRIETARY 0.32% 196,590.72
13,000 COLES MYER LTD 0.11% 65,088.40
16,700 CSR LTD 0.10% 58,141.05
25,900 FOSTERS BREWING GRP LTD 0.09% 56,506.03
7,300 ICI AUSTRALIA 0.08% 50,878.81
3,000 LEND LEASE CORP LTD 0.12% 70,029.00
14,200 NATIONAL AUSTRALIA BANK LTD 0.33% 202,554.48
16,100 NEWS CORPORATION LTD 0.15% 91,179.13
17,600 NEWS CORPORATION LTD 0.19% 116,364.16
25,752 NORMANDY MINING LIMITED 0.05% 27,665.37
21,200 PACIFIC DUNLOP 0.07% 40,629.80
17,000 PIONEER INTL LTD 0.08% 49,039.90
5,300 RIO TINTO LTD. 0.11% 69,767.08
11,500 SANTOS LTD 0.07% 43,164.10
47,700 TELSTRA CORPORATION 0.20% 123,046.92
12,700 WESTERN MNG CORP HOLDING LTD 0.07% 43,625.77
28,800 WESTFIELD TRUST 0.10% 60,733.44
18,500 WESTPAC BANKING CORP 0.20% 124,155.35
---------------------------
TOTAL AUSTRALIA 2.62% 1,594,736.45

300 BARCO N.V. (INDUSTRIES) 0.13% 77,538.33
70 BEKAERT SA 0.08% 51,285.92
650 CIMENTERIES CBR CEMENTBED 0.10% 62,872.10
1,020 DELHAIZE LE PS 0.11% 65,506.44
300 ELECTRABEL 0.13% 76,437.36
300 FORTIS AG 0.14% 83,357.64
450 GBL GROUP BXL LAMB 0.13% 77,734.89
600 NV UNION MINIERE SA 0.07% 41,836.08
240 PETROFINA SA NPV 0.14% 86,660.48
800 REUNIES ELECTROBEL & TRACTEBEL 0.14% 84,091.60
200 ROYAL BELGE 0.12% 70,120.02
1,250 SOLVAY ET CIE 0.16% 94,694.75
---------------------------
TOTAL BELGIUM 1.43% 872,135.61

11,615 ABBEY NATIONAL 0.37% 225,041.79
3,405 ANGLIAN WATER 0.09% 53,399.25
5,995 ARGOS 0.10% 62,594.39
12,470 ARJO WIGGINS APPLETON 0.07% 40,929.03
9,030 ASSOCIATED BRITISH FOODS 0.15% 93,073.11
28,160 B.A.T. INDUSTRIES 0.47% 287,184.13
13,035 BARCLAY'S 0.64% 390,728.03
8,147 BASS 0.26% 156,211.39
6,920 BBA GROUP 0.09% 51,798.97
35,250 BG PLC NEW SHS 0.30% 182,989.80
</TABLE>

<PAGE>

SHARES SECURITY DESCRIPTION % NET ASSETS MARKET VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
8,690 BLUE CIRCLE INDUSTRIES 0.09% 53,261.01
4,890 BOC GROUP 0.13% 78,120.68
9,310 BOOTS CO 0.25% 149,201.13
7,120 BPB INDUSTRIES 0.07% 45,009.79
4,210 BRITISH AEROSPACE 0.23% 138,745.18
10,930 BRITISH AIRWAYS 0.18% 111,191.98
4,850 BRITISH LAND COMPANY 0.10% 60,913.58
49,645 BRITISH PETROLEUM CO 1.18% 716,625.58
18,320 BRITISH SKY BROADCASTING 0.23% 137,440.30
23,960 BRITISH STEEL 0.09% 56,974.48
55,755 BRITISH TELECOMMUNICATIONS 1.00% 606,887.60
41,140 BTR LIMITED 0.22% 135,029.71
4,440 BURMAH CASTROL 0.15% 90,560.90
18,380 CABLE & WIRELESS 0.38% 230,073.49
8,740 CADBURY SCHWEPPES 0.20% 121,332.18
9,455 CARLTON COMMUNICATIONS 0.12% 75,128.48
37,950 CENTRICA 0.12% 71,494.01
5,965 COMMERCIAL UNION 0.19% 116,471.40
9,135 COURTAULDS 0.09% 55,070.35
33,333 DIAGEO 0.65% 392,409.41
6,015 ELECTROCOMPONENTS 0.09% 53,384.93
11,442 ELEMENTIS NEW 0.04% 26,632.40
9,415 EMI GROUP 0.13% 78,200.99
13,900 FKI BABCOCK 0.08% 47,251.66
27,535 GENERAL ELECTRIC 0.36% 218,099.23
4,100 GKN PLC 0.18% 110,883.27
31,455 GLAXO WELLCOME 1.39% 846,479.22
8,050 GRANADA GROUP 0.24% 144,780.86
9,800 GREAT UNIVERSAL STORES 0.20% 121,687.58
10,035 GUARDIAN ROYAL EXCHANGE 0.12% 71,839.56
12,010 HANSON TRUST 0.12% 72,604.05
14,465 HSBC HOLDINGS 0.73% 442,796.79
6,555 HSBC HOLDINGS 0.35% 213,831.97
6,630 I M I 0.08% 50,516.62
7,240 IMPERIAL CHEMICAL INDUSTRIES 0.21% 129,121.06
4,055 JOHNSON MATTHEY PUBLIC LIMITED 0.07% 41,829.35
6,440 KINGFISHER 0.20% 120,677.23
13,790 LADBROKE GROUP 0.13% 77,186.77
4,730 LAND SECURITIES 0.14% 84,990.53
10,560 LEGAL AND GENERAL GROUP 0.21% 130,505.76
46,510 LLOYDS TSB GROUP 1.19% 723,556.08
11,000 LONDON & SCOTLAND MARINE OIL 0.08% 50,839.80
16,665 LUCASVARITY 0.11% 67,394.93
23,955 MARKS & SPENCER PLC ENG 0.39% 237,279.07
5,340 MEPC 0.09% 53,161.84
11,360 NATIONAL GRID GROUP 0.11% 67,152.37
12,035 NATIONAL POWER (NEW) 0.20% 123,340.70
4,510 NEXT 0.07% 43,728.51
5,610 PEARSON 0.15% 91,126.60
7,165 PENINSULAR & ORIENT STEAM NAVIGATION 0.18% 107,386.15
16,940 PILKINGTON 0.06% 34,323.83
19,185 PRUDENTIAL CORP 0.46% 282,075.14
4,745 RAILTRACK GROUP 0.13% 77,870.20
11,675 RANK GROUP 0.13% 78,838.94
9,865 REED INTL LTD BRITISH 0.16% 100,192.89
13,871 REUTERS GROUP 0.25% 149,590.41
8,555 REXAM 0.07% 40,112.68
8,330 RIO TINTO 0.18% 111,873.57
</TABLE>

<PAGE>

SHARES SECURITY DESCRIPTION % NET ASSETS MARKET VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
3,385 RMC GROUP 0.09% 54,984.59
15,580 ROLLS ROYCE 0.12% 72,791.32
15,005 ROYAL & SUN ALLIANCE INS GRP 0.31% 191,219.22
7,950 ROYAL BANK OF SCOTLAND GROUP 0.20% 123,544.59
11,185 SAFEWAY 0.11% 69,395.10
17,115 SAINSBURY (J) 0.24% 147,100.00
1,830 SCHRODERS 0.12% 72,935.38
7,430 SCOTTISH NEWCASTLE BREWERIES 0.19% 117,579.01
10,590 SCOTTISH POWER 0.16% 99,664.61
5,840 SLOUGH ESTATES 0.07% 39,998.74
45,715 SMITHKLINE BEECHAM 0.95% 577,983.89
4,090 SMITHS INDUSTRIES 0.10% 60,066.56
5,755 SOUTHERN ELECTRIC PLP ORD 53 0.09% 52,812.48
18,255 TARMAC 0.06% 35,918.54
6,965 TATE & LYLE 0.10% 60,766.84
18,680 TESCO 0.31% 187,375.34
3,815 THAMES WATER 0.10% 60,467.75
6,380 TI GROUP 0.09% 55,983.86
27,305 UNILEVER 0.43% 258,343.53
5,710 UNITED UTILITIES 0.14% 84,670.74
24,950 VODAFONE GROUP 0.43% 261,131.69
8,980 WILLIAMS 0.12% 71,880.41
7,125 WOLSELEY 0.09% 54,765.60
7,530 ZENECA GROUP 0.53% 324,574.63
---------------------------
TOTAL BRITAIN 22.45% 13,644,989.09

20 D/S 1912 'B' 0.15% 93,716.72
10 D/S SVENDBORG 'B' 0.11% 68,157.61
950 DANISCO A/S 0.10% 62,393.34
600 DEN DANSKE BANK 0.13% 78,419.46
700 NOVO NORDISK A/S-B 0.20% 119,155.26
1,700 TELE DANMARK 0.25% 154,334.33
700 UNIDANMARK 0.09% 55,605.76
---------------------------
TOTAL DENMARK 1.04% 631,782.48

2,400 KESKO OY OSAKE 0.06% 38,912.88
10,000 MERITA LTD A SHS 0.10% 60,222.00
800 NOKIA OYJ - K SHARES 0.14% 86,064.96
1,800 NOKIA Oyj-A 0.32% 193,229.10
3,000 OUTOKUMPO OY 0.06% 37,790.40
1,000 SAMPO INSURANCE CO 0.07% 39,554.50
2,800 UPM-KYMMENE 0.12% 71,340.64
---------------------------
TOTAL FINLAND 0.87% 527,114.48

400 ACCOR FRENCH ORD 0.17% 102,652.00
600 AIR LIQUIDE FRENCH 0.17% 101,683.56
1,600 ALCATEL ALSTHOM FRF 40 0.49% 300,337.76
2,850 AXA COMPANY FRF60 0.48% 293,478.18
1,800 BANQUE NATIONAL DE PARIS 0.23% 139,887.54
700 BIC 0.09% 53,304.79
325 BOUYGUES 0.09% 56,652.28
400 CANAL PLUS FF 20 0.12% 75,019.88
</TABLE>

<PAGE>

SHARES SECURITY DESCRIPTION % NET ASSETS MARKET VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
350 CARREFOUR SUPERMARCHE 0.34% 206,191.76
1,200 CIE GENERALE DES EAUX 0.32% 194,845.08
800 COMPAGNIE DE SAINT GOBAN 0.22% 131,704.48
1,515 COMPAGNIE FINANCIERE PARIBAS FRENCH ORD 0.25% 153,317.09
85 COMPTOIRS MODERNES 0.07% 43,407.60
2,300 ELF-AQUITAINE SOCIETE NATIONAL
ELF-AQUITAINE 0.50% 301,435.24
300 ERIDANIA BEGHIN SAY 0.10% 60,041.73
130 ESSILOR INTERNATIONAL 0.07% 43,244.58
8,400 FRANCE TELECOM SA 0.73% 443,068.92
600 GROUPE DANONE 0.24% 144,874.92
875 HAVAS SA 0.12% 72,449.56
300 IMETAL 0.07% 39,511.32
1,015 LAFARGE COPPEE FRENCH 0.14% 86,334.99
1,400 LAGARDERE GROUPE 0.09% 56,490.84
300 LEGRAND 0.13% 80,814.24
590 L'OREAL 0.45% 274,255.19
820 LVMH COMPANY 0.29% 173,907.98
1,250 MICHELIN B FRENCH REG SHARES 0.12% 74,628.50
900 PERNOD-RICARD 0.10% 61,155.36
625 PEUGEOT SA 0.18% 107,736.19
225 PINAULT-PRINTEMPS-REDOUTE 0.29% 173,951.60
180 PROMODES 0.14% 86,547.28
3,250 RHONE POLENC 0.27% 165,183.20
100 SAGEM S.A. 0.11% 64,028.39
950 SANOFI SA 0.18% 109,019.34
1,400 SCHNEIDER SA 0.18% 107,784.60
1,000 SEITA 0.06% 39,220.80
500 SIDEL 0.06% 36,315.55
750 SOCIETE GENERALE FRENCH ORD 0.25% 150,104.33
100 SODEXHO ALLIANCE 0.11% 68,999.59
1,075 SUEZ LYONNAISE DES EAUX-DUMEX 0.26% 155,289.34
1,000 THOMSON CSF FF 20 FR ORD 0.07% 40,350.60
2,000 TOTAL SA B 0.40% 240,167.00
2,400 USINOR SACILOR 0.07% 40,131.12
950 VALEO 0.14% 83,566.09
---------------------------
TOTAL FRANCE 8.94% 5,433,090.39

450 ADIDAS SALOMON AG ORD 0.13% 79,800.21
2,084 ALLIANZ AG HOLDING GER REG 1.04% 629,368.00
6,500 BASF AG 0.47% 287,508.00
7,400 BAYER AG 0.55% 336,719.98
2,600 BAYER HYPOTH-UND WECHSEL BANK 0.23% 139,606.74
2,850 BAYERISCHE VEREINSBANK AG 0.33% 203,578.07
1,300 BEIERSDORF 0.10% 63,617.32
335 CKAG COLONIA KONZERN AG 0.07% 40,848.39
5,050 DAIMLER BENZ 0.76% 464,766.15
1,190 DEGUSSA 0.11% 67,564.63
4,200 DEUTSCHE BANK AG 0.52% 314,885.76
21,750 DEUTSCHE TELEKOM AG 0.78% 475,731.23
4,650 DRESDNER BANK AG 0.35% 211,713.57
700 HEIDELBERGER ZEMENT AG 0.09% 54,505.99
925 HOCHTIEF AG 0.06% 37,663.41
125 KARSTADT AG DEM50 0.08% 48,666.08
100 LINDE AG GERMAN ORD 0.12% 72,133.95
4,120 LUFTHANSA AG 0.14% 86,662.14
175 M.A.N. AG DM50 0.10% 58,243.83
</TABLE>

<PAGE>

SHARES SECURITY DESCRIPTION % NET ASSETS MARKET VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
350 MANNESMANN AG 0.42% 253,225.84
1,850 MERCK KGAA 0.13% 78,127.91
2,350 METRO AG 0.17% 103,691.17
650 MUENCHENER RUECKVERSICHERUNGS 0.46% 280,478.84
195 PREUSSAG AG DM50 0.11% 66,745.54
1,730 RWE 0.13% 78,158.46
2,800 RWE AG 0.25% 151,026.96
500 SAP AG 0.33% 198,990.20
360 SAP AG VORZUG 0.25% 153,103.50
720 SCHERING AG 0.14% 84,094.99
250 SGL CARBON AG 0.05% 27,685.58
5,150 SIEMENS AG GERMAN ORD 0.57% 344,755.94
350 THYSSEN AG DM50 0.12% 75,721.70
4,200 VEBA AG 0.49% 299,442.36
250 VIAG AG 0.23% 137,481.68
105 VOLKSWAGEN AG 0.10% 59,502.40
250 VOLKSWAGEN AG DM50 0.32% 195,745.80
---------------------------
TOTAL GERMANY 10.30% 6,261,562.32

16,800 BANK OF EAST ASIA HONG KONG 0.06% 34,908.72
44,000 CATHAY PACIFIC AIRWAYS LTD 0.07% 42,873.60
15,000 CHEUNG KONG 0.18% 106,477.50
18,500 CLP HOLDINGS LIMITED 0.15% 93,119.75
16,000 HANG SENG BANK 0.26% 156,425.60
39,000 HONG KONG & CHINA GAS 0.11% 65,434.20
78,400 HONG KONG TELECOM 0.27% 161,896.00
23,000 HUTCHISON WHAMPOA 0.27% 161,782.00
14,000 NEW WORLD DEVELOPMENT 0.08% 49,418.60
14,000 SUN HUNG KAI PROPERTIES LTD 0.16% 95,313.40
17,000 SWIRE PACIFIC LTD 0.15% 89,957.20
25,000 WHARF (HOLDINGS) LTD 0.08% 49,042.50
---------------------------
TOTAL HONG KONG 1.82% 1,106,649.07

10,470 ALLIED IRISH BANKS 0.21% 128,627.25
4,700 CRH 0.12% 70,866.13
8,990 IRISH LIFE 0.14% 82,191.61
14,550 SMURFIT (JEFFERSON) GROUP 0.07% 41,714.85
---------------------------
TOTAL IRELAND 0.53% 323,399.84

9,860 ASSICURAZIONE GENERALI ITL 0.50% 303,987.74
20,000 BANCA INTESA SPA AZIONE NOM 0.21% 125,076.00
24,500 BANK COMMERCIALE ITALIANA 0.20% 122,237.85
2,900 BENETTON GROUP 0.10% 60,931.32
35,000 CREDITO ITALIANO 0.28% 172,900.00
10,000 EDISON SPA 0.14% 84,180.00
73,800 ENI SPA 0.83% 502,828.92
36,000 FIAT SPA 0.25% 150,188.40
10,200 ISTITUTO BANC SAN PAOLO TORINA 0.24% 142,966.26
7,500 ISTITUTO MOBILIARE ITALIANO 0.20% 121,785.75
39,900 ISTITUTO NAZIONALE DELLE ASSIC 0.21% 129,359.79
11,000 ITALGAS 0.09% 55,335.50
14,200 MEDIASET SPA 0.15% 89,856.18
</TABLE>

<PAGE>

SHARES SECURITY DESCRIPTION % NET ASSETS MARKET VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
6,600 MEDIOBANCA BANCA DI CREDITO FINANZIAR IT 0.16% 96,309.18
57,000 MONTEDISON SPA 0.14% 83,955.30
27,900 PARMALAT FINANZIARIA SPA (ITL) 0.10% 59,996.16
21,000 PIRELLI SPA 0.13% 80,526.60
4,550 R.A.S. SPA 0.11% 66,020.50
7,500 SIRTI SPA 0.08% 51,471.00
63,300 TELECOM ITALIA MOBILE 0.56% 340,129.89
15,900 TELECOM ITALIA MOBILE - DRNC ITL 1000 0.10% 61,493.25
37,800 TELECOM ITALIA SPA 0.49% 297,879.12
9,600 TELECOM ITALIA SPA - RNC 0.10% 58,824.96
---------------------------
TOTAL ITALY 5.36% 3,258,239.67

2,000 ACOM CO. LTD 0.16% 99,736.60
990 ADVANTEST CORP 0.11% 64,217.64
6,000 AJINOMOTO CO INC 0.09% 52,192.80
3,000 ALPS ELECTRONICS CO 0.04% 25,421.40
18,000 ASAHI BANK LTD 0.12% 73,564.20
5,000 ASAHI BREWERIES LTD 0.11% 65,991.00
15,000 ASAHI CHEMICAL INDUSTRY CO LTD 0.09% 56,017.50
7,000 BRIDGESTONE CORP 0.26% 158,528.30
8,000 CANON INC 0.30% 180,575.20
10,000 CHIBA BANK 0.06% 37,420.00
6,000 CITIZEN WATCH CO, LTD 0.07% 43,644.00
1,700 CREDIT SAISON 0.06% 37,607.40
7,000 DAI NIPPON PRINTING CO LTD 0.19% 115,484.60
8,000 DAIEI INC 0.05% 28,796.00
5,000 DAIICHI PHARMACEUTICAL 0.10% 63,366.50
10,000 DAIWA HOUSE INDUSTRY 0.12% 73,115.00
13,000 DAIWA SECURITIES 0.09% 54,592.20
8,000 DENSO CORPORATION 0.25% 149,980.00
36 EAST JAPAN RAIL 0.27% 166,837.81
4,000 EBABA CORPORTATION 0.07% 41,694.40
3,000 EISAI CO LTD 0.07% 41,169.30
2,200 FANUC CO 0.12% 75,889.88
23,000 FUJI BANK 0.23% 137,981.60
5,000 FUJI PHOTO FILM 0.31% 185,975.00
5,000 FUJIKURA LTD 0.05% 30,745.50
16,000 FUJITSU LTD 0.27% 166,777.60
8,000 FURKUKAWA ELECTRIC 0.05% 31,555.20
7,000 GUNMA BANK 0.08% 50,655.50
28,000 HITACHI LTD (HIT. SEISAKUSHO) 0.34% 203,672.00
8,000 HONDA MOTOR CO LTD 0.47% 287,961.60
1,000 HOYA CORP 0.05% 28,496.20
16,000 INDUSTRIAL BANK OF JAPAN 0.18% 109,184.00
3,000 ITO YOKADO CO 0.27% 162,428.10
15,000 JAPAN AIRLINES 0.08% 47,242.50
10,000 JOYO BANK 0.07% 39,819.00
3,000 JUSCO CO 0.09% 53,767.80
11,000 KAJIMA CORP 0.06% 37,119.50
7,600 KANSAI ELECTRIC POWER 0.21% 127,662.52
6,000 KAO CORP 0.13% 78,739.20
22,000 KAWASAKI HEAVY INDUSTRIES 0.07% 44,048.40
27,000 KAWASAKI STEEL 0.07% 39,684.60
4,000 KINDEN CORPORATION 0.09% 51,892.80
15,000 KINKI NIPPON RAILWAY 0.13% 81,888.00
11,000 KIRIN BREWERY CO LTD 0.16% 98,161.80
</TABLE>

<PAGE>

SHARES SECURITY DESCRIPTION % NET ASSETS MARKET VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
10,000 KOMATSU LTD 0.08% 47,693.00
2,100 KYOCERA CORP 0.18% 110,235.30
12,000 KYOWA HAKKO KOGYO 0.09% 56,961.60
4,000 MARUI CO 0.10% 61,491.60
19,000 MATSUSHITA ELEC IND 0.50% 304,908.20
4,000 MINEBEA CO., LTD 0.07% 43,794.00
20,000 MITISUI O.S.K. LINES LTD 0.06% 33,444.00
22,000 MITSUBISHI CHEMICAL CORP 0.07% 40,418.40
12,000 MITSUBISHI CORP 0.16% 98,086.80
22,000 MITSUBISHI ELECTRIC 0.10% 57,741.20
10,000 MITSUBISHI ESTATE CO LTD 0.16% 97,487.00
25,000 MITSUBISHI HEAVY 0.16% 95,047.50
9,000 MITSUBISHI TRUST 0.15% 88,412.40
11,000 MITSUI & CO 0.12% 69,950.10
6,000 MITSUI FUDOSAN 0.09% 57,142.20
9,000 MITSUI MARINE & FIRE INSURANCE 0.08% 46,501.20
7,000 MITSUI MINING & SMELTING 0.05% 28,450.80
9,000 MITSUI TRUST & BANKING 0.03% 21,123.90
2,000 MURATA MFG CO LTD 0.09% 55,192.60
5,000 MYCAL CORP. 0.06% 33,745.50
16,000 NAGOYA RAILROAD CO LTD 0.09% 52,432.00
16,000 NEC CORP 0.26% 160,777.60
6,000 NGK INSULATORS LTD 0.09% 53,542.80
4,000 NIKON CORP 0.06% 36,594.80
2,000 NIPPON COMSYS CORP 0.04% 23,396.80
12,000 NIPPON EXPRESS CO 0.13% 76,489.20
9,000 NIPPON FIRE & MARINE INSURANCE 0.06% 36,917.10
19,000 NIPPON OIL CO 0.11% 66,538.00
7,000 NIPPON PAPER INDUSTRIES CO 0.06% 34,330.10
40,000 NIPPON STEEL CORP 0.11% 64,188.00
115 NIPPON TELEGRAPH AND TEL CORP 1.58% 957,247.66
17,000 NIPPON YUSEN KABUSHIKI KAISH 0.10% 61,064.00
24,000 NISSAN MOTORS 0.15% 91,785.60
2,000 NITTO DENKO CORP 0.05% 29,096.00
43,000 NKK CORPORATION 0.06% 38,691.40
17,000 NOMURA SECURITIES CO LTD 0.33% 200,147.80
6,000 OHBAYASHI-GUMI CORP 0.05% 29,470.80
10,000 OJI PAPER CO LTD 0.08% 48,293.00
3,000 OMRON CORP 0.07% 45,443.70
3,000 ONWARD KASHIYAMA CO LTD 0.06% 37,119.90
700 ORIX CORP 0.08% 47,558.63
25,000 OSAKA GAS CO LTD 0.09% 54,930.00
2,000 PIONEER ELECTRIC CORP 0.05% 32,395.60
1,000 ROHM COMPANY 0.15% 91,487.80
23,000 SAKURA BANK LTD 0.13% 81,581.00
5,000 SANKYO CO LTD 0.23% 138,731.50
19,000 SANYO ELECTRIC CO LTD 0.08% 50,294.90
1,000 SECOM CO LTD 0.10% 61,116.80
7,000 SEKISUI CHEMICAL 0.07% 39,631.90
9,000 SEKISUI HOUSE LTD 0.12% 73,565.10
6,000 SEVENTY SEVEN BANK 0.08% 51,292.80
12,000 SHARP CORP 0.13% 81,888.00
2,000 SHIMANO INDUSTRIAL 0.07% 43,044.20
10,000 SHIMIZU CORP 0.05% 32,545.00
4,000 SHIN-ETSU CHEMICAL CO 0.13% 79,189.20
10,000 SHIONOGI & CO, LTD 0.09% 54,367.00
4,000 SHISEIDO CO 0.08% 45,893.60
8,000 SHIZUOKA BANK 0.15% 89,388.00
</TABLE>

<PAGE>

SHARES SECURITY DESCRIPTION % NET ASSETS MARKET VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
700 SMC CORPORATION 0.09% 52,020.57
3,700 SONY CORP. 0.52% 313,533.19
20,000 SUMITOMO BANK 0.34% 203,972.00
15,000 SUMITOMO CHEMICAL CO 0.07% 43,194.00
9,000 SUMITOMO CORP 0.10% 58,514.40
7,000 SUMITOMO ELECTRIC INDUSTRIES 0.15% 90,287.40
9,000 SUMITOMO MARINE & FIRE 0.09% 55,611.90
8,000 SUMITOMO METAL 0.05% 31,195.20
25,000 SUMITOMO METAL INDUSTRIES 0.07% 41,430.00
15,000 TAISEI CORP. 0.07% 41,169.00
3,000 TAISHO PHARMACEUTICAL CO LTD 0.11% 67,041.00
8,000 TAKEDA CHEM INDUSTRIES LTD 0.33% 203,372.80
17,000 TEIJIN LIMITED 0.08% 50,355.70
37,000 THE BANK OF TOKYO MITSUBISHI RIC 8315 0.74% 449,487.10
15,000 TOBU RAILWAY CO LTD 0.08% 48,480.00
500 TOHO CO 0.09% 53,617.85
4,900 TOHOKU ELECTRIC POWER 0.12% 73,490.20
17,000 TOKAI BANK 0.17% 105,044.70
12,000 TOKIO MARINE & FIRE INS 0.22% 134,082.00
10,900 TOKYO ELEC POWER CO INC 0.34% 205,981.66
1,000 TOKYO ELECTRON LTD 0.06% 33,670.50
26,000 TOKYO GAS 0.09% 57,322.20
12,000 TOKYU CORP 0.08% 48,592.80
7,000 TOPPAN PRINTING CO 0.14% 86,088.10
13,000 TORAY INDS INC. 0.11% 67,753.40
3,000 TOSTEM CORPORATION 0.06% 33,745.50
2,000 TOYO SEIKAN 0.05% 29,996.00
3,000 TOYODA AUTOMATIC LOOM WORKS 0.08% 51,293.10
35,000 TOYOTA MOTOR CO 1.53% 931,749.00
1,000 UNI_CHARM 0.06% 34,720.30
3,000 UNY CO. LTD 0.08% 49,043.40
5,000 WACOAL CORP 0.09% 53,242.50
3,000 YAMAGUCHI BANK 0.06% 37,119.90
3,000 YAMAHA CORP 0.05% 29,246.10
4,000 YAMANOUCHI PHARMACEUTICAL 0.15% 91,787.60
5,000 YAMATO TRANSPORT CO LTD 0.10% 59,242.00
4,000 YAMAZAKI BAKING CO 0.08% 47,693.60
13,000 YOKOHAMA BANK 0.06% 36,069.80
---------------------------
TOTAL JAPAN 20.80% 12,641,851.21

22,000 GOLDEN HOPE PLANTATIONS BHD 0.05% 27,801.40
14,000 MALAYAN BANKING BERHAD 0.09% 53,846.80
14,000 MALAYSIAN INTERN SHIPPING CORPALIEN 0.04% 26,923.40
22,000 RESORTS WORLD BERHAD 0.08% 48,653.00
33,000 SIME DARBY BERHAD 0.06% 36,989.70
22,000 SYSTEMS TELEKOM MALAYSIA 0.13% 76,155.20
15,000 TENAGA NASIONAL BERHAD 0.06% 37,912.50
---------------------------
TOTAL MALAYSIA 0.51% 308,282.00

12,835 ABN AMRO HOLDINGS 0.49% 296,143.24
705 AKZO NOBEL NV 0.24% 143,219.97
965 ASR VERZEKERINGSGROE CERTIFICATES 0.11% 69,250.04
6,690 ELSEVIER 0.18% 110,072.58
1,055 GETRONICS N.V. ANDEEL 0.07% 45,293.58
</TABLE>

<PAGE>

SHARES SECURITY DESCRIPTION % NET ASSETS MARKET VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
610 HEINEKEN NV 0.23% 138,697.71
660 IHC CALAND N.V. 0.06% 36,440.12
8,360 ING GROEP N.V. 0.78% 474,408.26
980 KLM ROYAL DUTCH ARI ORD 0.06% 39,205.98
4,390 KONINKLIJKE AHOLD NV 0.23% 141,722.81
4,435 KONINKLIJKE PTT NEDERLAND NV 0.38% 229,761.83
1,310 N V KONINKLIJKE 0.06% 34,435.97
370 OCE N.V. AANDEEL 0.09% 53,210.14
3,005 PHILIPS ELECTRONICS NV 0.36% 220,544.77
17,855 ROYAL DUTCH PETROLEUM CO 1.66% 1,010,653.71
5,825 UNILEVER NV-CVA 0.65% 392,864.22
675 WOLTERS KLUWER N.V. 0.16% 96,489.77
---------------------------
TOTAL NETHERLANDS 5.81% 3,532,414.70

1,600 BERGESEN D Y 0.06% 33,997.76
9,300 CHRISTIANIA BK OG KREDITKASS 0.07% 39,522.21
2,200 NORSK HYDRO ASA 0.18% 109,076.00
500 ORKLA AS A-AKSJER 0.08% 51,154.05
400 PETROLEUM GEO-SERVICES 0.04% 23,347.20
4,300 STOREBRAND ASA 0.06% 35,814.27
---------------------------
TOTAL NORWAY 0.48% 292,911.49

64,900 BRIERLEY INVESTMENTS LTD 0.06% 37,311.01
12,400 FLETCHER CHALLENGE ENERGY 0.07% 42,708.08
14,500 TELECOM NEW ZEALAND 0.11% 69,101.20
---------------------------
TOTAL NEW ZEALAND 0.25% 149,120.29

1,400 BANCO ESPIRITO SANTO - REG 0.11% 64,681.54
3,700 EDP PL COMMON STOCK 0.14% 85,862.57
1,100 JERONIMO MARTINS & FILHO 0.07% 45,245.31
2,500 PORTUGAL TELECOM 0.21% 130,036.25
900 SONAE INDUSTRIA E INVESTIMENTO 0.07% 42,365.07
---------------------------
TOTAL PORTUGAL 0.61% 368,190.74

6,000 CITY DEVELOPMENTS 0.05% 29,536.20
5,500 DEVELOPMENT BANK OF SINGAPORE 0.07% 40,186.85
7,000 OVERSEAS CHINESE BKNG CORP 0.06% 39,443.60
8,000 SINGAPORE AIRLINES LTD 0.09% 56,967.20
2,552 SINGAPORE PRESS HOLDINGS LTD 0.06% 37,135.43
46,000 SINGAPORE TELECOM LTD 100 0.13% 80,891.00
6,000 UNITED OVERSEAS BANK 0.05% 33,251.40
---------------------------
TOTAL SINGAPORE 0.52% 317,411.68

195 ACERINOX SA 0.05% 32,042.46
1,325 ARGENTARIA SA 0.18% 109,706.03
4,545 AUTOPISTAS CONCESIONARIA ESPANOLA ACCION 0.12% 75,262.47
6,760 BANCO BILBAO VIZCAYA SA 0.52% 317,311.02
4,522 BANCO CENTRAL HISPANO AMERICANO 0.24% 144,867.24
</TABLE>

<PAGE>

SHARES SECURITY DESCRIPTION % NET ASSETS MARKET VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
5,295 BANCO DE SANTANDER 0.43% 263,720.65
8,605 ENDESA SA 0.34% 206,890.02
1,020 FOMENTO DE CONSTRUC Y CONTRA 0.09% 53,919.95
1,535 GAS NATURAL SDG SA 0.16% 95,808.87
8,465 IBERDROLA SA 0.21% 128,583.35
3,670 REPSOL S.A. 0.31% 187,227.62
560 TABACALERA SPANI 0.10% 62,844.26
9,300 TELEFONICA 0.67% 409,883.55
4,195 UNION ELECTRICA FENOSA SA ACCION 0.09% 55,439.44
---------------------------
TOTAL SPAIN 3.53% 2,143,506.93

5,970 ABB AB-A 0.14% 85,506.52
2,300 ASTRA 0.08% 45,745.16
11,710 ASTRA AB A-F 0.40% 241,690.89
1,300 ATLAS COPCO AB A FREE 0.06% 37,970.92
900 ELECTROLUX 0.12% 74,303.19
7,800 ERICSSON AB B FREE 0.61% 370,765.20
1,000 EUROC INDUSTRIAB SER A FR 0.07% 42,530.40
1,870 HENNES AND MAURITZ 0.15% 94,034.82
1,000 SECURITAS AB -B 0.06% 34,024.30
1,200 SKANDIA FORSAKRINGS AB FREE 0.13% 78,206.04
6,200 SKANDINAVISKA ENSKILDA BANKN 0.15% 90,351.98
1,400 SKANSKA B FREE 0.10% 63,045.08
3,200 STORA KOPPARBERGS BERGS 0.08% 49,235.20
2,600 SVENSKA CELLULOSA AB-'B' FRIA 0.12% 71,551.22
2,230 SVENSKA HANDELSBANKEN 0.17% 103,211.31
2,900 VOLVO AKTIEBOLAG 0.15% 92,322.37
1,500 VOLVO AKTTIEBOLAG 0.08% 47,283.75
---------------------------
TOTAL SWEDEN 2.67% 1,621,778.35

80 ABB AG 0.20% 119,542.13
190 ADECCO SA 0.11% 67,176.84
60 ALUSUIS-LONZA HLDG 0.12% 72,811.54
2,200 CREDIT SUISSE GROUP-REG 0.72% 440,148.94
60 GEBRUDER SULZER AG 0.08% 46,914.25
70 HOLDERBANK FINAN GLARIS - B 0.12% 73,467.51
360 NESTLE 1.13% 687,892.00
580 NOVARTIS AG 1.69% 1,026,472.23
60 NOVARTIS AG 0.18% 106,659.07
700 ROCHE HOLDING AG - GENUSSCHEIN 1.25% 758,620.69
150 ROCHE HOLDINGS AG 0.42% 256,650.25
70 S.M.H. AG-BEARERS 0.07% 44,952.93
300 S.M.H. AG-REGISTERED 0.07% 43,440.93
30 SAIRGROUP 0.07% 41,896.16
140 SCHW RUECKVERSICHERUNGS 0.51% 307,553.34
200 SCHWEIZ BANKGESELLSCHAFT 0.11% 65,268.00
700 SCHWEIZERISCHE BANKVEREIN 0.40% 246,116.15
20 SGS SOC GEN SURVEILLANCE 0.06% 35,946.60
200 UBS (SCHW. BANK GESELLSCHAFT) 0.54% 326,668.02
420 ZURICH VERSICHERUNGS 0.40% 243,820.29
---------------------------
TOTAL SWITZERLAND 8.25% 5,012,017.87
</TABLE>

<PAGE>

SHARES SECURITY DESCRIPTION % NET ASSETS MARKET VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
10,000 US T-BILL / 9127946L3 Dtd 10/16/97,
Due 4/16/98 0.02% 9,979.28
323,000 US T-BILL / 9127946M1 Dtd 10/23/97,
Due 04/23/98 0.53% 321,943.79
----------------------------
TOTAL CASH EQUIVALENTS 0.55% 331,923.07

TOTAL EQUITY SECURITIES 60,272,190.46
-------------
TOTAL PORTFOLIO 60,604,113.53

RECEIVABLES LESS LIABILITIES 173,183.17

PORTFOLIO NET ASSETS 60,777,296.70
</TABLE>

Note: At March 31, 1998, net unrealized appreciation of $6,283,941 consisted
of gross unrealized appreciation of $7,524,575 and gross unrealized
depreciation of $1,240,634 based on cost of $54,320,172 for federal income
tax purposes.

<PAGE>

STATE FARM VP TRUST STOCK AND BOND BALANCED FUND
PORTFOLIO OF INVESTMENTS
MARCH 31, 1998
(UNAUDITED)

SHARES VALUE
$
<C> <S> <C> <C>
INVESTMENT COMPANY SHARES 100.00%
1,117.200 State Farm VP Trust Bond Fund 11,083
1,487.750 State Farm VP Trust Large Cap Equity Index Fund 17,064
---------
Total investment company shares (cost: $27,741) 28,147
---------

TOTAL INVESTMENTS (COST: $27,741) 100.00% 28,147

CASH AND OTHER ASSETS, LESS LIABILITIES --- ---
---------

NET ASSETS 100.00% $ 28,147
---------
---------
</TABLE>

Note: At March 31, 1998, net unrealized appreciation of $406 consisted of gross
unrealized appreciation of $416 and gross unrealized depreciation of $10
based on cost of $27,741 for federal income tax purposes.

<PAGE>

STATE FARM VP TRUST BOND FUND
PORTFOLIO OF INVESTMENTS
MARCH 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>

PRINCIPAL VALUE
AMOUNT $
<C> <S> <C> <C> <C> <C>
LONG-TERM INVESTMENTS 89.78%
U.S. TREASURY OBLIGATIONS 20.20%
$1,400,000 U.S. Treasury notes 6.875% March 31, 2000 1,433,292
600,000 U.S. Treasury notes 5.750% October 31, 2000 601,680
-------------
2,034,972
AEROSPACE/DEFENSE 4.94%
500,000 Raytheon Co. 5.950% March 15,2001 498,175

AUTOMOTIVE 19.10%
500,000 Ford Motor Credit Co. 6.500% February 28, 2002 505,900
500,000 Paccar Financial Corp 5.970% November 15, 2001 496,165
900,000 TRW Inc. 6.730% July 11, 2007 923,859
-------------
1,925,924

CHEMICALS 4.95%
500,000 E.I. duPont deNemours & Co. 6.000% March 6, 2003 499,245

CONSUMER & MARKETING 5.01%
500,000 Mead Corporation 6.600% March 1, 2002 504,855

ELECTRONIC/ELECTRICAL MANUFACTURING 2.03%
200,000 Northern Telecom Ltd. 6.875% October 1, 2002 204,792

HEALTH CARE 4.90%
500,000 Warner Lambert Co. 5.750% January 15, 2003 494,185

MACHINERY & MANUFACTURING 4.05%
400,000 Caterpillar Finance - MTN 6.750% July 10, 2001 408,728

MEDIA & BROADCASTING 4.87%
500,000 Tribune Co. Nt. 5.750% September 15, 2003 490,625

OIL, GAS, & OTHER ENERGY 4.22%
400,000 Mobil Corp. 8.375% February 12,2001 425,376

TELECOM 10.32%
1,000,000 AT&T Corp. 7.000% May 15,2005 1,040,690

UTILITIES & ENERGY 5.19%
500,000 Virginia Electric & Pwr. Nt. 7.375% July 1, 2002 522,945
-------------

Total long-term investments (cost: $9,125,782) 9,050,512

SHORT-TERM INVESTMENTS 7.95%
400,000 General Electric Capital Corp. 5.450% April 2, 1998 400,789
400,000 General Motors Acceptance Corp. 5.450% April 2, 1998 400,789
-------------
Total short-term investments (cost: $801,578) 801,578
-------------

TOTAL INVESTMENTS (COST: $9,927,360) 97.73% 9,852,090

CASH AND OTHER ASSETS, LESS LIABILITIES 2.27% 228,859
-------------

NET ASSETS 100.00% $ 10,080,949
-------------
-------------
</TABLE>

Note: At March 31, 1998, net unrealized depreciation of $75,270 consisted
entirely of gross unrealized depreciation based on cost of $9,927,360
for federal income tax purposes.

<PAGE>

STATE FARM VP TRUST MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS
MARCH 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT $
<C> <S> <C> <C> <C> <C>
SHORT-TERM INVESTMENTS 100.06%
AGRICULTURE, FOODS, & BEVERAGE 9.87%
$ 500,000 Coca-Cola 5.40% May 5, 1998 497,436
500,000 Sara Lee Corp. 5.47% April 24, 1998 498,251
-------------
995,687

AUTOMOTIVE 9.96%
500,000 Ford Motor Credit Co. 5.47% April 2, 1998 504,136
500,000 General Motors Acceptance Corp. 5.52% April 29, 1998 501,461
-------------
1,005,597

CHEMICALS 4.92%
500,000 E.I. duPont deNemours & Co. 5.42% May 12, 1998 496,897

COMPUTERS 4.98%
500,000 International Business Machines Corp. 5.55% May 28, 1998 502,237

ELECTRONIC/ELECTRICAL MANUFACTURING 4.99%
500,000 General Electric Capital Corp. 5.48% April 9, 1998 503,835

FINANCIAL SERVICES 4.96%
500,000 Associates Corp. of North America 5.56% May 21, 1998 500,464

HEALTH CARE 9.88%
500,000 Abbott Labs 5.47% April 17, 1998 498,782
500,000 Merck & Co., Inc. 5.40% April 21, 1998 498,486
-------------
997,268
MACHINERY & MANUFACTURING 4.98%
500,000 Deere (John) Credit Co. 5.55% May 26, 1998 502,623

OIL, GAS, & OTHER ENERGY 9.91%
500,000 Chevron Corporation 5.54% May 20, 1998 502,543
500,000 Shell Oil Co. 5.41% April 30, 1998 497,807
-------------
1,000,350
RETAILERS 4.97%
500,000 Sears Roebuck Acceptance Corp. 5.57% May 7, 1998 501,472
TELECOM EQUIPMENT 4.95%
500,000 Ameritech Corp. 5.50% May 15,2005 499,617

U.S. GOVERNMENT 25.69%
600,000 Freddie Mac 5.46% April 27, 1998 597,631
2,000,000 Fannie Mae 5.35% April 16, 1998 1,995,500
-------------
2,593,131
-------------

Total short-term investments (cost: $10,099,178) 10,099,178
-------------

TOTAL INVESTMENTS (COST: $10,099,178) 100.06% 10,099,178
CASH AND OTHER ASSETS, LESS LIABILITIES -0.06% (6,078)
-------------
NET ASSETS 100.00% $ 10,093,100
-------------
-------------
</TABLE>

<PAGE>

STATE FARM VP TRUST
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1998
(UNAUDITED)

ASSETS

<TABLE>
<CAPTION>
STOCK & BOND
LARGE CAP SMALL CAP INTERNATIONAL BALANCED BOND MONEY MARKET
<S> <C> <C> <C> <C> <C> <C>
Investments, at value $ 17,765,095 33,614,859 60,604,113 28,147 9,852,090 10,099,178
(cost $15,595,613; 30,349,304; 54,320,172;
27,741; 9,927,360; 10,099,178)
Cash 589 13 940 -- 151,285 83,211
Foreign currency -- -- 909,569 -- -- --
Receivable for:
Dividends and interest 20,215 35,501 172,187 14 130,584 525
Tax reclaim 13,982
Shares of the Fund sold 99,157 42,849 -- 5,766 49,571 4,623
Securities sold 4,028 -- -- -- -- --
Expense Cap reimbursement 1,762 2,530 9,929 -- 3,352 3,562
Sundry -- -- -- -- 5,595 --
Prepaid expenses -- -- -- -- -- --
------------------------------------------------------------------------------------

Total Assets 17,890,846 33,695,752 61,710,720 33,927 10,192,477 10,191,099

<CAPTION>
LIABILITIES AND NET ASSETS

<S> <C> <C> <C> <C> <C> <C>
Dividends and Capital Gains payable -- -- -- -- 96,870 86,108
to shareowners
Payable for:
Securities purchased 137,837 49,881 902,671 5,766 -- --
Other accounts payable 12,829 28,762 30,753 -- 14,658 11,891
(including ($7,560; 21,619; None; None;
9,278;6,600) to Managers) ------------------------------------------------------------------------------------

Total Liabilities 150,666 78,643 933,424 5,766 111,528 97,999
------------------------------------------------------------------------------------

Net assets applicable to outstanding shares $ 17,740,180 33,617,109 60,777,296 28,161 10,080,949 10,093,100
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------

Shares outstanding 1,546,366 3,023,970 5,423,366 2,717 1,016,225 10,093,100

Net asset value $ 11.47 11.12 11.21 10.36 9.92 1.00
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------

Par value common stock $ 10.00 10.00 10.00 10.00 10.00 1.00

<CAPTION>
ANALYSIS OF NET ASSETS

<S> <C> <C> <C> <C> <C> <C>
Excess of amounts received from sales of $ 15,520,906 30,260,993 54,258,181 27,734 10,166,628 10,093,100
shares over amounts paid on redemption
of shares on account of capital
Undistributed net realized gain (loss) on 1,106 21,204 103,255 7 (10,409) --
sales of investments
Undistributed net realized gain on currency -- -- 123,650 -- -- --
Undistributed net foreign exchange gain on -- -- 2 -- -- --
dividends
Undistributed net foreign exchange loss from -- -- (191,823) -- -- --
trade date to settlement
Net unrealized appreciation/depreciation of 2,169,482 3,265,555 6,283,941 406 (75,270) --
investments
Undistributed net investment income 48,686 69,357 200,090 14 -- --
------------------------------------------------------------------------------------
Net assets applicable to shares outstanding 17,740,180 33,617,109 60,777,296 28,161 10,080,949 10,093,100
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
</TABLE>

<PAGE>

STATE FARM VP TRUST
STATEMENTS OF OPERATIONS
FOR THE PERIOD OF INCEPTION* TO MARCH 31, 1998
(UNAUDITED)

<TABLE>
<CAPTION>
STOCK & BOND
LARGE CAP SMALL CAP INTERNATIONAL BALANCED BOND MONEY MARKET
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends (net of foreign withholding taxes
of $32; 5; 33,223; None; None; None) $ 48,960 73,908 235,170 14 -- --
Interest 10,793 21,681 46,853 -- 108,176 94,438
----------------------------------------------------------------------------
Total investment income 59,753 95,589 282,023 14 108,176 94,438

EXPENSES:
Management fees 7,470 20,789 60,123 -- 9,278 6,800
Fund accounting -- -- 10,282 -- -- --
Audit fees 1,953 1,815 2,836 3 1,982 1,845
Legal fees 127 118 123 -- 129 120
Custodian fees -- -- 31,999 -- 1,982 1,845
ICI dues 98 182 378 63 74 69
Registration fees 98 182 340 -- 74 69
Index license fees 1,135 907 2,466 -- -- --
Fidelity bond expense 102 191 383 98 80 74
Trustees' fees 1,622 1,651 1,606 815 1,640 1,652
Security valuation fees 1,739 4,947 8,223 -- 146 131
Reports to Shareowners 293 272 284 255 297 277
Taxes, other than FIT 147 272 567 -- 109 102
----------------------------------------------------------------------------
Total expenses 14,784 31,326 119,610 1,234 15,791 12,984
Expense reimbursement (3,717) (5,094) (37,677) (1,234) (4,485) (4,654)
----------------------------------------------------------------------------
Net expenses 11,067 26,232 81,933 0 11,306 8,330
----------------------------------------------------------------------------
Net investment income 48,686 69,357 200,090 14 96,870 86,108

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on sales of investments 1,106 21,204 103,255 7 (10,409) --
Net realized gain on currency -- -- 123,650 -- -- --
Net foreign exchange gain on dividends -- -- 2 -- -- --
Net foreign exchange (loss) from trade date
to settlement -- -- (191,823) -- -- --

Change in net unrealized appreciation
(depreciation) 2,169,482 3,265,555 6,283,941 406 (75,270) --
----------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments 2,170,588 3,286,759 6,319,025 413 (85,679) --
----------------------------------------------------------------------------
Net change in net assets resulting from
operations $ 2,219,274 3,356,116 6,519,115 427 11,191 86,108
----------------------------------------------------------------------------
----------------------------------------------------------------------------

*Inception dates 01/22/98 01/29/98 01/22/98 01/29/98 01/22/98 01/29/98
</TABLE>

<PAGE>

STATE FARM VP TRUST
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE PERIOD OF INCEPTION* TO MARCH 31, 1998
(UNAUDITED)

<TABLE>
<CAPTION>
STOCK & BOND
LARGE CAP SMALL CAP INTERNATIONAL BALANCED BOND MONEY MARKET
<S> <C> <C> <C> <C> <C> <C>
From operations:
Net investment income $ 48,686 69,357 200,090 14 96,870 86,108
Net realized gain (loss) on sales of investments 1,106 21,204 103,255 7 (10,409) --
Net realized gain on currency -- -- 123,650 -- -- --
Net foreign exchange gain on dividends -- -- 2 -- -- --
Net foreign exchange (loss) from trade date to
settlement -- -- (191,823) -- -- --
Change in net unrealized appreciation
(depreciation) 2,169,482 3,265,555 6,283,941 406 (75,270) --
------------------------------------------------------------------------------
Net change in net assets resulting from
operations 2,219,274 3,356,116 6,519,115 427 11,191 86,108

Distributions to shareowners from:
Net investment income -- -- -- -- (96,870) (86,108)
Net realized gain -- -- -- -- -- --
------------------------------------------------------------------------------
Total distributions to shareowners -- -- -- -- (96,870) (86,108)

From Fund share transactions:
Proceeds from shares sold 521,837 260,993 258,181 29,185 168,097 93,938
Reinvestment of ordinary income dividends
and capital gain distributions -- -- -- -- -- --
------------------------------------------------------------------------------
521,837 260,993 258,181 29,185 168,097 93,938
Less payments for shares redeemed 931 -- -- 1,551 1,469 838
Net increase in net assets from Fund share ------------------------------------------------------------------------------
transactions 520,906 260,993 258,181 27,634 166,628 93,100

Total increase in net assets 2,740,180 3,617,109 6,777,296 28,061 80,949 93,100

Net assets:
Beginning of period 15,000,000 30,000,000 54,000,000 100 10,000,000 10,000,000
------------------------------------------------------------------------------

End of period $ 17,740,180 33,617,109 60,777,296 28,161 10,080,949 10,093,100

Undistributed net investment income $ 48,686 69,357 200,090 14 -- --

*Inception dates 01/22/98 01/29/98 01/22/98 01/29/98 01/22/98 01/29/98
</TABLE>

<PAGE>

State Farm Variable Product Trust
Notes to Financial Statements
(Unaudited)

1. OBJECTIVE

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

The LARGE CAP EQUITY INDEX FUND seeks to match the performance of the Standard
and Poor's Composite Index of 500 Stocks (the "S&P 500"). 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 (the "Russell 2000"). This Fund will pursue its
objective by investing primarily in a representative sample of stocks found in
the index.

2. SIGNIFICANT ACCOUNTING POLICIES

SECURITY VALUATION -- Investments are stated at market value. Stocks traded on
securities exchanges, or in the over-the-counter market in which transaction
prices are reported, are valued at the last sales prices on the day of
valuation, or, if there are no reported sales on that day, at the last reported
bid price for the day. Long-term debt securities and U.S. Treasury bills are
valued using quotations provided by an independent pricing service. All of the
securities and assets of the Money Market Fund and short-term debt securities
with remaining maturities of 60 days or less (other than U.S. Treasury bills)
held by any of the other Funds are valued on an amortized cost basis, which
approximates market

<PAGE>

value. Any securities not valued as described above are valued at fair value as
determined in good faith by the Board of Trustees or its delegate.

SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Security transactions are
accounted for on trade date (date the order to buy or sell is executed) and
dividend income is recorded on the ex-dividend date, except that certain
dividends from foreign securities are recorded as soon as the information is
available to the funds. Interest income is recorded on the accrual basis and
includes amortization of discounts on money market instruments and long term
debt instruments when required for federal income tax purposes. Realized gains
and losses from security transactions are reported on an identified cost basis.

FUND SHARE VALUATION -- Fund shares are sold and redeemed on a continuous basis
at net asset value. Net asset value per share is determined daily as of the
time of the close of trading on the New York Stock Exchange, (currently 4:00
p.m., New York City time) on each day when the New York Stock Exchange is
open, other than those days specifically stated in the Trust's prospectus,
except that a Fund need not compute a net asset value on any day
when no purchase or redemption order has been received by the Fund. The net
asset value per share is computed by dividing the total value of the Fund's
investments and other assets, less liabilities, by the respective number of Fund
shares outstanding.

FEDERAL INCOME TAXES, DIVIDENDS AND DISTRIBUTIONS TO SHAREOWNERS -- It is the
Trust's policy to comply with the special provisions of the Internal Revenue
Code available to investment companies and, in the manner provided therein, to
distribute all of its taxable income, as well as any net realized gain on sales
of investments reportable for federal income tax purposes. The Trust intends to
comply with this policy and, accordingly, no provision for federal income taxes
has been made.

Dividends and distributions payable to its shareowners will be recorded by the
Funds on their respective ex-dividend dates.

FOREIGN CURRENCY TRANSLATIONS -- Values of investments denominated in foreign
currencies are converted into U.S. dollars using the spot market rate of
exchange at the time of valuation. Purchases and sales of investments and
dividend and interest income are translated into U.S. dollars using the spot
market rate of exchange prevailing on the respective dates of such transactions.
The gain or loss resulting from changes in foreign exchange rates is included
with net realized and unrealized gain or loss from investments, as appropriate.

USE OF ESTIMATES -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

FINANCIAL INSTRUMENTS -- The Large Cap, Small Cap, and International Equity
Index Funds may invest in stock index futures contracts and options on such
futures contracts.

<PAGE>

These are contracts that obligate the Fund to make or take delivery of a
financial instrument or the cash value of a securities index at a specified
future date at a specified price. The Funds may enter into such contracts to
hedge a portion of their portfolio. Gains and losses would be reflected as "Net
Realized Gain (Loss) on Futures" in the Statement of Operations. Additionally,
the International Equity Index Fund may engage in portfolio hedging with respect
to changes in currency exchange rates by entering into forward foreign currency
contracts to purchase or sell foreign currencies. A Fund bears the market risk
that arises from changes in the value of financial instruments and securities
indices (futures contracts) or from changes in foreign currency rates (forward
foreign currency contracts) and the credit risk should a counterparty fail to
perform under such contracts.

The Large Cap, Small Cap, and International Equity Index Funds did not enter
into any futures or forward foreign currency contracts during the period ended
March 31, 1998.

3. TRANSACTIONS WITH AFFILIATES

The Trust has an investment advisory and management services agreement with
State Farm Investment Management Corp. (Manager) who serves as the Trust's
investment adviser and conducts the business and affairs of the Trust. Each
Fund pays the Manager an investment advisory fee (computed on a daily basis and
paid quarterly) at the following annual rates:

<TABLE>
<S> <C>
--------------------------------------------------------------------
Large Cap Equity Index Fund .26% of net assets
--------------------------------------------------------------------
Small Cap Equity Index Fund .40% of net assets
--------------------------------------------------------------------
International Equity Index Fund .55% of net assets
--------------------------------------------------------------------
Bond Fund .50% of net assets
--------------------------------------------------------------------
Money Market Fund .40% of net assets
--------------------------------------------------------------------
Stock and Bond Balanced Fund None
--------------------------------------------------------------------
</TABLE>

The Manager 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. (This expense
limitation arrangement is voluntary and may be eliminated by the Manager at any
time.) However, the Manager 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
and the International Equity Index Fund, the Manager 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. With respect to the
International Equity Index Fund, the Manager has agreed to bear the expenses
incurred by the Fund, other than the investment advisory fee, that exceed .20%
of the Fund's average daily net assets. These expense limitation arrangements
are voluntary and may be eliminated by the Manager at any time.

<PAGE>

Under the terms of this agreement, the Funds incurred the following fees for the
period ended March 31, 1998:

<TABLE>
<S> <C>
--------------------------------------------------------------------
Large Cap Equity Index Fund $ 7,470
--------------------------------------------------------------------
Small Cap Equity Index Fund 20,789
--------------------------------------------------------------------
International Equity Index Fund 60,123
--------------------------------------------------------------------
Bond Fund 9,278
--------------------------------------------------------------------
Money Market Fund 6,800
--------------------------------------------------------------------
Stock and Bond Balanced Fund -0-
--------------------------------------------------------------------
</TABLE>

The Funds do not pay any discount, commission or other compensation for transfer
agent or underwriting services provided by the Manager.

Certain officers and/or trustees of the Trust are also officers and/or directors
of the Manager. The Funds made no payments to its officers or trustees during
the period ended March 31, 1998 except for the following trustees' fees paid to
the Trust's independent trustees:

<TABLE>
<S> <C>
--------------------------------------------------------------------
Large Cap Equity Index Fund $ 900
--------------------------------------------------------------------
Small Cap Equity Index Fund 900
--------------------------------------------------------------------
International Equity Index Fund 900
--------------------------------------------------------------------
Bond Fund 900
--------------------------------------------------------------------
Money Market Fund 900
--------------------------------------------------------------------
Stock and Bond Balanced Fund 900
--------------------------------------------------------------------
</TABLE>

<PAGE>

4. INVESTMENT TRANSACTIONS

Investment transactions (exclusive of short-term instruments) for the period
ended March 31, 1998 are as follows:

--------------------------------------------------------------------
Purchases Proceeds from sales
--------------------------------------------------------------------
<S> <C> <C>
Large Cap Equity Index Fund $15,568,836 $ 123,973
--------------------------------------------------------------------
Small Cap Equity Index Fund 30,963,539 752,518
--------------------------------------------------------------------
International Equity Index Fund 54,616,147 742,180
--------------------------------------------------------------------
Stock and Bond Balanced Fund 29,285 1,551
--------------------------------------------------------------------
Bond Fund 11,087,218 1,940,070
--------------------------------------------------------------------
</TABLE>

5. FUND SHARE TRANSACTIONS

Proceeds and payments on Fund shares as shown in the statements of changes in
net assets for the period ended March 31, 1998 are in respect of the following
number of shares:

LARGE CAP EQUITY INDEX FUND
- -------------------------------------------------------------------------------------------

<S> <C>
Shares sold 46,447
Shares issued in reinvestment of dividend and capital gain distribution -0-
-----------
-----------
46,447
Less shares redeemed 81
-----------
-----------

Net increase in shares outstanding 46,366
</TABLE>

<PAGE>

SMALL CAP EQUITY INDEX FUND
- -------------------------------------------------------------------------------------------

<S> <C>
Shares sold 23,970
Shares issued in reinvestment of dividend and capital gain distribution -0-
-----------
-----------
23,970
Less shares redeemed -0-
-----------
-----------

Net increase in shares outstanding 23,970

- -------------------------------------------------------------------------------------------

INTERNATIONAL EQUITY INDEX FUND
- -------------------------------------------------------------------------------------------

<S> <C>
Shares sold 23,366
Shares issued in reinvestment of dividend and capital gain distribution -0-
-----------
-----------
23,366
Less shares redeemed -0-
-----------
-----------

Net increase in shares outstanding 23,366

- -------------------------------------------------------------------------------------------

BOND FUND
- -------------------------------------------------------------------------------------------

<S> <C>
Shares sold 16,373
Shares issued in reinvestment of dividend and capital gain distribution -0-
-----------
-----------
16,373
Less shares redeemed 148
-----------
-----------

Net increase in shares outstanding 16,225

- -------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

MONEY MARKET FUND
- -------------------------------------------------------------------------------------------

<S> <C>
Shares sold 93,938
Shares issued in reinvestment of dividend and capital gain distribution -0-
-----------
-----------
93,938
Less shares redeemed 838
-----------
-----------
Net increase in shares outstanding 93,100
- -------------------------------------------------------------------------------------------

STOCK AND BOND BALANCED FUND
- -------------------------------------------------------------------------------------------
<S> <C>
Shares sold 2,766
Shares issued in reinvestment of dividend and capital gain distribution -0-
-----------
-----------
2,766
Less shares redeemed 149
-----------
-----------

Net increase in shares outstanding 2,617
- -------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS

(a) Financial Statements
--------------------
All required financial statements are included in Part B.

(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 among Registrant, 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 The Chase Manhattan Bank

(8)(b) Form of Custodial Agreement between Registrant and Barclays Global
Investors **

(8)(c) Form of Custodial Agreement between Registrant and Investors Bank
and 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 LLP **

(11) Consent of Ernst & Young, LLP ***

<PAGE>

(12) N/A

(13) N/A

(14) N/A

(15) N/A

(16) N/A

(17) Financial Data Schedule ***

(18) N/A

__________

* Incorporated by reference to the initial Registration Statement on Form N-1A
filed on behalf of the Registrant on February 27, 1997 (File Nos. 333-22467,
811-08073).

** Incorporated by reference to Pre-Effective Amendment No. 1 on Form N-1A
filed on behalf of the Registrant on November 25, 1997 (File Nos. 333-22467,
811-08073).

*** To be filed by amendment.

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

The Registrant was organized as a business trust pursuant to the laws of
the State of Delaware on February 21, 1997. State Farm Life Insurance Company,
an insurance company domiciled in the State of Illinois, provided the initial
capital for the Registrant.

State Farm Life Insurance Company is a wholly-owned subsidiary of State
Farm Mutual Automobile Insurance Company. The following chart illustrates the
structure of State Farm Mutual Automobile Insurance Company and its
subsidiaries.

<TABLE>
<CAPTION>
----------------------------------
STATE FARM MUTUAL AUTOMOBILE
INSURANCE COMPANY
A Mutual Insurance Company
Domiciled in the State of Illinois
----------------------------------
<S> <C> <C> <C> <C>
----------------------------------------------------------------------------------------------------------
100% OWNERSHIP 100% OWNERSHIP 100% OWNERSHIP 100% OWNERSHIP
- -------------------- ----------------------- -------------------- ------------------- -------------------
Various Other STATE FARM STATE FARM STATE FARM STATE FARM
Direct and Indirect LIFE INSURANCE COMPANY LIFE AND ACCIDENT INVESTMENT VP MANAGEMENT CORP.
Subsidiaries An Insurance Company ASSURANCE COMPANY MANAGEMENT CORP. A Corporation
- -------------------- Domiciled in the An Insurance Company A Corporation Domiciled in the
State of Illinois Domiciled in the Domiciled in the State of Delaware
--------------------------------------- State of Illinois State of Delaware
-------------------- ------------------- -------------------
100% 100%
OWNERSHIP Ownership
-------------------- -----------------
STATE FARM ANNUITY STATE FARM
AND LIFE INSURANCE VARIABLE PRODUCT
COMPANY TRUST
An Insurance Company A Delaware
Domiciled in the Business Trust
State of Illinois ----------------
--------------------
</TABLE>

ITEM 26. NUMBER OF HOLDERS OF SECURITIES

Title of Class Number of Record Holders
-------------- ------------------------
Shares of Beneficial Interest 2

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.

<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

The information in the statement of additional information under the caption
"Management of the Trust" is incorporated herein by reference. Other than its
status as investment adviser and principal underwriter to four other State Farm
mutual funds (see item 29 below), neither State Farm Investment Management
Corp., nor any of its directors or officers, has at any time during the past two
fiscal years engaged in any other business, profession, vocation or employment
of a substantial nature either for their own account or in the capacity of
director, officer, employee, partner or trustee.

Directors and Officers of State Farm Investment Management Corp.:

Edward B. Rust, Jr., Director and President*

Roger S. Joslin, Director, Vice President and Treasurer*

John J. Killian, Director. Vice President and Controller - State Farm Mutual
Automobile Insurance Company, State Farm Fire and Casualty Company, and State
Farm General Insurance Company; Underwriter - State Farm Lloyds; Controller -
State Farm Lloyds, Inc.; Vice President and Assistant Treasurer - State Farm
County Mutual Insurance Company of Texas; Assistant Treasurer - State Farm
Indemnity Company; Secretary and Assistant Treasurer - State Farm International
Services, Inc.; Director - Insurance placement Services, Inc. (since 1996).

Kurt G. Moser, Director and Senior Vice President*

Vincent J. Trosino, Director. Director, Vice Chairman of the Board, Executive
Vice President and Chief Operating Officer - State Farm Mutual Automobile
Insurance Company; Director and Vice President - State Farm Fire and Casualty
Company and State Farm General Insurance Company; Director - State Farm Lloyds,
Inc., State Farm International Services, Inc., State Farm Life Insurance
Company, State Farm Annuity and Life Insurance Company, and State Farm Life and
Accident Assurance Company; Assistant Secretary - State Farm Companies
Foundation.

Paul N. Eckley, Senior Vice President*

David R. Grimes, Assistant Vice President and Secretary*

Michael L. Tipsord, Assistant Secretary*

Jerel S. Chevalier, Assistant Secretary-Treasurer*

Patricia L. Dysart, Assistant Secretary*

* See the information contained in the statement of additional information
under the caption "Management of the Trust," incorporated herein by reference.

<PAGE>

ITEM 29. PRINCIPAL UNDERWRITERS

State Farm Investment Management Corp. serves as the principal underwriter to
the Registrant. Other than the Registrant, State Farm Investment Management
Corp. serves as investment adviser and principal underwriter to the following
investment companies: State Farm Growth Fund, Inc.; State Farm Balanced Fund,
Inc.; State Farm Interim Fund, Inc.; and State Farm Municipal Bond Fund, Inc.
The following table contains information concerning each director and officer of
State Farm Investment Management Corp. (unless otherwise indicated, the
principal business address for each person shown is One State Farm Plaza,
Bloomington, IL 61710-0001):

<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address with Underwriter with Registrant
- ---------------- ---------------- ---------------
<S> <C> <C>
Edward B. Rust, Jr. Director and President Trustee and President

Roger S. Joslin Director, Vice President Trustee, Vice President
and Treasurer and Treasurer

John J. Killian Director None

Kurt G. Moser Director and Senior Vice President
Vice President

Vincent J. Trosino Director None

Paul N. Eckley Senior Vice President Vice President

David R. Grimes Assistant Vice President Assistant Vice President
and Secretary and Secretary

Michael L. Tipsord Assistant Secretary Assistant Secretary

Jerel S. Chevalier Assistant Secretary- Assistant Secretary-
Treasurer Treasurer

Patricia L. Dysart Assistant Secretary Assistant Secretary
</TABLE>
<TABLE>
<CAPTION>

Name of Net Underwriting Compensation on
Principal Discounts and Redemption and Brokerage Other
Underwriter Commissions Repurchase Commissions Compensation
----------- ----------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
State Farm N/A N/A N/A N/A
Investment
Management
Corp.
</TABLE>

ITEM 30. LOCATION OF ACCOUNTS AND RECORDS

(a) Registrant

(b) State Farm Investment Management Corp.
One State Farm Plaza
Bloomington, Illinois 61710-0001

(d) Investors Bank and Trust Company
200 Clarendon Street
Boston, Massachusetts 02116

ITEM 31. MANAGEMENT SERVICES

All management-related service contracts under which services are provided
to the Registrant are discussed in Parts A and B of this Registration
Statement.

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.
<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, certifies that it meets all of the requirements for effectiveness of
this post-effective amendment pursuant to Rule 485(b) under the Securities
Act of 1933 and has duly caused this post-effective amendment to be signed on
its behalf by the undersigned, thereto duly authorized, in the City of
Bloomington and state of Illinois, on the 9th day of April, 1998.

STATE FARM VARIABLE PRODUCT TRUST

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

Edward B. Rust, Jr.

President

Pursuant to the Securities Act of 1933, this post-effective amendment 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 April 9, 1998
- ------------------------- Executive Officer
Edward B. Rust, Jr. (principal executive officer)

/s/ Roger S. Joslin Trustee, Vice President, and April 10, 1998
- ------------------------- and Treasurer (principal
Roger S. Joslin financial and accounting
officer)

/s/ Davis U. Merwin Trustee March 13, 1998
- -------------------------
Davis U. Merwin

/s/ James A. Shirk Trustee March 13, 1998
- -------------------------
James A. Shirk

/s/ Albert H. Hoopes Trustee March 13, 1998
- -------------------------
Albert H. Hoopes

Trustee ________, 1998
- -------------------------
Thomas M. Mengler
</TABLE>

<PAGE>

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

Exhibit Number Description
- -------------- -----------
<S> <C>
(8)(a) Custodial Agreement between Registrant and The Chase
Manhattan Bank
</TABLE>

<PAGE>

EXHIBIT 8(a)

CUSTODY AGREEMENT

THIS IS A CUSTODY AGREEMENT, dated as of _________________, 1998, between
The Chase Manhattan Bank (herein called the "Custodian"), a New York banking
corporation, having its principal place of business in New York, New York and
State Farm Variable Product Trust (herein called the "Trust") , a Business Trust
organized and doing business under the laws of the State of Delaware and an
investment company registered as such under the Investment Company Act of 1940,
having its principal place of business at Bloomington, Illinois.

In consideration of the mutual premises and agreements herein contained,
the parties hereto agree as follows:

SECTION 1 DEFINITIONS.

"Agreement" means this Custody Agreement.

"Authorization Letter" or "Letter" means a writing from the Trust substantially
in the form of Exhibit A(1) or A(2) hereto, in respect of Financial Assets,
signed by any of two (2) persons of the Trust authorized to execute such
authorization pursuant to certain corporate resolutions of the Trust, and
instructing the Custodian to take action in respect of the Custody Account and
the Cash Account and such other action incidental thereto and to the Agreement.
Custodian may rely upon a Letter received by facsimile transmission.

"Cash Account" means the cash ledger of the Custody Account to which debits and
credits are made in respect of security transactions and other deposits to said
account and against which no withdrawal may be made by check or draft.

"Trust" means State Farm Variable Product Trust, a Delaware Business Trust and
an investment company registered as such under the Investment Company Act of
1940.

"Custodian" means The Chase Manhattan Bank, a New York banking corporation and
member of the Federal Reserve System.

"Custody Account" means a securities account for each Fund on Custodian's
records to which a Financial Asset is or may be credited pursuant to this
Agreement.

"Depository" means DTC, PTC, and FRBNY and any other depository acceptable to
the Trust.

"DTC" means The Depository Trust Company, a New York limited purpose trust
company.

1 of 17
<PAGE>

"Electronic Instruction" means an electronic instruction received by the
Custodian (i) through DTC's Institutional Delivery System ("IDS") or (ii)
through such other electronic delivery system accessed by password or other
security device and acceptable to the Trust and Custodian for the delivery of
instructions. Trust shall safeguard any testkeys, identification codes or other
security device made available by Custodian to Trust and Custodian may rely
upon any electronic instructions as being authorized by the Trust which is
received using the proper security device.

"Entitlement holder" means the person on the records of a securities
intermediary as the person having a security entitlement against the securities
intermediary.

"Financial Assets" means securities or other investments owned by the Trust. As
the context requires, a Financial Asset means either the interest itself or the
means by which a person's claim to it is evidenced, including a certificated or
uncertificated security, a security certificate, or a securities entitlement.

"FRBNY" means the Federal Reserve Bank of New York.

"Fund" means an investment portfolio of the Trust for which a separate series of
shares of beneficial interest are issued. Individual Funds are listed on
Schedule A.

"Instructions" includes, without limitation, any instructions to sell, assign,
transfer, deliver, purchase or receive for the Custody Account, Financial Assets
or to transfer funds from the Custody Account or a Cash Account.

"PTC" means Participants Trust Company, a New York limited purpose trust
company.

"Securities" means stocks, bonds, rights, warrants and other negotiable and
non-negotiable paper issued in certificated ("certificated securities") or book
entry form ("uncertificated securities") and commonly traded or dealt in on
securities exchanges or financial markets, and other obligations of an issuer,
or shares, participations and interests in an issuer recognized in an area in
which it is issued or dealt in as a medium for investment and any other property
as shall be acceptable to Custodian for the Custody Account.

"Security entitlement" means the rights and property interest of an entitlement
holder with respect to a financial asset as specified in Part 5 of Article 8 of
the Uniform Commercial Code.

"Securities intermediary" means, Custodian, DTC, PTC, the FRBNY, and any other
Depository or financial institution acceptable to the Trust which in the
ordinary course of business maintains securities accounts for others and acts in
that capacity.

"Uniform Commercial Code" means the Uniform Commercial Code of the State of New
York.

SECTION 2 TERMS OF THE CUSTODY.

2 of 17
<PAGE>

SECTION 2.1 CUSTODY ACCOUNT. The parties agree that there shall be a
Custody Account maintained for each Fund of the Trust with the Custodian, at an
office in New York. The Custody Accounts shall be entitled as described on
Schedule A.

SECTION 2.2 APPOINTMENT. The Trust authorizes The Chase Manhattan Bank to
serve as custodian for the Funds of the Trust listed on schedule A, and to act
on its behalf solely to the extent expressly provided herein, or in any
Authorization Letter and to take such other action as may be reasonably
incidental thereto. Custodian shall not use any securities intermediaries other
than DTC, PTC and the FRBNY without Trust's prior written consent.

SECTION 2.3 DUTIES OF THE CUSTODIAN. It is the expressed understanding of
the parties that:

SECTION 2.3.1 ACCEPT, DELIVER AND EXCHANGE SECURITIES. Upon receipt of
and pursuant to an Authorization Letter, oral notice (hereinafter "Notice,")
from the Trust (such Notice to be followed by written confirmation in the form
of an Authorization Letter), or Electronic Instructions, the Custodian shall
accept and deliver Financial Assets for each Fund. From time to time, pursuant
to a Letter, Notice, such Notice to be followed by the Trust's written
confirmation thereof; or Electronic Instructions, the Custodian shall exercise
or dispose of subscriptions, rights and warrants of any Financial Assets held
in the Custody Accounts or to be received by the Custodian for deposit to the
Custody Accounts. In respect of a Notice, in the event that the written
confirmation has not been received prior to the time requested action must take
place, the Custodian may rely upon the Notice provided that, the Custodian has
been able to orally confirm such instruction with such other persons as the
Trust shall designate from time to time in writing to the Custodian as
authorized to make such confirmations. Except as otherwise advised in a Letter,
Notice, or by Electronic Instructions, in delivering Financial Assets, the
Custodian shall do so only against payment, or upon the receipt of other
Financial Assets.

SECTION 2.3.2 PURCHASE OF SECURITIES. Upon receipt of a Letter, Notice
from the Trust (such Notice to be followed by written confirmation in the form
of an Authorization Letter), or Electronic Instruction, the Custodian shall
purchase for a Fund such Financial Assets in the amounts and maturing on the
dates therein described and charge the payment for such purchases to the Cash
Account. In the event that the written confirmation has not been received prior
to the time requested action must take place, the Custodian may rely upon the
Notice, provided that the Custodian has been able to orally confirm such
instruction with such other employee(s) of the Trust as the Trust shall
designate from time to time in writing to the Custodian as authorized to make
such confirmations. Unless and until otherwise instructed by the Trust pursuant
to the terms herein contained, the Custodian shall deposit any and all Financial
Assets purchased hereunder into the appropriate Funds' Custody Account as soon
as reasonably feasible following its receipt thereof. Except as otherwise
advised in a Letter, Notice, or by Electronic Instructions, the Custodian shall
make payment for Financial Assets purchased only at the time of delivery of such
Financial Assets to the Custodian.

3 of 17
<PAGE>

SECTION 2.3.3 PAYMENT OF MONIES. From time to time, the Custodian shall
upon its receipt of a Letter or Notice , such Notice to be followed by written
confirmation in the form of a Transfer Letter (as used herein the term
"Transfer Letter" shall mean the Trust's transfer letter, substantially in the
form of Exhibit B attached hereto) or Electronic Instruction, transfer monies
from the Custody Account; PROVIDED THAT: the Custodian complies with the
requirements of the Chase Manhattan Bank Funds Transfer Service Security
Procedure Agreement (Exhibit C).

From time to time, the Trust shall notify Custodian of deposits for its
accounts. Upon receipt of funds identifying the Trust or Funds by account
number as beneficiary, the Custodian shall credit such funds to the account
identified and notify the Trust.

SECTION 2.3.4 SALE OF SECURITIES. Upon the receipt of a Letter, Notice
(such Notice to be followed by written confirmation in the form of a Letter), or
Electronic Instruction, the Custodian shall use its reasonable best efforts,
subject to the terms and conditions herein contained, to present for sale in the
amount and on the dates therein stated such Financial Assets of a Fund as
therein described, and held in the Custody Account and cause the proceeds
generated by such sale(s), to be deposited into the Custody Account. In the
event that the written confirmation has not been received prior to the time the
requested action must take place, the Custodian may rely upon the Notice,
provided that the Custodian has been able to orally confirm such instruction
with such other person(s) as the Trust shall designate from time to time in
writing to the Custodian as authorized to make such confirmations.

In the event that it shall be impracticable for the Custodian, in
accordance with such Letter, Notice, or Electronic Instruction, to present for
sale Financial Assets on the dates specified, the Custodian shall as soon as it
learns of any such impracticability, notify the Trust via telephone.

Unless the Custodian shall have received from the Trust a Letter, Notice,
or Electronic Instruction to the contrary, the Custodian shall deliver the
Financial Assets to a broker, a dealer or other purchaser identified in the
instruction against payment. It is understood by the Trust that delivery
against payment in the securities markets means delivery against a receipt or
other evidence that a payment is due later but before the end of the same
business day. The Custodian shall have no liability with respect to the
non-receipt of payment arising from:

i) Any insolvency of any broker, dealer or other purchaser which occurs
after delivery of the Financial Assets by Custodian but before
payment is received by Custodian; or
ii) Insolvency of any issuer of the Financial Assets ; or
iii) Any act or omission of any broker, attorney, custodian, escrowee, or
similar agent designated by Trust to perform any act with respect to
the Financial Assets.

This Section shall not be interpreted to relieve or to lessen the standard of
care the Custodian is required to use by other terms of this Agreement.

4 of 17
<PAGE>

SECTION 2.3.5 REGISTERED SECURITIES. Except as otherwise set forth in
this Section 2.3.5, the Custodian shall register any registerable Financial
Assets held and maintained in a Custody Account in Custodian's nominee name or
that of an affiliate or Depository. Private placements and other types of
Financial Assets which the Trust from time to time identifies shall be
registered in the name of the Trust on behalf of the appropriate Fund. All
taxes or other expenses incidental to any transfer to or from the name of a
nominee shall be borne by the Trust.

SECTION 2.36 CALLS FOR PAYMENT. The Custodian shall use its reasonable
best efforts to determine from financial information services to which it
subscribes, or such other financial services as agreed to by the parties, when
Financial Assets held in the Custody Account are called for payment and
surrender for payment any Financial Assets or notes which have matured or with
respect to which it received or knows of a notice to call.

SECTION 2.3.7 NOTICES, ADVICE, ETC. The Custodian shall use its
reasonable best efforts to:

(a) promptly notify the Trust of any unpaid principal amounts, or any
unpaid amounts of interest accrued and owing, or payable on any
Financial Assets held or maintained in a Custody Account of which
Custodian is aware;

(b) forward to the Trust as of the close of business each business day
(electronically or by mail) advices of the Financial Assets and cash
transactions in a Custody Account;

(c) deliver to the Trust, promptly upon receipt of the Trust's request, a
schedule of the Financial Assets held and maintained in a Custody
Account;

(d) promptly notify the Trust of any legal action of which the Custodian's
corporate actions unit becomes aware with respect to any Financial
Assets held and maintained in a Custody Account;

(e) promptly notify the Trust of any subscriptions, warrants or like
rights it may have of which the Custodian's corporate action unit
becomes aware;

(f) promptly notify the Trust of any invitations to tender a Financial
Asset, held and maintained in a Custody Account of which the
Custodian's corporate action unit becomes aware; and

(g) deliver to the Trust all printed material received by the Custodian's
corporate actions unit and requiring some action by the Trust
pertaining to any Financial Assets held or maintained in a Custody
Account.

SECTION 2.3.8 STOCK DIVIDENDS, ETC. Financial Assets delivered to the
Custodian as

5 of 17
<PAGE>

stock dividends, stock splits or as a result of the exercise of rights, shall be
deposited into and held and maintained in the Custody Account of the appropriate
Fund and treated in like manner as all other Financial Assets therein held and
maintained.

SECTION 2.3.9 FRACTIONAL SHARES. In the event that an issuer of a
Financial Asset held by the Custodian in a Custody Account shall declare a
dividend payable in stock, and such dividend results in a fractional share of
stock being issued, the Custodian, without prior notice to or from the Trust,
shall sell such fractional share(s) and deposit the proceeds received from such
sale into the Custody Account. The Custodian shall notify the Trust of such
sale thereafter.

SECTION 2.3.10 COLLECTION OF INCOME AND PRINCIPAL. The Custodian shall
from time to time take necessary action(s) to collect dividends, interest
payments, payments made on account of called and matured Financial Assets, and
any other payments with respect to such Financial Assets deposited into or held
or maintained in a Custody Account, when such payments shall become owing;
provided that so long as Custodian's actions are in compliance with the standard
of care set forth in Section 7.17, Custodian shall not be responsible for
failure to receive payment of (or late payment of) distributions with respect to
Financial Assets or other property held in the Custody Account. Upon receipt of
such funds collected hereunder, Custodian will use its best efforts to deposit
such collected funds into the Custody Account on the same business day upon
which such collected funds are received by the Custodian. Accordingly, in
making collections of income or principal hereunder, the Custodian may to the
extent necessary or required by any applicable law of any sovereign body,
including the United States, or a State, and solely to such extent, execute on
behalf of the Trust certificates or other like documents. All cash shall be
held and maintained in a Custody Account subject to further instruction from the
Trust. In the event a Custody Account is credited by the Custodian in
anticipation of the Custodian's collection of monies, and the Custodian is
unable to collect such monies, the Trust agrees that it shall promptly upon
telephonic notice from the Custodian, return an amount equal to the amount so
credited and not collected to the Custodian in immediately available funds.

SECTION 2.3.11 EXCHANGE CERTIFICATES. The Custodian shall exchange
temporary for definitive certificates or effect mandatory exchanges of
certificates.

SECTION 2.3.12 BOOKS AND RECORDS. Custodian shall at all times maintain
proper books and records that shall identify the appropriate Fund of the Trust
as the entitlement holder of such Financial Assets and the location of the
Financial Assets.

The Custodian shall with respect to each Fund create and maintain all
records relating to its activities and obligations under this Contract. All such
records shall at all times during the regular business hours of the Custodian be
open for inspection by duly authorized officers, employees or agents of the
Trust and employees and agents of the Securities and Exchange Commission. The
Custodian shall, at the Trust's request, supply the Trust with a tabulation of
securities owned by each Fund and held by the Custodian and shall, when
requested to do so by the Trust and for such compensation as shall be agreed
upon between the Trust and the

6 of 17
<PAGE>

Custodian, include certificate numbers in such tabulations.

The Custodian shall cooperate with and supply reasonable and customary
information to the entity or entities appointed by the Board of Trustees of the
Trust to keep the books of account of each Fund.

Unless Trust shall send to Custodian a written exception or objection to
any statement of account within 90 days of its receipt of such statement from
Custodian, Trust shall be deemed to have approved such statement.

SECTION 2.3.13 CERTIFICATE OF THE BANK. The Custodian shall:

(a) deliver to the Trust on or before January 31st of each calendar year,
a certified schedule, dated December 31, of the preceding calendar
year, executed by two duly elected and authorized officers of
Custodian setting forth a full description of the Financial Assets
held and maintained in each Custody Account, including, but not
limited to, among other things, the par value of each bond and the
number of shares for each stock or the equivalent, as the case may be,
as of the close of business on December 31st, of each calendar year;

(b) use its best efforts to deliver to the Trust, within five (5) business
days after the receipt of the written request of the Trust a
certified schedule, dated the date of its issue, executed by two duly
elected and authorized officers of Custodian, setting forth a full
description of the Financial Assets held and maintained in the
Custody Accounts, including among other things, the par value of each
bond and the number of shares for each stock or the equivalent, as the
case may be; and

(c) deliver following a request by the Trust, to any governmental agency
certified by the Trust to the Custodian and, in a timely manner, a
certified schedule, which schedule, to the extent possible, shall be
substantially in the form of the certified schedule to be delivered
pursuant to the preceding clause (b) of this subsection.

In the event the Custodian is unable to deliver, pursuant to clause (c)
above, the certified schedule therein described, the Custodian shall,
immediately upon learning of such inability, notify the Trust by telephone and
promptly confirm such notice to the Trust in writing. Such written notice to
the Trust shall set forth (i) an explanation as to the Custodian's inability to
deliver such certified schedule and (ii) the date upon which such certified
schedule shall be delivered.

SECTION 2.3.14 OTHER SECURITIES. Upon receipt of an Authorization Letter
or Electronic Instruction, the Custodian is authorized to take any and all
actions necessary to settle transactions in futures and/or options contracts.

SECTION 2.4 LOTTERY. In the event Financial Assets held in the Custody
Account at a

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Securities Depository are called for partial redemption by the issuer, the
Custodian will, in its reasonable discretion, allocate the called portion to the
respective holders in a manner which is fair, equitable, and in accordance with
its established procedures.

SECTION 2.5 CONVERSION. The Custodian shall, except where instructed
otherwise by the Trust, convert monies received by the Custodian with respect to
Financial Assets maintained in the Custody Account of foreign issue into United
States dollars at prevailing rates. In effecting such conversion, the Custodian
may use any reasonable method or agency available to it, including the
facilities of its own divisions or affiliates. The Trust agrees that it shall
bear all risk and reasonable expense of such conversion, including without
limitation, losses arising from fluctuations in the exchange rate.

SECTION 2.6 MAINTAIN DUPLICATE RECORDS. The Custodian shall store
"off-premises" tapes of daily transactions with respect to the Custody Account.
Such tapes shall be maintained in accordance with the Custodian's practice in
effect from time to time.

SECTION 2.7 SETTLEMENT. The Trust intends to have sufficient immediately
available funds each day in the Custody Account to pay for the settlement of all
Financial Assets delivered against payment to Custodian or its agents and
credited to the Custody Account. Should Trust fail to have sufficient
immediately available funds in a Custody Account to settle deliveries of
Financial Assets pursuant to Section 2.3.2 (a "Deficit"), Custodian may elect
(i) to reject the settlement of any or all of the Financial Assets delivered to
it that day to a Custody Account but only after notice to Trust, (ii) to settle
the deliveries on a Fund's behalf and debit the Custody Account of the Fund for
the amount of such Deficit , or (iii) to reverse the posting of the Financial
Assets credited to the Custody Account, but only after notice to the Trust.

No prior action or course of dealing on the part of Custodian with respect
to the settlement of Financial Assets transactions on Trust's behalf shall be
used by or give rise to any claim or action by Trust against Custodian for its
refusal to pay or settle for a securities transaction that has not been timely
funded as required herein.

SECTION 2.8 SECURITY INTEREST. To the extent Custodian has advanced funds
on Trust's behalf in connection with the settlement of purchases and sales of
Financial Assets for the Custody Account, Custodian shall have a security
interest in the Financial Assets which are the subject of such purchases and
sales until Trust shall have repaid the amount of such advance to Custodian, and
Custodian's security interest in such Financial Assets shall be released upon
Trust's repayment of such advance to Custodian.

SECTION 3 SAFEKEEPING OF FINANCIAL ASSETS.

SECTION 3.1 SAFEKEEPING. The Custodian shall hold all Financial Assets
held in the Custody Account in its vault and physically segregate for the
account of each Fund all Financial Assets held by it, except those Financial
Assets which are book-entry securities maintained on the

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Federal Reserve Book-Entry Account System or which are eligible for deposit with
a Depository. Unless specified in the Authorization Letter to the contrary, it
is understood that, eligible Financial Assets will be maintained with a
Depository. The Custodian shall be responsible for all Financial Assets
deposited into and held and maintained in the Custody Account whether the
Financial Assets be in the physical custody of the Custodian or held by the
Custodian through a Depository; PROVIDED that the Custodian shall not be
responsible for loss or destruction of Securities held and maintained in the
Custody Account, where such loss or destruction is caused by earthquake,
volcanic eruptions or such like disturbances of nature, by reason of war,
whether declared or undeclared; or caused by the lawful act of any executive,
legislative, judicial, administrative or other governmental or military body or
officer. Custodian shall be obligated to indemnify Trust for any loss of
Financial Assets received for, and credited to the Custody Account resulting
from (i) the negligence or willful misconduct of Custodian or its officers,
employees or agents (excluding any Depository retained for such Financial
Assets) or (ii) the burglary, robbery, hold-up, theft or mysterious
disappearance, including loss by damage or destruction. In the event of a loss
of Financial Assets for which it is required to indemnify Trust pursuant to the
immediately preceding sentence, Custodian shall promptly replace such Financial
Assets (by among other means posting appropriate security or bond with the
issuer(s) of such Financial Assets and obtaining their reissue) or if agreed to
by Trust and Custodian, Custodian shall replace the value thereof (determined
based upon the market value of the Financial Assets which are the subject of
such loss as of the date of the discovery of such loss or as of the date of
replacement) and the value of any loss of rights or privileges resulting from
the loss of such Financial Assets. The foregoing indemnity shall be the
exclusive liability of Custodian to Trust for its loss of Financial Assets held
for the Custody Account.

Custodian shall be responsible for only those duties expressly stated in
this Agreement or expressly contained in instructions to perform the services
described herein given to Custodian pursuant to the provisions of this Agreement
and accepted by Custodian but, without limiting the foregoing, Custodian and its
agents shall have no duty or responsibility;

(a) to supervise the investment of, or make recommendations with
respect to the purchase, retention or sale of, Financial Assets relating to
the Custody Account, or to maintain any insurance on Financial Assets in
the Custody Account for Trust's benefit;

(b) with regard to any Financial Assets in the Custody Account as to
which a default in the payment of principal or interest has occurred, to
take any action other than giving of notice with respect to such default;
except, in each instance, where Custodian has been requested by Trust and
Custodian has agreed in writing to do so;

(c) to evaluate, or report to Trust regarding, the financial
condition of any person, firm or corporation to which Custodian is
instructed to deliver Financial Assets or funds pursuant to this Agreement;

(d) for any loss occasioned by delay in the actual receipt of notice
by Custodian of

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any payment, redemption or other transaction in respect to which Custodian
is authorized to take some action pursuant to this Agreement; or

(e) for any errors or omissions made by any securities pricing
services used by Custodian to value Financial Assets credited to the
Custody Account as part of any service subscribed to by Trust from
Custodian.

SECTION 3.2 USE OF A DEPOSITORY. The Custodian shall:

(a) upon the delivery or transfer, by book-entry or otherwise, of any of a
Fund's Financial Assets to a Securities Depository Account as provided
herein, identify in its records the Financial Assets as held for the
Trust on behalf of the appropriate Fund in the Custody Agreement;

(b) at all times retain against the Depository any and all rights provided
the Custodian, whether such rights be provided by applicable law,
governmental rules or regulations, rules and regulations of the
Depository, or otherwise, including but not limited to, the right to
recover from the Depository (for the benefit of the Fund and the
Trust) for any loss or losses on the part of the Depository;

(c) from time to time, as the need may arise, to enforce, for the benefit
of the Trust, any and all rights provided the Custodian, whether such
rights be provided by applicable law, governmental rules or
regulations or otherwise, against the Depository pertaining to any
Financial Assets which are the property of the Custody Account and are
deposited by the Custodian with the Depository;

(d) within ten (10) business days after its receipt of a request from the
Trust, deliver to the Trust the most current report issued by the
Depository pertaining to its system of internal accounting control;
and

(e) make payment for securities purchased and sold through the clearing
medium employed by such Depository for transactions of participants
acting through it. Upon any purchase of securities, payment will be
made only upon delivery of the securities to or for the account of the
Trust; and upon any sale of securities, delivery of the securities
will be made only against payment therefor.

SECTION 3.3 THE DEPOSITORY ACCOUNT. The Depository account maintained by
the Custodian and receiving Financial Assets which have been recorded by the
Custodian as held for the Custody Account, shall hold only Financial Assets in
which the Custodian has interest only in a fiduciary or agency capacity for
clients and the Financial Assets in such account will not be commingled with the
Custodian's own Financial Assets.

SECTION 3.4 CERTAIN CONDITIONS. Any Financial Assets held by the
Custodian for the

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benefit of the Trust pursuant hereto (including those Financial Assets held in a
Depository) shall be considered by the parties hereto, and shall be at all
times, the sole, absolute property of the Trust, and for purposes of this
Agreement, shall be considered part of the Financial Assets held and maintained
in the Custody Account.

SECTION 3.5 SEGREGATED ACCOUNT. The Custodian shall upon receipt of
Instructions from the Trust on behalf of each Fund establish and maintain a
segregated account or accounts for and on behalf of each such Fund, into which
account or accounts may be transferred cash and/or securities (including
securities maintained in an account by the Custodian pursuant to Section 3.2.
hereof):

(a) in accordance with the provisions of any agreement among the Trust on
behalf of a Fund, the Custodian and a broker-dealer registered under
the Securities Exchange Act of 1934 and a member of the NASD (or any
futures commission merchant registered under the Commodity Exchange
Act), relating to compliance with the rules of The Options Clearing
Corporation and of any registered national securities exchange (or the
Commodity Futures Trading Commission or any registered contract
market), or of any similar organization or organizations, regarding
escrow or other arrangements in connection with transactions by the
Fund,

(b) for purposes of segregating cash or government securities in
connection with options purchased, sold or written by the Fund or
commodity futures contracts or options thereon purchased or sold by
the Fund,

(c) for the purposes of compliance by the Fund with the procedures
required by Investment Company Act Release No. 10666, or any
subsequent release or releases of the Securities and Exchange
Commission relating to the maintenance of segregated accounts by
registered investment companies, and

(d) for other proper corporate purposes.

SECTION 4 PUT OPTIONS. Notwithstanding any provision hereunder to the
contrary, with respect to Financial Assets which possess so-called put options
or similar characteristics which grant the Trust the option to redeem such
Financial Assets prior to their maturity date ("Put Options Securities")
including, but not limited to so-called put bonds, the following shall apply:

(a) with respect to put options which are exercisable semi-annually, or
less frequently than semi-annually, and where such Put Option
Financial Assets is actually delivered to the Custodian not less than
fifteen (15) business days prior to the put option exercise date, the
Custodian shall use its reasonable best efforts to notify the Trust of
such put option, where correct and timely notification is published in
the publications or services ("Notification Sources") the Custodian
routinely uses for this purpose, or as to which the Custodian receives
timely notice from the

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Trust;

(b) once notified, the Trust must direct the exercise or non-exercise of
such put option by Letter delivered to the Custodian not less than
five (5) business days prior to the put option exercise date, and if
the Trust fails to make such direction, the Custodian shall not
exercise such put option; and

(c) for purposes of this Section 3: a "business day" is a day on which the
Custodian is open for business under the laws of the State of New
York; the notification sources include, but are not limited to, J.J.
Kenney, THE WALL STREET JOURNAL and/or DTC, and the Custodian
reserves the right to utilize other notification sources or
discontinue any of the aforementioned notification sources at any time
and without notice; and

(d) the Custodian shall not notify the Trust of put options exercisable
more frequently than semi-annually.

SECTION 5 BULK HOLDING. The Custodian may hold the Financial Assets of a
Fund of the Trust in its own vault, separate from its own Financial Assets in
bulk with Financial Assets of the same class and the same issue of other of its
own fiduciary and agency customers; PROVIDED THAT: the Financial Assets in such
bulk shall be adequately identified as belonging to the Fund on the records of
the Custodian.

SECTION 6 THE CUSTODIAN. The Trust and the Custodian agree that the
Custodian in carrying out the provisions of this Agreement, including but not
limited to the purchase of any Financial Assets for deposit into, or the
selling or delivering of any Financial Assets held and maintained in, the
Custody Account, is acting solely as the agent of the Trust. Unless the
Custodian shall otherwise agree in writing, the Custodian shall not have the
duty to take any action other than those actions expressly set forth herein or
those actions necessary and advisable to accomplish such expressly set forth
actions. The Custodian is hereby expressly authorized to execute in the name of
the Trust such certificates as may be necessary to obtain payment with respect
to, or to effect the sale, transfer or other disposition of any Financial
Assets held in the Custody Account in accordance with the Trust's instructions.
In carrying out the purchase or sale of any Financial Assets hereunder, the
Custodian may, upon receipt of the Trust's instructions, purchase from or sell
to the Custodian's bond department or an affiliate of the Custodian.

SECTION 7 GENERAL.

SECTION 7.1 WAIVER; AMENDMENTS. Except as otherwise provided in Section
2.3.12, no delay on the part of the Trust or the Custodian in the exercise of
any right, power or remedy shall operate as a waiver thereof, nor shall any
single or partial exercise by the Trust or the Custodian

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of any right, power or remedy preclude other or further exercise thereof, or the
exercise of any other right, power or remedy. No amendment, modification or
waiver of, or consent with respect to, any provision of this Agreement, shall in
any event be effective unless the same shall be in writing and signed and
delivered by each of the Custodian and the Trust.

SECTION 7 .2 NOTICE. Notices with respect to termination, any disputes
hereunder, specification of authorized officers and employees, and terms and
conditions for instructions required hereunder, shall be in writing, and shall
be deemed to have been duly given if delivered personally, by courier service or
by mail, postage prepaid, to the following addresses (or to such other address
as either party hereto may from time to time designate by notice duly given in
accordance with this paragraph):

To us at:

State Farm Variable Product Trust
One State Farm Plaza
Bloomington, Illinois 61710
Attention: David R. Grimes

To Custodian, to the attention of the individual designated by Custodian as
the safekeeping account administrator for Trust's account, at:

The Chase Manhattan Bank
North American Insurance Securities Services
3 Chase MetroTech Center, 6th Floor
Brooklyn, New York 11245

SECTION 7.3 COMPUTATIONS. Where the character or amount of any asset or
liability or item of income or expense is required to be determined, or any
consolidation or other accounting computation is required to be made, for the
purpose of this Agreement, such determination or calculation shall, to the
extent applicable, be made in accordance with generally accepted accounting
principles.

SECTION 7.4 HEADINGS. Section headings used in this Agreement are for
convenience only, and shall not effect the construction of this Agreement.

SECTION 7.5 GOVERNING LAW. This Agreement shall be a contract made under
and governed by the internal laws of the State of New York including the UCC.

SECTION 7.6 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
the Trust and the Custodian individually and each of their respective successors
and assigns, and shall inure to the benefit of the Trust and the Custodian and
the respective successors and assigns of the Trust and the Custodian; PROVIDED
that, the Custodian may not assign or transfer this Agreement

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or delegate any of its duties hereunder except as permitted herein, without the
prior written consent of the Trust.

SECTION 7.7 INTEGRATION; COURSE OF DEALING. This Agreement constitutes
the sole agreement of the parties with respect to the subject matter hereof and
supersedes all oral negotiations and prior writings with respect to the subject
matter hereof.

SECTION 7.8 TERMINATION. This Agreement shall terminate 90 days after the
receipt by the Custodian or the Trust, or such mutually agreed date as the case
may be, of written notice from the Custodian or the Trust terminating this
Agreement.

SECTION 7.9 CERTAIN NOTICES BY THE TRUST AND THE CUSTODIAN. The Trust
agrees to promptly notify the Custodian of any material change in its
organization or any reorganization by it. The Custodian shall notify the Trust
of any changes in its organization which affect its ability to do business as a
banking corporation.

SECTION 7.10 CERTAIN REPRESENTATIONS BY THE TRUST. The Trust herewith
promises to the Custodian that (i) all instructions and confirmations given
hereunder shall be given and are given pursuant to authorizations contained or
to be contained in resolutions of its Board of Trustees and by persons
authorized by such resolutions to give the same, and (ii) it shall from time to
time furnish the Custodian with certified copies of such resolutions upon which
it may rely for the authorizations contained therein until otherwise notified in
writing of a change thereto.

SECTION 7.11 TAXPAYER IDENTIFICATION NUMBER. The Trust's taxpayer
identification number for each Fund is indicated in schedule A hereof. Unless
Trust has already done so, as a U.S. citizen or resident, it shall deliver
promptly to Custodian with respect to each Custody Account established under
this Agreement, two duly completed and executed copies of United States Internal
Revenue Service form W-9 for each Fund. Trust shall provide duly executed and
completed updates of such form after the occurrence of an event requiring a
change in the form previously delivered by Trust to Custodian. Each Fund shall
be responsible for the payment of all taxes relating to the Financial Assets in
the Custody Account.

SECTION 7.12 EXPENSES AND TAXES. The Trust agrees to pay, and to save the
Custodian harmless from all liability, for any taxes which may be payable in
connection with the Financial Assets and any proceeds generated by Financial
Assets and any other property of the Trust purchased or held and maintained
hereunder. All obligations provided for in this subsection 7.12, and in
subsection 7.13 hereof, shall survive any termination of this Agreement.

SECTION 7.13 FEES. For and in consideration of the Custodian acting as
the custodian and the agent of the Trust pursuant to the terms herein contained,
the Trust agrees to pay to the Custodian fees for such services as mutually
agreed upon by the parties hereto. Such agreed upon fees may from time to time
be modified by the Custodian pursuant to its notice to the Trust effective no
less than 90 days following the Trust's receipt of such notice. To the extent
that

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Custodian advances funds to the Custody Account for disbursements or to effect
the settlement of purchase transactions, the Custodian shall be entitled to
collect from the Custody Account an amount equal to The Chase Manhattan Bank's
Prime Rate in effect as announced by it from time to time, unless the Trust and
Custodian have agreed in writing to another interest rate.

SECTION 7.14 HOLD HARMLESS. The Trust agrees to indemnify and hold the
Custodian harmless from and against all claims, losses, liabilities and
expenses, including without limitation, reasonable legal fees and expenses,
arising from any claim of any party arising or resulting from actions the
Custodian takes that are required by this Agreement; provided that the Custodian
shall have acted in good faith and exercised ordinary due care.

SECTION 7.15 FORCE MAJEURE. The Custodian shall not be responsible for
its failure to carry out its responsibilities hereunder where such failure is
caused by circumstances reasonably beyond the control of the Custodian,
including but not limited to, acts of God, war, internal strife and acts of
government.

SECTION 7.16 DISCLAIMER OF LIABILITY. UNDER NO CIRCUMSTANCES WHATSOEVER
SHALL EITHER PARTY BE RESPONSIBLE TO THE OTHER PARTY FOR ANY INCIDENTAL,
SPECIAL, CONSEQUENTIAL, OR INDIRECT DAMAGES OF ANY KIND WHATSOEVER, PROVIDED
THE PARTY AGAINST WHOM THE DAMAGES ARE CLAIMED HAS NOT ACTED IN BAD FAITH OR
ENGAGED IN WILLFUL MISCONDUCT; AND, PROVIDED FURTHER, THAT ANY INDEMNITY CLAIM
BY THE CUSTODIAN UNDER SECTION 7.14 SHALL CONSTITUTE A DIRECT DAMAGES CLAIM AND
SHALL NOT BE SUBJECT TO THE LIMITATION SET FORTH HEREIN.

SECTION 7.17 STANDARD OF CARE. The Custodian expressly agrees that in
carrying out its responsibilities hereunder it shall be responsible for damages,
except as limited by Section 3.1, the Trust suffers as a result of Custodian's,
its employees' and agents' negligence, willful misconduct or failure to act in
good faith and in accordance with the commercial standard of care for Money
Center banks which offer custodial services. The Custodian shall not be
responsible for the title, validity or genuineness of any property or evidence
of title thereto received by it or delivered by it pursuant to this Agreement.
The Custodian shall be held harmless in acting upon any notice, request,
direction, instruction, consent, certification or other instrument believed by
it, acting in good faith, to be genuine and delivered by an authorized officer
of Trust.

SECTION 7.18 EXHIBITS. The parties agree that any exhibits attached
hereto may be modified effective upon written notice from the Trust to the
Custodian. Any such modified exhibit shall be and is hereby deemed to be the
exhibit (indicated in such written notice) to this Agreement.

SECTION 7.19 NONDISCLOSURE, CONFIDENTIALITY. The Custodian expressly
agrees that it shall not use the name of, nor identify, the Trust or any of its
subsidiaries in any of the Custodian's

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media or other advertising distributed by the Custodian to its customers or
potential customers.

The Custodian shall maintain the confidentiality of the Trust's Custody
Account information and not disclose any such information except as permitted by
this Agreement or as required by laws, rules, regulations or orders having the
force of law, but only after notice to Trust.

The Shareholders Communications Act of 1985 and subsequent amendments to
the act authorize Custodian to release to issuers of Securities and to other
security holders of an issue, Trust name, address and Securities position if
Trust Custody Account was opened after December 28, 1985, unless Trust states
its objection. Custodian hereby acknowledges Trust's objection.

SECTION 7.20 "FREE RIDING" PROHIBITION. Trust hereby acknowledges that
the act of placing a buy order and sale order for the same securities which are
to settle on the same date in instances where Trust does not have in the Custody
Account sufficient funds independent of the sale of such securities to satisfy
fifty percent (50%) or more of the purchase price (or such other percentage as
may be required by applicable law and regulation) constitutes the practice
commonly known as "free riding" and is prohibited under both Regulation T and
Regulation U of the Board of Governors of the Federal Reserve System (12 C.F.R.
Parts 220 and 221).

SECTION 7.21 TRUST RESPONSIBILITY. Trust agrees that it shall be
responsible to Custodian as a principal for all of its obligations to Custodian
arising under or in connection with this Agreement notwithstanding that Trust
may be acting on behalf of the Funds, and Trust warrants its authority to
deposit in the Custody Account any Financial Assets and funds which Custodian
receives therefor and to give instructions relative thereto. Trust further
agrees that Custodian shall not be subject to, nor shall its right and
obligations with respect to this Agreement and the Custody Account be affected
by, any agreement between Trust and any such person.

SECTION 7.22 BINDING OBLIGATION AND LIMITATION OF LIABILITY. It is
expressly understood that the obligations of the Trust under this Agreement will
not be binding on any of the Trustees, shareholders, nominees, officers, agents
or employees of the Trust personally, but bind only the assets and property of
each Fund.

Custodian agrees that no Trustee, shareholder, nominee, officer, agent or
employee of the Trust may be held personally liable or responsible for any
obligations of the Trust arising out of this Agreement.

SECTION 7.23 RESERVATION OF RIGHT. Custodian shall have the right not to
accept for deposit to the Custody Account any Financial Assets which are in a
form or condition which Custodian, in its sole discretion, determines not to be
suitable for the services Custodian provides under this Agreement.

Custodian's and Trust's rights and remedies under this Agreement are in
addition to, and

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not in limitation of, any other rights and remedies available to Custodian and
Trust under applicable law.

SECTION 7.24 CUSTODIAN'S ANNUAL REPORT. Upon the Trust's request,
Custodian will send the annual report (SAS 70 Report) prepared by its external
auditors on its systems of internal accounting control of custodied Financial
Assets.

SECTION 7.25 ADDITIONAL INVESTMENT PORTFOLIOS. In the event that the Trust
establishes additional investment portfolios for which it desires the Custodian
to be the Custodian or desires to have the Custodian be the Custodian for
existing investment portfolios not covered by this Agreement, it shall so notify
the Custodian in writing, and if the Custodian agrees in writing to serve as
Custodian, such investment portfolios shall become Funds hereunder.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers effective as of the day
and year first written above.

State Farm Variable Product Trust

By:
-----------------------

Title:
--------------------

The Chase Manhattan Bank

By:
-----------------------

Title:
--------------------

Address:
------------------

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