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STATE FARM VARIABLE PRODUCT TRUST
MONEY MARKET FUND
LARGE CAP EQUITY INDEX FUND
SMALL CAP EQUITY INDEX FUND
INTERNATIONAL EQUITY INDEX FUND
BOND FUND
STOCK AND BOND BALANCED FUND
---------------------
The Securities and Exchange Commission has not approved or disapproved the
shares of the funds or passed upon the adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
PROSPECTUS--MAY 1, 1999
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TABLE OF CONTENTS
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PAGE
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INTRODUCTION......................................................................... 3
Money Market Fund............................................................ 4
Equity Index Funds........................................................... 5
Bond Fund.................................................................... 8
Stock and Bond Balanced Fund................................................. 10
ANNUAL INVESTMENT RETURNS............................................................ 11
HOW THE FUNDS INVEST................................................................. 11
Money Market Fund............................................................ 11
Equity Index Funds........................................................... 12
Bond Fund.................................................................... 14
Stock and Bond Balanced Fund................................................. 14
MANAGING THE INVESTMENTS OF THE FUNDS................................................ 16
TAXES................................................................................ 18
YEAR 2000............................................................................ 18
FINANCIAL HIGHLIGHTS................................................................. 19
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INTRODUCTION
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State Farm Variable Product Trust has six separate investment portfolios or
"Funds." Shares of each Fund are offered exclusively in connection with variable
annuity and variable life insurance policies issued by State Farm Life Insurance
Company and State Farm Life and Accident Assurance Company. Each Fund is a
separate investment portfolio with its own investment objective, investment
policies, restrictions, and attendant risks. This prospectus describes each
Fund--please read it and retain it for future reference.
The Funds have different levels of short-term risk--the likely volatility of
a Fund's total return and its potential for gain or loss over a relatively short
time period. In this prospectus, the relative short-term risk of each of the
Funds is shown on a spectrum like this:
[LOGO]
While historical performance is no guarantee of future results, an
historical observation has been made that lower short-term risk may lead to
lower returns over long time periods. Accordingly, an investor should consider
his or her investment time horizon (the length of time that an investor expects
to hold an investment) in deciding the amount of short-term risk that he is
willing to tolerate. The longer the investor's time horizon is, the more
short-term risk he may be willing to tolerate in seeking to achieve his
investment goals.
ALL RISK IS NOT THE SAME.
Different types of mutual funds (for example, stock funds versus bond funds)
are subject to different types of risk. Each Fund, to varying degrees, is
subject to several types of risk, including the following:
CREDIT RISK--The risk that the issuer of a security, or a party to a contract,
will default or otherwise not honor a financial obligation.
INTEREST RATE RISK--The risk of a decline in market value of an interest bearing
instrument due to changes in interest rates. For example, a rise in interest
rates typically will cause the value of a fixed rate security to fall. On the
other hand, a decrease in interest rates will cause the value of a fixed rate
security to increase.
LIQUIDITY RISK--The risk that a security or other investment may be difficult or
impossible to sell at the time the Fund would like to sell it for the value the
Fund has placed on it.
MANAGEMENT RISK--The risk that a strategy used by a Fund's investment adviser
may fail to produce the desired result. This risk is common to all mutual funds.
MARKET RISK--The risk that the market value of a security may increase or
decrease, sometimes rapidly and unpredictably. This risk is common to all stocks
and bonds and the mutual funds that invest in them.
VALUATION RISK--The risk that a Fund has valued certain securities at a higher
price than it can sell them for. This risk is common where the security is from
a relatively new issuer with little or no previous market history and a mutual
fund's management is called upon to assign a value to the security.
THE RISK SPECTRUM IS INTENDED TO BE USED FOR COMPARATIVE PURPOSES ONLY AND
IS NOT AN INDICATOR OF FUTURE VOLATILITY OR PERFORMANCE.
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INVESTOR PROFILE
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WHO SHOULD CONSIDER INVESTING IN THE MONEY MARKET FUND?
You May Want to Consider Investing in This Fund If You:
- - require stability of principal
- - are seeking an investment for the cash portion of an asset allocation program
- - are looking for an investment with a lower degree of risk during uncertain
economic times or periods of stock market volatility
- - consider yourself a saver rather than an investor
- - are participating in a dollar cost averaging program under your variable life
insurance or annuity contract
You May Not Want to Invest in This Fund If You:
- - are seeking an investment that is likely to outpace inflation
- - are investing for retirement or other longer term goals
- - are investing for growth or maximum current income
MONEY MARKET FUND
INVESTMENT OBJECTIVE--The Money Market Fund seeks to maximize current income to
the extent consistent with the preservation of capital and maintenance of
liquidity.
INVESTMENT ADVISER--State Farm Investment Management Corp. ("SFIM")
INVESTMENT STRATEGIES
HOW DOES THIS FUND PURSUE ITS INVESTMENT OBJECTIVE?
Unlike most other mutual funds, the Money Market Fund seeks to maintain a
stable net asset value of $1.00 per share. This Fund invests exclusively in
short-term U.S. dollar-denominated money market securities, including those
issued by U.S. and foreign financial institutions, corporate issuers, the U.S.
Government and its agencies and instrumentalities, municipalities, foreign
governments, and multi-national organizations, such as the World Bank.
RISKS
WHAT ARE THE MAIN RISKS OF INVESTING IN THE MONEY MARKET FUND?
[LOGO]
Given the types of securities that the Money Market Fund invests in, the
level of risk associated with the Money Market Fund is lower than most other
types of mutual funds. However, every investment involves some level of risk.
As with any money market mutual fund, the yield paid by the Fund will vary
with changes in interest rates. Also, there is a remote possibility that the
Fund's share value could fall below $1.00, which could reduce the value of your
account.
AN INVESTMENT IN THE MONEY MARKET FUND IS NOT A DEPOSIT OF ANY BANK OR OTHER
INSURED DEPOSITORY INSTITUTION AND IS NOT INSURED OR GUARANTEED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. ALTHOUGH THE MONEY
MARKET FUND SEEKS TO PRESERVE THE VALUE OF YOUR INVESTMENT BY MAINTAINING A
STABLE NET ASSET VALUE OF $1.00 PER SHARE, THE FUND MAY NOT SUCCEED AND YOU MAY
STILL LOSE MONEY BY INVESTING IN THE FUND.
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INVESTOR PROFILE
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WHO SHOULD CONSIDER INVESTING IN AN EQUITY INDEX FUND?
You May Want to Invest in An Equity Index Fund If You:
- - can tolerate the price fluctuations and volatility that are inherent in
investing in a broad based stock mutual fund
- - want to invest in stocks, but with an indexing approach
- - want to diversify your investments
- - are seeking funds for the growth portion of an asset allocation or program
- - are investing for retirement or other goals that are many years in the future
You May Not Want to Invest in An Equity Index Fund If You:
- - are investing with a shorter investment time horizon in mind
- - are seeking income rather than capital gains
- - are uncomfortable with an investment whose value is likely to vary
substantially
EQUITY INDEX FUNDS--
LARGE CAP EQUITY INDEX FUND
SMALL CAP EQUITY INDEX FUND
INTERNATIONAL EQUITY INDEX FUND
The Large Cap, Small Cap, and International Equity Index Funds are equity
index Funds that invest mostly in stocks. By investing in a broad range of
stocks within a specific index (a "benchmark index"), each of these Funds seeks
to match the performance of its benchmark index, whether that index goes up or
down.
WHAT IS AN EQUITY INDEX?
An equity index is an unmanaged group of stocks used to measure and report
changes in a particular market. An index may be comprised of many stocks and
designed to be representative of the overall market, or made up of a smaller
number of stocks and designed to reflect a particular industry or market sector.
The composition of an index is determined by the criteria set by the index
(i.e., market capitalization) rather than an investment strategy developed by an
investment adviser like SFIM. An index is not a mutual fund and you cannot
invest in an index. The composition and weighting of securities in an index can,
and often does, change.
AN INVESTMENT IN AN EQUITY INDEX FUND IS NOT A DEPOSIT IN ANY BANK OR OTHER
INSURED DEPOSITORY INSTITUTION AND IS NOT INSURED OR GUARANTEED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
INVESTMENT OBJECTIVES
LARGE CAP EQUITY INDEX FUND--The Large Cap Equity Index Fund seeks to match the
performance of the Standard & Poor's Composite Index of 500
Stocks-Registered Trademark-(1) by investing in the securities that make up the
S&P 500. The S&P 500 tracks the common stock performance of 500 large U.S.
companies in the manufacturing, utility, transportation and financial
industries.
- ------------------------------
(1) "Standard & Poor's," "S&P," "S&P 500" and "Standard & Poor's 500" are
trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use
by the Trust. The Fund is not sponsored, endorsed, sold or promoted by
Standard & Poor's, and Standard & Poor's makes no representation regarding
the advisability of investing in the Fund. For more information regarding
the S&P 500 Index, see the Trust's Statement of Additional Information.
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SMALL CAP EQUITY INDEX FUND--The Small Cap Equity Index Fund seeks to match the
performance of the Russell 2000 Small Stock Index-Registered Trademark-(2). This
Fund invests primarily in some of the stocks found in the Russell 2000. The
Russell 2000 tracks the common stock performance of about 2,000 small U.S.
companies.
INTERNATIONAL EQUITY INDEX FUND--The International Equity Index Fund seeks to
match the performance of the Morgan Stanley Capital International Europe,
Australia, and Far East Free Index-Registered Trademark- (the "EAFE Free")(3).
This Fund invests primarily in some of the stocks found in the EAFE Free. The
EAFE Free tracks the common stock (or equivalent) performance of companies in
which U.S. investors can invest in Europe, Australia, New Zealand and the Far
East.
The providers of the benchmark indices calculate those indexes without
taking the Funds into account, and do not sponsor or endorse the Funds in any
way.
INVESTMENT ADVISER--SFIM
INVESTMENT SUB-ADVISER--Barclays Global Fund Advisors ("Barclays")
INVESTMENT STRATEGIES
HOW DO THE EQUITY INDEX FUNDS PURSUE THEIR RESPECTIVE INVESTMENT OBJECTIVES?
Barclays 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, Barclays utilizes a "passive" or indexing investment approach
for each equity index Fund. As a passive manager, Barclays seeks to achieve
investment performance that is similar to a benchmark index. Barclays selects
stocks for the equity index Fund's portfolio so that the investment portfolio of
each Fund is as similar as possible to that of its benchmark.
Each equity index Fund attempts to remain as fully invested as practicable
in a pool of stocks and other equity securities that comprise the applicable
benchmark index in a manner that is expected to approximate the performance of
the benchmark index. Under normal operating conditions, each equity index Fund
seeks to 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.
RISKS
WHAT ARE THE MAIN RISKS OF INVESTING IN AN EQUITY INDEX FUND?
[LOGO]
Each equity index Fund has risks that are unique to the issuers of the
securities in which it invests. The equity index Funds are subject to market
risk and there is a risk that you will lose money by investing in these Funds.
For a more detailed discussion of the risks associated with each equity index
Fund and the portfolio securities of each equity index Fund, please refer to the
section entitled "HOW THE FUNDS INVEST--EQUITY INDEX FUNDS" later in this
prospectus.
- - Each equity index Fund attempts to match the performance of its respective
benchmark index, but there is no guarantee that any of the Funds will be able
to do so.
- ------------------------------
(2) The Russell 2000 Small Stock Index is a trademark/service mark, and
"Russell" is a trademark, of the Frank Russell Company. 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 Trust's Statement of Additional Information.
(3) EAFE Free 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 Fund is
not sponsored, endorsed, sold or promoted by Morgan Stanley. Morgan Stanley
makes no representation or warranty regarding the advisability of investing
in the Fund. For more information regarding the EAFE Free, see the Trust's
Statement of Additional Information.
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- - Because the Small Cap and International Equity Index Funds do not invest in
every security in their benchmark index, the Small Cap and International
Equity Index Funds will not track their benchmark indices with the same degree
of accuracy as would an investment vehicle that invested in every component
security of its benchmark index. To learn more about how the equity index
Funds select the stocks in which they invest, please read the section entitled
"HOW THE FUNDS INVEST--EQUITY INDEX FUNDS" later in this prospectus.
- - The equity index Funds try to stay fully invested at all times. Even when
stock prices are falling, the equity index Funds will stay fully invested and
each Fund may decline more than the Fund's benchmark index.
ARE THERE ANY SPECIFIC RISKS ASSOCIATED WITH INVESTING IN SECURITIES OF SMALL
CAPITALIZATION ISSUERS?
- - Yes. Small capitalization companies may not have the financial strength to do
well in difficult times, or may have limited product lines. The stocks of
small issuers are often more volatile than the stocks of large companies.
DO ANY OF THE EQUITY INDEX FUNDS INVEST IN SECURITIES ISSUED BY FOREIGN
COMPANIES?
- - Yes. The International Equity Index Fund invests all of its assets in foreign
companies, and the Large Cap Equity Index Fund may make foreign investments.
Investing in foreign securities involves higher trading and custody costs than
investing in U.S. companies. Accounting and reporting practices are different
than in the U.S. and regulation is often less stringent. Potential political
or economic instability presents risks, as does the fluctuation in currency
exchange rates.
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INVESTOR PROFILE
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WHO SHOULD CONSIDER INVESTING IN THE BOND FUND?
You May Want to Invest in This Fund If You:
- - are seeking higher potential returns than money market funds and are willing
to accept a moderate level of volatility
- - want to diversify your investments
- - are seeking an income mutual fund for an asset allocation program,
or
- - are retired or nearing retirement
You May Not Want to Invest in This Fund If You:
- - are investing for maximum return over a long time horizon
- - require stability of your principal
BOND FUND
INVESTMENT OBJECTIVE--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 invests primarily in good quality bonds
issued by domestic companies.
INVESTMENT ADVISER--SFIM
INVESTMENT STRATEGIES
HOW DOES THIS FUND PURSUE ITS INVESTMENT OBJECTIVE?
The Bond Fund emphasizes investment grade bonds and maintains an
intermediate (typically, less than 6 years) average portfolio duration. Under
normal circumstances, the Fund invests at least 65% of its assets in investment
grade bonds or, if a bond has not been rated by a recognized rating
organization, bonds determined to be of comparable quality by SFIM. The Fund may
invest in the following instruments:
- - Corporate Debt Securities: investment grade securities issued by domestic
corporations and, to a limited extent (up to 35% of its assets), in lower
rated securities;
- - U.S. Government Debt Securities: securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities;
- - Other Issuer Debt Securities: the Bond Fund may invest up to 20% of its assets
in debt securities and preferred stocks that are convertible into common
stocks as well as nonconvertible preferred stocks.
RISKS
WHAT ARE THE MAIN RISKS OF INVESTING IN THIS FUND?
[LOGO]
As with most income mutual funds, the Bond Fund is subject to interest rate
risk and credit risk and you could lose money by investing in the fund. Other
factors also may affect the market price and yield of the Fund's securities,
including investor demand, the average maturity of the Bond Fund's
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portfolio securities, and domestic and worldwide economic conditions. To the
extent that the Fund invests in NON-INVESTMENT GRADE SECURITIES, the Fund is
also subject to above-average credit, market and other risks.
These risks, and the risks associated with other higher-risk securities and
practices that the Fund may utilize, are described in more detail later in this
prospectus.
AN INVESTMENT IN THIS FUND IS NOT A DEPOSIT IN ANY BANK OR OTHER INSURED
DEPOSITORY INSTITUTION AND IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
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INVESTOR PROFILE
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WHO SHOULD CONSIDER INVESTING IN THE STOCK AND BOND BALANCED FUND?
You May Want to Invest in This Fund If You:
- - are looking for a more conservative alternative to a growth-oriented fund
- - want a well-diversified and relatively stable investment allocation
- - need a core investment
- - seek total return over the long term irrespective of its form (i.e., capital
gains or ordinary income)
or
- - are retired or nearing retirement
You May Not Want to Invest in This Fund If You:
- - are investing for maximum return over a long time horizon
- - require a high degree of stability of your principal
STOCK AND BOND BALANCED FUND
INVESTMENT OBJECTIVE--The Stock and Bond Balanced Fund seeks long-term growth of
capital, balanced with current income.
INVESTMENT ADVISER--SFIM
INVESTMENT STRATEGIES
HOW DOES THIS FUND PURSUE ITS INVESTMENT OBJECTIVE?
The Stock and Bond Balanced Fund invests substantially all of its assets in
shares of the Large Cap Equity Index Fund and the Bond Fund.
RISKS
WHAT ARE THE MAIN RISKS OF INVESTING IN THIS FUND?
[LOGO]
As with any mutual fund that invests in stocks and bonds, the Fund is
subject to MARKET, INTEREST RATE and CREDIT RISKS and there is a risk that you
will lose money by investing in this Fund.
Because the Stock and Bond Balanced Fund invests substantially all its
assets in the Large Cap Equity Index Fund and the Bond Fund, the risks of
investing in the Stock and Bond Balanced Fund are the same as the risks of
investing in those underlying funds. Before you invest, please carefully read
the section entitled "How the Funds Invest-- Stock and Bond Balanced Fund" later
in this prospectus.
The Stock and Bond Balanced Fund is "non-diversified" because it invests
almost entirely in shares of Large Cap Equity Index Fund and Bond Fund. A
non-diversified mutual fund is generally more sensitive to changes in the value
of individual investments than a fund that invests in securities from a large
number of different issuers. However, both Large Cap Equity Index Fund and Bond
Fund are diversified.
AN INVESTMENT IN THIS FUND IS NOT A DEPOSIT OF ANY BANK OR OTHER INSURED
DEPOSITORY INSTITUTION AND IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
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ANNUAL INVESTMENT RETURNS
- --------------------------------------------------------------------------------
After the Funds achieve an investment return for a full year, the Funds will
provide performance information to investors to assist them in understanding
that the Funds' returns may vary and that there are possible risks associated
with investing in the Funds. However, past performance will not necessarily
indicate how the Funds will perform in the future.
HOW THE FUNDS INVEST
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Each Fund has its own investment objective. The following section describes
the principal investment policies and techniques that each Fund uses in pursuing
its investment objective. For more detailed information on the investment
policies and techniques of each Fund, please refer to the Statement of
Additional Information (SAI).
MONEY MARKET FUND
WHAT IS A NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATION (NRSRO)? An
NRSRO, such as Moody's or Standard & Poor's Corporation, assigns ratings to
securities based on its assessment of the creditworthiness of the issuers. The
SAI has a detailed description of the various rating categories.
WHAT TYPES OF SECURITIES DOES THE MONEY MARKET FUND INVEST IN? In selecting
securities for the Money Market Fund, SFIM seeks highly liquid investments that
present MINIMAL CREDIT RISK. The Money Market Fund primarily invests in high
quality short-term money market instruments. At least 95% of the Fund's assets
must be rated in the highest short-term category by at least two nationally
recognized statistical rating organizations ("NRSROs") (or one NRSRO, if only
one has issued a rating), and 100% of the Fund's assets must be invested in
securities rated in the two highest rating categories.
The Money Market Fund may invest in securities that are not rated by an
NRSRO if SFIM determines that such securities are of comparable quality to, and
present the same amount of risk as, similar securities that have received a
rating from an NRSRO.
Among the securities that the Money Market Fund may invest in are the
following:
- - Securities issued or guaranteed by the U.S. Government or its agencies,
including Treasury Bills, notes, and securities issued by U.S. government
agencies such as the Federal National Mortgage Association.
- - Commercial paper issued or guaranteed by U.S. corporations and certain other
entities that are rated in the two highest rating categories of a NRSRO.
- - Repurchase agreements with certain parties.
- - Certain obligations of large (more than $1 billion in total assets) U.S. banks
and their subsidiaries (including, certain Canadian affiliates), including,
but not limited to, bank notes, commercial paper, and certificates of deposit.
- - Other short-term obligations issued by or guaranteed by U.S. corporations,
state and municipal governments, or other entities.
The Money Market Fund may also:
- - Lend securities to financial institutions, enter into repurchase agreements
and purchase securities on a when-issued or forward commitment basis;
- - Invest in U.S. dollar-denominated foreign money market securities, although no
more than 25% of the Fund's assets may be invested in foreign money market
securities unless such securities are backed by a U.S. parent financial
institution; and
- - Invest in mortgage-backed and asset-backed securities, including those
representing pools of
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mortgage, commercial or consumer loans originated by credit unions.
Given the types of securities that the Money Market Fund invests in, the
level of risk associated with the Money Market Fund is lower than most other
types of mutual funds. However every investment involves some kind of risk. To
the extent that the Fund invests in certain securities (e.g., repurchase
agreements, when-issued securities or foreign money market securities), the Fund
may be affected by additional risks.
EQUITY INDEX FUNDS--
LARGE CAP EQUITY INDEX FUND
SMALL CAP EQUITY INDEX FUND
INTERNATIONAL EQUITY INDEX FUND
IN WHAT TYPES OF SECURITIES DO THE EQUITY INDEX FUNDS INVEST? The Large
Cap, Small Cap and International Equity Index Funds invest mostly in stocks,
although each may also invest in stock index futures contracts and options on
futures contracts. By investing in the broad range of stocks within its
benchmark index, each equity index Fund avoids the risks of individual stock
selection and, instead, tries to match the performance of its benchmark index,
whether that index goes up or down.
Each equity index Fund attempts to remain as fully invested as practicable
in the stocks that are represented in its benchmark index. Under normal
operating conditions, each equity index Fund seeks to invest at least 90% of its
total assets in stocks that are represented in its benchmark index.
Barclays does not manage the equity index Funds according to traditional
methods of "active" investment management, which involve the buying and selling
of securities based on economic, financial and market analysis and investment
judgment. Instead, Barclays utilizes a "passive" or indexing investment approach
for each equity index Fund, attempting to approximate the investment performance
of the appropriate benchmark index. Barclays selects stocks for an equity index
Fund's portfolio so that the overall investment characteristics of each Fund's
investment portfolio (based on market capitalization and industry weightings),
fundamental characteristics (such as return variability, earnings valuation and
yield) and liquidity measures are similar to those of the benchmark index.
WHAT OTHER TYPES OF INVESTMENTS DO THE EQUITY INDEX FUNDS MAKE?
- - An equity index Fund may invest any assets not invested in stocks that are
represented in its benchmark index in:
- - the same type of short-term high quality debt securities in which the Money
Market Fund invests (described above);
- - other equity securities that are similar to the stocks making up its benchmark
index or that are awaiting disposition after a change in composition of the
benchmark index or a rebalancing of the portfolio;
- - stock index futures contracts, options on such futures contracts; and/or
- - cash.
An equity index Fund may invest in such financial instruments to find a
short-term investment for uninvested cash balances or to provide liquid assets
for anticipated redemptions by shareholders.
The International Equity Index Fund may also buy and sell foreign currencies
(either for current or future delivery) 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 to avoid the
effects of anticipated adverse changes in exchange rates between foreign
currencies and the U.S. dollar.
DO THE EQUITY INDEX FUNDS HOLD EVERY STOCK IN THEIR INDICES?
- - The Large Cap Equity Index Fund invests in the securities that make up the S&P
500.
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- - The Small Cap and International Equity Index Funds generally do not hold all
of the issues that comprise their respective benchmark indices, due in part to
the costs involved and, in certain instances, the potential illiquidity of
certain securities. Instead, both the Small Cap Equity Index Fund and the
International Equity Index Fund attempt to hold a representative sample of the
securities in the appropriate benchmark index, which will be selected by
Barclays utilizing certain sampling and modeling techniques. Please refer to
the SAI for a more detailed discussion of the techniques that Barclays employs
in selecting the portfolio securities of the Small Cap Equity Index Fund and
International Equity Index Fund.
- - From time to time, the portfolio composition of the equity index Funds may be
altered (or "rebalanced") to reflect changes in the characteristics of its
benchmark index or, for the Small Cap Equity Index Fund and International
Equity Index Fund, with a view to bringing the performance and characteristics
of each Fund more closely in line with that of its benchmark index.
WILL THE PERFORMANCE OF THE EQUITY INDEX FUNDS ALWAYS EQUAL THE PERFORMANCE
OF THEIR BENCHMARK INDEX? No. Barclays attempts to track the performance of
each index Fund's benchmark index, but there is no assurance that Barclays will
be successful. The degree to which an equity index Fund fails to track the
performance of its benchmark index is referred to as the "tracking error."
Barclays expects that, over time, the tracking error of an equity index Fund
will be less than 5%. Barclays monitors the tracking error of each equity index
Fund on an ongoing basis and seeks 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. For an explanation of "expected tracking
error" and more information on this subject, see the SAI.
Another reason why the performance of the equity index Funds may not always
equal the performance of their benchmark index is because the performance of the
benchmark indices does not take into account management fees or the other
expenses that the Funds incur.
WHAT ARE THE RISKS OF INVESTING IN SECURITIES OF SMALL CAPITALIZATION
ISSUERS? The Small Cap Equity Index Fund and International Equity Index Fund
invest in securities issued by small capitalization companies. Investing in
smaller companies involves a higher level of risk than investing in larger, more
established companies. Small capitalization companies often do not have the
financial strength needed to do well in difficult economic times. Also, they
often sell limited numbers of products, which can make it harder for them to
compete with larger companies. As a result, their stock prices may fluctuate
more over the short-term, but they have more potential to grow. Thus, the common
stock of certain small capitalization companies may offer greater potential for
appreciation when compared to larger, more established companies.
WHAT ARE THE RISKS OF INVESTING IN FOREIGN SECURITIES?
The International Equity Index Fund may invest all its assets in foreign
securities and the Large Cap Equity Index Fund may invest in some foreign
securities. 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 in securities denominated or quoted in
foreign currency ("non-dollar securities") typically involves the following
risks:
- - fluctuations in currency exchange rates;
- - higher trading and custody charges compared to securities of U.S. companies;
- - different accounting and reporting practices than U.S. companies, or laws
permitting issuers to limit the information they give investors, often making
it more difficult to evaluate financial information from foreign issuers;
- - less stringent securities regulation;
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- - potential political or economic instability; and
- - less established securities markets, which may not have developed the sort of
institutional controls that are present in domestic markets.
WHEN AND WHY ARE FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
USED? Each 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 for speculation.
BOND FUND
WHAT TYPES OF SECURITIES DOES THE BOND FUND INVEST IN? The Bond Fund
invests primarily in bonds rated A or better by Standard & Poor's Corporation or
Moody's and in the same types of U.S. Government securities as the Money Market
Fund. Under normal circumstances, at least 65% of the Fund's total assets will
be invested in bonds that are rated A or better or unrated debt securities that
SFIM determines to be of equivalent quality.
In selecting bonds for the Bond Fund, SFIM seeks to maximize current income
while minimizing risk and volatility through prudent investment management.
Accordingly, the Bond Fund seeks to limit its exposure to very risky or
speculative investments by investing primarily in investment grade bonds that
offer the potential for attractive returns.
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.
The Bond Fund may also invest up to 35% of its assets in the following
securities:
- - Debt securities rated lower than A by Standard & Poor's or Moody's or
comparable unrated debt securities. Bonds that are rated lower than BBB by
Standard & Poor's or Baa by Moody's are often referred to as "junk bonds."
Junk bonds 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.
- - Convertible debt securities, convertible preferred stocks and nonconvertible
preferred stocks rated within the three highest grades of Standard & Poor's or
Moody's applicable to such securities. To the extent that the 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.
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. During any such period, the Bond Fund would not be invested in a way
designed to meet its objective.
STOCK AND BOND BALANCED FUND
HOW DOES THE STOCK AND BOND BALANCED FUND INVEST ITS ASSETS? The Stock and
Bond Balanced Fund invests in shares of the Large Cap Equity Index Fund and the
Bond Fund. Generally, the Stock and Bond Balanced Fund attempts to maintain
approximately 60% of its net assets in shares of the Large Cap Equity Index Fund
and approximately 40%
- -------
14
<PAGE>
of its net assets in shares of the Bond Fund. The Stock and Bond Balanced Fund
never invests 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
mutual fund, it does, from time to time, adjust the amount of its assets
invested in each underlying Fund as economic, market and financial conditions
warrant. Please refer to the descriptions of the investments of the Large Cap
Equity Index Fund and the Bond Fund, above, for a discussion of the portfolio
securities of these Funds and the risks associated with each. Please refer to
MANAGING THE INVESTMENTS OF THE FUNDS--COMPENSATING SFIM FOR ITS SERVICES for
more information on the fees SFIM will receive for managing these underlying
Funds.
WHAT OTHER TYPES OF SECURITIES DOES THE STOCK AND BOND BALANCED FUND INVEST
IN? 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
or another investment company to provide flexibility in meeting redemptions,
expenses, and the timing of new investments, and serve 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.
During periods when the Stock and Bond Balanced Fund has taken a temporary
defensive position, the Fund will not be invested in accordance with its
objective.
THE FUNDS AND BORROWING
From time to time, each Fund may borrow money 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 (for example, to facilitate distributions to
shareholders or to meet redemption requests).
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15
<PAGE>
MANAGING THE INVESTMENTS OF THE FUNDS
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
State Farm Investment Management Corp. serves as the investment adviser to
each Fund. Subject to the supervision of the Board of Trustees of the Trust,
SFIM is responsible for overseeing the day to day operations and business
affairs of the Trust. SFIM's principal office is located at One State Farm
Plaza, Bloomington, Illinois 61710-0001. SFIM is wholly-owned by State Farm
Mutual Automobile Insurance Company.
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.
EXPENSES OF THE FUNDS
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 above.
COMPENSATING SFIM FOR ITS SERVICES
The Trust pays SFIM an investment advisory fee based upon average daily net
assets. The fee is accrued daily and paid to SFIM quarterly at the following
annual rates for each of the Funds:
<TABLE>
<CAPTION>
RATE OF
FUND ADVISORY FEE
- ---------------------------- ------------------------
<S> <C>
Money Market Fund .40% of average daily
net assets
Large Cap Equity Index Fund .26% of average daily
net assets
Small Cap Equity Index Fund .40% of average daily
net assets
International Equity Index .55% of average daily
Fund net assets
Bond Fund .50% of average daily
net assets
Stock and Bond Balanced None
Fund(4)
</TABLE>
- ------------------------------
(4) 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
reimburse the Stock and Bond Balanced Fund for any other expenses incurred.
(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.
For each of the Funds other than the Stock and Bond Balanced Fund and the
International Equity Index Fund, SFIM has agreed to reimburse the Fund for any
expenses incurred by the Fund, other than the investment advisory fee, that
exceed .10% of such Fund's average daily net assets. For the International
Equity Index Fund, SFIM has agreed to reimburse the Fund for any 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.
The Bond and the Stock and Bond Balanced Funds are each managed by a team of
SFIM employees (each, an "Advisory Team"). The investment decisions for both the
Bond Fund and the Stock and Bond Balanced Fund are made, subject to the
oversight of the Board of Trustees of the Trust, by the Advisory Team for each
Fund.
INVESTMENT SUB-ADVISER
SFIM has engaged Barclays as the investment sub-adviser to provide
day-to-day portfolio
- -------
16
<PAGE>
management for the Large Cap, Small Cap, and International Equity Index Funds.
Barclays and its predecessors have been managing index mutual funds since 1976.
Barclays is an indirect subsidiary of Barclays Bank PLC and is located at 45
Fremont Street, San Francisco, California 94105. As of November 30, 1998,
Barclays and its affiliates provided investment advisory services for over $569
billion of assets. For more information regarding Barclays, including a
discussion regarding the compensation that Barclays receives from SFIM, please
read the section entitled "INVESTMENT ADVISORY AGREEMENTS--BETWEEN SFIM AND
BGFA" in the SAI.
CALCULATING NET ASSET VALUE
The offering price of the shares of each Fund is its Net Asset Value (NAV).
NAV is calculated by adding all of the assets of a Fund, subtracting the Fund's
liabilities, then dividing by the number of outstanding shares. A separate NAV
is calculated for each Fund.
The NAV for 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 for business.
Shares will not be priced on days when the NYSE is closed.
As a general rule, the portfolio securities of each Fund that are traded on
a national exchange are valued at their last sale price on that exchange prior
to the time when the NAV is calculated. 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 or in the case of debt securities, such securities are valued
at the last reported bid price.
If the market quotations described above are not available, portfolio
securities, other than short-term debt securities, may be valued at fair value
as determined in good faith by or under the direction of the Board of Trustees
of the Trust. The effect of this will be that NAV will not be based on the last
quoted price on the security, but on a price which the Board of Trustees or its
delegate believes reflects the current and true price of the security.
Debt instruments held with a remaining maturity of 60 days or less (other
than U.S. Treasury bills) and all of the assets of the Money Market Fund 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.
The foreign securities held by the Large Cap Equity Index Fund and
International Equity Index Fund are traded on securities exchanges throughout
the world. Trading on these foreign securities exchanges is completed at various
times throughout the day and often does not coincide with the close of trading
on the New York Stock Exchange. The value of the foreign securities used in
computing the NAV for a Fund holding such securities is determined as of the
earlier of the time the exchange on which the securities are traded closes or as
of the close of trading on the New York Stock Exchange. As a result, it is
possible that events affecting the value of such securities may occur that are
not reflected in the computation of the Fund's NAV. When events occur that
materially affect the value of foreign securities held by a Fund, the securities
may be valued at their fair value as determined in good faith by or under the
direction of the Board of Trustees of the Trust.
Foreign securities exchanges may also be open on days when the Funds do not
compute their NAV. Accordingly, there may be occasions when the Large
-------
17
<PAGE>
Cap or International Equity Index Fund does not calculate its NAV but when the
value of such Fund's portfolio securities is affected by such trading activity.
TAXES
For federal income tax purposes, each Fund will be treated as a separate
entity. Each Fund intends to qualify each year as a "regulated investment
company" under the Internal Revenue Code. By so qualifying, a Fund will not be
subject to federal income taxes to the extent that its net investment income and
net realized capital gains are distributed to the shareholders. Further, each
Fund intends to meet certain diversification requirements applicable to mutual
funds underlying variable insurance products.
The shareholders of the Funds are the separate accounts of participating
insurance companies. Under current law, owners of variable life insurance and
annuity contracts which have invested in a Fund are not subject to federal
income tax on Fund distributions or on gains realized upon the sale or
redemption of Fund shares until they are withdrawn from the contracts. For
information concerning the federal tax consequences to the purchasers of the
variable annuity contracts and variable life insurance policies, see the
accompanying prospectus for such contract or policy.
For more information about the tax status of the Funds, see "Taxes" in the
SAI.
YEAR 2000
Many services provided to the Funds and their shareholders depend on the
smooth functioning of computer systems. Many computer software systems in use
today cannot distinguish the year 2000 from the year 1900 because of the way
dates are encoded and calculated. This problem is referred to as the "Year 2000
Problem." The Year 2000 Problem could have a negative impact on handling
securities trades, payment of interest and dividends, pricing, and account
services. The Funds could be adversely affected if the computer systems used by
SFIM and Barclays and the Funds' other service providers, including any foreign
service provider, do not properly process and calculate date-related information
and data from and after January 1, 2000. It is generally believed that the
preparations of companies in certain foreign countries may generally not be at
the same level as that of companies located in the U.S. Both SFIM and Barclays
are taking steps to address the Year 2000 Problem with respect to the computer
systems that it uses and to obtain assurances that comparable steps are being
taken by any other service providers. At this time, however, there can be no
assurance that these steps will be sufficient to avoid any adverse impact on the
Funds and their shareholders. In addition, Year 2000 issues may affect the
business results and prospects of domestic and foreign issuers of stocks and
bonds held by the Funds, or the ability of domestic and foreign issuers of bonds
held by the Funds to meet their interest and principal payment obligations to
their bond holders. Although SFIM and Barclays consider the status of issuer's
preparations for the Year 2000, it has not had a material effect on the decision
to buy or sell securities thus far.
- -------
18
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the
financial performance of each Fund. 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 has
been audited by Ernst & Young LLP, whose report, along with each Fund's
financial statements, is included in the SAI.
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
STATE FARM VARIABLE PRODUCT TRUST LARGE CAP EQUITY INDEX FUND
<TABLE>
<CAPTION>
1998
---------
<S> <C>
Net asset value, beginning of period (inception date of 1/22/98) $ 10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income .12
Net gain on investments
(both realized and unrealized) 2.80
---------
Total from investment operations 2.92
LESS DISTRIBUTIONS
Net investment income (.12)
---------
Total distributions (.12)
Net asset value, end of period $ 12.80
---------
---------
TOTAL RETURN (NOT ANNUALIZED) 29.26%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions) $ 53.3
Ratio of expenses to average net assets 0.32%(a)
Ratio of net investment income to average net assets 1.55%(a)
Portfolio turnover rate 7%
</TABLE>
(a) Determined on an annualized basis.
-------
19
<PAGE>
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
STATE FARM VARIABLE PRODUCT TRUST SMALL CAP EQUITY INDEX FUND
<TABLE>
<CAPTION>
1998
---------
<S> <C>
Net asset value, beginning of period (inception date of 1/29/98) $ 10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income .27
Net gain on investments (both realized and unrealized) (.46)
---------
Total from investment operations (.19)
LESS DISTRIBUTIONS
Net investment income (.09)
Realized gain (.18)
---------
Total distributions (.27)
Net asset value, end of period $ 9.54
---------
---------
TOTAL RETURN (NOT ANNUALIZED) (1.89)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions) $ 41.6
Ratio of expenses to average net assets 0.50%(a)
Ratio of expenses to average net assets, absent of expense limitation 0.55%(a)
Ratio of net investment income to average net assets 1.11%(a)
Portfolio turnover rate 38%
</TABLE>
(a) Determined on an annualized basis.
- -------
20
<PAGE>
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
STATE FARM VARIABLE PRODUCT TRUST INTERNATIONAL EQUITY INDEX FUND
<TABLE>
<CAPTION>
1998
---------
<S> <C>
Net asset value, beginning of period (inception date of 1/22/98) $ 10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income .13
Net gain on investments (both realized and unrealized) 1.65
---------
Total from investment operations 1.78
LESS DISTRIBUTIONS
Net investment income (.15)
---------
Total distributions (.15)
Net asset value, end of period $ 11.63
---------
---------
TOTAL RETURN (NOT ANNUALIZED) 17.90%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions) $ 76.7
Ratio of expenses to average net assets 0.75%(a)
Ratio of expenses to average net assets, absent of expense limitation 0.93%(a)
Ratio of net investment income to average net assets 1.27%(a)
Portfolio turnover rate 6%
</TABLE>
(a) Determined on an annualized basis.
-------
21
<PAGE>
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
STATE FARM VARIABLE PRODUCT TRUST STOCK AND BOND BALANCED FUND
<TABLE>
<CAPTION>
1998
---------
<S> <C>
Net asset value, beginning of period (inception date of 1/29/98) $ 10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income .14
Net gain on investments (both realized and unrealized) 1.32
---------
Total from investment operations 1.46
LESS DISTRIBUTIONS
Net investment income (.05)
---------
Total distributions (.05)
Net asset value, end of period $ 11.41
---------
---------
TOTAL RETURN (NOT ANNUALIZED) 14.66%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions) $ 5.6
Ratio of expenses to average net assets 0%(a)
Ratio of expenses to average net assets, absent of expense limitation 1.01%(a)
Ratio of net investment income to average net assets 3.43%(a)
Portfolio turnover rate 18%
</TABLE>
(a) Determined on an annualized basis.
- -------
22
<PAGE>
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
STATE FARM VARIABLE PRODUCT TRUST BOND FUND
<TABLE>
<CAPTION>
1998
---------
<S> <C>
Net asset value, beginning of period (inception date of 1/22/98) $ 10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income .49
Net gain on investments (both realized and unrealized) .15
---------
Total from investment operations .64
LESS DISTRIBUTIONS
Net investment income (.49)
---------
Total distributions (.49)
Net asset value, end of period $ 10.15
---------
---------
TOTAL RETURN (NOT ANNUALIZED) 6.49%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions) $ 24.7
Ratio of expenses to average net assets 0.57%(a)
Ratio of net investment income to average net assets 5.14%(a)
Portfolio turnover rate 26%
</TABLE>
(a) Determined on an annualized basis.
-------
23
<PAGE>
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
STATE FARM VARIABLE PRODUCT TRUST MONEY MARKET FUND
<TABLE>
<CAPTION>
1998
---------
<S> <C>
Net asset value, beginning of period (inception date of 1/29/98) $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income .05
---
Total from investment operations .05
LESS DISTRIBUTIONS
Net investment income (.05)
---
Total distributions (.05)
Net asset value, end of period $ 1.00
---
---
TOTAL RETURN (NOT ANNUALIZED) 4.76%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions) $ 18.7
Ratio of expenses to average net assets 0.43%(a)
Ratio of expenses to average net assets, absent of expense limitation 0.52%(a)
Ratio of net investment income to average net assets 5.04%(a)
</TABLE>
(a) Determined on an annualized basis.
- -------
24
<PAGE>
ADDITIONAL INFORMATION ABOUT THE FUNDS
- --------------------------------------------------------------------------------
For investors who would like more information about the Funds and the Trust,
the following documents are available free upon request.
STATEMENT OF ADDITIONAL INFORMATION (SAI). The SAI contains additional
information about all aspects of the Funds. A current SAI has been filed with
the Securities and Exchange Commission and is incorporated herein by reference.
ANNUAL AND SEMI-ANNUAL REPORTS. The Funds' annual and semi-annual reports
provide additional information about the Funds' investments. The annual report
contains a discussion of the market conditions and investment strategies that
significantly affected each Fund's performance during the last fiscal year.
TO OBTAIN THE SAI OR THE MOST RECENT ANNUAL OR SEMI-ANNUAL REPORT
FOR THE FUNDS, WITHOUT CHARGE, YOU MAY WRITE TO STATE FARM
INVESTMENT MANAGEMENT CORP. AT ONE STATE FARM PLAZA, BLOOMINGTON,
IL 61710-0001 OR CALL US AT (309) 766-2029.
PUBLIC INFORMATION. You can review and copy information about the Trust and
each Fund, including the SAI, at the Securities and Exchange Commission's Public
Reference Room in Washington D.C. You may obtain information on the operation of
the public reference room by calling the Commission at 1-800-SEC-0330. Reports
and other information about the Trust and the Funds also are available on the
Commission's Internet site at http://www.sec.gov. You may obtain copies of this
information, upon payment of a duplicating fee, by writing the Public Reference
Section of the Securities and Exchange Commission, Washington, D.C. 20549-6009.
811-08073
-------
25
<PAGE>
STATE FARM VARIABLE PRODUCT TRUST
One State Farm Plaza
Bloomington, Illinois 61710-0001
(309) 766-2029
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1999
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.
MONEY MARKET FUND
LARGE CAP EQUITY INDEX FUND
SMALL CAP EQUITY INDEX FUND
INTERNATIONAL EQUITY INDEX FUND
BOND FUND
STOCK AND BOND BALANCED FUND
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ABOUT THE TRUST. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
ABOUT THE INVESTMENTS OF THE FUNDS . . . . . . . . . . . . . . . . . . . .1
INVESTMENT OBJECTIVES . . . . . . . . . . . . . . . . . . . . . . . .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 . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
U.S. Government Securities . . . . . . . . . . . . . . . . . . .4
Foreign Investments. . . . . . . . . . . . . . . . . . . . . . .4
Financial Futures Contracts. . . . . . . . . . . . . . . . . . .6
Options On Stock Index Futures Contracts . . . . . . . . . . . .7
Certain Additional Risks Of Futures Contracts and Options
On Futures Contracts . . . . . . . . . . . . . . . . . . . . . .7
INVESTMENT RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . .9
FUNDAMENTAL RESTRICTIONS . . . . . . . . . . . . . . . . . . . .9
NON-FUNDAMENTAL RESTRICTIONS . . . . . . . . . . . . . . . . . 10
INDUSTRY CONCENTRATIONS. . . . . . . . . . . . . . . . . . . . 11
SELECTION OF INVESTMENTS FOR THE EQUITY INDEX FUNDS . . . . . . . . 12
TRACKING ERROR. . . . . . . . . . . . . . . . . . . . . . . . . . . 13
RELATIONSHIP WITH THE INDEX PROVIDERS . . . . . . . . . . . . . . . 13
MANAGEMENT OF THE TRUST. . . . . . . . . . . . . . . . . . . . . . . . . 15
BOARD OF TRUSTEES . . . . . . . . . . . . . . . . . . . . . . . . . 15
TRUSTEES AND OFFICERS . . . . . . . . . . . . . . . . . . . . . . . 16
INVESTMENT ADVISORY AGREEMENTS. . . . . . . . . . . . . . . . . . . 21
Between The Trust And SFIM . . . . . . . . . . . . . . . . . . 21
Between SFIM And BGFA. . . . . . . . . . . . . . . . . . . . . 24
SECURITIES ACTIVITIES OF THE INVESTMENT ADVISERS. . . . . . . . . . 25
PORTFOLIO TRANSACTIONS AND BROKERAGE . . . . . . . . . . . . . . . . . . 26
PORTFOLIO TURNOVER. . . . . . . . . . . . . . . . . . . . . . . . . 27
DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . . . . . . 27
PERFORMANCE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . 29
TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
General Tax Information . . . . . . . . . . . . . . . . . . . . . . 32
Taxation of Foreign Investments . . . . . . . . . . . . . . . . . . 33
Additional Tax Considerations . . . . . . . . . . . . . . . . . . . 33
OFFERING AND PURCHASE OF SHARES. . . . . . . . . . . . . . . . . . . . . 34
REDEMPTION OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . 35
DIVIDENDS AND DISTRIBUTIONS. . . . . . . . . . . . . . . . . . . . . . . 35
ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . 35
SERVICE PROVIDERS . . . . . . . . . . . . . . . . . . . . . . . . . 35
Principal Underwriter. . . . . . . . . . . . . . . . . . . . . 35
Custodians . . . . . . . . . . . . . . . . . . . . . . . . . . 36
-i-
<PAGE>
CODE OF ETHICS. . . . . . . . . . . . . . . . . . . . . . . . . . . 36
INDEPENDENT AUDITORS. . . . . . . . . . . . . . . . . . . . . . . . 37
SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
VOTING RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . 38
AUDITED FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . 38
</TABLE>
APPENDIX A -- Description of Money Market Securities
APPENDIX B -- Ratings
-ii-
<PAGE>
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. With the exception of the Stock and Bond Balanced Fund, each Fund
is "diversified" as that term is defined in the Investment Company Act of 1940,
as amended (the "Act"); the Stock and Bond Balanced Fund is non-diversified.
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.
ABOUT THE INVESTMENTS OF THE FUNDS
INVESTMENT OBJECTIVES
The investment objective of each Fund is set forth and described in the
prospectus. The investment objective of each Fund may only be changed with the
approval of the holders of a majority of the outstanding voting shares of the
Fund affected by the proposed change.
INVESTMENT TECHNIQUES
In addition to the investment objective of each Fund, the policies and certain
techniques by which the Funds 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
The Money Market Fund invests only 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 are, at the time of acquisition, either:
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, determined by SFIM, 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 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
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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." A description of the
ratings used by NRSROs 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.
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 11. Such loans will be secured by collateral
in the form of cash or United States Treasury securities, or other liquid
securities as
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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. See GENERAL TAX INFORMATION. Each Fund intends to lend portfolio
securities only to the extent that this activity does not jeopardize its status
as a regulated investment company under the Internal Revenue Code of 1986.
The primary risk involved in lending securities is that the borrower will fail
financially and return the loaned securities at a time when the collateral is
insufficient to replace the full amount of the loan. The borrower would be
liable for the shortage, but the Fund making the loan would be an unsecured
creditor with respect to such shortage and might not be able to recover all or
any of it. In order to minimize this risk, each Fund will make loans of
securities only to firms SFIM or, when appropriate, BGFA (under the supervision
of the Board of Trustees) deems creditworthy.
CONVERTIBLE SECURITIES
The Bond Fund may invest up to 20% of its total assets in convertible
securities. Convertible securities may include corporate notes or preferred
stock but are ordinarily a long-term debt obligation of the issuer convertible
at a stated exchange rate into common stock of the issuer. As with all debt
securities, the market value of convertible securities tends to decline as
interest rates increase and, conversely, to increase as interest rates decline.
Convertible securities generally offer lower interest or dividend yields than
non-convertible securities of similar quality. However, when the market price
of the common stock underlying a convertible security exceeds the conversion
price, the price of the convertible security tends to reflect the value of the
underlying common stock. As the market price of the underlying common stock
declines, the convertible security tends to trade increasingly on a yield basis,
and thus may not depreciate to the same extent as the underlying common stock.
Convertible securities generally rank senior to common stocks in an issuer's
capital structure and are consequently of higher quality and entail less risk of
declines in market value than the issuer's common stock. However, the extent to
which such risk is reduced depends in large measure upon the degree to which the
convertible security sells above its value as a fixed-income security. In
evaluating a convertible security,
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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 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
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")
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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 and International Equity Index Funds may invest in
non-dollar denominated securities and the securities of foreign issuers
(collectively, "foreign investments"). Transactions involving investments in
foreign issuers may involve the use of 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.
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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 Russell 2000 Stock 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 futures
commission merchant ("FCM"), or with its custodian in a segregated account in
the name of the 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 margin for
futures contracts does 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
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positions by entering into an offsetting transaction which operates to cancel
the position held, and which usually results in a profit or loss.
OPTIONS ON STOCK INDEX FUTURES CONTRACTS
The equity index Funds and, indirectly, the Stock and Bond Balanced Fund may
also purchase call and put options and write covered call and put options on
stock index futures contracts of the type which the particular Fund is
authorized to enter into. Covered put and call options on futures contracts
will be covered in the same manner as covered options on securities and
securities indices. The Funds may invest in such options for the purpose of
closing out a futures position that has become illiquid.
Options on futures contracts are traded on exchanges that are licensed and
regulated by the CFTC. A call option on a futures contract gives the purchaser
the right in return for the premium paid, to purchase a futures contract (assume
a "long" position) at a specified exercise price at any time before the option
expires. A put option gives the purchaser the right, in return for the premium
paid, to sell a futures contract (assume a "short" position), for a specified
exercise price, at any time before the option expires.
Unlike entering into a futures contract itself, purchasing options on futures
contracts allows a buyer to decline to exercise the option, thereby avoiding any
loss beyond forgoing the purchase price (or "premium") paid for the options.
Whether, in order to achieve a particular objective, the Fund enters into a
stock index futures contract, on the one hand, or an option contract on a stock
index futures contract, on the other, will depend on all the circumstances,
including the relative costs, liquidity, availability and capital requirements
of such futures and options contracts. Each Fund will consider the relative
risks involved, which may be quite different. These factors, among others, will
be considered in light of market conditions and the particular objective to be
achieved.
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
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movements in the related portfolio securities owned or intended to be acquired
by a Fund, it may, in order to compensate for this difference, use an amount of
futures contracts which is greater than the amount of such portfolio securities.
Similarly, where the price movement of a futures contract is anticipated to be
more volatile, a Fund may use an amount of such contracts which is smaller than
the amount of portfolio securities to which such contracts relate.
The risk that the hedging technique used will not actually or entirely offset an
adverse change in the value of a Fund's securities is particularly relevant to
futures contracts. A Fund, in entering into a futures purchase contract,
potentially could lose any or all of the contract's settlement price. In
addition, because stock index futures contracts require delivery at a future
date of an amount of cash equal to a multiple of the difference between the
value of a specified stock index on that date and the settlement price, an
algebraic relationship exists between any price movement in the underlying index
and the potential cost of settlement to a Fund. A small increase or decrease in
the value of the underlying index can, therefore, result in a much greater
increase or decrease in the cost to the Fund. Although the Funds intend to
establish positions in these instruments only when there appears to be an active
market, there is no assurance that a liquid market for such instruments will
exist when they seek to "close out" (I.E., terminate) a particular stock index
futures contract position. Trading in such instruments could be interrupted,
for example, because of a lack of either buyers or sellers. In addition, the
futures exchanges may suspend trading after the price of such instruments has
risen or fallen more than the maximum amount specified by the 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.
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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.(1)
2a. INDUSTRY CONCENTRATION -- BOND FUND. The Bond Fund will not invest more
than 25% of its total assets (taken at market value at the time of each
investment) in the securities of issuers primarily engaged in the same
industry (excluding the U.S. Government or any of its agencies or
instrumentalities).
2b. INDUSTRY CONCENTRATION -- MONEY MARKET FUND. The Money Market Fund will
not invest more than 25% of its assets (taken at market value at the time
of each investment) other than U.S. Government securities, obligations
(other than commercial paper) issued or guaranteed by U.S. banks and U.S.
branches of foreign banks, and repurchase agreements and securities loans
collateralized by U.S. Government securities or such bank obligations, in
the securities of issuers primarily engaged in the same industry.
2c. INDUSTRY CONCENTRATION -- EQUITY INDEX FUNDS. The Large Cap, Small Cap,
and International Equity Index Funds will concentrate their investments in
an industry or industries if, and to the extent that, their benchmark
indices 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
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(1) The Funds also intend to comply with the diversification requirements of
Section 817(h) of the Internal Revenue Code. See "Taxes--General Tax
Information."
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33 1/3% of its total assets (including the amount borrowed), taken at
market value at the time of the borrowing; (b) a Fund may, to the extent
permitted by applicable law, borrow up to an additional 5% of its total
assets (including the amount borrowed), taken at market value at the time
of the borrowing, for temporary purposes; and (c) a Fund may obtain such
short-term credits as may be necessary for clearance of purchases and sales
of portfolio securities.
6. LENDING. No Fund will lend any security or make any other loan, except
through: (a) the purchase of debt obligations in accordance with the
Fund's investment objective or objectives and policies; (b) repurchase
agreements with banks, brokers, dealers, and other financial institutions;
and (c) loans of securities as permitted by applicable law.
7. COMMODITIES. No Fund will purchase or sell commodities or commodity
contracts, except that a Fund may invest in currency and financial
instruments and contracts that are commodities or commodities contracts.
8. SENIOR SECURITIES. No Fund will issue senior securities to the extent such
issuance would violate applicable law.
9. INVESTMENTS -- STOCK AND BOND BALANCED FUND. The Stock and Bond Balanced
Fund will not invest in securities other than securities of other
registered investment companies or registered unit investment trusts that
are part of the State Farm group of investment companies (as defined in the
Act), U.S. Government securities, or short-term paper.
For the purposes of the restrictions relating to industry concentration, state
and municipal governments and their agencies, authorities, and instrumentalities
are not deemed to be industries; utilities will be divided according to their
services (for example, gas, gas transmission, electric and telephone each will
be considered a separate industry); personal credit finance companies and
business credit finance companies are deemed to be separate industries; and
wholly-owned finance companies are considered to be in the industry of their
parents if their activities are primarily related to financing the activities of
their parents.
NON-FUNDAMENTAL RESTRICTIONS
The Trust has also adopted the following additional investment restrictions
applicable (except as noted) to all Funds. These are not fundamental and may be
changed by the Board of Trustees without shareholder approval.
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.
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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.
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
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<PAGE>
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.
SELECTION OF INVESTMENTS FOR THE EQUITY INDEX FUNDS
The manner in which stocks are chosen for each of the equity index Funds differs
from the way securities are chosen in most other mutual funds. Unlike other
mutual funds where the portfolio securities are chosen by an investment adviser
based upon the adviser's research and evaluations, 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. As briefly discussed in the prospectus, the Large
Cap Equity Index Fund generally holds every stock in the S&P 500. However, each
of the Small Cap and International Equity Index Funds generally does 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 attempts to hold a
representative sample of the securities in its benchmark index, which are
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 holds securities 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 seeks 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 each equity index fund may be altered
(or "rebalanced") to reflect changes in the characteristics of its benchmark
index or, for the Small Cap Equity Index Fund and the International Equity Index
Fund, 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.
-12-
<PAGE>
TRACKING ERROR
SFIM and BGFA use the "expected tracking error" of an equity index Fund as a way
to measure the Funds' performance relative to the performance of its benchmark
index. An expected tracking error of 5% means that there is a 68% probability
that the net asset value of the equity index Fund will be between 95% and 105%
of the subject index level after one year, without rebalancing the portfolio
composition. A tracking error of 0% would indicate perfect tracking, which
would be achieved when the net asset value of the equity index Fund increases or
decreases in exact proportion to changes in its benchmark index. Factors such
as expenses of the Fund, taxes, the need to comply with the diversification and
other requirements of the Code and other requirements may adversely impact the
tracking of the performance of an equity index Fund to that of its benchmark
index. In the event that tracking error exceeds 5%, the Board of Trustees of
the Trust will consider what action might be appropriate to reduce the tracking
error.
RELATIONSHIP WITH THE INDEX PROVIDERS
STANDARD & POOR'S
The Large Cap Equity Index Fund seeks to match the performance of the Standard &
Poor's Composite Index of 500 Stocks ("S&P 500"). "Standard & Poor's," "S&P,"
"S&P 500" and "Standard and Poor's 500" are trademarks of The McGraw-Hill
Companies, Inc. and have been licensed for use by the Trust. The Fund is not
sponsored, endorsed sold or promoted by Standard & Poor's, a division of the
McGraw-Hill Companies, Inc. ("S&P").
S&P makes no representation or warranty, express or implied, to the owners of
the Fund or any member of the public regarding the advisability of investing in
securities generally or in the Fund 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 Fund. S&P has no obligation to take the needs of the Trust
or the owners of the Fund 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 Fund or the
timing of the issuance or sale of the Fund or in the determination or
calculation of the equation by which the Fund is to be converted into cash. S&P
has no obligation or liability in connection with the administration, marketing
or trading of the Fund.
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 FUND, 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
-13-
<PAGE>
HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT OR CONSEQUENTIAL DAMAGES
(INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
RUSSELL 2000
The Small Cap Equity Index Fund seeks to match the performance of the Russell
2000 Small Stock Index (the "Russell 2000"). The Russell 2000 tracks the common
stock performance of the 2000 smallest U.S. companies in the Russell 3000 Index,
representing about 10% in the aggregate of the capitalization of the Russell
3000 Index. The Russell 2000 and the Russell 3000 are trademarks/service marks,
and "Russell" is a trademark, of the Frank Russell Company. The Fund is not
promoted, sponsored or endorsed by, nor in any way affiliated with the Frank
Russell Company. The Frank Russell Company is not responsible for and has not
reviewed the Fund nor any associated literature or publications and 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 the Russell 2000. 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 Russell 2000.
Frank Russell Company's publication of the Russell 2000 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 is
based. FRANK RUSSELL COMPANY MAKES NO REPRESENTATION, WARRANTY, OR GUARANTEE AS
TO THE ACCURACY, COMPLETENESS, RELIABILITY, OR OTHERWISE OF THE RUSSELL 2000 OR
ANY DATA INCLUDED IN THE RUSSELL 2000. FRANK RUSSELL COMPANY MAKES NO
REPRESENTATION OR WARRANTY REGARDING THE USE, OR THE RESULTS OF USE, OF THE
RUSSELL 2000 OR ANY DATA INCLUDED THEREIN, OR ANY SECURITY (OR COMBINATION
THEREOF) COMPRISING THE RUSSELL 2000. 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 RUSSELL 2000 OR ANY DATA OR
ANY SECURITY (OR COMBINATION THEREOF) INCLUDED THEREIN.
EAFE INDEX
The International Equity Index Fund seeks to match the performance of the Morgan
Stanley Capital International Europe, Australia, and Far East Free Index ("EAFE
Free"). EAFE Free is the 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 Fund is not sponsored,
endorsed, sold or promoted by Morgan Stanley. Morgan Stanley makes no
representation or warranty, express or implied, to the owners of shares of the
Fund or any member of the public regarding the advisability of investing in
securities generally or in the shares of the Fund particularly or the ability of
EAFE Free to track general stock market
-14-
<PAGE>
performance. Morgan Stanley is the licensor of certain trademarks, service
marks and trade names of Morgan Stanley and of the EAFE Free which is
determined, composed and calculated by Morgan Stanley without regard to the
Fund. Morgan Stanley has no obligation to take the needs of the Fund or the
owners of the Fund into consideration in determining, composing or calculating
the EAFE Free. Morgan Stanley is not responsible for and has not participated
in the determination of the timing of, prices at, or quantities of the Fund to
be issued or in the determination or calculation of the equation by which the
Fund is redeemable for cash. Morgan Stanley has no obligation or liability to
owners of the Fund in connection with the administration, marketing or trading
of the Fund.
ALTHOUGH MORGAN STANLEY SHALL OBTAIN INFORMATION FOR INCLUSION IN OR FOR USE IN
THE CALCULATION OF THE INDEX FROM SOURCES WHICH MORGAN STANLEY CONSIDERS
RELIABLE, NEITHER MORGAN STANLEY NOR ANY OTHER PARTY GUARANTEES THE ACCURACY
AND/OR THE COMPLETENESS OF THE EAFE FREE 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 EAFE FREE
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 EAFE FREE 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.
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
-15-
<PAGE>
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.
TRUSTEES AND OFFICERS
The Trustees and officers of the Trust, their ages at April 30, 1999, 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.
<TABLE>
<CAPTION>
NAME, AGE AND POSITION(s) HELD PRINCIPAL OCCUPATION(s) DURING PAST FIVE
ADDRESS WITH THE TRUST YEARS
------------- ---------------- ----------------------------------------
<S> <C> <C>
Edward B. Rust, Jr.*, Trustee and Chairman of the Board, CHAIRMAN OF THE BOARD, PRESIDENT, CEO, AND DIRECTOR --
Age 48 President State Farm Mutual Automobile Insurance Company; PRESIDENT,
CEO, AND DIRECTOR -- State Farm Life Insurance Company,
State Farm Life and Accident Assurance Company, State Farm
Annuity and Life Insurance Company, State Farm General
Insurance Company, State Farm Fire and Casualty Company,
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.;
PRESIDENT, CEO, AND DIRECTOR (SINCE 1997) -- State Farm VP
Management Corp.; PRESIDENT -- State Farm County Mutual
Insurance Company of Texas; DIRECTOR -- State Farm Lloyds,
Inc., State Farm International Services, Inc.; CHAIRMAN OF
THE BOARD, PRESIDENT, AND TREASURER -- State Farm Companies
Foundation; UNDERWRITER -- State Farm Lloyds
</TABLE>
-16-
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE AND POSITION(s) HELD PRINCIPAL OCCUPATION(s) DURING PAST FIVE
ADDRESS WITH THE TRUST YEARS
------------- ---------------- ----------------------------------------
<S> <C> <C>
Roger S. Joslin*, Age 62 Trustee, Vice President and VICE CHAIRMAN, CHIEF FINANCIAL OFFICER, SENIOR VICE
Treasurer PRESIDENT, TREASURER, AND DIRECTOR -- State Farm Mutual
Automobile Insurance Company; DIRECTOR -- State Farm Life
Insurance Company, State Farm Life and Accident Assurance
Company, State Farm Annuity and Life Insurance Company;
DIRECTOR, VICE PRESIDENT, AND TREASURER -- State Farm
General Insurance Company, State Farm Lloyds, Inc., 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 International Services, Inc.,; DIRECTOR, VICE
PRESIDENT, AND TREASURER (SINCE 1997) -- State Farm VP
Management Corp.; CHAIRMAN OF THE BOARD, TREASURER, AND
DIRECTOR -- State Farm Fire and Casualty Company; TREASURER
-- State Farm County Mutual Insurance Company of Texas;
ASSISTANT TREASURER -- State Farm Companies Foundation;
UNDERWRITER -- State Farm Lloyds
Albert H. Hoopes, Trustee ATTORNEY; DIRECTOR -- State Farm Growth Fund, Inc., State
Age 84 Farm Balanced Fund, Inc., State Farm Interim Fund, Inc.,
1001 North Main Street State Farm Municipal Bond Fund, Inc.
Bloomington, IL 61701
Thomas M. Mengler, Trustee DEAN, UNIVERSITY OF ILLINOIS COLLEGE OF LAW (SINCE 1993);
Age 45 DIRECTOR (SINCE 1998) -- State Farm Growth Fund, Inc.,
Swanland Building State Farm Balanced Fund, Inc., State Farm Interim Fund,
601 E. John St. Inc., State Farm Municipal Bond Fund, Inc.
Champaign, IL 61820
Davis U. Merwin, Trustee INVESTOR; DIRECTOR -- State Farm Growth Fund, Inc., State
Age 70 Farm Balanced Fund, Inc., State Farm Interim Fund, Inc.,
P.O. Box 1665 State Farm Municipal Bond Fund, Inc.
Bloomington, IL 61702
James A. Shirk, Age 55 Trustee DIRECTOR AND PRESIDENT -- Beer Nuts, Inc.; DIRECTOR --
103 North Robinson State Farm Growth Fund, Inc., State Farm Balanced Fund,
Bloomington, IL 61701 Inc., State Farm Interim Fund, Inc., State Farm Municipal
Bond Fund, Inc.
</TABLE>
-17-
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE AND POSITION(s) HELD PRINCIPAL OCCUPATION(s) DURING PAST FIVE
ADDRESS WITH THE TRUST YEARS
------------- ---------------- ----------------------------------------
<S> <C> <C>
Kurt G. Moser, Age 54 Vice President SENIOR VICE PRESIDENT -- INVESTMENTS (SINCE 1998) VICE
PRESIDENT -- INVESTMENTS -- State Farm Mutual Automobile
Insurance Company, State Farm County Mutual Insurance
Company of Texas, State Farm Lloyds, Inc.; SENIOR VICE
PRESIDENT -- INVESTMENTS (SINCE 1998), VICE PRESIDENT
INVESTMENTS, AND DIRECTOR -- 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, State Farm General Insurance
Company; SENIOR VICE PRESIDENT -- INVESTMENTS (SINCE 1998),
INVESTMENT OFFICER -- State Farm Indemnity Company; SENIOR
VICE PRESIDENT (SINCE 1997), VICE PRESIDENT, AND DIRECTOR
(PRIOR TO 1997) -- State Farm Investment Management Corp.;
VICE PRESIDENT -- State Farm Growth Fund, Inc., State Farm
Balanced Fund, Inc., State Farm Interim Fund, Inc., State
Farm Municipal Bond Fund, Inc.; DIRECTOR (SINCE 1997) --
State Farm VP Management Corp.; VICE PRESIDENT
INVESTMENTS -- State Farm International Services, Inc.;
UNDERWRITER -- State Farm Lloyds
Paul N. Eckley, Age 44 Vice President SENIOR VICE PRESIDENT -- INVESTMENTS AND ASSISTANT
SECRETARY -- TREASURER (SINCE 1998), VICE PRESIDENT --
COMMON STOCKS (SINCE 1995), AND INVESTMENT OFFICER (PRIOR
TO 1995) -- State Farm Mutual Automobile Insurance
Company, State Farm Fire and Casualty Company;
SENIOR VICE PRESIDENT INVESTMENTS AND ASSISTANT
SECRETARY TREASURER (SINCE 1998) -- State Farm General
Insurance Company, State Farm Life Insurance Company,
State Farm Life and Accident Assurance Company, State
Farm Annuity and Life Insurance Company,
State Farm Indemnity Company, State Farm County Mutual
Insurance Company of Texas and State Farm Lloyds, Inc.;
SENIOR VICE PRESIDENT (SINCE 1997), AND
INVESTMENT OFFICER (PRIOR TO 1997) -- State Farm Investment
Management Corp.; VICE PRESIDENT (SINCE
1995) State Farm Growth Fund, Inc., State Farm Balanced
Fund, Inc.
</TABLE>
-18-
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE AND POSITION(s) HELD PRINCIPAL OCCUPATION(s) DURING PAST FIVE
ADDRESS WITH THE TRUST YEARS
------------- ---------------- ----------------------------------------
<S> <C> <C>
John S. Concklin, Vice President VICE PRESIDENT -- COMMON STOCKS AND ASSISTANT SECRETARY --
Age 52 TREASURER (SINCE 1997) -- State Farm Indemnity Company and
State Farm Lloyds, Inc.; VICE PRESIDENT --
FIXED INCOME (1995-1997), AND
INVESTMENT OFFICER (PRIOR TO 1995) --
State Farm Mutual Automobile Insurance Company, State Farm
Life Insurance Company, State Farm Fire
and Casualty Company, State Farm Life and Assurance
Company, State Farm Annuity and Life Insurance Company,
State Farm General Insurance Company;
INVESTMENT OFFICER (SINCE 1995) -- State Farm
Investment Management Corp.; VICE PRESIDENT (SINCE
1995) -- State Farm Balanced Fund, Inc.; VICE PRESIDENT
(1995-1998) -- State Farm Interim Fund, Inc.; VICE
PRESIDENT (SINCE 1998) -- State Farm Growth Fund, Inc.
David R. Grimes, Assistant Vice President and ASSISTANT VICE PRESIDENT OF ACCOUNTING -- State Farm
Age 56 Secretary Mutual Automobile Insurance Company; ASSISTANT
VICE PRESIDENT AND SECRETARY (SINCE 1994) -- 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.; ASSISTANT VICE PRESIDENT
AND SECRETARY (SINCE 1997) -- State Farm VP Management
Corp.
Jerel S. Chevalier, Assistant Secretary - Treasurer DIRECTOR OF MUTUAL FUND PROJECT
Age 60 (SINCE 1998); DIRECTOR OF MUTUAL FUNDS (1992-1998) --
State Farm Mutual Automobile Insurance Company;
ASSISTANT SECRETARY -- TREASURER (SINCE 1994) --
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.
Howard Thomas, Assistant Secretary - Treasurer DIRECTOR OF MUTUAL FUNDS (SINCE 1998) --
Age 51 State Farm Mutual Automobile Insurance Company;
MANAGER OF ACCOUNTING BENEFITS (1988 - 1998) --
State Farm Mutual Automobile Insurance Company; ASSISTANT
SECRETARY -- TREASURER (SINCE 1998) --
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.
</TABLE>
-19-
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE AND POSITION(s) HELD PRINCIPAL OCCUPATION(s) DURING PAST FIVE
ADDRESS WITH THE TRUST YEARS
------------- ---------------- ----------------------------------------
<S> <C> <C>
Donald O. Jaynes, Assistant Secretary ASSOCIATE GENERAL COUNSEL (SINCE 1993) -- State
Age 51 Farm Mutual Automobile Insurance Company; ASSISTANT
SECRETARY (SINCE 1998) -- 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.
Michael L. Tipsord, Assistant Secretary VICE PRESIDENT AND ASSISTANT TREASURER
Age 39 (SINCE 1998), EXECUTIVE ASSISTANT -- OPERATIONS (SINCE
1997), ASSISTANT CONTROLLER (1996-1997), DIRECTOR OF
ACCOUNTING (1995-1996), AND STAFF ASSOCIATE (1991-
1995) -- State Farm 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., State Farm Municipal Bond Fund, Inc.; TREASURER
(SINCE 1996) -- Insurance Placement Services, Inc.
Donald E. Heltner Vice President VICE PRESIDENT -- FIXED INCOME AND ASSISTANT SECRETARY --
Age 51 TREASURER -- State Farm Life Insurance
Company, State Farm Life and Accident Assurance
Company, State Farm Annuity and Life Insurance
Company (Since 1998); VICE PRESIDENT -- FIXED INCOME --
State Farm Mutual Automobile Insurance Company, State Farm
Fire and Casualty Company, State Farm General Insurance
Company, State Farm Indemnity Company, and State Farm
Lloyds, Inc. (Since 1998); VICE PRESIDENT (since 1998) --
State Farm Balanced Fund, Inc., State Farm Interim Fund,
Inc.; PRIOR TO 1998, VICE PRESIDENT -- Century Investment
Management Co.
Eugene D. Funk IV Assistant Vice President INVESTMENT OFFICER AND ASSISTANT SECRETARY -- TREASURER --
Age 38 State Farm Life Insurance Company, State
Farm Life and Accident Assurance Company, and State
Farm Annuity and Life Insurance Company (Since
1997), INVESTMENT OFFICER -- State Farm Mutual Automobile
Insurance Company, State Farm Fire and Casualty Company,
State Farm General Insurance Company, State Farm
Indemnity Company, and State Farm Lloyds, Inc.
(Since 1997); PRIOR TO 1997, INVESTMENT ANALYST
</TABLE>
* Trustee who is an "interested person" of the Trust or SFIM, as defined in the
1940 Act.
-20-
<PAGE>
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 TOTAL COMPENSATION
COMPENSATION FROM THE TRUST AND OTHER
NAME FROM THE TRUST (1) STATE FARM FUNDS (1)(2)
- ---- ------------------ ------------------------
<S> <C> <C>
Edward B. Rust, Jr. None (3) None (3)
Albert H. Hoopes $9,000 $18,000
Roger S. Joslin None (3) None (3)
Thomas M. Mengler $5,400 $10,800
Davis U. Merwin $9,000 $18,000
James A. Shirk $9,000 $18,000
</TABLE>
(1) For the fiscal year ended December 31, 1998.
(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.
INVESTMENT ADVISORY AGREEMENTS
BETWEEN THE TRUST AND SFIM
SFIM is a wholly-owned subsidiary of State Farm Mutual Automobile Insurance
Company ("SFMAIC"). The duties and responsibilities of SFIM are specified in
the Investment Advisory and Management Services Agreement between the Trust
and SFIM and the separate Service Agreement among the Trust, SFIM and 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 subsequently were approved by the sole
shareholder of each Fund. 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
-21-
<PAGE>
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.
The Trust pays SFIM monthly compensation in the form of an investment advisory
fee. The fee is based upon average daily net assets and is accrued daily and
paid to SFIM quarterly at the following annual rates for each of the Funds:
Large Cap Equity Index .26% of net assets
Small Cap Equity Index .40% of net assets
International Equity Index .55% of net assets
Bond .50% of net assets
Money Market .40% of net assets
Stock and Bond Balanced None
SFIM has agreed not to be paid an investment advisory fee for performing its
services for the Stock and Bond Balanced Fund and has agreed to reimburse the
Stock and Bond Balanced Fund for any expenses incurred. (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 reimburse the
Fund for any 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 reimburse
the Fund for any 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.
For the period from the commencement of each Fund's operations through
December 31, 1998, the Funds paid the following advisory fees to SFIM:
-22-
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
GROSS EXPENSE
FUND FEE PAID REIMBURSEMENT NET FEE
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Money Market Fund+ $39,751 $10,516 $29,235
- --------------------------------------------------------------------------------
Bond Fund* $51,817 $0 $51,817
- --------------------------------------------------------------------------------
Large Cap Equity Index Fund* $46,527 $0 $46,527
- --------------------------------------------------------------------------------
Small Cap Equity Index Fund+ $118,508 $16,690 $101,818
- --------------------------------------------------------------------------------
International Equity Index Fund* $325,393 $107,042 $218,351
- --------------------------------------------------------------------------------
Stock and Bond Balanced Fund+ $0 $13,909 $0
- --------------------------------------------------------------------------------
</TABLE>
* From January 22, 1998
+ From January 29, 1998
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.
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 (including
the daily calculation of net asset value), interest on borrowings by the Trust,
charges of the custodian and transfer agent, if any, cost of auditing services,
non-interested Trustees' fees, legal expenses, all taxes and fees, investment
advisory fees, certain insurance
-23-
<PAGE>
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, costs of
preparing, printing, and mailing proxy statements and shareholder reports to
shareholders and contractholders, the cost of paying dividends, 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.
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
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<PAGE>
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 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 subsequently were
approved by the sole shareholder of each Fund. 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, 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.
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, cash flows 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. Pursuant to procedures adopted by the Board of Trustees, SFIM or BGFA
may cause a Fund to buy or sell a security from another Fund or another account.
Any such transaction would be executed at a price determined in accordance with
those procedures and without sales commissions. Transactions executed pursuant
to such procedures are reviewed by the Board of Trustees quarterly.
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
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<PAGE>
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.
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. During the fiscal
year ended December 31, 1998, the Funds paid brokerage commissions of:
<TABLE>
<S> <C>
Money Market Fund $ 0
-------------
Bond Fund 0
------------
Large Cap Equity Index Fund 5,230
------------
Small Cap Equity Index Fund 46,755
------------
International Equity Index Fund 137,075
------------
Stock and Bond Balanced Fund 0
------------
</TABLE>
No Fund has paid any brokerage commissions to: (i) any broker that is an
affiliated person of the Trust or an affiliated person of that person; or (ii)
any broker an affiliated person of which is an affiliated person of the Trust or
State Farm.
In placing orders for securities transactions, SFIM's policy (followed by BGFA)
is to attempt to obtain the most favorable price and efficient execution
available. These entities, subject to the review of the Trust's Board of
Trustees, may pay higher than the lowest possible commission in order to obtain
better than average execution of transactions and/or valuable investment
research information described below, if, in their opinion, improved execution
and investment research information will benefit the performance of each of the
Funds.
When selecting broker-dealers to execute portfolio transactions, SFIM considers
factors including the rate of commission or size of the broker-dealer's
"spread", the size and difficulty of the order, the nature of the market for the
security, the willingness of the broker-dealer to position, the reliability,
financial condition and general execution and operational capabilities of the
broker-dealer, and the research, statistical and economic data furnished by the
broker-dealer to SFIM. In some cases, SFIM may use such information to advise
other investment accounts
-26-
<PAGE>
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 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
p.m., New York City time) on each day when the New York Stock Exchange is
open for business. The New York Stock Exchange is scheduled to be open Monday
through Friday throughout the year, except for certain federal and other
holidays. Shares will not be priced on days when the NYSE is closed. 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.
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<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. The effect of this will be that NAV will not
be based on the last quoted price on the security, but on a price which the
Board of Trustees or its delegate believes reflects the current and true
price of the security.
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<PAGE>
Exchange listed options that are written or purchased by a Fund 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 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. These equations do not reflect charges
associated with the Contracts. The changes associated with the Contracts are
described fully in the Contract prospectus.
Average annual total return for a specified period is derived by calculating the
actual dollar amount of the investment return on a $10,000 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
-29-
<PAGE>
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 $10,000 investment in a
Fund (assuming that all distributions are reinvested) at the beginning of such
period equal to the actual total value of such investment at the end of such
period.
Yield is computed by dividing net investment income earned during a recent 30
day period by the product of the average daily number of shares outstanding and
entitled to receive dividends during the period and the price per share on the
last day of the relevant period. The results are compounded on a bond equivalent
(semi-annual) basis and then annualized. Net investment income is equal to the
dividends and interest earned during the period, reduced by accrued expenses for
the period. The calculation of net investment income for these purposes may
differ from the net investment income determined for accounting purposes.
The Funds' total returns for the period from the commencement of their
operations through December 31, 1998, and yield for the 30 days ended December
31, 1998, were:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 30 DAY YIELD
FUND INCEPTION TO 12/31/98 PERIOD ENDED 12/31/98
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Money Market Fund +n/a 4.96%
- ----------------------------------------------------------------------------------------------------------------------
Bond Fund 6.49%* 5.26%
- ----------------------------------------------------------------------------------------------------------------------
Large Cap Equity Index Fund 29.26%* 1.72%
- ----------------------------------------------------------------------------------------------------------------------
Small Cap Equity Index Fund -1.89%+ 1.55%
- ----------------------------------------------------------------------------------------------------------------------
International Equity Index Fund 17.90%* 1.09%
- ----------------------------------------------------------------------------------------------------------------------
Stock and Bond Balanced Fund 14.66+ 2.91%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
* From January 22, 1998.
+ From January 29, 1998.
The Money Market Fund may also quote its current yield and effective yield.
Current yield is an annualized yield based on the actual total return for a
seven-day period. Effective yield is an annualized yield based on a daily
compounding of the current yield. The Money Market Fund's current yield and
effective yield for the seven-days ended December 31, 1998 were 4.83% and 4.95%,
respectively.
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<PAGE>
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.
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, U.S.
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.
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<PAGE>
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.
TAXES
GENERAL TAX INFORMATION
The Trust intends that each of the Funds will continue to qualify as a regulated
investment company under the Subchapter M of Chapter 1 of the Internal Revenue
Code, as amended (the "Code"). If each Fund continues to qualify as a regulated
investment company and distributes substantially all of its net income and gains
to its shareholders (which the Trust intends to do), then under the provisions
of Subchapter M, each Fund 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 loans 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, and no more that 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 such
issuer, and (b) the Fund must not invest more than 25% of the value of its total
assets in the securities of any one issuer (other than U.S. Government
securities).
In order to maintain the qualification of a Fund's status as a regulated
investment company, the Trust may, in its business judgment, restrict a Fund's
ability to invest in certain financial instruments. For the same reason, the
Trust may, in its business judgment, require a Fund to maintain or dispose of an
investment in certain types of financial instruments 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
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<PAGE>
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, for example, 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.
FOREIGN INVESTMENTS
Funds investing in foreign securities or currencies (including the Money Market
Fund, Large Cap Equity Index Fund, and International Equity Index Fund) may be
required to pay withholding or other taxes to foreign governments. Foreign tax
withholding on dividends and interest, if any, is generally at rates between 10%
and 35%. The investment yield of any Fund that invests in foreign securities or
currencies will be reduced by these foreign taxes. Owners of variable life
insurance and variable annuity contracts investing in such Fund will bear the
costs of any foreign tax, but will 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. Owners of variable life
insurance policies and variable annuity contracts investing in such Funds will
bear the cost of these taxes and interest charges.
ADDITIONAL TAX CONSIDERATIONS
If a Fund fails to qualify as a regulated investment company, the Fund will be
subject to federal, and possibly state, corporate taxes on its taxable income
and gains (without any deduction for its distributions to its shareholders) and
distributions to its shareholders will constitute ordinary income to the extent
of such Fund's current or accumulated earnings and profits. Owners of variable
life insurance and annuity contracts which have invested in such a Fund might be
taxed currently on the investment earnings under their contracts and thereby
lose the benefit of tax deferral. 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
which have invested in 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 achieved by
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.
The Funds should not be subject to the 4% Federal excise tax imposed on
regulated investment companies that do not distribute substantially all their
income and gains each calendar year because the tax does not apply to a
regulated investment company whose only shareholders are
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<PAGE>
segregated asset accounts of life insurance companies held in connection with
variable annuity contracts and/or variable life insurance policies.
The discussion of "Taxes" in the Prospectus and the foregoing discussion of
federal income tax consequences is a general and abbreviated summary based on
tax laws and regulations in effect on the date of the Prospectus. Tax law is
subject to change by legislative, administrative or judicial action. Each
prospective investor should consult his or her own tax adviser as to the tax
consequences of investments in the Funds. For information concerning the
federal income tax consequences to the owners of variable life insurance and
annuity contracts, see the prospectuses for the contracts.
OFFERING AND PURCHASE OF SHARES
SFIM acts as the Trust's underwriter in the distribution of the shares of each
Fund. See "Investment Adviser" and "Service Providers" in this SAI for more
information regarding the activities of SFIM.
Shares of the Funds are sold in a continuous offering and are authorized to
be offered to certain registered separate accounts (the "Accounts") of State
Farm Life Insurance Company and State Farm Life and Accident Assurance
Company ("State Farm") to support certain variable annuity contracts and
variable life insurance contracts offered by State Farm (together, 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
-34-
<PAGE>
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.
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.
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 annually and distributions from net realized capital gains
will be paid at least annually; all dividends and distributions will 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.
ADDITIONAL INFORMATION
SERVICE PROVIDERS
PRINCIPAL UNDERWRITER
Pursuant to an underwriting agreement and in addition to its duties as
investment adviser, SFIM also acts as the principal underwriter for the Trust.
For its services as principal underwriter, SFIM receives no additional
compensation. As described more fully above, shares of each Fund are sold in a
continuous offering and are authorized to be offered to the Accounts to support
the Contracts.
-35-
<PAGE>
CUSTODIANS
Chase Manhattan Trust Company of Illinois, c/o 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 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 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.
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
-36-
<PAGE>
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 and
reviews the federal and state tax returns and performs other services as
requested by management of the Trust.
SHARES
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.
As of February 1, 1999, State Farm owned the following percentages of the Funds'
outstanding shares:
<TABLE>
<CAPTION>
--------------------------------------------
FUND %
--------------------------------------------
<S> <C>
Money Market Fund 50.4%
--------------------------------------------
Bond Fund 34.5%
--------------------------------------------
Large Cap Equity Index Fund 29.4%
--------------------------------------------
-37-
<PAGE>
--------------------------------------------
Small Cap Equity Index Fund 64.3%
--------------------------------------------
International Equity Index Fund 78.5%
--------------------------------------------
Stock and Bond Balanced Fund 0%
--------------------------------------------
</TABLE>
All shares of the Funds other than those owned by State Farm are owned of record
by the separate accounts underlying the Contracts. No person other than State
Farm was known to own beneficially 5% or more of the outstanding shares of any
Fund.
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.
AUDITED FINANCIAL STATEMENTS
The financial statements of the Trust appearing in the Registration Statement
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their reports thereon appearing in the registration statement, and are included
in reliance upon such reports given upon the authority of such firm as experts
in accounting and auditing.
-38-
<PAGE>
STATE FARM VARIABLE PRODUCT TRUST LARGE CAP EQUITY INDEX FUND
PORTFOLIO OF INVESTMENTS
December 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
- ----------- -----------
<C> <S> <C>
COMMON STOCKS (77.4%)
Aerospace/Defense (.5%)
4,151 Boeing Co. $ 135,427
527 General Dynamics Corp. 30,895
803 Lockheed Martin Corp. 68,054
263 Northrop Grumman Corp. 19,232
-----------
253,608
-----------
Agriculture, Foods, & Beverage (4.4%)
149 Adolph Coors Co. Class B 8,409
2,004 Anheuser Busch Cos. Inc. 131,514
2,508 Archer-Daniels-Midland Company 43,106
1,204 Bestfoods 64,113
258 Brown Forman Corp. Class B 19,527
1,864 Campbell Soup Company 102,520
1,607 Coca-Cola Enterprises Inc. 57,450
2,028 ConAgra Inc. 63,882
651 Fred Meyer (a) 39,223
656 General Mills Inc. 51,004
625 Hershey Foods Corp. 38,867
1,468 HJ Heinz Co. 83,126
1,646 Kellogg Company 56,170
6,109 Pepsico Inc. 250,087
963 Pioneer Hi-Bred International 26,001
567 Quaker Oats Co. 33,736
1,314 Ralston Purina Co. 42,541
1,330 RJR Nabisco Holdings 39,484
3,848 Sara Lee Corp. 108,466
1,637 Seagram Ltd. 62,206
540 Supervalu Inc. 15,120
1,374 Sysco Corp. 37,699
10,215 The Coca-Cola Company 683,128
2,664 Unilever NV 220,946
1 Vlasic Foods International Inc. (a) 24
507 William Wrigley Jr. Co. 45,408
-----------
2,323,757
-----------
Airlines (.3%)
739 AMR Corp. (a) 43,878
596 Delta Air Lines Inc. 30,992
1,356 Laidlaw, Inc. 13,645
1,408 Southwest Airlines Co. 31,592
407 US Airways Group Inc. (a) 21,164
-----------
141,271
-----------
Automotive (1.2%)
106 Aeroquip-Vickers Inc. 3,173
382 Cooper Tire & Rubber Co. 7,807
151 Cummins Engine Inc. 5,360
1 Daimler Chrysler (a) 96
675 Dana Corp. 27,591
5,062 Ford Motor Co. 297,076
<CAPTION>
SHARES VALUE
- ----------- -----------
<C> <S> <C>
2,723 General Motors Corp. $ 194,865
722 Genuine Parts Co. 24,142
652 Goodyear Tire & Rubber Co. 32,885
385 ITT Industries Inc. 15,304
225 Navistar International Corp. (a) 6,412
285 Paccar Inc. 11,721
197 Snap On Inc. 6,858
511 TRW Inc. 28,712
-----------
662,002
-----------
Banks (5.2%)
1,260 Bank of Boston Corp. 49,061
3,154 Bank of New York Inc. 126,948
4,837 Bank One Corporation 246,989
7,123 BankAmerica Corp. 428,270
421 Bankers Trust NY Corp. 35,969
1,186 BB&T Corp. 47,811
3,534 Chase Manhattan Corp. 240,533
665 Comerica Inc. 45,345
1,137 Fifth Third Bancorp 81,082
4,138 First UN Corp. 251,642
2,406 Fleet Financial Group Inc. 107,518
218 Golden West Financial 19,988
846 Hunting Bancshares Inc. 25,433
720 JP Morgan & Co. Inc. 75,645
1,928 Keycorp 61,696
1,116 Mellon Bank Corp. 76,725
487 Northern Trust Co. 42,521
1,284 PNC Bank Corp. 69,497
468 Republic NY Corp. 21,323
661 State Street Corp. 45,981
716 Summit Bancorp 31,280
836 Suntrust Banks Inc. 63,954
1,110 Synovus Financial Corp. 27,056
843 Wachovia Corporation 73,710
2,480 Washington Mutual Inc. 94,705
6,679 Wells Fargo 266,743
2,970 US Bancorp 105,435
-----------
2,762,860
-----------
Building Materials & Construction (.2%)
156 Armstrong World Industries 9,409
395 Black & Decker Corp. 22,145
193 Centex Corp. 8,697
147 Fleetwood Enterprises Inc. 5,108
128 Kaufman & Broad Home Corp. 3,680
1,390 Masco Corp. 39,962
182 Owens Corning 6,450
134 Pulte Corp. 3,727
328 Stanley Works 9,102
-----------
108,280
-----------
</TABLE>
- ---------
8
<PAGE>
STATE FARM VARIABLE PRODUCT TRUST LARGE CAP EQUITY INDEX FUND
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
- ----------- -----------
<C> <S> <C>
Chemicals (1.4%)
913 Air Products & Chemicals Inc. $ 36,520
263 BF Goodrich Co. 9,435
913 Dow Chemical 83,026
357 Eastman Chemical Co. 15,976
533 Ecolab Inc. 19,288
4,700 EI du Pont de Nemours & Co. 249,394
589 Engelhard Corp. 11,485
108 FMC Corp. (a) 6,048
195 Great Lakes Chemical Corp. 7,800
443 Hercules Inc. 12,127
468 Int'l Flavors & Fragrances 20,680
2,619 Monsanto Co. 124,402
466 Morton International Inc. 11,417
258 Nalco Chemical Co. 7,998
721 PPG Industries Inc. 41,998
655 Praxair Inc. 23,089
716 Rohm & Haas Co. 21,570
450 Sigma-Aldrich Corporation 13,219
561 Union Carbide Corp. 23,842
348 WR Grace (a) 5,459
-----------
744,773
-----------
Commercial Service/Supply (1.3%)
3,535 Cendant Corp. (a) 67,386
362 Deluxe Corp. 13,236
705 Dun & Bradstreet 22,252
1,349 Eastman Kodak Co. 97,128
632 FDX Corp. (a) 56,248
373 H&R Block Inc. 16,785
602 Interpublic Group Cos. Inc. 48,009
427 Moore Ltd. 4,697
1,164 Pitney Bowes Inc. 76,897
165 Polaroid Corp. 3,083
616 RR Donnelley & Sons Inc. 26,988
1,113 Service Corp. International 42,364
1,300 Staples Inc. (a) 56,794
1,351 Xerox Corporation 159,418
-----------
691,285
-----------
Computer Software and Services (4.2%)
241 Adobe Systems Inc. 11,267
172 Autodesk Inc. 7,342
1,244 Automatic Data Processing Inc. 99,753
278 Ceridian Corp. (a) 19,408
2,187 Computer Associates Intl. Inc. 93,221
675 Computer Sciences Corp. (a) 43,495
2,031 Electronic Data Systems Corp. 102,058
1,880 First Data Corp. 59,573
656 Gateway 2000 Inc. (a) 33,579
1,924 HBO & Co. 55,195
10,324 Microsoft Corporation (a) 1,431,810
1,423 Novell Inc. (a) 25,792
4,048 Oracle Corp. (a) 174,570
<CAPTION>
SHARES VALUE
- ----------- -----------
<C> <S> <C>
1,143 Parametric Technology Corp. (a) $ 18,717
900 PeopleSoft Inc. 17,044
75 Shared Medical Systems Corp. 3,741
1,099 Unisys Corp. (a) 37,847
-----------
2,234,412
-----------
Computers (4.2%)
1,486 3Com Corp. (a) 66,591
74 America Online (a) 10,711
599 Apple Computer Inc. (a) 24,522
862 Ascend Communications (a) 56,676
691 Cabletron Systems Inc. (a) 5,787
7,063 Compaq Computer Corp. 296,205
196 Data General Corp. (a) 3,222
5,268 Dell Computer Corp. (a) 385,552
2,066 EMC Corp. (a) 175,610
4,288 Hewlett-Packard Company 292,924
575 Ikon Office Solutions 4,923
3,883 Int'l Business Machines Corp. 717,384
1,063 Seagate Technology (a) 32,156
749 Silicon Graphics Inc. (a) 9,643
1,553 Sun Microsystems Inc. (a) 132,976
-----------
2,214,882
-----------
Consumer & Marketing (2.9%)
187 Alberto-Culver Company 4,991
272 American Greetings Corp. Class A 11,169
1,108 Avon Products Inc. 49,029
449 Brunswick Corp. 11,113
448 Clorox Co. 52,332
1,226 Colgate Palmolive Co. 113,865
581 Darden Restaurants Inc. 10,458
867 Fort James Corp. 34,680
553 Hasbro Inc. 19,977
128 Jostens Inc. 3,352
2,233 Kimberly Clark Corp. 121,698
1,216 Mattel Inc. 27,740
410 Maytag Corp. 25,522
2,839 McDonald's Corporation 217,538
683 Newell Co. 28,174
5,533 Procter & Gamble Co. 505,232
649 Rubbermaid Incorporated 20,403
4,638 The Gillette Company 224,073
653 Tricon Global Restaurants (a) 32,732
197 Tupperware Corp. 3,238
539 Wendys International Inc. 11,757
280 Whirlpool Corp. 15,505
-----------
1,544,578
-----------
Consumer Discretionary (.0%)
521 Danaher Corp. 28,297
-----------
Containers & Packaging (.1%)
110 Ball Corp. 5,032
</TABLE>
9 -------
<PAGE>
STATE FARM VARIABLE PRODUCT TRUST LARGE CAP EQUITY INDEX FUND
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
- ----------- -----------
<C> <S> <C>
181 Bemis Inc. $ 6,867
521 Crown Cork & Seal Inc. 16,053
646 Owens-Illinois Inc. (a) 19,784
169 Sealed Air Corporation (a) 8,630
224 Sealed Air Corporation Conv. Pref. (a) 11,438
188 Temple Inland Inc. 11,151
-----------
78,955
-----------
Durable Products (.0%)
130 Milacron Inc. 2,502
-----------
Electronic/Electrical Mfg. (5.4%)
633 Advanced Micro Devices Inc. (a) 18,317
874 AMP Inc. 45,503
1,503 Applied Materials Inc. (a) 64,159
165 EG&G Inc. 4,589
178 Elmer Perkin Corp. 17,366
1,861 Emerson Electric Co. 116,429
13,560 General Electric Company 1,383,968
552 Honeywell Inc. 41,573
6,842 Intel Corporation 811,205
319 KLA-Tencor Corp. (a) 13,837
583 LSI Logic Corp. (a) 9,401
857 Micron Technology Inc. (a) 43,332
701 National Semiconductor Corp. (a) 9,463
297 Raychem Corporation 9,597
1,377 Raytheon Co. 73,325
792 Rockwell International Corp. 38,461
176 Tektronix Inc. 5,291
1,599 Texas Instruments Inc. 136,814
195 Thomas & Betts Corp. 8,446
448 WW Grainger Inc. 18,648
-----------
2,869,724
-----------
Engineering & Construction (.0%)
367 Fluor Corp. 15,620
131 Foster Wheeler Corp. 1,728
187 McDermott International Inc. 4,617
-----------
21,965
-----------
Environmental Controls (.2%)
695 Browning Ferris Industrials 19,764
2,403 Waste Management Inc. 112,040
-----------
131,804
-----------
Financial Services (4.4%)
1,903 American Express Company 194,582
1,077 American General Corporation 84,006
2,898 Associates First Capital 122,803
496 Bear Stearns Companies Inc. 18,538
261 Capital One Financial Corp. 30,015
1,710 Charles Schwab Corp. 96,081
9,467 Citigroup 468,616
<CAPTION>
SHARES VALUE
- ----------- -----------
<C> <S> <C>
481 Countrywide Credit Inds. Inc. $ 24,140
625 Equifax Inc. 21,367
2,783 Federal Home Loan Mortgage 179,330
4,286 Federal National Mtg. Assn. 317,164
1,092 Franklin Resources Inc. 34,944
2,043 Household International Inc. 80,954
504 Lehman Brothers Holding Inc. 22,207
449 MBIA Inc. 29,438
3,151 MBNA Corporation 78,578
640 Mercantile Bancorporation 29,520
1,425 Merrill Lynch & Company Inc. 95,119
503 MGIC Investment Corp. 20,026
2,427 Morgan Stanley Dean Witter 172,317
1,351 National City Corp. 97,947
678 Paychex Inc. 34,875
946 Regions Financial Corp. 38,136
680 SLM Holding Corp. 32,640
531 Union Planters 24,061
-----------
2,347,404
-----------
Forest Products (.4%)
187 Boise Cascade Corp. 5,797
417 Champion International Corp. 16,888
403 Georgia Pacific Corp. 23,601
1,304 International Paper Co. 58,436
494 Louisiana Pacific Corp. 9,046
459 Mead Corporation 13,454
108 Potlatch Corp. 3,982
264 Union Camp Corp. 17,820
454 Westvaco Corp. 12,173
814 Weyerhaeuser Co. 41,361
497 Willamette Industries Inc. 16,649
-----------
219,207
-----------
Health Care (9.2%)
6,248 Abbott Laboratories 306,152
240 Allergan Inc. 15,540
400 Alza Corporation (a) 20,900
5,441 American Home Products Corp. 306,396
195 Baush & Lomb Inc. 11,700
1,194 Baxter International Inc. 76,789
1,068 Becton Dickinson & Co. 45,590
498 Biomet Inc. 20,044
1,608 Boston Scientific Corp. (a) 43,115
4,121 Bristol-Myers Squibb 551,441
836 Cardinal Health Inc. 63,432
2,683 Columbia/HCA Healthcare Corp. 66,404
189 CR Bard Inc. 9,355
4,591 Eli Lilly & Co. 408,025
645 Guidant Corp. 71,111
483 Health Care & Retirement (a) 14,188
1,795 Healthsouth Corp. (a) 27,710
677 Humana Inc. (a) 12,059
5,566 Johnson & Johnson 466,848
</TABLE>
- ---------
10
<PAGE>
STATE FARM VARIABLE PRODUCT TRUST LARGE CAP EQUITY INDEX FUND
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
- ----------- -----------
<C> <S> <C>
271 Mallinckrodt Inc. $ 8,350
1,980 Medtronic Inc. 147,015
4,938 Merck & Co. Inc. 729,281
5,406 Pfizer Inc. 678,115
2,078 Pharmacia & Upjohn Inc. 117,667
6,054 Schering Plough Corp. 334,483
383 St. Jude Medical, Inc. (a) 10,604
1,285 Tenet Healthcare Corp. (a) 33,731
766 United Healthcare Corp. 32,986
3,402 Warner Lambert Co. 255,788
-----------
4,884,819
-----------
Insurance (2.6%)
587 Aetna Inc. 46,153
3,412 Allstate Corp. 131,789
4,382 American Int'l Group Inc. 423,411
700 Aon Corp. 38,763
680 Chubb Corp. 44,115
869 Cigna Corp. 67,185
1,311 Conseco Inc. 40,067
932 Hartford Financial Svcs. Group 51,144
470 Jefferson Pilot Corp. 35,250
454 Lincoln National Corp. 37,143
493 Loews Corp. 48,437
1,106 Marsh & McLennan Cos. Inc. 64,632
284 Progressive Corp. 48,103
595 Provident Companies Inc. 24,693
620 Providian Financial Corp. 46,500
522 Safeco Corp. 22,413
933 St. Paul Companies Inc. 32,422
940 Sunamerica Inc. 76,258
620 Torchmark Corp. 21,894
246 Transamerica Corp. 28,413
567 UNUM Corp. 33,099
-----------
1,361,884
-----------
Lodging & Gaming (.1%)
477 Harrahs Entertainment Inc. (a) 7,483
1,135 Hilton Hotels Corp. 21,707
1,000 Marriott International Class A 29,000
758 Mirage Resorts Inc. (a) 11,323
-----------
69,513
-----------
Machinery & Manufacturing (2.0%)
2,287 AlliedSignal Inc. 101,343
505 Avery Dennison Corp. 22,757
100 Briggs & Stratton Corp. 4,988
275 Case Corp. 5,998
1,494 Caterpillar Inc. 68,724
680 Cincinnati Financial Corp. 24,905
471 Cooper Industries Inc. 22,461
912 Corning Incorporated 41,040
225 Crane Co. 6,792
1,044 Deere & Co. 34,583
<CAPTION>
SHARES VALUE
- ----------- -----------
<C> <S> <C>
879 Dover Corp. $ 32,193
269 Eaton Corp. 19,015
299 Harnischfeger Inc. 3,046
1,058 Illinois Tool Works 61,364
671 Ingersoll Rand Co. 31,495
389 Johnson Controls Inc. 22,951
137 Millipore Corp. 3,896
1,696 Minnesota Mining & Mfg. 120,628
16 Nacco Industries Inc. 1,472
161 National Service Industries Inc. 6,118
529 Pall Corporation 13,390
498 Parker Hannifin Corp. 16,310
705 Tenneco Inc. 24,014
668 Textron Inc. 50,726
667 Thermo Electron Corp. (a) 11,297
201 Timken Co. 3,794
2,672 Tyco International Ltd. 201,569
925 United Technologies Corp. 100,594
-----------
1,057,463
-----------
Media & Broadcasting (2.6%)
2,906 CBS Corp. (a) 95,172
1,054 Clear Channel Communications (a) 57,443
1,522 Comcast Corp. Class A 89,322
442 Dow Jones & Co., Inc. 21,271
1,202 Gannett Inc. 79,557
271 King World Productions Inc. (a) 7,978
368 Knight Ridder Inc. 18,814
430 McGraw-Hill Companies Inc. 43,806
181 Meredith Corp. 6,855
784 New York Times Co. 27,195
1,187 Nextel Communications (a) 28,043
682 Omnicom Group 39,556
2,263 Tele Communications Class A (a) 125,172
8,504 The Walt Disney Company 255,120
5,118 Time Warner Inc. 317,636
369 Times Mirror Co. 20,664
521 Tribune Co. 34,386
1,480 Viacom Inc. (a) 109,520
-----------
1,377,510
-----------
Mining & Metals (.5%)
889 Alcan Aluminium Ltd. 24,059
797 Allegheny Teledyne 16,289
779 ALCOA Inc. 58,084
131 Asarco Inc. 1,973
1,519 Barrick Gold Corp. 29,621
1,009 Battle Mountain Gold Co. 4,162
550 Bethlehem Steel Corp. (a) 4,606
437 Cyprus Amax Minerals Co. 4,370
761 Freeport-McMoRan Copper & Gold Inc. (a) 7,943
843 Homestake Mining Co. 7,745
709 Inco Limited 7,489
713 Newmont Mining Corp. 12,879
</TABLE>
11-------
<PAGE>
STATE FARM VARIABLE PRODUCT TRUST LARGE CAP EQUITY INDEX FUND
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
- ----------- -----------
<C> <S> <C>
326 Nucor Corporation $ 14,100
212 Phelps Dodge Corp. 10,786
1,103 Placer Dome Inc. 12,685
268 Reynolds Metals Co. 14,120
422 USX US Steel 9,706
418 Worthington Industries Inc. 5,225
-----------
245,842
-----------
Oil, Gas, & Other Energy (5.2%)
413 Amerada Hess Corporation 20,547
3,358 Amoco Corp. 202,739
515 Anadarko Petroleum Corp. 15,901
456 Apache Corp. 11,542
280 Ashland Inc. 13,545
1,341 Atlantic Richfield Inc. 87,500
1,308 Baker Hughes Inc. 23,135
718 Burlington Resources Inc. 25,713
2,722 Chevron Corporation 225,756
849 Coastal Corp. 29,662
379 Columbia Energy Group 21,887
416 Consolidated Natural Gas 22,464
91 Eastern Enterprises 3,981
1,360 Enron Corp. 77,605
10,084 Exxon Corporation 737,393
1,833 Halliburton Co. 54,303
200 Helmerich & Payne Inc. 3,875
170 Kerr McGee Corp. 6,503
3,257 Mobil Corp. 283,766
172 Nicor Inc. 7,267
1,462 Occidental Pete Corp. 24,671
87 Oneok Inc. 3,143
461 Oryx Energy Company (a) 6,195
6 Pennzenergy 98
6 Pennzoil-Quaker State Co. (a) 89
120 Peoples Energy Corp. 4,785
1,108 Pete Phillips Co. 47,229
398 Rowan Companies Inc. (a) 3,980
8,873 Royal Dutch Petroleum Company 424,795
2,218 Schlumberger Ltd. 102,305
972 Sempra Energy 24,665
468 Sonat Inc. 12,665
442 Sunoco Inc. 15,940
2,195 Texaco Inc. 116,061
1,082 Union Pacific Resources Group Inc. 9,806
1,027 Unocal Corp. 29,976
1,311 USX Marathon Group 39,494
1,789 Williams Companies Inc. 55,794
-----------
2,796,775
-----------
Pharmaceuticals (.3%)
1,081 Amgen Inc. (a) 113,032
689 IMS Health Inc. 51,976
-----------
165,008
-----------
<CAPTION>
SHARES VALUE
- ----------- -----------
<C> <S> <C>
Retailers (5.2%)
1,050 Albertsons Inc. $ 66,872
1,180 American Stores Co. 43,586
637 Autozone Inc. (a) 20,981
2,275 Carnival Corp. 109,200
372 Circuit City Stores-Carmax 18,577
464 Consolidated Stores (a) 9,367
869 Costco Companies Inc. (a) 62,731
1,582 CVS Corp. 87,010
1,847 Dayton Hudson Corp. 100,200
471 Dillards Inc. 13,365
762 Dollar General Corp. 18,002
844 Federated Department Stores (a) 36,767
2,412 GAP Inc. 135,675
126 Great Atlantic & Pacific 3,733
261 Harcourt General Inc. 13,882
6,517 Home Depot Inc. 398,759
1,090 JC Penney Inc. 51,094
2,024 K-Mart Corp. (a) 30,993
653 Kohls Corporation (a) 40,119
1,100 Kroger Co. (a) 66,550
903 Limited Inc. 26,300
127 Longs Drug Stores Inc. 4,763
1,428 Lowes Companies Inc. 73,096
932 May Department Stores Co. 56,270
633 Nordstrom Inc. 21,957
227 Pep Boys Manny Moe & Jack 3,561
1,033 Rite Aid Corp. 51,198
2,009 Safeway Inc. (a) 122,423
1,583 Sears Roebuck & Co. 67,278
710 Sherwin Williams Co. 20,856
456 Tandy Corp. 18,782
1,302 TJX Companies Inc. 37,758
1,160 Toys R Us Inc. (a) 19,575
570 Venator Group Inc. (a) 3,669
9,303 Wal-Mart Stores Inc. 757,613
2,043 Walgreen Co. 119,643
637 Winn Dixie Stores Inc. 28,585
-----------
2,760,790
-----------
Technology (.2%)
837 BMC Software (a) 37,299
483 Solectron Corp. (a) 44,889
-----------
82,188
-----------
Telecom & Telecom Equipment (9.7%)
2,410 Airtouch Communications Inc. (a) 173,821
1,157 Alltel Corporation 69,203
4,576 Ameritech Corp. 290,004
405 Andrew Corp. (a) 6,683
7,482 AT&T Corp. 563,021
6,457 Bell Atlantic Corp. 366,838
8,172 Bellsouth Corp. 407,579
6,507 Cisco Systems Inc. (a) 603,931
</TABLE>
- ---------
12
<PAGE>
STATE FARM VARIABLE PRODUCT TRUST LARGE CAP EQUITY INDEX FUND
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
- ----------- -----------
<C> <S> <C>
703 Frontier Corp. $ 23,902
645 General Instrument Corp. (a) 21,890
4,017 GTE Corp. 270,896
359 Harris Corp. 13,148
5,444 Lucent Technologies Inc. 598,840
7,551 MCI Worldcom Inc. (a) 541,784
2,537 MediaOne Group (a) 119,239
2,527 Motorola Inc. 154,305
2,697 Northern Telecom Ltd. 135,187
8,095 SBC Communications 434,094
283 Scientific Atlanta Inc. 6,456
1,815 Sprint Corp. 152,687
1,779 Sprint Corp. PCS (a) 41,139
770 Tellabs Inc. (a) 52,793
2,053 US West Inc. 132,675
-----------
5,180,115
-----------
Textiles & Clothing (.2%)
271 Fruit of the Loom Inc. (a) 3,743
258 Liz Claiborne Inc. 8,143
1,190 Nike Inc. 48,269
187 Reebok International Ltd. (a) 2,782
148 Russell Corp. 3,006
90 Springs Industries Inc. Class A 3,729
509 VF Corp. 23,859
-----------
93,531
-----------
Tobacco (1.1%)
733 Fortune Brands Inc. 23,181
10,052 Philip Morris Companies Inc. 537,782
743 UST Inc. 25,912
-----------
586,875
-----------
Transportation (.4%)
1,981 Burlington North Santa Fe 66,859
876 CSX Corp. 36,354
491 New Century 23,936
1,553 Norfolk Southern Corp. 49,211
278 Ryder Systems Inc. 7,228
1,071 Union Pacific Corp. 48,262
-----------
231,850
-----------
Utilities & Energy (1.8%)
564 Ameren Corporation 24,076
794 American Electric Power Co. 37,368
645 Baltimore Gas & Elec. Co. 19,914
640 Carolina Power & Light Co. 30,120
834 Central & Southwest Corp. 22,883
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE
- ----------- -----------
<C> <S> <C>
665 Cinergy Corp. $ 22,859
934 Consolidated Edison Inc. 49,385
818 Dominion Resources Inc. 38,242
615 DTE Energy Co. 26,368
1,494 Duke Energy Corp. 95,709
1,462 Edison International 40,753
1,047 Entergy Corp. 32,588
1,030 Firstenergy Corp. 33,539
728 FPL Group Inc. 44,863
541 GPU Inc. 23,905
1,220 Houston Industries Inc. 39,193
738 Niagara Mohawk Power Corp. (a) 11,900
648 Northern States Power Co. 17,982
1,252 Pacificorp 26,370
879 Peco Energy Co. 36,588
1,560 PG&E Corp. 49,140
631 PP&L Resources Inc. 17,589
918 Public Service Enterprise Group 36,720
2,868 Southern Co. 83,351
1,172 Texas Utilities Co. Holding Co. 54,718
708 The AES Corp. (a) 33,542
867 Unicom Corp. 33,434
-----------
983,099
-----------
Total Common Stocks
(cost $34,455,064) 41,258,828
SHORT-TERM INVESTMENTS (22.6%)
U.S. Treasury Bills, 4.340% and 4.400%,
January, 1999 to February, 1999
$12,070,000 (cost $12,021,166) 12,026,423
-----------
TOTAL INVESTMENTS (100.0%)
(cost $46,476,230) 53,285,251
CASH AND OTHER ASSETS, LESS LIABILITIES (0.0%)
19,471
-----------
NET ASSETS (100.0%) $53,304,722
-----------
-----------
</TABLE>
Notes:
(a) Non-income producing security.
At December 31, 1998, net unrealized appreciation of $6,809,021 consisted of
gross unrealized appreciation of $7,618,309 and gross unrealized depreciation of
$809,288 based on cost of $46,476,230 for federal income tax purposes.
See accompanying notes to financial statements.
13-------
<PAGE>
STATE FARM VARIABLE PRODUCT TRUST SMALL CAP EQUITY INDEX FUND
PORTFOLIO OF INVESTMENTS
December 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- -----------
<C> <S> <C>
COMMON STOCKS (95.8%)
Commercial Service/Supply (3.0%)
269 AHL Services Inc. (a) $ 8,406
189 Answerthink Consulting Group (a) 5,079
492 Boron Lepore & Associates Inc. (a) 16,974
1,787 Building One Services (a) 37,304
1,218 Centertrust Retail Properties Inc. 14,920
702 Choicepoint Inc. (a) 45,279
866 CMG Information Services Inc. (a) 92,229
674 Concentric Network Corp. (a) 22,410
299 Crescent Operating Inc. (a) 1,420
295 Diamond Tech Partners Inc. (a) 5,642
1,191 Dollar Thrifty Automotive (a) 15,334
666 Doubleclick Inc. (a) 30,345
243 Duff & Phelps Credit Rating Co. 13,319
479 DVI Inc. (a) 8,682
2,205 E Spire Communications Inc. (a) 14,057
1,317 Eastern Environmental Services (a) 39,016
160 Edutrek International Inc. (a) 920
354 Electric Lightwave Inc. (a) 2,898
646 Entertainment Properties Trust 10,982
1,700 Equity Inns Inc. 16,362
546 First Consulting Group Inc. (a) 11,193
513 FYI Inc. (a) 16,416
992 Gaylord Entertainment Class A 29,884
1,040 Getty Images Inc. (a) 17,875
346 Golf Trust of America Inc. 9,601
494 Hagler Bailly Inc. (a) 9,880
373 ITI Technologies Inc. (a) 11,563
1,083 Labor Ready Inc. (a) 21,322
554 Lasalle Hotel Properties 5,748
755 Lasalle Partners Inc. (a) 22,225
923 Laser Mortgage Management Inc. 5,019
524 Lason Holdings Inc. (a) 30,490
270 Leasing Solutions Inc. (a) 1,097
826 Lexington Corporate Properties 10,377
340 Maximus Inc. (a) 12,580
1,208 Metal Management Inc. (a) 4,228
1,328 Metrocall Inc. (a) 5,810
1,200 Metromedia Fiber Network (a) 40,200
248 MGC Communications Inc. (a) 1,736
761 Midas Group Inc. 23,686
1,579 National Data Corp. 76,878
515 National RV Holdings Inc. (a) 13,261
1,270 Novacare Employee Services (a) 6,826
3,121 Olsten Corp. 23,017
290 Omni America Inc. (a) 9,280
517 Pan Pacific Retail Properties 10,308
464 Parkway Properties Inc. 14,500
355 Pegasus Communication Corp. (a) 8,897
787 Petersen Companies Inc. Class A (a) 26,660
328 Pierce Leahy Corp. (a) 8,364
912 PLD Telekom Inc. (a) 1,653
<CAPTION>
SHARES VALUE
- ---------- -----------
<C> <S> <C>
494 Probusiness Services Inc. (a) $ 22,477
927 Protection One Inc. (a) 7,937
1,124 PS Business Packages Inc. 26,835
355 Remedytemp Inc. (a) 5,369
1,394 Safety-Kleen Corp. (a) 19,690
522 Schawk Inc. 7,243
1,918 Security Capital Group (a) 26,013
3,106 Sensormatic Electronics Corp. (a) 21,548
1,093 SL Green Realty Corp. 23,636
399 SOS Staffing Services Inc. (a) 2,893
762 Tower Realty Trust Inc. 15,335
2,135 Unicapital Corp. (a) 15,746
United Payors & United Providers Inc.
659 (a) 18,781
588 URS Corp. (a) 13,744
571 US Restaurants Properties 13,882
1,697 Valassis Communications Inc. (a) 87,608
193 Waste Industries Inc. (a) 3,329
4,610 Wastemasters Inc. (a) 1,441
219 Western Staff Services Inc. (a) 1,369
-----------
1,227,028
-----------
Consumer & Marketing (.4%)
1,100 Arvin Industries Inc. 45,856
1,700 Jostens Inc. 44,519
300 Kenneth Cole Production Association (a) 5,625
2,162 Meristar Hospitality 40,132
164 Mine Safety Appliances Company 11,644
300 Syms Corp. (a) 2,700
500 Talbots Inc. 15,687
-----------
166,163
-----------
Consumer Discretionary (16.9%)
196 800-JR Cigar Inc. (a) 4,557
400 Abacus Direct Corp. (a) 18,200
800 ABM Industries Inc. 27,700
2,000 Acclaim Entertainment Inc. (a) 24,500
794 Ackerley Group Inc. 14,490
700 Action Performance Co. Inc. (a) 24,762
852 Adelphia Communications Corp. (a) 38,979
300 Administaff Inc. (a) 7,500
1,600 Adolph Coors Co. Class B 90,300
1,000 Advo Inc. (a) 26,375
450 Agribrands International (a) 13,500
700 Alternative Resources Corp. (a) 7,437
242 Ambassadors International Inc. (a) 3,569
300 AMC Entertainment Inc. (a) 6,319
400 Amerco Inc. (a) 11,175
264 American Classic Voyages Co. (a) 4,653
634 American Eagle Outfitters (a) 42,240
1,911 American Media Inc. (a) 10,630
2,000 American Mgmt. Systems Inc. (a) 80,000
761 American Retirement Corp. (a) 11,938
672 American Skiing Corp. (a) 5,166
</TABLE>
- ---------
14
<PAGE>
STATE FARM VARIABLE PRODUCT TRUST SMALL CAP EQUITY INDEX FUND
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- -----------
<C> <S> <C>
4,433 American Tower Corp. (a) $ 131,051
1,100 Ames Department Stores Inc. (a) 29,700
360 Anchor Gaming (a) 20,295
1,007 Ann Taylor Stores Corp. (a) 39,714
1,200 Apac Teleservices Inc. (a) 4,538
1,221 Applebees International Inc. 25,183
520 Applied Graphics Technologies (a) 8,580
8,646 Aqua Alliance (a) 17,832
700 Arron Rents Inc. 10,587
1,300 Ascent Entertainment Group (a) 9,587
356 At Entertainment Inc. (a) 2,403
900 Authentic Fitness Corp. 16,425
1,200 Avado Brands Inc. 9,975
400 Aviation Sales Co. (a) 16,250
2,100 Aztar Corp. (a) 10,631
200 Bacou USA Inc. (a) 4,300
1,400 Ball Corp. 64,050
1,114 Bally Total Fitness Holding Corp. (a) 27,711
657 Bandag Inc. 26,239
600 Bassett Furniture Industries 14,475
100 Berlitz International Inc. (a) 2,900
800 Big Flower Holdings Inc. (a) 17,650
345 Blair Corp. 7,655
1,900 Bob Evans Farms Inc. 49,519
590 Boise Cascade Office Prods. (a) 7,965
1,057 Borg Warner Automotive Inc. 58,994
600 Borg Warner Security Corp. (a) 11,250
1,700 Bowne & Co. Inc. 30,387
1,500 Boyd Gaming Corp. (a) 4,969
50 BRC Holdings Inc. (a) 937
2,400 Brightpoint Inc. (a) 33,000
800 Brown Group Inc. 14,050
300 Brylane Inc. (a) 6,975
300 Buckle Inc. (a) 7,200
1,234 Budget Group Inc. (a) 19,590
2,100 Buffets Inc. (a) 25,069
1,000 Burlington Coat Factory 16,312
500 Bush Industries Inc. 6,219
988 Caribiner International Inc. (a) 9,015
300 Carmike Cinemas Inc. (a) 6,094
415 Carriage Services Inc. (a) 11,802
258 Casella Waste Systems Inc. (a) 9,578
2,400 Caseys General Stores Inc. 31,275
1,200 Cash America Intl. Inc. 18,225
900 Catalina Marketing Corp. (a) 61,537
740 Cato Corp. 7,284
500 CDI Corp. (a) 10,094
544 CDNow Inc. (a) 9,792
825 CEC Entertainment (a) 22,894
1,400 Central Garden & Pet Co. (a) 20,125
493 Central Parking Corp. 15,992
514 Championship Auto Racing (a) 15,227
4,600 Charming Shoppes Inc. (a) 19,837
1,900 Checkfree Holdings Corp. (a) 44,412
<CAPTION>
SHARES VALUE
- ---------- -----------
<C> <S> <C>
800 Cheesecake Factory Inc. (a) $ 23,725
605 Childrens Place (a) 15,201
1,749 Chiquita Brands Intl. Inc. 16,725
1,716 Choice Hotels Intl. Inc. (a) 23,488
345 Churchill Downs Inc. 11,342
1,900 Claire's Stores Inc. 38,950
1,100 Clarcor Inc. 22,000
400 Cnet Inc. (a) 21,925
700 Coinmach Laundry Corp. (a) 9,100
426 Coldwater Creek Inc. (a) 5,857
600 Cole National Corp. (a) 10,275
400 Coleman Inc. (a) 3,650
300 Columbia Sportswear Co. (a) 5,062
700 Commercial Intertech Corp. 9,056
778 Computer Learning Centers Inc. (a) 5,203
600 Consolidated Cigar Holdings Inc. (a) 10,612
570 Consolidated Graphics Inc. (a) 38,511
1,000 Consolidated Products Inc. (a) 20,625
400 Copart Inc. (a) 12,950
4,753 Corporate Express Inc. (a) 24,656
400 Cost Plus Inc. (a) 12,550
400 Cox Radio Inc. (a) 16,900
433 CPI Corp. 11,474
907 CSK Auto Corp. (a) 24,206
274 CSS Industries Inc. (a) 8,306
800 Cylink Corp. (a) 2,900
500 Daisytek International Corp. (a) 9,500
700 Dames & Moore Group 9,012
868 Dan River Inc. (a) 10,199
200 Data Processing Resource Corp. (a) 5,850
629 Dave & Buster's Inc. (a) 14,506
338 Day Runner Inc. (a) 4,901
993 Delco Remy International Inc. (a) 9,744
100 Delia's Inc. (a) 1,250
800 Department 56 Inc. (a) 30,050
2,800 DeVry Inc. (a) 85,750
400 Discount Auto Parts Inc. (a) 8,775
600 Donna Karan Intl. Inc. (a) 4,575
442 Dover Downs Entertainment Co. 5,332
900 Dress Barn Inc. (a) 13,669
775 Duane Reade Inc. (a) 29,837
1,200 Eagle Hardware & Garden Inc. (a) 39,000
800 Education Management Corp. (a) 18,900
611 Elder Beerman Stores Corp. (a) 7,065
500 Emmis Broadcasting Corp. (a) 21,687
700 Enesco Group Inc. 16,275
880 Equity Corp. International (a) 23,375
3,355 Extended Stay America Inc. (a) 35,227
633 Fairchild Corp. (a) 9,970
2,000 Fairfield Communities Inc. (a) 22,125
950 Family Golf Centers Inc. (a) 18,762
1,500 Fedders USA Inc. 8,719
2,086 Federal Signal Corp. 57,104
2,300 Fingerhut Companies Inc. 35,506
</TABLE>
15-------
<PAGE>
STATE FARM VARIABLE PRODUCT TRUST SMALL CAP EQUITY INDEX FUND
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- -----------
<C> <S> <C>
800 Finish Line Inc. Class A (a) $ 6,400
314 Finlay Enterprises Inc. (a) 3,179
1,800 First Brands Corp. 70,987
1,185 Florida Panthers Holdings (a) 11,035
1,600 Foodmaker Inc. (a) 35,300
1,116 Footstar Inc. (a) 27,900
400 Fossil Inc. (a) 11,500
1,000 Franklin Covey Co. (a) 16,750
372 Fred's Inc. Class A 5,580
452 French Fragrances Inc. (a) 3,277
500 Friedmans Inc. (a) 5,125
900 G&K Services Inc. 47,925
300 Gadzooks Inc. (a) 2,325
600 Garden Ridge Corp. (a) 5,437
300 GC Companies Inc. (a) 12,487
1,600 Gencorp Inc. 39,900
1,200 Genesco Inc. (a) 6,825
536 Genesis Direct Inc. (a) 4,187
700 Gibson Greetings Inc. (a) 8,312
800 Global Directmail Corp. (a) 18,700
1,000 Global Industries Tech. Inc. (a) 10,687
820 Goody's Family Clothing Inc. (a) 8,226
1,767 Grand Casinos Inc. (a) 14,246
193 Gray Communications Systems 3,534
800 Great Atlantic & Pacific 23,700
29 Grey Advertising Inc. 10,556
1,500 Griffon Corporation (a) 15,937
581 Group 1 Automotive Inc. (a) 15,106
1,600 GT Interactive Software Corp. (a) 8,000
440 Guess Inc. (a) 2,117
800 Guitar Center Inc. (a) 19,700
900 Gulford Mills Inc. 15,019
1,100 Gymboree Corp. (a) 7,012
1,100 Ha-Lo Industries Inc. (a) 41,387
1,000 Hancock Fabrics Inc. 8,375
1,500 Handleman Co. (a) 21,094
5,319 Hanover Direct Inc. (a) 18,284
800 Harman Intl. Industries Inc. 30,500
1,088 Hartmarx Corp. (a) 6,120
277 Harveys Casino Resorts 7,669
385 Haverty Furniture Companies Inc. 8,085
2,800 Heilig Meyers Co. 18,725
600 Herballife International 8,550
1,854 Hollinger International 25,840
1,400 Hollywood Entertainment Corp. (a) 38,150
900 Hollywood Park Inc. (a) 7,481
800 Homestead Village Inc. (a) 3,600
812 Horizon Offshore Inc. (a) 4,466
1,300 Host Marriott Services Corp. (a) 13,487
1,159 Houghton Mifflin Co. 54,763
2,161 ICG Communications Inc. (a) 46,461
778 IDT Corp. (a) 11,962
400 IHOP Corp. (a) 15,975
700 Inacom Corp. (a) 10,412
<CAPTION>
SHARES VALUE
- ---------- -----------
<C> <S> <C>
1,300 Infousa Inc. (a) $ 6,825
1,500 Innkeepers USA Trust 17,719
660 Insight Enterprises Inc. (a) 33,577
2,200 Interim Services Inc. (a) 51,425
861 International Speedway Corp. 34,870
800 Iron Mountain Inc. (a) 28,850
800 ITT Educational Services Inc. (a) 27,200
800 Jo Ann Stores Inc. (a) 12,900
1,400 John H. Harland Co. 22,137
1,200 John Wiley & Sons Inc. Class A 57,975
574 Journal Register Co. (a) 8,610
1,100 Just For Feet Inc. (a) 19,112
800 Justin Industries Inc. 10,500
179 K&G Mens Center Inc. (a) 1,589
500 K2 Inc. 5,156
1,100 Kaman Corp. 17,669
1,000 Kellwood Co. 25,000
2,500 La Z Boy Inc. 44,531
1,100 Landry's Seafood Restaurants (a) 8,250
700 Lands End Inc. (a) 18,856
400 Learning Tree International (a) 3,625
2,062 Lee Enterprises 64,953
800 Libbey Inc. 23,150
1,833 Linens 'N Things Inc. (a) 72,633
800 Lo-Jack Corp. (a) 9,500
891 Lodgian Inc. (a) 4,344
1,700 Lone Star Steakhouse & Saloon (a) 15,619
1,400 Longs Drug Stores Inc. 52,500
1,100 Luby's Cafeterias Inc. 16,981
2,000 Lycos Inc. (a) 111,125
1,720 Mail-Well Inc. (a) 19,672
1,000 Marcus Corp. 16,250
400 Marvel Entertainment Group Inc. (a) 2,475
936 Maxim Group Inc. (a) 22,464
1,020 McClatchy Newspapers Inc. 36,082
200 Media Arts Group Inc. (a) 2,812
1,112 Media General Inc. 58,936
600 Memberworks Inc. (a) 17,700
950 Mens Wearhouse Inc. (a) 30,162
600 Merrill Corp. 11,587
1,300 Metamor Worldwide Inc. (a) 32,500
300 Metro Networks Inc. (a) 12,787
2,543 Metromedia Intl. Group Inc. (a) 13,828
800 Metzler Group Inc. (a) 38,950
1,200 Michaels Stores Inc. (a) 21,713
1,600 Micro Warehouse Inc. (a) 54,100
1,273 Midway Games Inc. (a) 14,003
400 Mikasa Inc. 5,100
1,665 Musicland Stores Corp. (a) 24,871
869 N2K Inc. (a) 11,351
300 National Presto Industries 12,787
1,500 Nautica Enterprises Inc. (a) 22,500
410 NCO Group Inc. (a) 18,450
600 New England Business Service 23,475
</TABLE>
- ---------
16
<PAGE>
STATE FARM VARIABLE PRODUCT TRUST SMALL CAP EQUITY INDEX FUND
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- -----------
<C> <S> <C>
4,100 New Plan Excel Realty Trust Inc. $ 90,969
800 NFO Worldwide Inc. (a) 9,200
700 Norrell Corp. 10,325
600 North Face Inc. (a) 7,800
400 NPC International Inc. (a) 4,825
700 O'Sullivan Industries Holdings (a) 7,350
1,437 Oakley Inc. (a) 13,651
500 On Assignment Inc. (a) 17,250
400 On Command Corp. (a) 3,625
600 Oneida Ltd. 8,887
145 Onsale Inc. (a) 5,809
600 Oshkosh B'Gosh Inc. 12,112
300 Oxford Industries Inc. 8,475
950 Pacific Sunwear CA Inc. (a) 15,556
156 Panavision Inc. (a) 1,931
1,000 Papa Johns International Inc. (a) 44,125
363 Party City Corp. (a) 5,241
900 Paxson Communications Corp. (a) 8,269
300 Penske Motorsports Inc. (a) 7,987
1,500 Personnel Group America (a) 26,250
900 Petco Animal Supplies Inc. (a) 9,056
5,416 Petsmart Inc. (a) 59,576
1,100 Phillips Van Heusen Corp. 7,906
300 Pillowtex Corp. 8,025
300 Pinkertons Inc. (a) 6,394
357 Pinnacle Systems Inc. (a) 12,763
366 PJ America Inc. (a) 6,634
800 Plantronics Inc. (a) 68,800
800 Playboy Enterprises Class B (a) 16,750
972 Pre Paid Legal Services Inc. (a) 32,076
2,892 Premier Parks Inc. (a) 87,483
200 Primadonna Resorts Inc. (a) 1,762
2,500 Prime Hospitality Corp. (a) 26,406
300 QRS Corp. (a) 14,400
498 Quaker Fabric Corp. (a) 3,112
600 Quiksilver Inc. (a) 18,000
1,000 Rainforest Cafe Inc. (a) 6,062
1,300 Red Roof Inns Inc. (a) 21,937
800 Regis Corp. 32,000
724 Rent Way Inc. (a) 17,602
1,059 Rental Service Corp. (a) 16,613
700 Renters Choice Inc. (a) 22,225
800 Rio Hotel & Casino Inc. (a) 12,700
800 Rollins Inc. 14,000
1,667 Romac International Inc. (a) 37,091
1,300 Ruby Tuesday Inc. 27,625
600 Rural/Metro Corp. (a) 6,562
500 Russ Berrie & Company Inc. 11,750
1,461 Russell Corp. 29,677
1,800 Ryans Family Steak House Inc. (a) 22,275
491 Samsonite Corp. (a) 2,731
600 Sbarro Inc. (a) 15,712
600 Scholastic Corp. (a) 32,175
500 Scientific Games Holdings Corp. (a) 9,437
<CAPTION>
SHARES VALUE
- ---------- -----------
<C> <S> <C>
239 Sequa Corporation Class A (a) $ 14,310
1,057 SFX Entertainment Inc. (a) 58,003
1,295 Shopko Stores Inc. (a) 43,059
242 Silverleaf Resorts Inc. (a) 2,254
1,889 Sitel Corp. (a) 4,604
205 SM&A Corp. (a) 3,895
900 Sonic Corp. (a) 22,387
600 Speedway Motorsports Inc. (a) 17,100
1,000 Spelling Entertainment Group (a) 7,500
1,500 Spiegel Inc. (a) 8,625
1,500 Sports Authority Inc. (a) 7,875
513 Springs Industries Inc. Class A 21,257
800 St. Johns Knits Inc. 20,800
747 Staff Leasing Inc. (a) 8,684
800 Staffmark Inc. (a) 17,900
1,300 Stage Stores Inc. (a) 12,187
900 Station Casinos Inc. (a) 7,369
1,231 Stein Mart Inc. (a) 8,579
388 Steinway Musical Instruments (a) 10,088
550 Stoneridge Inc. (a) 12,512
383 Strayer Education Inc. 13,501
2,200 Stride Rite Corp. 19,250
900 Sturm Ruger & Co. Inc. 10,744
500 Suburban Lodges America Inc. (a) 4,094
2,053 Sunglass Hut Intl. Inc. (a) 14,371
1,210 Sunterra Corp. (a) 18,150
1,300 Superior Services Inc. (a) 26,081
1,808 Sylvan Learning Systems Inc. (a) 55,144
870 Tecumseh Products Co. 40,564
592 Thermolase Corp. (a) 2,701
200 Timberland Co. (a) 9,112
600 TMP Worldwide Inc. (a) 25,200
600 Toro Co. 17,100
754 Trans World Entertainment Corp. (a) 14,373
400 Travel Services Intl. Inc. (a) 12,200
264 Trendwest Resorts Inc. (a) 3,300
700 Triarc Company Inc. (a) 11,200
400 Unifirst Corp. 9,125
700 United Auto Group Inc. (a) 6,431
200 United Natural Foods Inc. (a) 4,825
1,286 United Rentals Inc. (a) 42,599
1,700 United Stationers Inc. (a) 44,200
163 United Television Inc. 18,745
1,530 Universal Corp. 53,741
400 Urban Outfitters Inc. (a) 6,750
502 USA Floral Products Inc. (a) 5,773
1,200 Vail Resorts Inc. (a) 26,400
500 Value City Department Stores (a) 6,969
1,000 Veterinary Centers America Inc. (a) 19,937
400 Vincam Group Inc. (a) 7,025
300 Vistana Inc. (a) 4,200
1,176 Vlasic Foods International Inc. (a) 28,003
400 Volt Information Sciences (a) 9,025
421 Wackenhut Corp. 10,709
</TABLE>
17-------
<PAGE>
STATE FARM VARIABLE PRODUCT TRUST SMALL CAP EQUITY INDEX FUND
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- -----------
<C> <S> <C>
500 Wackenhut Corrections Corp. (a) $ 14,312
1,924 Walter Industries Inc. (a) 29,461
600 WD-40 Co. 17,175
500 West Marine Inc. (a) 4,937
800 West Teleservices Corp. (a) 7,800
1,000 Westwood One Inc. (a) 30,500
500 Wet Seal Inc. (a) 15,094
500 Wilmar Industries Inc. (a) 10,156
900 Windmere-Durable Holdings (a) 6,975
1,879 Wolverine World Wide Inc. 24,897
1,800 World Color Press Inc. (a) 54,787
400 Young Broadcasting Inc. (a) 16,750
1,700 Zale Corp. (a) 54,825
-----------
7,034,500
-----------
Consumer Staples (2.1%)
375 99 Cents Only Stores (a) 18,422
1,837 Advantica Restaurant Group Inc. (a) 11,366
820 Beringer Wine Estates (a) 36,644
679 Block Drug Inc. 29,442
600 Boston Beer Company Inc. (a) 5,100
300 Bush Boake Allen Inc. (a) 10,575
700 Canadaigua Brands Inc. (a) 40,469
800 Church & Dwight Inc. 28,750
100 Coca-Cola Bottling Co. 5,750
1,639 Corn Products Intl. Inc. 49,785
2,100 Dimon Inc. 15,619
1,000 Dreyer's Grand Ice Cream Inc. 15,125
2,000 Earthgrains Co. 61,875
28 Farmer Brothers Co. 5,992
1,800 Fleming Companies Inc. 18,675
319 General Cigar Holdings Inc. (a) 2,771
187 Genovese Drug Stores Inc. 5,329
608 Hain Food Group Inc. (a) 15,200
1,800 Homebase Inc. (a) 11,475
637 Imperial Holly Corp. 5,176
400 Ingles Markets Inc. 4,375
800 International Multifoods Corp. 20,650
1,200 JM Smucker Co. 29,700
983 Lance Inc. 19,599
600 Michael Food Inc. 18,000
700 Natures Sunshine Products Inc. 10,675
458 Omega Protein Corp. (a) 4,637
600 Performance Food Group (a) 16,875
200 Pilgrims Pride Corp. 3,987
1,680 Planet Hollywood Intl. Inc. (a) 3,885
1,500 Playtex Products Inc. (a) 24,094
1,500 Ralcorp Holdings Inc. (a) 27,375
2,200 Richfood Holdings Inc. 45,650
400 Riviana Foods Inc. 9,875
349 Robert Mondavi Corp. (a) 14,265
1,300 Ruddick Corp. 29,900
600 Schweitzer-Mauduit Intl. 9,262
14 Seaboard Corp. 5,908
<CAPTION>
SHARES VALUE
- ---------- -----------
<C> <S> <C>
400 Smart & Final Inc. $ 3,850
1,600 Smithfield Foods Inc. (a) 54,200
6,581 Southland Corp. (a) 12,545
784 TCBY Enterprises Inc. 5,488
1,000 Twinlab Corp. (a) 13,125
2,425 Universal Foods Corp. 66,536
500 Valhi Corp. 5,687
469 Weider Nutrition Intl. Inc. 2,990
553 Wild Oats Markets Inc. (a) 17,419
639 Zapata Corp. (a) 7,828
-----------
881,920
-----------
Durable Products (5.6%)
431 Advanced Energy Industries (a) 10,775
300 AFC Cable Systems Inc. (a) 10,087
1,300 Allen Telecom Inc. (a) 8,694
400 Allied Products 2,525
800 Alpine Group Inc. (a) 12,000
600 American Homestar Corp. (a) 9,000
1,500 Ametek Inc. 33,469
1,100 Antec Corp. (a) 22,137
1,840 Applied Power Inc. Class A 69,460
1,500 Artesyn Technologies Inc. (a) 21,000
2,400 Aspect Telecommunication Corp. (a) 41,400
1,545 Baldor Electric Co. 31,286
719 Banner Aerospace Inc. (a) 6,786
1,151 Blount International Inc. Class A 28,703
600 C&D Technologies Inc. 16,500
600 California Microwave Inc. (a) 5,625
1,950 Champion Enterprises Inc. (a) 53,381
850 Chart Industries Inc. 6,481
1,600 Cognex Corp. (a) 32,000
500 Cohu Inc. 11,000
500 Columbus McKinnon Corp. 9,000
1,000 Credence Systems Corp. (a) 18,500
525 CTS Corp. 22,837
700 Cuno Inc. (a) 11,375
200 Curtiss Wright 7,625
1,400 Cymer Inc. (a) 20,475
600 Daniel Industries 7,275
400 Detroit Diesel Corp. (a) 8,275
1,000 Dionex Corp. (a) 36,625
1,800 Donaldson Inc. 37,350
1,642 DR Horton Inc. 37,766
400 DT Industries Inc. 6,300
400 Ducommun Inc. (a) 5,525
200 Dupont Photomasks Inc. (a) 8,487
1,233 Earthshell Corp. (a) 14,719
500 Electro Scientific Industries Inc. (a) 22,656
900 Electroglas Inc. (a) 10,575
214 Essex International Inc. (a) 7,410
1,800 Flowerserve Corporation 29,812
200 Franklin Electric Co. Inc. 13,500
1,000 FSI International Inc. (a) 10,375
</TABLE>
- ---------
18
<PAGE>
STATE FARM VARIABLE PRODUCT TRUST SMALL CAP EQUITY INDEX FUND
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- -----------
<C> <S> <C>
600 Gardner Denver Inc. (a) $ 8,850
300 General Binding Corp. 11,175
1,670 General Cable Corp. 34,235
1,300 Genrad Inc. (a) 20,475
400 Gleason Corp. 7,250
672 Graco Inc. 19,824
275 Heico Corp. 8,680
900 Helix Technology Corp. 11,700
500 Holophane Corp. (a) 12,844
2,356 Hussman International Inc. 45,647
1,400 Idex Corp. 34,300
1,000 Inter Tel Inc. 23,375
2,100 Interdigital Communications (a) 9,581
600 Itron Inc. (a) 4,312
1,903 JLG Industries Inc. 29,734
1,900 Kaufman & Broad Home Corp. 54,625
1,300 Kent Electronics Corp. (a) 16,575
762 Keystone Automotive Industries Inc. (a) 15,954
1,700 Kimball Intl. Inc. Class B 32,300
700 Knoll Inc. (a) 20,737
468 Kroll O'Gara Company (a) 18,457
800 Kuhlman Corp. 30,300
1,100 Kulicke & Soffa Industries Inc. (a) 19,525
1,813 Lam Research Corp. (a) 32,294
550 Lindsay Manufacturing Co. 8,147
300 LS Starrett Co. Class A 10,294
310 Lufkin Industries Inc. 5,735
1,200 Magnetek Inc. (a) 13,875
800 Manitowoc Inc. 35,500
700 Matthews International Corp. 22,050
894 MDC Holdings Inc. 19,109
260 Meadowcraft Inc. (a) 2,909
1,820 Mettler Toledo Intl. Inc. (a) 51,074
800 Micros Systems Inc. (a) 26,300
1,800 Milacron Inc. 34,650
300 Moog Inc. (a) 11,737
388 Movado Group Inc. 10,330
900 MTS Systems Corp. 12,150
1,151 Nine West Group Inc. (a) 17,912
600 Nordson Corp. 30,825
400 NVR Inc. (a) 19,075
800 Oak Industries Inc. (a) 28,000
2,200 Oakwood Homes Corp. 33,412
800 OEA Inc. 9,450
500 Omniquip International Inc. 7,500
200 Optical Cable Corp. (a) 2,425
850 Palm Harbor Homes Inc. (a) 21,409
292 Parkervision Inc. (a) 6,862
1,700 Picturetel Corp. (a) 11,262
1,142 Precision Castparts Corp. 50,533
1,201 Presstek Inc. (a) 8,182
800 PRI Automation Inc. (a) 20,800
1,158 Pulte Corp. 32,207
1,000 Regal Beloit Corp. 23,000
<CAPTION>
SHARES VALUE
- ---------- -----------
<C> <S> <C>
400 Robbins & Myers Inc. $ 8,850
1,500 Roper Industries Inc. 30,562
700 Ryland Group Inc. 20,212
506 Sauer Inc. 3,827
500 Scotsman Industries Inc. 10,281
800 Scott Technologies Inc. (a) 13,225
1,456 Silicon Valley Group Inc. (a) 18,564
500 Specialty Equipment Companies Inc. (a) 13,531
1,200 Standard Pacific Corp. 16,950
1,200 Stewart & Stevenson Services Inc. 11,700
350 Superior Telecom Inc. 16,537
700 Technitrol Inc. 22,312
400 Tennant Co. 16,050
786 Terex Corp. (a) 22,450
700 Thermedics Inc. (a) 7,569
500 Thermo Fibertek Inc. (a) 3,562
1,100 Toll Brothers Inc. (a) 24,819
1,377 Trammell Crow Co. (a) 38,556
621 Tristar Aerospace Co. (a) 4,347
600 Triumph Group Inc. (a) 19,200
1,000 Ultratech Stepper Inc. (a) 16,000
3,178 Unisource Worldwide Inc. 23,040
600 US Home Corp. (a) 19,950
815 Varlen Corp. 18,796
400 Veeco Instruments Inc. (a) 21,250
797 Vicor Corp. (a) 7,173
273 Virco Manufacturing Corp. 5,016
700 Watts Industries Inc. 11,637
400 Woodward Governor Co. 8,850
700 X-Rite Inc. 5,425
-----------
2,348,475
-----------
Financial Services (21.2%)
1,000 Aames Financial Corp. (a) 3,187
500 Acceptance Insurance Companies Inc. (a) 10,125
1,092 Advanta Corp. 14,469
330 Advest Group Inc. 6,105
805 Affiliated Managers Group Inc. (a) 24,049
394 Alabama National Bancorp 10,515
500 Alexandria Real Estate 15,469
1,103 Alfa Corp. 26,748
1,369 Amcore Financial Inc. 31,337
400 American Annuity Group Inc. 9,200
1,100 American Health Properties Inc. 22,687
800 American Heritage Life Investment 19,550
500 American Medical Security Group 7,156
2,900 Americredit Corp. (a) 40,056
1,100 Amerin Corp. (a) 25,987
500 Ameritrade Holding Corp. (a) 15,750
800 Amerus Life Holdings Inc. 17,900
600 AMLI Residential Properties 13,350
264 Amplicon Inc. 3,976
800 Anchor Bancorp WI Inc. 19,200
300 Andover Bancorp Inc. 10,387
</TABLE>
19-------
<PAGE>
STATE FARM VARIABLE PRODUCT TRUST SMALL CAP EQUITY INDEX FUND
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- -----------
<C> <S> <C>
896 Anthracite Capital Inc. $ 7,000
2,000 Arcadia Financial Ltd. (a) 7,250
500 Area Bancshares Corp. 13,125
800 Argonaut Group Inc. 19,600
1,089 ARM Financial Group Inc. 24,162
800 Arthur J. Gallagher & Co. 35,300
761 Associated Estates Realty Corp. 8,989
338 Astec Industries Inc. (a) 18,801
812 BA Merchant Services Inc. (a) 16,341
600 Baldwin & Lyons Inc. Class B 14,850
200 Bancfirst Corp. 7,175
327 Bancfirst Ohio Corp. 9,933
2,092 Bancorpsouth Inc. 37,787
900 Banctec Inc. (a) 11,306
977 Bancwest Corp. 46,896
575 Bank of Granite Corp. 15,884
1,000 Bank Plus Corp. (a) 4,375
1,608 BankAtlantic Bancorp Inc. 11,457
700 Banknorth Group Inc. 26,337
561 Bankunited Financial Corp. Class A (a) 4,488
500 Barra Inc. (a) 11,812
900 Bay View Capital Corp. 19,519
1,000 Bedford Property Investors 16,875
1,800 Berkshire Realty Co. Inc. 17,100
1,600 Billing Concepts Corp. (a) 17,600
1,097 Bisys Group Inc. (a) 56,633
206 BOK Financial Corp. (a) 9,708
757 Boykin Lodging Co. 9,368
1,100 Bradley Real Estate Inc. 22,550
1,596 Brandywine Realty Trust 28,528
2,100 BRE Properties Inc. 51,975
540 Brenton Banks Inc. 9,045
629 Brookline Bancorp Inc. 7,233
300 BSB Bancorp Inc. 9,862
600 BT Financial Corp. 16,425
1,500 Burham Pacific Property Inc. 18,094
820 Cabot Industrial Trust 16,759
2,079 Camden Property Trust 54,054
878 Capital Automotive REIT 13,060
150 Capital City Bank Group Inc. 4,144
1,000 Capital Re Corp. 20,062
400 Capital Transamerica Corp. 7,475
2,700 Capstead Mortgage Corp. (a) 11,137
997 Carolina First Corp. 25,237
338 Cathay Bancorp Inc. 13,858
600 CB Richard Ellis Services Inc. (a) 10,875
1,100 CBL & Associates Properties 28,394
1,037 CCA Prison Realty Trust 21,258
1,100 CCC Information Services Group (a) 18,975
694 Centennial Bancorp (a) 13,012
800 Centerpoint Properties Trust 27,050
2,314 Century Business Systems (a) 33,264
388 Century South Banks Inc. 10,815
360 CFSB Bancorp Inc. 8,775
<CAPTION>
SHARES VALUE
- ---------- -----------
<C> <S> <C>
848 Charles E. Smith Residential $ 27,242
969 Charter Municipal Mortgage Accept. 11,749
400 Chartwell Re Corp. 9,500
944 Chateau Communities Inc. 27,671
700 Chelsea GCA Realty Inc. 24,937
625 Chemical Financial Corp. 21,250
676 Chicago Title Corp. 31,730
700 Chittenden Corp. 22,400
1,100 Citizens Banking Corp. 37,125
729 City Holding Co. 23,684
1,100 CMAC Investment Corp. 50,531
800 CNA Surety Corp. 12,600
1,455 CNB Bancshares Inc. 67,839
1,200 Colonial Properties Trust 31,950
510 Columbia Banking Systems Inc. (a) 9,435
1,083 Commerce Bancorp Inc. 56,857
1,204 Commerce Group Inc. 42,667
2,790 Commercial Federal Corp. 64,693
1,300 Commercial Net Lease Realty 17,225
700 Commonwealth Bancorp Inc. 10,894
300 Community Bank System Inc. 8,794
2,192 Community First Bankshare Inc. 46,169
500 Community Trust Bancorp Inc. 11,750
631 Conning Corp. 13,093
581 Contifinancial Corp. (a) 4,140
1,894 Cornerstone Realty Income Trust 19,887
600 Cort Business Services Corp. (a) 14,550
400 Corus Bankshares Inc. 12,900
1,200 Cousins Properties Inc. 38,700
1,700 Crawford & Co. Class B 26,244
1,100 Credit Acceptance Corp. (a) 8,044
2,300 CRIIMI MAE Inc. 8,050
979 Crown American Realty 7,587
1,251 Cullen Frost Bankers Inc. 68,649
550 CVB Financial Corp. 12,375
376 D&N Savings Bank 8,883
700 Dain Rauscher Corp. 20,650
722 Delphi Financial Group Inc. (a) 37,860
300 Delta Financial Corp. (a) 1,781
2,714 Developers Diversified Realty 48,173
500 Dime Community Bancshares 10,312
1,400 Doral Financial Corp. 30,975
935 Downey Financial 23,784
2,000 Dynex Capital Inc. (a) 9,250
1,700 E Trade Group Inc. (a) 79,528
800 Eastgroup Properties 14,750
1,300 Eaton Vance Corp. 27,137
700 Electro Rent Corp. (a) 11,287
1,178 Enhance Financial Services Group Inc. 35,340
1,000 Envoy Corporation (a) 58,250
700 Essex Property Trust Inc. 20,825
600 Everen Capital Corp. 13,650
382 Evergreen Bancorp Inc. 12,272
600 EW Blanch Holdings Inc. 28,462
</TABLE>
- ---------
20
<PAGE>
STATE FARM VARIABLE PRODUCT TRUST SMALL CAP EQUITY INDEX FUND
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- -----------
<C> <S> <C>
500 Executive Risk Inc. $ 27,469
304 F&M Bancorp MD 9,956
540 F&M Bancorporation Inc. 16,335
1,000 F&M National Corp. 29,937
300 Factset Research Systems Inc. (a) 18,525
500 Fair Isaac & Co. Inc. 23,094
314 Farmers Capital Bank Corp. 11,775
1,500 FBL Financial Group Inc. 36,375
294 Federal Agriculture Mortgage Corp. (a) 10,915
1,900 Federal Realty Investment Trust 44,887
2,996 Felcor Lodging Trust Inc. 69,095
1,100 Fidelity National Financial 33,550
400 Financial Federal Corp. (a) 9,900
2,442 First American Financial Corp. 78,449
1,200 First Bancorp 36,225
761 First Charter Corp. 13,127
282 First Citizens Bancshare Inc. 25,380
600 First Commerce Bancshares Inc. 16,800
1,000 First Commonwealth Financial Corp. 24,500
700 First Federal Capital Corp. 11,462
1,365 First Financial Bancorp 39,500
440 First Financial Bankshare Inc. 15,400
300 First Financial Corp. IN 14,812
600 First Financial Holdings Inc. 11,400
460 First Indiana Corp. 9,200
1,800 First Industrial Realty Trust Inc. 48,262
509 First Liberty Financial Corp. 10,689
475 First Merchants Corp. 12,409
1,207 First Midwest Bancorp Inc. 45,941
400 First Republic Bank (a) 10,025
1,373 First Sentinel Bancorp Inc. 11,156
524 First Sierra Financial Inc. (a) 6,419
618 First Source Corporation 20,703
1,400 First Union Real Estate 8,225
1,000 First United Bancshares Inc. 17,750
540 First Washington Bancorp Inc. 12,960
500 First Western Bancorp 16,000
248 Firstcity Financial Corp. (a) 3,208
900 Firstfed Financial Corp. (a) 16,087
300 Flagstar Bancorp Inc. 7,837
825 FNB Corp. 23,306
835 Foremost Corp. of America 17,535
403 FPIC Insurance Group Inc. (a) 19,268
2,300 Franchise Finance Corp. 55,200
431 Franchise Mortgage Acceptance (a) 3,340
590 Freedom Securities Corp. 8,924
1,094 Friedman Billings Ramsey Group (a) 7,111
308 Frontier Financial Corp. (a) 14,091
1,500 Frontier Insurance Group Inc. 19,312
200 Fund American Enterprises 28,012
1,235 Gables Residential Trust 28,637
700 GBC Bancorp CA 18,025
1,700 General Growth Properties Inc. 64,387
400 Getty Realty Corp. 5,850
<CAPTION>
SHARES VALUE
- ---------- -----------
<C> <S> <C>
1,500 Glenborough Realty Trust Inc. $ 30,562
1,100 Glimcher Realty Trust 17,256
359 Gold Banc Corp. Inc. 5,520
750 Grand Premier Financial Inc. 9,187
800 Great Lakes REIT Inc. 12,550
410 Greater Bay Bancorp 13,837
400 Guarantee Life Companies Inc. 7,400
800 Hambrecht & Quist Group Inc. (a) 18,150
400 Hamilton Bancorp Inc. (a) 10,675
400 Hancock Holding Co. 18,200
780 Harbor Florida Bancshares Inc. 8,726
500 Harleysville Group Inc. 12,906
300 Harleysville National Corp. 11,700
500 Harris Financial Inc. 6,812
380 Haven Bancorp Inc. 5,700
1,800 HCC Insurance Holdings Inc. 31,725
954 Headlands Mortgage Co. (a) 19,974
1,343 Health Care REIT Inc. 34,750
603 Healthcare Financial Partners (a) 24,045
1,500 Healthcare Property Investors 46,125
1,866 Healthcare Realty Trust Inc. 41,635
600 Highlands Insurance Group (a) 7,837
600 Hilb Rogal & Hamilton Co. 11,925
800 Home Properties of NY Inc. 20,600
1,670 Hospitality Properties Trust 40,289
1,350 HSB Group Inc. 55,434
1,930 Hubco Inc. 58,141
1,200 IMC Mortgage Co. (a) 338
1,200 IMPAC Mortgage Holdings Inc. 5,475
1,500 Imperial Bancorp (a) 24,937
1,559 Imperial Credit Commercial Mortgage 14,616
1,512 Imperial Credit Industries Inc. (a) 12,663
3,543 Independence Community Bank 56,467
600 Independent Bank Corp. 10,425
733 Insignia Financial Group Inc. (a) 8,888
545 International Bancshares Corp. 27,591
600 Interpool Inc. 10,050
1,047 Interwest Bancorp Inc. 23,165
200 Investment Technology Group (a) 12,412
300 Investors Financial Services Corp. 17,887
1,400 IRT Property Co. 14,000
900 Irvine Apartment Communities 28,687
500 Irwin Financial Corp. 13,594
1,450 JDN Realty Corp. 31,266
467 Jeffbanks Inc. 9,223
657 Jefferies Group Inc. 32,604
389 Jefferson Savings Bancorp Inc. 5,106
300 John Nuveen Co. Class A 11,137
600 JP Realty Inc. 11,775
400 JSB Financial Inc. 21,750
154 Kansas City Life Insurance Co. 12,589
1,264 Kilroy Realty Corp. 29,072
1,200 Koger Equity Inc. 20,625
719 Landamerica Financial Group 40,129
</TABLE>
21-------
<PAGE>
STATE FARM VARIABLE PRODUCT TRUST SMALL CAP EQUITY INDEX FUND
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- -----------
<C> <S> <C>
500 Liberty Corp. $ 24,625
900 Life USA Holding Inc. 11,587
1,200 LNR Property Corp. 23,925
864 Local Financial Corp. (a) 7,776
1,000 Long Beach Financial Corp. (a) 7,500
1,300 LTC Properties Inc. 21,612
1,400 Macerich Co. 35,875
1,100 MAF Bancorp Inc. 29,150
302 Mahoning National Bancorp Inc. 9,362
700 Mainstreet Bankgroup Inc. 32,506
1,000 Manufactured Home Communities Inc. 25,062
163 Markel Corp. (a) 29,503
400 McGrath Rentcorp 8,800
300 Meadowbrook Insurance Group 4,931
534 Medallion Financial Corp. 7,643
1,100 Medical Assurance Inc. (a) 36,369
400 Merchants New York Bancorp 14,475
1,500 Meridian Industrial Trust Inc. 35,250
356 Meta Group Inc. (a) 10,591
873 Metris Companies Inc. 43,923
600 MGI Properties 16,762
99 Michigan Financial Corp. 3,366
900 Mid America Apartment Communities Inc. 20,419
409 Mid America Bancorp 11,094
159 Midland Co. 3,836
733 Mills Corp. 14,568
300 Mississippi Valley Bancshares 10,125
700 MMI Companies Inc. 11,725
1,300 Morgan Keegan Inc. 24,456
700 NAC Re Corp. 32,856
754 National Bancorp Alaska 25,447
276 National City Bancorporation (a) 7,245
525 National City Bancshares Inc. 19,589
600 National Golf Properties Inc. 17,362
1,100 National Health Investors Inc. 27,156
600 National Penn Bancshares Inc. 16,350
300 National Processing Inc. (a) 1,650
63 National Western Life Insurance Co. (a) 7,402
2,000 Nationwide Health Properties 43,125
625 NBT Bancorp Inc. 14,609
652 Northwest Bancorp Inc. 6,357
3,250 Nova Corp. GA (a) 112,734
200 Nymagic Inc. 4,150
600 Ocean Financial Corp. 9,975
900 Ocwen Asset Investment (a) 4,331
1,300 Old National Bancorp Indiana 72,475
400 Omega Financial Corp. 12,100
900 Omega Healthcare Investor Inc. 27,169
1,600 One Valley Bancorp Inc. 52,600
520 Oriental Financial Group Inc. 16,282
3,694 Oxford Health Plans Inc. (a) 54,948
800 Pacific Gulf Properties Inc. 16,050
400 Park National Corp. 41,200
715 Paymentech Inc. (a) 13,227
<CAPTION>
SHARES VALUE
- ---------- -----------
<C> <S> <C>
588 PBOC Holdings Inc. (a) $ 6,027
200 Pec Israel Economic Corp. (a) 5,750
300 Penn Treaty American Corp. (a) 8,081
1,000 Penncorp Financial Group Inc. (a) 1,000
500 Pennsylvania Real Estate 9,719
1,700 Peoples Bancorp Inc. 18,487
288 Peoples Holdings Co. 9,306
700 PFF Bancorp Inc. (a) 11,200
Philadelphia Consolidated Holding Corp.
(a) 6,787
300
2,000 Phoenix Investment Partners 16,875
226 Pinnacle Banc Group Inc. 6,441
1,000 Pioneer Group Inc. (a) 19,750
701 PMA Capital Corp. 13,713
500 Poe & Brown Inc. 17,469
1,210 Premier Bancshares Inc. 31,687
1,800 Prentiss Properties Trust 40,162
1,000 Presidential Life Corp. 19,875
582 Preview Travel Inc. (a) 10,731
397 Prime Bancorp Inc. 6,253
273 Prime Bancshares Inc. 4,709
227 Prime Group Realty Trust 3,433
1,920 Prime Retail Inc. 18,840
500 Profit Recovery Group Intl. (a) 18,719
1,104 Provident Bankshares Corp. 27,462
500 PXRE Corp. 12,531
850 Queens County Bancorp Inc. 25,287
1,300 Realty Income Corp. 32,337
1,898 Reckson Associates Realty Corp. 42,112
500 Redwood Trust Inc. (a) 7,000
699 Regency Realty Corp. 15,553
1,200 Reinsurance Group America Inc. 84,000
400 Reliance Bancorp Inc. 11,125
950 Republic Bancorp Inc. 12,944
252 Republic Bancshares Inc. (a) 3,307
355 Republic Banking Corp. of FL 3,772
2,229 Republic Security Financial Corp. 27,027
862 Resource America Inc. 7,812
700 Resource Bancshares Mortgage Group 11,594
1,000 RFS Hotel Investors Inc. 12,250
1,192 Richmond County Financial Corp. 19,146
900 Riggs National Corp. 18,337
638 Risk Capital Holdings Inc. (a) 13,876
374 RLI Corp. 12,435
2,300 Rollins Truck Leasing Corp. 33,925
1,900 Roslyn Bancorp Inc. 40,850
96 RSI (a) 396
1,316 S&T Bancorp Inc. 36,272
417 Sandy Spring Bancorp Inc. 12,562
700 Santa Barbara Bancorp 18,025
700 Scipe Holdings Inc. 21,219
624 SEI Investments Corp. 62,010
1,300 Selective Insurance Group 26,162
306 Shoreline Financial Corp. 8,071
</TABLE>
- ---------
22
<PAGE>
STATE FARM VARIABLE PRODUCT TRUST SMALL CAP EQUITY INDEX FUND
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- -----------
<C> <S> <C>
1,300 Shurgard Storage Centers Inc. $ 33,556
427 Signal Corp. 14,625
887 Silicon Valley Bancshares (a) 15,107
286 Simmons First Nation 10,618
326 SIS Bancorp Inc. 14,751
1,787 Sky Financial Group Inc. 47,244
1,900 Sotherbys Holdings Inc. Class A 60,800
300 Southern Pacific Funding Corp. (a) 24
900 Southwest Bancorp Texas Inc. (a) 16,087
540 Southwest Securities Group Inc. 10,867
551 Sovran Self Storage Inc. 13,844
1,924 St. Paul Bancorp Inc. 52,369
600 State Auto Financial Corp. 7,425
2,061 Staten Island Bancorp Inc. 41,091
360 Sterling Bancorp 8,212
1,050 Sterling Bancshares Inc. 15,619
286 Sterling Financial Corp. 11,869
279 Stewart Information Services Corp. 16,182
700 Storage Trust Realty 16,362
1,300 Storage USA Inc. 42,006
200 Student Loan Corp. 8,975
1,000 Summit Properties Inc. 17,250
800 Sun Communities Inc. 27,850
1,682 Sunstone Hotel Investors Inc. 15,874
1,600 Susquehanna Bancshare Inc. 32,750
269 Tanger Factory Outlet Centers 5,699
1,800 Taubamn Centers Inc. 24,750
700 Texas Regional Bancshares 17,544
1,000 Thornburg Mortgage Asset Corp. 7,625
2,008 TIG Holdings Inc. 31,249
700 Town & Country Trust 11,244
700 TR Financial Corp. 27,562
500 Trenwick Group Inc. 16,312
600 Triad Guaranty Inc. (a) 13,237
1,150 Triangle Bancorp Inc. 18,184
1,100 Trinet Corp. Realty Trust Inc. 29,425
800 Trust Company of NJ 19,600
1,250 Trustco Bank Corp. NY 37,500
1,807 UICI (a) 44,271
718 UMB Financial Corp. 32,938
2,000 United Bankshares Inc. 53,000
1,200 United Companies Financial (a) 4,050
4,797 United Dominion Realty Trust 49,469
300 United Fire & Casualty Co. 10,087
445 United National Bancorp 10,346
451 Urban Shopping Centers Inc. 14,770
600 US Bancorp Inc. 11,925
443 USB Holding Co. Inc. 7,476
1,998 UST Corp. 47,078
100 Value Line Inc. 3,937
600 Vermont Financial Services 19,950
500 Vesta Insurance Group Inc. 3,000
800 Walden Residential Properties 16,350
1,700 Washington Real Estate 31,662
<CAPTION>
SHARES VALUE
- ---------- -----------
<C> <S> <C>
419 Washington Trust Bancorp Inc. $ 9,008
1,727 Webster Financial Corp. 47,385
900 Weeks Corp. 25,369
1,225 Weingarten Realty Investors 54,666
754 Wellsford Real Properties Inc. (a) 7,776
1,000 Wesbanco Inc. 29,500
650 West Coast Bancorp OR 13,650
1,900 Westamerica Bancorporation 69,825
400 Westcorp Inc. 2,775
836 Western Bancorp 24,453
800 Western Investment Real Estate 9,450
2,000 Westernbank Puerto Rico 31,750
1,421 Westfield America Inc. 24,512
1,100 Whitney Holding Corp. 41,250
Wilshire Financial Services Group Inc.
171 (a) 107
1,000 WR Berkley Corp. 34,062
500 WSFS Financial Corp. 8,437
733 Xtra Corp. 30,328
500 Zenith National Insurance Corp. 11,562
-----------
8,836,819
-----------
Health Care (9.6%)
1,281 ABR Information Services Inc. (a) 25,140
1,000 Acuson Corp. (a) 14,875
2,420 Acxiom Corp. (a) 75,020
950 ADAC Laboratories (a) 18,970
438 Advance Paradigm Inc. (a) 15,330
1,900 Advanced Tissue Inc. (a) 4,928
737 Affymetrix Inc. (a) 17,964
1,500 Agouron Pharmaceutical Inc. (a) 88,125
1,966 Alaris Medical Inc. (a) 11,550
500 Algos Pharmaceuticals Corp. (a) 13,000
900 Alkermes Inc. (a) 19,969
800 Alpharma Inc. 28,250
700 Alternative Living Services (a) 23,975
400 American Homepatient Inc. (a) 725
1,300 American Oncology Research Inc. (a) 18,931
641 Ameripath Inc. (a) 5,729
1,023 Amerisource Health Corp. (a) 66,495
300 Andrx Corp. (a) 15,375
1,871 Apria Healthcare Group Inc. (a) 16,722
700 Arrow International Inc. 21,962
747 Assisted Living Concept Inc. (a) 9,804
629 Aviron (a) 16,275
1,800 AXYS Pharmaceuticals Inc. (a) 10,575
1,400 Ballard Medical Products 34,037
400 Barr Laboratories Inc. (a) 19,200
733 Bindley Western Industries Inc. 36,100
500 Bio Rad Labs Inc. (a) 10,500
2,300 Bio Technology General Corp. (a) 15,956
296 Biomatrix Inc. (a) 17,242
404 Brookdale Living Communities (a) 7,878
531 Capital Senior Living Corp. (a) 7,401
500 Carematrix Corp. (a) 15,313
</TABLE>
23-------
<PAGE>
STATE FARM VARIABLE PRODUCT TRUST SMALL CAP EQUITY INDEX FUND
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- -----------
<C> <S> <C>
1,000 Carter Wallace Inc. $ 19,625
1,233 Cell Genesys Inc. (a) 7,398
577 Centennial Healthcare Corp. (a) 8,944
1,500 Cephalon Inc. (a) 13,500
1,200 Cerner Corp. (a) 32,100
490 Chattem Inc. (a) 23,459
529 Chirex Inc. (a) 11,307
300 Closure Medical Corp. (a) 8,944
1,000 Columbia Laboratories Inc. (a) 3,063
2,153 Concentra Managed Care Inc. (a) 23,010
700 Conmed Corp. (a) 23,100
700 Cooper Companies Inc. (a) 14,481
1,100 Cor Therapeutics Inc. (a) 14,575
594 Coulter Pharmaceutical Inc. (a) 17,820
2,700 Covance Inc. (a) 78,638
2,723 Coventry Health Care Inc. (a) 23,996
600 Curative Health Services (a) 20,100
700 Cytyc Corp. (a) 18,025
600 Datascope Inc. (a) 13,800
500 Diagnostic Products Corp. 15,563
2,304 Dura Pharmaceuticals Inc. (a) 34,992
514 Entremed Inc. (a) 10,794
1,000 Enzo Biochem Inc. (a) 10,313
1,576 Express Scripts Inc. (a) 105,789
1,844 Fisher Scientific Intl. (a) 36,765
800 Fuisz Technologies Ltd. (a) 10,300
600 Geltex Pharmaceuticals Inc. (a) 13,575
1,712 Genesis Health Ventures Inc. (a) 14,980
3,600 Gensia Sicor Inc. (a) 16,313
1,400 Gilead Sciences Inc. (a) 57,488
800 Guilford Pharmaceuticals Inc. (a) 11,400
1,100 Haemonetics Corp. (a) 25,025
808 Hanger Orthopedic Group (a) 18,180
400 Healthplan Services Corp. 4,600
1,160 Henry Schein Inc. (a) 51,910
669 Heska Corp. (a) 2,969
600 Hologic Inc. (a) 7,275
660 Hooper Holmes Inc. 19,140
1,000 Human Genome Sciences Inc. (a) 35,563
1,700 ICOS Corp. (a) 50,575
800 IDEC Pharmaceuticals Corp. (a) 37,600
1,700 IDEXX Laboratories Corp. (a) 45,741
414 IDX Systems Corp. (a) 18,216
1,091 Imclone Systems Inc. (a) 9,887
1,061 Immune Response Corp. (a) 11,538
346 Impath Inc. (a) 9,169
1,100 Incyte Pharmaceuticals Inc. (a) 41,113
700 Inhale Therapeutic Systems (a) 23,100
1,046 Invacare Corp. 25,104
1,200 ISIS Pharmaceuticals Inc. (a) 15,525
4,387 Ivax Corp. (a) 54,563
1,100 Jones Pharmaceutical Inc. 40,150
376 Kendle International Inc. (a) 8,789
650 KV Pharmaceutical Co. (a) 13,447
<CAPTION>
SHARES VALUE
- ---------- -----------
<C> <S> <C>
100 Labone Inc. $ 1,300
2,600 Laboratory Corp. American Holdings (a) 3,575
400 Landauer Inc. 12,950
511 Lifecore Biomedical Inc. (a) 5,238
1,800 Ligand Pharmaceuticals Inc. (a) 20,925
2,100 Liposome Co. Inc. (a) 32,419
1,047 Macrochem Corp. (a) 8,834
1,600 Magellan Health Services Inc. (a) 13,400
3,310 Mariner Post-Acute Network Inc. (a) 15,102
675 Maxxim Medical Inc. (a) 20,081
3,700 Medaphis Corporation (a) 12,141
500 Medical Manager Corp. (a) 15,688
900 Medicis Pharmaceutical Corp. (a) 53,663
1,135 Medimmune Inc. (a) 112,862
1,100 Medquist Inc. (a) 43,450
1,100 Mentor Corp. 25,781
2,100 Mid Atlantic Medical Services Inc. (a) 20,606
1,500 Millennium Pharmaceuticals Inc. (a) 38,813
300 Minimed Inc. (a) 31,425
400 Miravant Medical Technologies (a) 5,150
339 National Healthcare Corp. (a) 5,255
2,419 NBTY Inc. (a) 17,235
659 NCS Healthcare Inc. (a) 15,651
500 Neurogen Corp. (a) 8,750
1,300 Nexstar Pharmaceuticals Inc. (a) 12,025
2,800 Novacare Inc. (a) 7,000
343 Novoste Corp. (a) 9,733
398 Ocular Sciences Inc. (a) 10,647
600 OEC Medical Systems Inc. (a) 18,863
1,400 Organogenesis Inc. (a) 15,750
1,700 Orthodontic Centers America (a) 33,044
1,000 Owens & Minor Inc. 15,750
1,200 Parexel International Corp. (a) 30,000
800 Pathogenesis Corp. (a) 46,400
1,050 Patterson Dental Co. (a) 45,675
715 Pediatrix Medical Group Inc. (a) 42,855
300 Perclose Inc. (a) 9,938
3,000 Perrigo Co. (a) 26,438
Pharmaceutical Product Development Inc.
(a) 24,050
800
601 Pharmacyclics Inc. (a) 15,326
3,000 Pharmerica Inc. (a) 18,000
3,570 Phycor Inc. (a) 24,321
1,200 Phymatrix Inc. (a) 2,625
1,300 Physician Reliance Network Inc. (a) 17,063
599 Priority Healthcare Corp. (a) 31,073
900 Protein Design Labs Inc. (a) 20,925
419 Province Healthcare Co. (a) 15,032
3,275 PSS World Medical Inc. (a) 75,325
1,400 Quest Diagnostics Inc. (a) 24,938
1,200 Regeneron Pharmaceutical Inc. (a) 8,850
1,900 Renal Care Group Inc. (a) 54,744
550 Res-Care Inc. (a) 13,578
678 Resmed Inc. (a) 30,764
</TABLE>
- ---------
24
<PAGE>
STATE FARM VARIABLE PRODUCT TRUST SMALL CAP EQUITY INDEX FUND
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- -----------
<C> <S> <C>
1,268 Respironics Inc. (a) $ 25,400
1,200 Roberts Pharmaceutical Inc. (a) 26,100
500 Sabratek Corp. (a) 8,188
800 Sangstat Medical Corp. (a) 17,000
245 Schein Pharmaceutical Inc. (a) 3,568
1,900 Scios Inc. (a) 19,713
1,300 Sepracor Inc. (a) 113,831
1,500 Sequus Pharmaceuticals Inc. (a) 30,375
1,100 Serologicals Corp. (a) 33,000
1,100 Sierra Health Services Inc. (a) 23,169
1,100 Sola International Inc. (a) 18,975
485 Sugen Inc. (a) 7,154
2,443 Sun Healthcare Group Inc. (a) 16,032
700 Sunrise Assisted Living Inc. (a) 36,313
900 Sunrise Medical Inc. (a) 11,194
481 Supergen Inc. (a) 4,449
300 Superior Consultant Holdings (a) 13,050
900 Techne Corp. (a) 19,013
1,200 Theragenics Corp. (a) 20,175
800 Thermo Cardiosystems Inc. (a) 8,350
800 Transition Systems Inc. (a) 12,000
800 Transkaryotic Therapies Inc. (a) 20,300
400 Trex Medical Corp. (a) 3,400
900 Triangle Pharmaceuticals Inc. (a) 12,263
1,300 US Bioscience Inc. (a) 9,344
2,794 Vencor Inc. (a) 12,573
639 Ventana Medical Systems (a) 13,818
2,465 Ventas Inc. (a) 30,042
1,200 Vertex Pharmaceuticals Inc. (a) 35,700
700 Vical Inc. (a) 9,931
472 Viropharma Inc. (a) 4,396
643 VISX Inc. (a) 56,222
300 Vital Signs Inc. 5,250
1,300 Vivus Inc. (a) 3,372
459 Wesley Jessen Visioncare Inc. (a) 12,737
600 West Inc. 21,413
601 Xomed Surgical Products Inc. (a) 19,232
1,700 Zila Inc. (a) 16,788
560 Zonagen Inc. (a) 10,710
-----------
3,992,218
-----------
Machinery & Manufacturing (.6%)
1,000 Applied Industrial 13,875
1,132 Briggs & Stratton Corp. 56,459
296 BWAY Corp. (a) 4,459
1,500 Cadiz Land Inc. (a) 11,438
247 Cal Dive International Inc. (a) 5,125
2,230 Catalytica Inc. (a) 40,140
943 Cavalier Homes Inc. 10,727
417 Hardinge Inc. 7,688
543 Monaco Coach Corp. (a) 14,390
254 Nacco Industries Inc. 23,368
1,214 Rohn Industries Inc. (a) 4,173
1,229 Tyler Corp. (a) 7,528
<CAPTION>
SHARES VALUE
- ---------- -----------
<C> <S> <C>
1,751 Unova Inc. (a) $ 31,737
348 US Xpress Enterprises Inc. (a) 5,220
-----------
236,327
-----------
Materials & Processes (6.7%)
1,500 A. Schulman Inc. 34,031
600 Advanced Lighting Technologies (a) 5,850
1,835 Agribiotech Inc. (a) 23,740
2,821 Airgas Inc. (a) 25,213
2,170 Alaska Steel Holding Corp. 50,995
822 Albany International Corp. 15,569
900 Albemarle Corp. 21,375
150 Alexanders Inc. (a) 11,728
500 AM Castle & Co. 7,500
1,100 Amcol International Corp. 10,863
697 American Business Products Inc. 16,380
816 American Italian Pasta Co. (a) 21,522
228 Ameron International Corp. 8,436
913 Anicom Inc. (a) 8,388
1,300 Apogee Enterprises 14,625
1,408 Aptargroup Inc. 39,512
300 Avatar Holdings Inc. (a) 4,800
1,400 Banta Corp. 38,325
379 Barnett Inc. (a) 5,211
1,100 Belden Inc. 23,306
1,100 Birmingham Steel Corp. 4,606
1,400 BMC Industries Inc. 8,750
1,000 Brady Wholesale Co. Class A 26,938
800 Brush Wellman Inc. 13,950
1,100 Buckeye Technologies Inc. (a) 16,431
2,900 Burlington Industries Inc. (a) 31,900
300 Butler Manufacturing Co. 6,713
1,500 Calgon Carbon Corp. 11,250
900 Calmat Co. 27,788
1,100 Cambrex Corp. 26,400
1,200 Caraustar Industries Inc. 34,275
400 Carbide/Graphite Group Inc. (a) 5,900
919 Carpenter Technology Corp. 31,189
600 Castle & Cooke Inc. (a) 8,850
400 Centex Construction Products 16,250
525 Century Aluminum Co. 4,955
450 Chase Industries Inc. (a) 4,697
400 Chemed Corp. 13,400
900 Chemfirst Inc. 17,775
900 Chesapeake Corp. 33,188
612 Citation Corp. (a) 7,727
500 Cleveland Cliffs Inc. 20,156
2,797 Collins & Aikman Corp. (a) 14,335
1,738 Comfort Systems USA Inc. (a) 31,067
600 Commercial Metals Co. 16,650
600 Commonwealth Industries Inc. 5,625
1,100 Cone Mills Corp. (a) 6,188
322 Crossmann Communities Inc. (a) 8,895
500 Culp Inc. 3,938
</TABLE>
25-------
<PAGE>
STATE FARM VARIABLE PRODUCT TRUST SMALL CAP EQUITY INDEX FUND
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- -----------
<C> <S> <C>
1,700 Dal-Tile International Inc. (a) $ 17,638
600 Deltic Timber Corp. 12,225
1,100 Dexter Corp. 34,581
547 Dycom Industries Inc. (a) 31,247
600 Elcor Corp. 19,388
550 Encore Wire Corp. (a) 5,088
1,700 Ferro Corp. 44,200
600 Florida Rock Industries Inc. 18,600
600 Foamex International Inc. 7,425
600 Forest City Enterprises 15,750
1,906 Foster Wheeler Corp. 25,135
800 Furon Co. 13,650
500 Galey & Lord Inc. (a) 4,313
2,500 Gaylord Container Corp. Class A (a) 15,313
400 General Chemical Group Inc. 5,550
1,100 Geon Co. 25,300
1,400 Georgia Gulf Corp. 22,488
1,500 Getchell Gold Corp. (a) 40,875
400 Giant Cement Holding Inc. (a) 9,900
287 Gibraltar Steel Corp. (a) 6,529
865 Granite Construction Inc. 29,032
700 Greif Bros. Corp. 20,431
1,308 Group Maintenance America Co. (a) 15,860
1,000 Grubb & Ellis Co. (a) 8,063
324 Gulf Island Fabrication Inc. (a) 2,511
600 HB Fuller 28,875
2,900 Hecla Mining Co. (a) 10,513
626 Hexcel Corp. (a) 5,243
1,011 Hughes Supply Inc. 29,572
400 Hunt Corp. 4,250
700 IMCO Recycling Inc. 10,806
988 Insituform Technology Inc. (a) 14,326
785 Integrated Electrical Services (a) 17,466
2,100 Interface Inc. 19,491
900 Intermet Corp. 11,756
800 Ionics Inc. (a) 23,950
1,059 ITEQ Inc. (a) 2,250
892 Ivex Packaging Corp. (a) 20,739
1,100 Jacobs Engineering Group Inc. (a) 44,825
180 JLK Direct Distribution (a) 1,834
800 Juno Lighting Inc. 18,700
1,400 Kaiser Aluminum Corp. (a) 6,825
1,500 Kaydon Corp. 60,094
567 Kellstrom Industries Inc. (a) 16,301
300 Lawson Products Inc. 6,900
1,300 Lawter International Inc. 15,113
400 Learonal Inc. 13,550
1,100 Lilly Industrials Inc. 21,931
800 Lone Star Industries Inc. 29,450
1,000 Lone Star Technologies Inc. (a) 10,125
2,400 Longview Fibre Co. 27,750
700 Lydall Inc. (a) 8,313
2,000 MA Hanna Co. 24,625
681 Macdermid Inc. 26,644
<CAPTION>
SHARES VALUE
- ---------- -----------
<C> <S> <C>
600 Maverick Tube Corp. (a) $ 3,338
227 Maxxam Inc. (a) 13,024
400 McWhorter Technologies Inc. (a) 9,150
921 Minerals Technologies Inc. 37,703
1,300 Mississippi Chemical Corp. 18,200
1,632 Morrison Knudsen Corp. (a) 15,912
1,690 Mueller Industries Inc. (a) 34,328
900 National Steel Corp. 6,413
100 NCH Corp. 5,950
800 NCI Building Systems Inc. (a) 22,500
1,000 NL Industries 14,188
471 Nortek Inc. (a) 13,011
1,100 OM Group Inc. 40,150
1,000 Oregon Steel Mills Inc. 11,875
1,700 Paxar Corp. (a) 15,194
1,200 PH Glatfelter Co. 14,850
1,200 Polymer Group Inc. (a) 11,925
1,309 Potlatch Corp. 48,269
467 Price Enterprises Inc. 2,481
200 Puerto Rican Cement Co. Inc. 6,988
700 Quanex Corp. 15,794
500 Reliance Steel & Aluminum Co. 13,813
400 Republic Group Inc. 8,025
646 Rock-Tenn Company 10,942
400 Rouge Industries Inc. 3,500
200 Ryerson Tull Inc. (a) 1,950
900 Scotts Co. (a) 34,594
700 Service Experts Inc. (a) 20,475
300 Shaw Group Inc. (a) 2,400
200 Shiloh Industries Inc. (a) 2,625
950 Shorewood Packaging Corp. (a) 19,475
530 Silgan Holdings Inc. (a) 14,732
200 Simpson Manufacturing Co. Inc. (a) 7,488
600 Spartech Corp. 13,200
100 Special Metals Corp. (a) 894
500 SPS Technologies Inc. (a) 28,313
600 Standard Register 18,563
500 Standex International Corp. 13,125
300 Stepan Co. 7,988
900 Stillwater Mining Co. (a) 36,900
300 Stone & Webster Inc. 9,975
825 Synetic Inc. (a) 36,300
400 Tejon Ranch Co. 7,950
1,650 Terra Industries Inc. 10,209
500 Tetra Technologies Inc. (a) 5,469
1,325 Tetra Tech. Inc. (a) 35,858
1,000 Texas Industries Inc. 26,938
700 Thomas Industries Inc. 13,738
1,090 Titanium Metals Corp. 9,265
600 TJ International Inc. 15,413
956 Tredegar Industries Inc. 21,510
200 Tremont Corporation 6,650
700 Universal Forest Products 14,044
1,000 Valmont Industries Inc. 13,875
</TABLE>
- ---------
26
<PAGE>
STATE FARM VARIABLE PRODUCT TRUST SMALL CAP EQUITY INDEX FUND
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- -----------
<C> <S> <C>
1,027 Watsco Inc. $ 17,202
2,613 Wausau-Mosinee Paper Corp. 46,217
700 Webb Corp. 19,294
1,430 Wellman Inc. 14,568
700 Wolverine Tube Inc. (a) 14,700
900 Wyman Gordon Co. (a) 9,225
400 Zoltek Companies Inc. (a) 3,675
-----------
2,802,784
-----------
Mining & Metals (.8%)
4,271 Armco Inc. (a) 18,686
1,669 Asarco Inc. 25,139
10,503 Battle Mountain Gold Co. 43,325
5,941 Bethlehem Steel Corp. (a) 49,756
2,763 Ethyl Corp. 16,060
1,260 Inland Steel Industries Inc. 21,263
676 Ladish Company Inc. (a) 5,662
4,552 LTV Corp. 26,459
1,268 Metals USA Inc. (a) 12,363
859 NS Group Inc. (a) 3,812
332 Penford Corp. 5,312
1,285 Rayonier Inc. 59,030
552 Roanoke Electric Steel Corp. 8,108
700 RTI International Metals Inc. (a) 9,800
169 Schnitzer Steel Industries 2,429
1,128 Southern Peru Copper Corp. 10,646
1,600 Steel Dynamics Inc. (a) 18,800
724 WHX Corp. (a) 7,285
-----------
343,935
-----------
Oil, Gas, & Other Energy (2.7%)
600 ACX Technologies Inc. (a) 7,950
839 Arch Coal Inc. 14,368
500 Atwood Oceanics (a) 8,500
1,500 Barrett Resources Corp. (a) 36,000
400 Belco Oil & Gas Corp. (a) 2,225
1,100 Benton Oil & Gas Co. (a) 3,300
800 Berry Petroleum Co. Class A 11,350
1,000 Cabot Oil & Gas Corp. 15,000
900 Calpine Corp. (a) 22,725
200 Carbo Ceramics Inc. 3,500
2,898 Chesapeake Energy Corp. (a) 2,536
1,400 Comstock Resources Inc. (a) 4,288
1,900 Cross Timbers Oil Co. 14,250
1,000 Devon Energy Corp. 30,688
273 Dril-Quip (a) 4,846
1,100 Eastern Enterprises 48,125
2,006 EEX Corp. (a) 14,042
1,700 Equitable Resources Inc. 49,513
500 Forcenergy Inc. (a) 1,313
1,500 Forest Oil Corp. (a) 12,750
596 Friede Goldman Inc. (a) 6,780
1,200 Frontier Oil Corp. (a) 5,925
6,591 Grey Wolf Inc. (a) 5,355
<CAPTION>
SHARES VALUE
- ---------- -----------
<C> <S> <C>
276 Gulfmark Offshore Inc. (a) $ 4,347
1,382 Hanover Compressor Co. (a) 35,500
6,200 Harken Energy Corp. (a) 12,013
2,347 Helmerich & Payne Inc. 45,473
300 Holly Corp. 5,063
400 Houston Exploration Co. (a) 7,950
700 HS Resources Inc. (a) 5,294
707 IRI International Corp. (a) 2,828
1,200 KCS Group Inc. 3,675
6,300 Kelly Oil & Gas Corp. (a) 3,741
800 Key Energy Group Inc. (a) 3,750
900 Louis Dreyfus Natural Gas (a) 12,825
2,500 Marine Drilling Companies Inc. (a) 19,219
1,900 Meridian Resource Corp. (a) 6,056
876 Mitchell Energy & Development Corp. 10,019
1,700 Newfield Exploration Co. (a) 35,488
3,100 Newpark Resources (a) 21,119
600 North Carolina Natural Gas Corp. 19,913
900 Nuevo Energy Co. (a) 10,350
1,000 Oceaneering International Inc. (a) 15,000
678 Octel Corp. (a) 9,407
259 Omni Energy Services Corp. (a) 1,101
1,503 Oneok Inc. 54,296
2,700 Parker Drilling Co. (a) 8,606
1,500 Patterson Energy Inc. (a) 6,094
290 Penn Virginia Corp. 5,329
1,364 Pennzoil-Quaker State Co. (a) 20,205
1,630 Peoples Energy Corp. 64,996
800 Plains Resources Inc. (a) 11,250
1,798 Pogo Producing Co. 23,374
1,000 Pool Energy Services Co. (a) 10,813
2,400 Pride International Inc. (a) 16,950
1,600 Range Resources Corp. 5,500
600 RPC Inc. 4,425
200 Rutherford-Moran Oil Corp. (a) 563
4,670 Santa Fe Energy Resources Inc. (a) 34,441
600 Seacor Smit Inc. (a) 29,663
1,100 Seitel Inc. (a) 13,681
1,611 Snyder Oil Corp. 21,446
500 St. Mary Land & Exploration Co. 9,250
600 Stone Energy Corp. (a) 17,250
1,305 Superior Energy Services Inc. (a) 3,711
600 Swift Energy Co. (a) 4,425
1,035 Syntroleum Corp. (a) 6,404
1,500 Tesoro Petroleum Corp. (a) 18,188
356 Thermo Ecotek Corp. (a) 3,760
1,600 Titan Exploration Inc. (a) 10,500
1,200 Tom Brown Inc. (a) 12,038
1,200 Transmontaigne Oil Co. (a) 18,150
441 Transtexas Gas Corp. (a) 1,158
900 Trico Marine Services Inc. (a) 4,388
2,000 Tuboscope Inc. (a) 16,250
570 UTI Energy Corp. (a) 4,133
1,000 Veritas DGC Inc. (a) 13,000
</TABLE>
27-------
<PAGE>
STATE FARM VARIABLE PRODUCT TRUST SMALL CAP EQUITY INDEX FUND
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- -----------
<C> <S> <C>
1,813 Vintage Pete Inc. $ 15,637
-----------
1,105,334
-----------
Technology (15.1%)
661 3DFX Interactive Inc. (a) 8,345
321 Aavid Thermal Technology Inc. (a) 5,417
900 Actel Corp. (a) 18,000
900 Adtran Inc. (a) 16,481
245 Advantage Learning System Inc. (a) 16,109
200 Advent Software Inc. (a) 9,425
363 Alliant Techsystems Inc. (a) 29,925
419 Alydaar Software Corp. (a) 3,457
1,753 Amkor Technology Inc. (a) 18,954
700 Amphenol Corp. (a) 21,131
560 Anacomp Inc. (a) 10,430
309 Analogic Corp. 11,626
1,000 Analysts International Corp. 19,250
1,181 Anixter International Inc. (a) 23,989
200 APEX PC Solutions Inc. (a) 5,775
1,110 Applied Micro Circuits Corp. (a) 37,705
268 Aris Corp. (a) 3,199
338 Artisan Components Inc. (a) 1,796
241 Aspec Technology Inc. (a) 316
800 Aspect Development Inc. (a) 35,450
1,100 Aspen Technology Inc. (a) 15,950
800 ATMI Inc. (a) 20,200
4,176 Aura Systems Inc. (a) 4,176
1,400 Avanti Corp. (a) 22,400
1,078 Avid Technology Inc. (a) 25,198
400 AVT Corp. (a) 11,600
1,126 Axent Technologies Inc. (a) 34,413
2,326 BEA Systems Inc. (a) 28,494
800 Bell & Howell Co. (a) 30,250
500 Benchmark Electronics Inc. (a) 18,313
800 Black Box Corp. (a) 30,300
1,300 Boole & Babbage Inc. (a) 38,269
2,500 Borland International Inc. (a) 13,750
774 Broadvision Inc. (a) 24,768
1,104 Burr Brown Corp. (a) 25,875
1,600 C-Cube Microsystems Inc. (a) 43,400
1,400 Cable Design Technologies Co. (a) 25,900
622 CD Radio Inc. (a) 21,304
300 CDW Computer Centers Inc. (a) 28,781
1,500 Cellnet Data Systems Inc. (a) 7,500
1,500 Cellstar Corporation (a) 10,219
1,400 Checkpoint Systems Inc. (a) 17,325
1,500 CHS Electronics Inc. (a) 25,406
3,100 Cirrus Logic Inc. (a) 30,419
1,000 Clarify Inc. (a) 24,438
1,100 Coherent Inc. (a) 13,681
182 Com21 Inc. (a) 3,822
1,810 Commscope Inc. (a) 30,431
600 Complete Business Solutions (a) 20,325
1,400 Compucom Systems Inc. (a) 4,900
<CAPTION>
SHARES VALUE
- ---------- -----------
<C> <S> <C>
1,435 Computer Horizons Corp. (a) $ 38,207
100 Computer Management Sciences (a) 1,738
900 Computer Task Group Inc. 24,413
606 Concord Communications Inc. (a) 34,391
526 Cotelligent Group Inc. (a) 11,210
1,200 CSG Systems Intl. Inc. (a) 94,800
200 Cubic Corp. 3,750
4,019 Cypress Semiconductor Corp. (a) 33,408
1,364 Dallas Semiconductor Corp. 55,583
2,300 Data General Corp. (a) 37,806
500 Data Transmission Network Corp. (a) 14,438
705 Datastream Systems Inc. (a) 8,108
569 Dataworks Corp. (a) 5,939
500 Davox Corp. (a) 3,813
300 DBT Online Inc. (a) 7,481
505 Decisionone Holdings Corp. (a) 2,399
300 Deltek Systems Inc. (a) 5,063
904 Dendrite International Inc. (a) 22,572
471 Dialogic Corp. (a) 9,258
1,800 Diamond Multimedia Systems Inc. (a) 11,475
583 Digi International Inc. (a) 6,486
2,900 Digital Microwave Corp. (a) 19,847
1,100 DII Group Inc. (a) 25,644
600 Documentum Inc. (a) 32,063
1,800 DSP Communications Inc. (a) 27,563
558 DST Sytems (a) 31,841
680 Earthlink Network Inc. (a) 38,760
2,526 Electronics For Imaging Inc. (a) 101,514
324 Engineering Animation Inc. (a) 17,496
800 Esterline Technologies Corp. (a) 17,400
1,000 ETEC Systems Inc. (a) 40,000
500 Evans & Sutherland Computer (a) 8,813
268 Excel Switching Corp. (a) 10,184
1,246 Excite Inc. (a) 52,410
588 Exodus Communications Inc. (a) 37,779
1,345 Filenet Corp. (a) 15,426
100 Forrester Research Inc. (a) 4,375
1,455 General Magic Inc. (a) 7,321
1,223 General Semiconductor Inc. (a) 10,013
387 Genesys Telecommunication Labs (a) 8,611
592 Genlyte Group Inc. (a) 11,100
900 Geotel Communications Corp. (a) 33,525
900 Gerber Scientific Inc. 21,431
2,800 Glenayre Technologies Inc. (a) 12,425
360 Great Plains Software Inc. (a) 17,370
1,949 GTECH Holdings Corp. (a) 49,943
600 HADCO Corp. (a) 21,000
1,381 Harbinger Corp. (a) 11,048
537 Harmon Industries Inc. 12,385
1,800 HMT Technology Corp. (a) 23,063
1,214 HNC Software Inc. (a) 49,091
400 HTE Inc. (a) 2,000
900 Hutchinson Technology Inc. (a) 32,063
466 Hypercom Software Corp. (a) 4,602
</TABLE>
- ---------
28
<PAGE>
STATE FARM VARIABLE PRODUCT TRUST SMALL CAP EQUITY INDEX FUND
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- -----------
<C> <S> <C>
1,365 Hyperion Solutions Corp. (a) $ 24,570
320 ICON CMT Corp. (a) 5,120
452 IGEN Inc. (a) 13,843
1,900 Imation Corp. (a) 33,250
550 IMRglobal Corporation (a) 16,191
1,499 Indus International Inc. (a) 10,493
1,200 Industri-Matematik Intl. Corp. (a) 6,000
1,400 Information Resources Inc. (a) 14,263
7,217 Informix Corp. (a) 71,268
1,123 Infoseek Corp. (a) 55,448
700 Innovex Inc. 9,603
1,900 Input/Output Inc. (a) 13,894
522 INSpire Insurance Solutions (a) 9,592
3,800 Integrated Device Technology (a) 23,275
800 Integrated Process Equipment Corp. (a) 8,600
800 Integrated Systems Inc. (a) 11,950
242 Intelligroup Inc. (a) 4,326
1,979 Intergraph Corp. (a) 11,379
900 International Network Services (a) 59,850
2,400 International Rectifier Corp. (a) 23,400
520 International Telecommunication (a) 7,670
239 ISS Group Inc. (a) 13,145
2,352 ITC Deltacom Inc. (a) 35,868
1,013 Jabil Circuit Inc. (a) 75,595
600 Jack Henry & Associates Inc. 29,850
915 JDA Software Group Inc. (a) 8,864
1,700 Kemet Corp. (a) 19,125
2,523 Komag Inc. (a) 26,176
525 Kopin Corp. (a) 11,025
400 Kronos Inc. (a) 17,725
270 L-3 Communications Holdings Inc. (a) 12,572
1,059 Lattice Semiconductor Corp. (a) 48,615
802 LCC International Inc. (a) 3,008
1,700 Legato Systems Inc. (a) 112,094
1,650 Level One Communications Inc. (a) 58,575
900 Littelfuse Inc. (a) 17,325
1,600 Macromedia Inc. (a) 53,900
204 Manhattan Associates Inc. (a) 5,559
900 Manugistics Group Inc. (a) 11,250
688 Mapics Inc. (a) 11,352
2,508 Mark IV Industries Inc. 32,604
800 Marshall Industrials (a) 19,600
600 Mastec Inc. (a) 12,600
941 Mastech Corp. (a) 26,936
812 MEMC Electrical Materials Inc. (a) 6,902
2,900 Mentor Graphics Corp. (a) 24,650
700 Mercury Interactive Corp. (a) 44,275
3,655 Merisel Inc. (a) 8,681
1,600 Methode Electronics 25,000
300 Metro Information Services Inc. (a) 9,000
600 Micrel Inc. (a) 33,000
900 Microage Inc. (a) 13,838
2,349 Microchip Technology Inc. (a) 86,913
513 Micromuse Inc. (a) 10,004
<CAPTION>
SHARES VALUE
- ---------- -----------
<C> <S> <C>
1,664 Micron Electronics Inc. (a) $ 28,808
759 Mindspring Enterprises Inc. (a) 46,346
1,412 MMC Networks Inc. (a) 18,709
234 Mobius Management Systems Inc. (a) 3,481
1,000 MRV Communications Inc. (a) 6,188
1,174 MTI Technology Corp. (a) 5,283
1,300 National Computer Systems Inc. 48,100
700 National Instruments Corp. (a) 23,888
500 Natural Microsystems Corp. (a) 3,641
935 Neomagic Corp. (a) 20,687
2,800 Network Appliance Inc. (a) 126,000
1,000 Network Equipment Technologies (a) 10,313
216 Network Solutions Inc. (a) 28,269
606 New Era of Networks Inc. (a) 26,664
500 Nichols Research Corp. (a) 10,438
475 Norstan Inc. (a) 8,431
1,576 Novellus Systems Inc. (a) 78,012
2,300 Oak Technology Inc. (a) 8,050
700 Objective Systems Integrators (a) 3,238
1,100 Open Market Inc. (a) 12,856
1,900 P-Com Inc. (a) 7,570
3,326 Pairgain Technologies Inc. (a) 25,569
400 Park Electrochemical Corp. 11,450
540 Pegasus Systems Inc. (a) 19,440
248 Pegasystems Inc. (a) 1,031
383 Peregrine Systems Inc. (a) 17,762
1,000 Photronics Inc. (a) 23,969
1,200 Pioneer Standard Electronics 11,250
1,052 Platinum Software Corp. (a) 13,479
700 Plexus Corp. (a) 23,713
1,400 PMC Sierra Inc. (a) 88,375
672 Polycom Inc. (a) 14,952
387 Pomeroy Computer Resources (a) 8,708
700 Powertel Inc. (a) 9,494
200 Powerwave Technologies Inc. (a) 3,725
1,500 Premiere Technologies Inc. (a) 11,063
1,100 Premisys Communications Inc. (a) 10,106
958 Primark Corp. (a) 25,986
245 Primex Technologies Inc. 10,413
800 Progress Software Corp. (a) 27,000
300 Project Software & Development Inc. (a) 10,050
2,000 PSINet Inc. (a) 41,750
400 QAD Inc. (a) 1,425
382 QLogic Corporation (a) 49,994
824 QuadraMed Corp. (a) 16,892
400 Radiant Systems Inc. (a) 2,950
700 Rambus Inc. (a) 67,375
4,000 Rational Software Corp. (a) 106,000
1,235 Rayovac Corp. (a) 32,959
2,200 Read-Rite Corp. (a) 32,519
380 RealNetworks Inc. (a) 13,633
434 Recoton Corp. (a) 7,785
900 Remec Inc. (a) 16,200
1,000 Remedy Corp. (a) 13,938
</TABLE>
29-------
<PAGE>
STATE FARM VARIABLE PRODUCT TRUST SMALL CAP EQUITY INDEX FUND
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- -----------
<C> <S> <C>
600 Renaissance Worldwide Inc. (a) $ 3,675
400 Rogers Corp. (a) 11,950
158 RWD Technologies Inc. (a) 3,417
2,700 S3 Inc. (a) 19,870
1,300 Safeguard Scientifics Inc. (a) 35,669
303 Sanchez Computer Associates (a) 8,863
900 Sandisk Corp. (a) 12,713
500 Sapient Corporation (a) 28,000
600 Sawtek Inc. (a) 10,500
577 SCB Computer Technology Inc. (a) 5,698
537 SCM Microsystems Inc. (a) 38,161
600 SDL Inc. (a) 23,775
1,802 Security Dynamics Technology Inc. (a) 41,446
600 Semtech Inc. (a) 21,525
2,000 Sequent Computer Systems Inc. (a) 24,125
1,200 Shiva Corp. (a) 6,788
500 Siliconix Inc. (a) 10,375
792 Sipex Corp. (a) 27,819
650 SLI Inc. (a) 18,038
1,200 Smart Modular Technology Inc. (a) 33,300
1,421 Software AG Systems Inc. (a) 25,756
722 Spectra-Physics Lasers Inc. (a) 6,859
730 Speedfam International Inc. (a) 12,501
600 Splash Technology Holdings Inc. (a) 4,463
627 Sportsline USA Inc. (a) 9,758
317 SPR Inc. (a) 5,468
388 SS&C Technologies Inc. (a) 4,802
1,078 Star Telecommunications Inc. (a) 13,138
1,700 Structural Dynamics Research (a) 33,788
3,843 Sybase Inc. (a) 28,462
751 Sykes Enterprises Inc. (a) 22,906
2,500 Symantec Corp. (a) 54,375
359 Syntel Inc. (a) 4,061
1,700 System Software Associates Inc. (a) 11,953
1,600 Systems & Computer Technology (a) 22,000
1,088 Tava Technologies Inc. (a) 8,296
1,900 Technology Solutions Co. (a) 20,366
1,554 Tekelec (a) 25,738
381 Telegroup Inc. (a) 500
1,033 Teletech Holdings Inc. (a) 10,588
700 Telxon Corp. (a) 9,713
225 Thermo Bioanalysis Corp. (a) 2,981
100 Thermo Optek Corp. (a) 869
200 Thermoquest Corp. (a) 2,588
400 Thermotrex Corp. (a) 3,425
400 Transaction Network Services (a) 8,025
1,246 Transaction Systems Architects (a) 62,300
1,000 Trimble Navigation Ltd. (a) 7,250
1,100 Unitrode Corp. (a) 19,250
292 US LEC Corp. (a) 4,325
2,783 US Web Corp. (a) 73,402
1,161 USN Communications Inc. (a) 218
2,000 Vanstar Corp. (a) 18,500
1,272 Vantive Corp. (a) 10,176
<CAPTION>
SHARES VALUE
- ---------- -----------
<C> <S> <C>
276 Verio Inc. (a) $ 6,176
206 Verisign Inc. (a) 12,180
900 Viasoft Inc. (a) 6,300
2,392 Vishay Intertechnology Inc. (a) 34,684
1,200 Visio Corp. (a) 43,875
951 Visual Networks Inc. (a) 35,663
1,981 VLSI Technology Inc. (a) 21,667
700 VWR Scientific Products Corp. (a) 12,163
2,004 Wallace Computer Services Inc. 52,856
2,200 Wang Laboratories Inc. (a) 61,050
763 Waverphore Inc. (a) 6,128
600 Westell Technologies Inc. (a) 2,925
1,300 Whittman-Hart Inc. (a) 35,913
1,000 Wind River Systems Inc. (a) 47,000
1,200 World Access Inc. (a) 25,650
1,100 Xircom Inc. (a) 37,400
1,500 Xylan Corp. (a) 26,344
1,100 Zebra Technologies Corp. (a) 31,625
-----------
6,278,675
-----------
Transportation (4.3%)
1,300 AAR Corp. 31,038
900 Aftermarket Technology Corp. (a) 7,088
1,558 Air Express International Corp. 33,887
500 Airnet Systems Inc. (a) 7,188
2,523 Airtran Holdings Inc. (a) 6,623
1,224 Alaska Air Group Inc. (a) 54,162
1,875 Alexander & Baldwin 43,594
1,900 America West Holding Corp. (a) 32,300
900 American Freightways Corp. (a) 10,378
173 Amtran Inc. (a) 4,693
683 AO Smith Corp. 16,776
900 Arctic Cat Inc. 9,169
900 Arnold Industries Inc. 14,513
1,000 ASA Holdings Inc. 30,500
532 Atlantic Coast Airlines Hldgs. (a) 13,300
400 Atlas Air Inc. (a) 19,575
800 Aviall Inc. (a) 9,400
1,269 Avis Rent A Car Inc. (a) 30,694
400 Avondale Industries Inc. (a) 11,600
652 Barnes Group Inc. 19,153
1,300 BE Aerospace Inc. (a) 27,300
700 Breed Technologies Inc. (a) 5,731
1,929 CH Robinson Worldwide Inc. 50,033
600 Circle International Group Inc. 12,300
1,111 Coach USA Inc. (a) 38,538
800 Coachmen Industries Inc. 21,000
1,000 Consolidated Freightways Corp. (a) 15,875
400 Covenant Transport Inc. (a) 7,150
423 Dispatch Management Services Corp. (a) 1,718
400 Eagle USA Airfreight Inc. (a) 9,800
500 Excel Industries Inc. 8,750
900 Exide Corp. 14,625
1,200 Expeditors International 50,400
</TABLE>
- ---------
30
<PAGE>
STATE FARM VARIABLE PRODUCT TRUST SMALL CAP EQUITY INDEX FUND
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- -----------
<C> <S> <C>
500 Florida East Coast Industries $ 17,594
1,100 Fritz Companies Inc. (a) 11,894
3,400 Gentex Corp. (a) 68,000
229 Greenbrier Companies Inc. 3,235
2,800 Greyhound Lines Inc. (a) 16,625
1,352 Halter Marine Group Inc. (a) 6,591
825 Hayes Lemmerz International (a) 24,905
800 Heartland Express Inc. (a) 14,000
600 Hvide Marine Inc. (a) 3,000
1,000 JB Hunt Transport Service Inc. 23,000
934 Kirby Corp. (a) 18,622
738 Kitty Hawk Inc. (a) 8,118
250 Knight Transportation Inc. (a) 6,672
500 Landstar Systems Inc. (a) 20,375
1,688 Mascotech Inc. 28,907
1,089 Mesa Air Group Inc. (a) 8,508
550 Mesaba Holdings Inc. (a) 11,344
650 Midwest Express Holdings Inc. (a) 17,103
1,700 Miller Industrials Inc. (a) 7,650
1,000 Modine Manufacturing Co. 36,250
800 Motivepower Industries Inc. (a) 25,750
400 MS Carriers Inc. (a) 13,175
868 Myers Industries Inc. 24,847
1,600 Newport News Shipbuilding Inc. 53,500
600 O'Reilly Automotive Inc. (a) 28,350
1,000 Offshore Logistics Inc. (a) 11,875
1,300 Overseas Shipholding Group Inc. 20,881
900 Pittston Burlington Group 10,013
1,084 Polaris Industries Inc. 42,479
721 Roadway Express Inc. 10,409
700 Simpson Industries Inc. 6,781
500 Skyline Corp. 16,250
990 Skywest Inc. 32,361
1,400 SPX Corp. (a) 93,800
500 Standard Motor Products Inc. 12,125
700 Standard Products Co. 14,263
1,000 Superior Industries Intl. Inc. 27,813
1,150 Swift Transportation Inc. (a) 32,236
300 Thor Industries Inc. 7,650
700 Titan International Inc. 6,650
2,196 Tower Automotive Inc. (a) 54,763
2,700 Trans World Airlines Inc. (a) 12,994
1,200 US Freightways Corp. 34,950
1,100 Wabash National Corp. 22,344
1,300 Werner Enterprises Inc. 22,994
831 Westinghouse Air Brake Co. 20,308
600 Winnebago Industries Inc. 9,075
Wisconsin Central Transportation Corp.
2,373 (a) 40,786
697 Wynns International Inc. 15,421
1,100 Yellow Corp. (a) 21,038
-----------
1,767,125
-----------
Utilities & Energy (6.8%)
900 Aerial Communications Inc. (a) 5,288
<CAPTION>
SHARES VALUE
- ---------- -----------
<C> <S> <C>
2,700 AGL Resources Inc. $ 62,269
1,700 Aliant Communications Inc. 69,488
700 American Mobile Satellite Corp. (a) 3,675
300 Aquarion Co. 12,300
200 Aquila Gas Pipeline Corp. 1,713
1,278 Associated Group Inc. Class A (a) 54,954
1,400 Atmos Energy Corp. 45,150
600 Bay State Gas Co. 23,888
1,050 Black Hills Corp. 27,694
500 California Water Service Group 15,656
500 Cellular Communications (a) 9,250
700 Cellular Communications Intl. (a) 47,600
700 Centennial Cellular Corp. (a) 28,700
800 Central Hudson Gas & Electric 35,800
1,500 Century Communications Corp. (a) 47,578
600 CFW Communication Co. 14,025
600 Cilcorp Inc. 36,713
1,100 Cleco Corp. 37,744
1,500 CMP Group Inc. 28,313
400 Colonial Gas Co. 13,950
970 Commnet Cellular Inc. (a) 11,883
900 Commonwealth Energy Systems 36,450
400 Commonwealth Telephone (a) 13,400
500 Connecticut Energy Corp. 15,250
400 E Town Corp. 18,950
1,000 Eastern Utilities Associates 28,250
567 Echostar Communications (a) 27,429
2,600 El Paso Electric Co. (a) 22,750
800 Empire District Electric Co. 19,800
1,200 Energen Corp. 23,400
1,600 General Communications Inc. (a) 6,500
1,500 Hawaiian Electric Industries 60,375
1,709 Idacorp Inc. 61,844
1,400 Indiana Energy Inc. 34,475
1,218 IXC Communications Inc. (a) 40,955
700 Jones Intercable Inc. (a) 24,938
800 Laclede Gas Co. 21,400
2,200 Lincoln Electric Holdings 48,950
800 Madison Gas & Electric Co. 18,200
2,500 MDU Resources Group Inc. 65,781
1,700 Minnesota Power Inc. 74,800
2,400 Nevada Power Co. 62,400
800 New Jersey Resources Corp. 31,600
700 North Pittsburgh Systems Inc. 9,363
1,200 Northwest Natural Gas Co. 31,050
1,100 Northwestern Corp. 29,081
1,913 NTL Inc. (a) 107,965
600 NUI Corp. 16,088
1,500 Omnipoint Corp. (a) 13,969
600 Orange & Rockland Utilities 34,200
600 Otter Tail Power Co. 23,925
400 Pacific Gateway Exchange Inc. (a) 19,225
1,650 PageMart Wireless Inc. (a) 9,178
500 Pennsylvania Enterprises Inc. 12,750
</TABLE>
31-------
<PAGE>
STATE FARM VARIABLE PRODUCT TRUST SMALL CAP EQUITY INDEX FUND
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- -----------
<C> <S> <C>
1,100 Philadelphia Suburban Corp. $ 32,519
1,400 Piedmont Natural Gas Inc. 50,575
986 Primus Telecommunications (a) 16,269
1,900 Public Service Co. 38,831
900 Public Service Company NC Inc. 23,400
1,600 RCN Corp. (a) 28,300
1,800 Rochester Gas & Electric Corp. 56,250
2,986 Seagull Energy Corp. (a) 18,849
720 Semco Energy Inc. 11,745
1,400 Sierra Pacific Resources 53,200
1,100 Sigcorp Inc. 39,256
2,773 Skytel Inc. (a) 61,353
900 Smartalk Teleservices Inc. (a) 2,391
400 South Jersey Industries Inc. 10,475
835 Southern Union Co. (a) 20,353
1,400 Southwest Gas Corp. 37,625
1,200 Southwestern Energy Co. 9,000
2,800 TCI Satellite Entertainment (a) 4,025
1,766 Tel-Save Holdings Inc. (a) 29,581
500 TNP Enterprises Inc. 18,969
1,500 UGI Corp. 35,625
1,500 Unisource Energy Corp. Holding Co. (a) 20,250
700 United Illuminating Co. 36,050
1,836 United International Holdings (a) 35,343
1,600 United States Satellite (a) 22,000
1,300 United Water Resources Inc. 31,119
1,180 Vanguard Cellular Systems Inc. (a) 30,459
2,100 Washington Gas Light Co. 56,963
2,600 Washington Water Power Co. 50,050
900 Western Gas Resources Inc. 5,175
3,500 Western Wireless Corp. (a) 77,000
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE
- ---------- -----------
<C> <S> <C>
1,700 Wicor Inc. $ 37,081
1,976 Winstar Communications Inc. (a) 77,064
1,200 WPS Resources Corp. 42,300
500 Yankee Energy Systems Inc. 14,563
-----------
2,832,330
-----------
Total Common Stocks
(cost $40,897,974) 39,853,633
SHORT-TERM INVESTMENTS (4.4%)
U.S. Treasury Bills, 4.340% and 4.400%,
January, 1999 to February, 1999 (cost
$1,851,000 $1,843,504) 1,844,303
-----------
TOTAL INVESTMENTS (100.2%)
(cost $42,741,478) 41,697,936
LIABILITIES, LESS CASH AND OTHER ASSETS (-0.2%)
(72,500)
-----------
NET ASSETS (100.0%) $41,625,436
-----------
-----------
</TABLE>
Notes:
(a) Non-income producing security.
At December 31, 1998, net unrealized depreciation of $1,043,542 consisted of
gross unrealized appreciation of $4,972,058 and gross unrealized depreciation of
$6,015,600 based on cost of $42,741,478 for federal income tax purposes.
See accompanying notes to financial statements.
- ---------
32
<PAGE>
STATE FARM VARIABLE PRODUCT TRUST INTERNATIONAL EQUITY INDEX FUND
PORTFOLIO OF INVESTMENTS
December 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- -----------
<C> <S> <C>
COMMON STOCKS (96.4%)
Australia (2.2%)
2,500 Amcor Ltd. (a) $ 10,692
MISCELLANEOUS FOOD PREPARATIONS
32,000 Ashton Mining Limited (a) 16,096
METAL MINING SERVICES
18,700 Australian National Industries 13,191
ENGINEERING, ARCHITECTURAL, AND
SURVEYING SERVICES
2,500 Brambles Industries Ltd. 60,953
MISCELLANEOUS TRANSPORTATION SERVICES
19,935 Broken Hill Proprietary (a) 146,961
BITUMINOUS COAL AND LIGNITE MINING
7,005 Coca-Cola 26,123
BEVERAGES
13,000 Coles Myer Ltd. (a) 68,175
RETAIL STORES
44,700 Crown Limited (a) 16,722
HOTELS AND MOTELS
16,700 CSR Ltd. 40,870
CONSTRUCTION AND MINING MACHINERY &
EQUIPMENT
25,900 Fosters Brewing Group Ltd. 70,217
MISCELLANEOUS NON-DURABLE GOODS
21,900 Great Central Mines NL (a) 15,715
GOLD AND SILVER ORES
7,449 ICI Australia (a) 38,790
CHEMICALS AND ALLIED PRODUCTS
6,186 Lend Lease Corporation Ltd. (a) 83,473
ENGINEERING, ARCHITECTURAL, AND
SURVEYING SERVICES
64,700 MIM Holdings Limited (a) 28,572
METAL MINING SERVICES
15,971 National Australia Bank Ltd. 240,982
FOREIGN BANKING
9,900 Newcrest Mining Limited (a) 13,735
GOLD AND SILVER ORES
17,628 News Corporation Ltd. (a) 116,556
MISCELLANEOUS PUBLISHING
26,671 Normandy Mining Limited (a) 24,703
GOLD AND SILVER ORES
8,700 North Limited 14,194
BITUMINOUS COAL AND LIGNITE MINING
21,200 Pacific Dunlop 34,329
MISCELLANEOUS MANUFACTURING INDUSTRIES
17,000 Pioneer International Ltd. (a) 35,974
CONSTRUCTION AND MINING MACHINERY &
EQUIPMENT
5,300 Rio Tinto Ltd. 62,919
BITUMINOUS COAL AND LIGNITE MINING
11,500 Santos Ltd. 30,895
CRUDE PETROLEUM AND NATURAL GAS
<CAPTION>
SHARES VALUE
- ---------- -----------
<C> <S> <C>
47,700 Telstra Corporation $ 223,231
COMMUNICATIONS SERVICES
12,830 Western Mining Corp. Holding Ltd. (a) 38,717
METAL MINING SERVICES
29,748 Westfield Trust (a) 65,687
TRUSTS
963 Westfield Trust New Units (a) 2,036
TRUSTS
18,500 Westpac Banking Corp. 123,911
FOREIGN BANKING
-----------
1,664,419
-----------
Austria (.3%)
840 Bank Austria AG 42,738
FOREIGN BANKING
360 OEMV AG (a) 33,948
MISCELLANEOUS PRODUCTS OF PETROLEUM AND
COAL
750 Oest Elektrizatswirts Class A (a) 114,695
NONCLASSIFIABLE ESTABLISHMENTS
360 VA Technologie AG (a) 31,213
MACHINERY, EQUIPMENT, AND SUPPLIES
-----------
222,594
-----------
Belgium (1.6%)
300 Barco NV (a) 84,709
ELECTRIC SERVICES
150 Bekaert SA (a) 74,667
ELECTRIC SERVICES
750 Cimenteries CBR Cementbed (a) 74,230
CONSTRUCTION AND MINING MACHINERY &
EQUIPMENT
1,020 Delhaize LE PS (a) 90,264
RETAIL STORES
300 Electrabel 131,867
ELECTRIC SERVICES
300 Fortis AG (a) 108,725
INSURANCE CARRIERS
750 GBL Group BXL Lamb (a) 152,826
HOLDING OFFICES
700 NV Union Miniere SA (a) 26,653
METALS AND MINERALS, EXCEPT PETROLEUM
360 Petrofina SA NPV (a) 165,052
CRUDE PETROLEUM AND NATURAL GAS
1,075 Reunies Electrobel & Tractebel 208,724
ELECTRIC, GAS, AND OTHER UTILITY
SERVICES
1,325 Solvay Et Cie 'A' NPV (a) 99,897
CHEMICALS AND ALLIED PRODUCTS
-----------
1,217,614
-----------
</TABLE>
33-------
<PAGE>
STATE FARM VARIABLE PRODUCT TRUST INTERNATIONAL EQUITY INDEX FUND
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- -----------
<C> <S> <C>
Denmark (1.1%)
160 D/S 1912 'B' (a) $ 111,875
SERVICES INCIDENTAL TO WATER
TRANSPORTATION
80 D/S Svendborg 'B' (a) 81,078
SERVICES INCIDENTAL TO WATER
TRANSPORTATION
1,200 Danisco 65,050
MISCELLANEOUS MANUFACTURING INDUSTRIES
600 Den Danske Bank (a) 80,605
FOREIGN BANKING
700 Novo Nordisk A/S-B 92,390
DRUGS
2,400 Tele Danmark - B (a) 323,929
TELEPHONE COMMUNICATIONS
1,400 Unidanmark (a) 126,486
FOREIGN BANKING
-----------
881,413
-----------
Finland (1.3%)
2,800 Kesko OY Osake (a) 42,028
MISCELLANEOUS BUSINESS SERVICES
15,000 Merita Ltd. - A (a) 95,392
FOREIGN BANKING
3,800 Nokia OY 465,310
COMMUNICATIONS EQUIPMENT
1,600 Nokia OYJ - K Shares 195,920
COMMUNICATIONS EQUIPMENT
3,400 Outokumpo OY 31,426
ENGINEERING, ARCHITECTURAL, AND
SURVEYING SERVICES
2,000 Sampo Insurance Co. 76,433
INSURANCE AGENTS, BROKERS, AND SERVICE
3,000 UPM-Kymmene (a) 84,135
PAPER AND PAPER PRODUCTS
-----------
990,644
-----------
France (8.7%)
400 Accor French (a) 86,645
SERVICES
675 Air Liquide French 123,859
MISCELLANEOUS CHEMICAL PRODUCTS
2,000 Alcatel 244,898
COMMUNICATIONS SERVICES
3,010 AXA Company 436,466
INSURANCE AGENTS, BROKERS, AND SERVICE
2,223 Banque National De Paris 183,141
COMMERCIAL BANKS
700 BIC 38,847
MISCELLANEOUS NON-DURABLE GOODS
325 Bouygues 67,025
MISCELLANEOUS BUSINESS SERVICES
400 Canal Plus 109,201
RADIO AND TELEVISION BROADCASTING
STATIONS
390 Carrefour Supermarche 294,559
GROCERY STORES
<CAPTION>
SHARES VALUE
- ---------- -----------
<C> <S> <C>
800 Compagnie De Saint Goban $ 112,997
CONSTRUCTION AND MINING MACHINERY &
EQUIPMENT
2,900 ELF-Aquitaine 335,374
OIL AND GAS FIELD SERVICES
300 Eridania Beghin Say 51,933
MISCELLANEOUS FOOD PREPARATIONS
130 Essilor International (a) 51,199
MISCELLANEOUS NON-DURABLE GOODS
10,100 France Telecom SA (a) 802,791
TELEPHONE COMMUNICATIONS
600 Groupe Danone 171,858
MISCELLANEOUS FOOD PREPARATIONS
500 Imetal (a) 50,125
CONSTRUCTION AND MINING MACHINERY &
EQUIPMENT
710 L'Oreal (a) 513,497
MISCELLANEOUS NON-DURABLE GOODS
1,015 Lafarge Coppee French (a) 96,485
CONSTRUCTION AND MINING MACHINERY &
EQUIPMENT
1,400 Lagardere Group 59,524
MISCELLANEOUS BUSINESS SERVICES
300 LeGrand (a) 79,538
MISCELLANEOUS DURABLE GOODS
820 LVMH Company (a) 162,356
MISCELLANEOUS FOOD PREPARATIONS
1,250 Michelin B French 50,013
MOTOR VEHICLES AND MOTOR VEHICLE
EQUIPMENT
1,515 Paribas 131,728
FOREIGN BANKING
900 Pernod-Ricard (a) 58,485
MISCELLANEOUS FOOD PREPARATIONS
1,350 Pinault-Printemps-Redoute SA 258,109
DEPARTMENT STORES
180 Promodes 130,956
GROCERY STORES
675 Peugeot SA (a) 104,525
MOTOR VEHICLES AND MOTOR VEHICLE
EQUIPMENT
3,250 Rhone Polenc 167,329
DRUGS
100 Sagem SA 66,237
MISCELLANEOUS DURABLE GOODS
950 Sanofi SA 156,462
DRUGS
1,500 Schneider SA 91,031
MISCELLANEOUS DURABLE GOODS
1,000 Seita (a) 62,657
MISCELLANEOUS FOOD PREPARATIONS
500 Sidel 42,427
MISCELLANEOUS DURABLE GOODS
</TABLE>
- ---------
34
<PAGE>
STATE FARM VARIABLE PRODUCT TRUST INTERNATIONAL EQUITY INDEX FUND
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- -----------
<C> <S> <C>
750 Societe Generale - A $ 121,509
FOREIGN BANKING
400 Sodexho Alliance (a) 89,509
SERVICES
1,450 Suez Lyonnaise Des Eaux-Dumex 297,995
MISCELLANEOUS BUSINESS SERVICES
1,000 Thomson CSF (a) 42,964
MISCELLANEOUS DURABLE GOODS
2,400 Total SA - Series B (a) 243,179
ELECTRIC, GAS, AND OTHER UTILITY
SERVICES
2,400 Usinor Sacilor (a) 26,659
STEEL WORKS
960 Valeo 75,686
MOTOR VEHICLES AND MOTOR VEHICLE
EQUIPMENT
1,550 Vivendi 402,345
SANITARY SERVICES
-----------
6,692,123
-----------
Germany (11.6%)
800 Adidas Salomon AG 86,940
MISCELLANEOUS TEXTILE GOODS
2,599 Allianz AG Holding 953,447
INSURANCE AGENTS, BROKERS, AND SERVICE
335 AXA Colonia Konzern AG 38,015
INSURANCE AGENTS, BROKERS, AND SERVICE
8,650 BASF AG 330,050
PLASTICS MATERIALS AND SYNTHETIC RESINS,
SYNTHETIC
9,650 Bayer AG 405,288
CHEMICALS AND ALLIED PRODUCTS
6,786 Bayerische Hypo Vereinsbank 537,005
FOREIGN BANKING
1,500 Beiersdorf (a) 103,121
CHEMICALS AND ALLIED PRODUCTS
11,508 Daimler Chrysler AG 1,136,619
MOTOR VEHICLES, PARTS AND SUPPLIES
1,190 Degussa 65,733
CHEMICAL AND FERTILIZER MINERAL MINING
5,400 Deutsche Bank AG 318,645
FOREIGN BANKING
27,950 Deutsche Telekom AG 918,786
TELEPHONE COMMUNICATIONS
6,400 Dresdner Bank AG (a) 268,984
FOREIGN BANKING
750 Heidelberger Zement AG (a) 58,990
CONSTRUCTION AND MINING MACHINERY &
EQUIPMENT
925 Hochtief AG 36,377
CONSTRUCTION AND MINING MACHINERY &
EQUIPMENT
125 Karstadt AG (a) 65,445
MISCELLANEOUS NON-DURABLE GOODS
<CAPTION>
SHARES VALUE
- ---------- -----------
<C> <S> <C>
100 Linde AG $ 60,642
MACHINERY, EQUIPMENT, AND SUPPLIES
4,120 Lufthansa AG (a) 91,403
AIR TRANSPORTATION & COURIER SERVICES
350 MAN AG (a) 104,021
MACHINERY, EQUIPMENT, AND SUPPLIES
4,550 Mannesmann AG 521,788
GENERAL INDUSTRIAL MACHINERY AND
EQUIPMENT
1,850 Merck KGAA 83,307
CHEMICALS AND ALLIED PRODUCTS
3,450 Metro AG (a) 271,356
MISCELLANEOUS NON-DURABLE GOODS
Muenchener Rueckversicherungs
Namensaktie 384,128
785
INSURANCE CARRIERS
195 Preussag AG 88,630
STEEL WORKS
4,150 RWE AG 229,237
MISCELLANEOUS MANUFACTURING INDUSTRIES
660 SAP AG 285,315
COMPUTER PROGRAMMING & DATA PROCESSING
720 Schering AG (a) 90,566
CHEMICALS AND ALLIED PRODUCTS
400 SGL Carbon AG (a) 24,016
CHEMICALS AND ALLIED PRODUCTS
7,100 Siemens AG 458,264
MISCELLANEOUS MANUFACTURING INDUSTRIES
550 Thyssen AG (a) 104,021
MISCELLANEOUS MANUFACTURING INDUSTRIES
5,750 VEBA AG 340,748
MISCELLANEOUS MANUFACTURING INDUSTRIES
250 VIAG AG (a) 147,851
UTILITIES REGULATION AND ADMINISTRATION
3,250 Volkswagen AG 259,528
MOTOR VEHICLE DEALERS
-----------
8,868,266
-----------
Hong Kong (1.8%)
16,800 Bank of East Asia Hong Kong (a) 29,276
MISCELLANEOUS INVESTING
44,000 Cathay Pacific Airways Ltd. (a) 43,732
AIR TRANSPORTATION & COURIER SERVICES
20,000 Cheung Kong 143,926
REAL ESTATE AGENTS AND MANAGERS
10,000 Chinese Estates (Warrants) (a) 388
FEDERAL AND FEDERALLY-SPONSORED CREDIT
AGENCIES
10,000 Chinese Estates HL (Warrants) (a) 441
FEDERAL AND FEDERALLY-SPONSORED CREDIT
AGENCIES
172,000 Chinese Estates HL - C (a) 25,095
REAL ESTATE AGENTS AND MANAGERS
</TABLE>
35-------
<PAGE>
STATE FARM VARIABLE PRODUCT TRUST INTERNATIONAL EQUITY INDEX FUND
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- -----------
<C> <S> <C>
22,000 CLP Holdings Limited (a) $ 109,617
UTILITIES REGULATION AND ADMINISTRATION
16,000 Hang Seng Bank (a) 143,022
FOREIGN BANKING
42,900 Hong Kong & China Gas 54,547
GAS PRODUCTION AND DISTRIBUTION
1,950 Hong Kong & China Gas (Warrants) (a) --
MOTOR VEHICLE DEALERS
78,400 Hong Kong Telecom 137,129
COMMUNICATIONS EQUIPMENT
30,000 Hutchison Whampoa 212,016
MISCELLANEOUS BUSINESS SERVICES
13,000 Hysan Development (a) 19,382
REAL ESTATE AGENTS AND MANAGERS
42,000 New World Development (a) 105,718
REAL ESTATE AGENTS AND MANAGERS
74,000 Sino Land Company (a) 39,642
REAL ESTATE AGENTS AND MANAGERS
27,000 Sun Hung Kai Properties 196,914
REAL ESTATE AGENTS AND MANAGERS
17,000 Swire Pacific Ltd. - A (a) 76,145
MISCELLANEOUS BUSINESS SERVICES
1,250 Wharf Holdings (Warrants) (a) 103
REAL ESTATE AGENTS AND MANAGERS
39,000 Wharf Holdings Ltd. (a) 56,885
REAL ESTATE AGENTS AND MANAGERS
-----------
1,393,978
-----------
Ireland (.5%)
10,593 Allied Irish Bank PLC 188,936
FOREIGN BANKING
4,700 CRH PLC 79,763
CONSTRUCTION AND MINING MACHINERY &
EQUIPMENT
9,071 Irish Life PLC (a) 85,725
INSURANCE AGENTS, BROKERS, AND SERVICE
14,550 Jefferson Smurfit Group 26,250
PAPER AND PAPER PRODUCTS
-----------
380,674
-----------
Italy (5.7%)
10,360 Assicurazione Generali ITL (a) 433,528
ACCIDENT AND HEALTH INSURANCE AND
MEDICAL SERVICE
35,500 Banca Commerciale Italiana 245,436
UTILITIES REGULATION AND ADMINISTRATION
27,000 Banca Intesa SPA 162,354
FOREIGN BANKING
29,000 Benetton Group 58,565
APPAREL, PIECE GOODS, AND NOTIONS
10,000 Edison SPA (a) 118,049
COMMUNICATIONS SERVICES
95,600 ENI SPA 626,170
RETAIL STORES
<CAPTION>
SHARES VALUE
- ---------- -----------
<C> <S> <C>
56,000 FIAT SPA (a) $ 194,942
RETAIL STORES
39,900 Istituto Nazionale Delle Assic (a) 105,623
UTILITIES REGULATION AND ADMINISTRATION
12,000 Italgas (a) 65,099
COMMUNICATIONS SERVICES
14,200 Mediaset SPA 115,399
RADIO AND TELEVISION BROADCASTING
STATIONS
8,420 Mediobanca Banca Di Credito 117,193
COMMERCIAL BANKS
1,320 Mediobanca SPA (Warrants) (a) 4,795
COMMERCIAL BANKS
62,000 Montedison SPA 82,534
RETAIL STORES
27,900 Parmalat Finanziaria (a) 53,468
OTHER
26,000 Pirelli SPA (a) 83,491
RETAIL STORES
4,550 RAS SPA 66,088
UTILITIES REGULATION AND ADMINISTRATION
19,060 San Paolo - IMI SPA 337,532
COMMERCIAL BANKS
8,500 Sirti SPA (a) 51,395
RETAIL STORES
81,100 Telecom Italia Mobile 600,051
COMMUNICATIONS SERVICES
15,900 Telecom Italia Mobile - DRNC (a) 75,021
COMMUNICATIONS SERVICES
46,700 Telecom Italia SPA 399,341
COMMUNICATIONS SERVICES
9,600 Telecom Italia SPA - RNC 60,550
COMMUNICATIONS SERVICES
50,000 Unicredito Italiano SPA 297,020
UTILITIES REGULATION AND ADMINISTRATION
39,900 Unione Immobilistr (a) 20,860
REAL ESTATE OPERATORS AND LESSORS
-----------
4,374,504
-----------
Japan (19.7%)
2,000 ACOM Company Ltd. (a) 128,727
MISCELLANEOUS BUSINESS SERVICES
990 Advantest Corp. (a) 62,842
ELECTRICAL INDUSTRIAL APPARATUS
6,000 Ajinomoto Company Inc. (a) 63,832
MISCELLANEOUS FOOD PREPARATIONS
3,000 Alps Electronics Co. (a) 55,188
ELECTRICAL INDUSTRIAL APPARATUS
600 Aoyama Trading (a) 16,809
RETAIL STORES
18,000 Asahi Bank Ltd. (a) 66,065
FOREIGN BANKING
5,000 Asahi Breweries Ltd. (a) 73,805
MISCELLANEOUS FOOD PREPARATIONS
</TABLE>
- ---------
36
<PAGE>
STATE FARM VARIABLE PRODUCT TRUST INTERNATIONAL EQUITY INDEX FUND
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- -----------
<C> <S> <C>
15,000 Asahi Chemical Industry Co. (a) $ 71,677
CHEMICALS AND ALLIED PRODUCTS
7,000 Bridgestone Corp. 159,180
MORTGAGE BANKERS AND BROKERS
8,000 Canon Inc. 171,282
ELECTRICAL INDUSTRIAL APPARATUS
10,000 Chiba Bank (a) 39,806
FOREIGN BANKING
8,000 Chiyoda Corp. (a) 15,249
CONSTRUCTION AND MINING MACHINERY &
EQUIPMENT
6,000 Citizen Watch Company Ltd. (a) 36,171
MISCELLANEOUS ELECTRICAL MACHINERY,
EQUIPMENT, AND
1,700 Credit Saison (a) 41,974
RETAIL STORES
1,000 CSK Corp. (a) 23,050
SERVICES
6,000 Dai Nippon Ink & Chemical Inc. (a) 16,436
CHEMICALS AND ALLIED PRODUCTS
7,000 Dai Nippon Printing Company Ltd. 111,830
MISCELLANEOUS MANUFACTURING INDUSTRIES
11,000 Dai Nippon Screen (a) 27,501
ELECTRICAL INDUSTRIAL APPARATUS
10,000 Daido Steel Co. (a) 13,210
STEEL WORKS
8,000 Daiei Inc. (a) 21,774
RETAIL STORES
5,000 Daiichi Pharmaceutical (a) 84,622
DRUGS, DRUG PROPRIETORS, AND DRUGGIST
SUNDRIES
7,000 Daimaru Inc. (a) 21,100
RETAIL STORES
8,000 Denso Corporation 148,231
MISCELLANEOUS TRANSPORTATION EQUIPMENT
10,000 Daiwa House Industry (a) 106,652
CONSTRUCTION AND MINING MACHINERY &
EQUIPMENT
16,000 Diawa Securities (a) 54,754
MISCELLANEOUS INVESTING
40 East Japan Rail (a) 223,766
MISCELLANEOUS TRANSPORTATION SERVICES
4,000 Ebaba Corporation (a) 34,504
MACHINERY, EQUIPMENT, AND SUPPLIES
3,000 Eisai Company Ltd. 58,512
DRUGS, DRUG PROPRIETORS, AND DRUGGIST
SUNDRIES
2,200 Fanuc Co. 75,481
ELECTRICAL INDUSTRIAL APPARATUS
32,000 Fuji Bank (a) 118,019
FOREIGN BANKING
5,000 Fuji Photo Film 186,176
MOTION PICTURE PRODUCTION AND ALLIED
SERVICES
<CAPTION>
SHARES VALUE
- ---------- -----------
<C> <S> <C>
5,000 Fujikura Ltd. (a) $ 26,863
NONFERROUS FOUNDRIES (CASTING)
20,000 Fujitsu Ltd. (a) 266,852
COMMUNICATIONS EQUIPMENT
8,000 Furkukawa Electric (a) 27,306
NONFERROUS FOUNDRIES (CASTING)
10,000 Gakken 9470 (a) 11,525
MISCELLANEOUS MANUFACTURING INDUSTRIES
7,000 Gunma Bank (a) 55,667
FOREIGN BANKING
27,000 Haseko Corporation (a) 13,643
CONSTRUCTION AND MINING MACHINERY &
EQUIPMENT
28,000 Hitachi Ltd. 173,765
ELECTRICAL INDUSTRIAL APPARATUS
8,000 Honda Motor Company Ltd. 263,129
MOTOR VEHICLES AND MOTOR VEHICLE
EQUIPMENT
1,000 Hoya Corp. (a) 48,760
ANALYTICAL, OPTICAL, MEASURING &
CONTROLLING INSTRUMENTS
29,000 Industrial Bank of Japan 133,948
FOREIGN BANKING
3,000 ITO Yokado Co. 210,113
RETAIL STORES
22,000 Itochu Corp. (a) 42,519
MISCELLANEOUS DURABLE GOODS
15,000 Japan Airlines (a) 39,629
AIR TRANSPORTATION & COURIER SERVICES
10,000 Joyo Bank (a) 39,186
FOREIGN BANKING
3,000 Jusco Co. 60,773
RETAIL STORES
11,000 Kajima Corp. (a) 28,768
CONSTRUCTION AND MINING MACHINERY &
EQUIPMENT
7,600 Kansai Electric Power (a) 166,760
ELECTRIC SERVICES
6,000 KAO Corp. 135,643
CHEMICALS AND ALLIED PRODUCTS
22,000 Kawasaki Heavy Industries (a) 51,687
MISCELLANEOUS TRANSPORTATION EQUIPMENT
27,000 Kawasaki Steel (a) 40,454
STEEL WORKS
4,000 Kinden Corporation (a) 60,924
CONSTRUCTION AND MINING MACHINERY &
EQUIPMENT
15,000 Kinki Nippon Railway (a) 80,454
MISCELLANEOUS TRANSPORTATION SERVICES
11,000 Kirin Brewery Company Ltd. (a) 140,429
MISCELLANEOUS FOOD PREPARATIONS
10,000 Komatsu Ltd. (a) 52,573
MACHINERY, EQUIPMENT, AND SUPPLIES
</TABLE>
37-------
<PAGE>
STATE FARM VARIABLE PRODUCT TRUST INTERNATIONAL EQUITY INDEX FUND
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- -----------
<C> <S> <C>
18,000 Kurabo Industries (a) $ 18,511
MISCELLANEOUS TEXTILE GOODS
2,100 Kyocera Corp. 111,147
ELECTRICAL INDUSTRIAL APPARATUS
12,000 Kyowa Hakko Kogyo (a) 59,364
CHEMICALS AND ALLIED PRODUCTS
21,000 Marubeni Corp. (a) 36,118
SERVICES
4,000 Marui Co. (a) 77,130
RETAIL STORES
20,000 Matsushita Electric Industries 354,444
HOUSEHOLD AUDIO AND VIDEO EQUIPMENT
4,000 Minebea Company Ltd. (a) 45,888
MISCELLANEOUS ELECTRICAL MACHINERY,
EQUIPMENT, AND
20,000 Mitisui OSK Lines Ltd. (a) 32,270
SERVICES INCIDENTAL TO WATER
TRANSPORTATION
22,000 Mitsubishi Chemical Corp. (a) 46,420
CHEMICALS AND ALLIED PRODUCTS
14,000 Mitsubishi Corp. (a) 80,676
MISCELLANEOUS BUSINESS SERVICES
22,000 Mitsubishi Electric (a) 69,241
ELECTRICAL INDUSTRIAL APPARATUS
13,000 Mitsubishi Estate Company Ltd. (a) 116,750
REAL ESTATE OPERATORS AND LESSORS
25,000 Mitsubishi Heavy 97,520
ENGINES AND TURBINES
31,000 Mitsubishi Materials Corp. (a) 52,216
NONFERROUS FOUNDRIES (CASTING)
15,000 Mitsubishi Paper (a) 30,719
PULP MILLS
14,000 Mitsubishi Trust 90,233
FOREIGN BANKING
11,000 Mitsui & Co. 61,535
MISCELLANEOUS DURABLE GOODS
12,000 Mitsui Engineering (a) 11,915
MISCELLANEOUS TRANSPORTATION EQUIPMENT
12,000 Mitsui Fudosan 90,960
REAL ESTATE OPERATORS AND LESSORS
9,000 Mitsui Marine & Fire Insurance (a) 47,475
INSURANCE CARRIERS
7,000 Mitsui Mining & Smelting (a) 34,567
NONFERROUS FOUNDRIES (CASTING)
23,000 Mitsui Trust & Banking 26,305
FOREIGN BANKING
6,000 Mitsukoshi (a) 15,958
RETAIL STORES
2,000 Murata Manufacturing Company Ltd. (a) 83,159
ELECTRICAL INDUSTRIAL APPARATUS
5,000 Mycal Corp. (a) 29,877
RETAIL STORES
16,000 Nagoya Railroad Company Ltd. (a) 58,158
MISCELLANEOUS TRANSPORTATION SERVICES
<CAPTION>
SHARES VALUE
- ---------- -----------
<C> <S> <C>
16,000 NEC Corp. (a) $ 147,522
ELECTRICAL INDUSTRIAL APPARATUS
6,000 NGK Insulators Ltd. (a) 77,503
GLASS PRODUCTS
4,000 Nikon Corp. (a) 39,008
ANALYTICAL, OPTICAL, MEASURING &
CONTROLLING INSTRUMENTS
2,000 Nippon Comsys Corp. (a) 27,288
CONSTRUCTION AND MINING MACHINERY &
EQUIPMENT
12,000 Nippon Express Co. (a) 67,662
MISCELLANEOUS TRANSPORTATION SERVICES
9,000 Nippon Fire & Marine Insurance (a) 33,193
INSURANCE CARRIERS
56,000 Nippon Light Metal Co. (a) 58,582
NONFERROUS FOUNDRIES (CASTING)
19,000 Nippon Oil Co. 66,367
CRUDE PETROLEUM AND NATURAL GAS
14,000 Nippon Paper Industries Co. (a) 63,797
PULP MILLS
47,000 Nippon Steel Corp. (a) 85,418
STEEL WORKS
146 Nippon Telegraph and Telephone Corp. (a) 1,128,686
COMMUNICATIONS SERVICES
17,000 Nippon Yusen Kabushiki Kaish (a) 53,805
SERVICES INCIDENTAL TO WATER
TRANSPORTATION
24,000 Nissan Motors 73,620
MISCELLANEOUS TRANSPORTATION EQUIPMENT
6,000 Nisshinbo Industries Inc. (a) 20,958
MISCELLANEOUS TEXTILE GOODS
2,000 Nitto Denko Corp. (a) 33,334
ELECTRICAL INDUSTRIAL APPARATUS
67,000 NKK Corporation (a) 45,734
STEEL WORKS
19,000 Nomura Securities Company Ltd. 165,918
MISCELLANEOUS INVESTING
4,000 NSK Ltd. (a) 14,965
MACHINERY, EQUIPMENT, AND SUPPLIES
6,000 Ohbayashi-Gumi Corp. (a) 28,831
CONSTRUCTION AND MINING MACHINERY &
EQUIPMENT
10,000 OJI Paper Company Ltd. (a) 52,041
PULP MILLS
3,000 Omron Corp. 41,171
ELECTRICAL INDUSTRIAL APPARATUS
3,000 Onward Kashiyama Company Ltd. (a) 40,374
MISCELLANEOUS TEXTILE GOODS
700 Orix Corp. (a) 52,377
MISCELLANEOUS BUSINESS SERVICES
25,000 Osaka Gas Company Ltd. (a) 86,218
ELECTRIC SERVICES
2,000 Pioneer Electric Corp. (a) 33,600
ELECTRICAL INDUSTRIAL APPARATUS
</TABLE>
- ---------
38
<PAGE>
STATE FARM VARIABLE PRODUCT TRUST INTERNATIONAL EQUITY INDEX FUND
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- -----------
<C> <S> <C>
28,000 Renown Inc. (a) $ 17,377
MISCELLANEOUS TEXTILE GOODS
1,000 Rohm Company 91,226
ELECTRICAL INDUSTRIAL APPARATUS
39,000 Sakura Bank Ltd. (a) 89,552
FOREIGN BANKING
5,000 Sankyo Company Ltd. 109,489
DRUGS
19,000 Sanyo Electric Company Ltd. (a) 58,955
ELECTRICAL INDUSTRIAL APPARATUS
1,000 Secom Company Ltd. 82,981
ELECTRONIC COMPONENTS AND ACCESSORIES
7,000 Sekisui Chemical (a) 47,165
CHEMICALS AND ALLIED PRODUCTS
9,000 Sekisui House Ltd. (a) 95,349
CONSTRUCTION AND MINING MACHINERY &
EQUIPMENT
6,000 Seventy Seven Bank (a) 60,108
FOREIGN BANKING
12,000 Sharp Corp. (a) 108,408
ELECTRICAL INDUSTRIAL APPARATUS
2,000 Shimano Industrial (a) 51,686
MISCELLANEOUS TRANSPORTATION EQUIPMENT
10,000 Shimizu Corp. (a) 33,600
CONSTRUCTION AND MINING MACHINERY &
EQUIPMENT
4,000 Shin-Etsu Chemical Co. (a) 96,457
CHEMICALS AND ALLIED PRODUCTS
10,000 Shionogi & Company Ltd. (a) 73,318
DRUGS, DRUG PROPRIETORS, AND DRUGGIST
SUNDRIES
4,000 Shiseido Co. (a) 51,491
CHEMICALS AND ALLIED PRODUCTS
8,000 Shizuoka Bank (a) 98,939
FOREIGN BANKING
35,000 Showa Denko KK (a) 30,720
CHEMICALS AND ALLIED PRODUCTS
3,000 Seiyu (a) 8,830
RETAIL STORES
700 SMC Corporation (a) 55,977
MACHINERY, EQUIPMENT, AND SUPPLIES
3,900 Sony Corp. 284,556
HOUSEHOLD AUDIO AND VIDEO EQUIPMENT
30,000 Sumitomo Bank (a) 308,520
FOREIGN BANKING
15,000 Sumitomo Chemical Co. (a) 58,512
CHEMICALS AND ALLIED PRODUCTS
9,000 Sumitomo Corp. (a) 43,884
SERVICES
8,000 Sumitomo Electric Industries (a) 90,145
ELECTRICAL INDUSTRIAL APPARATUS
8,000 Sumitomo Heavy Industries (a) 16,738
MACHINERY, EQUIPMENT, AND SUPPLIES
<CAPTION>
SHARES VALUE
- ---------- -----------
<C> <S> <C>
9,000 Sumitomo Marine & Fire (a) $ 57,129
INSURANCE CARRIERS
13,000 Sumitomo Metal (a) 42,297
NONFERROUS FOUNDRIES (CASTING)
59,000 Sumitomo Metal Industries (a) 67,478
STEEL WORKS
15,000 Taisei Corp. (a) 28,857
CONSTRUCTION AND MINING MACHINERY &
EQUIPMENT
3,000 Taisho Pharmaceutical Company Ltd. (a) 82,715
DRUGS, DRUG PROPRIETORS, AND DRUGGIST
SUNDRIES
1,000 Taiyo Yuden Company Ltd. (a) 11,862
ELECTRICAL INDUSTRIAL APPARATUS
8,000 Takeda Chemical Industries Ltd. 308,520
DRUGS
17,000 Teijin Limited (a) 62,698
MISCELLANEOUS TEXTILE GOODS
46,000 The Bank of Tokyo Mitsubishi 477,144
FOREIGN BANKING
15,000 Tobu Railway Company Ltd. (a) 43,884
MISCELLANEOUS TRANSPORTATION SERVICES
4,000 TOEI (a) 11,844
MOTION PICTURE PRODUCTION AND ALLIED
SERVICES
600 TOHO Co. 82,343
SERVICES
4,900 Tohoku Electric Power (a) 86,882
ELECTRIC SERVICES
17,000 Tokai Bank (a) 80,481
FOREIGN BANKING
13,000 Tokio Marine & Fire Insurance (a) 155,589
INSURANCE CARRIERS
2,000 Tokyo Dome Corp. (a) 10,674
SERVICES
10,900 Tokyo Electric Power Company Inc. (a) 269,609
ELECTRIC SERVICES
2,000 Tokyo Electron Ltd. (a) 76,066
SERVICES
26,000 Tokyo Gas (a) 68,461
ELECTRIC SERVICES
4,000 Tokyo Steel Manufacturing (a) 20,072
STEEL WORKS
7,000 Tokyo Tatemono Company Ltd. (a) 11,977
REAL ESTATE OPERATORS AND LESSORS
32,000 Tokyu Corp. (a) 84,259
MISCELLANEOUS TRANSPORTATION SERVICES
9,000 Toppan Printing Co. (a) 110,110
MISCELLANEOUS MANUFACTURING INDUSTRIES
13,000 Toray Industries Inc. (a) 67,999
MISCELLANEOUS TEXTILE GOODS
3,000 Tostem Corporation (a) 59,576
METALS AND MINERALS, EXCEPT PETROLEUM
</TABLE>
39-------
<PAGE>
STATE FARM VARIABLE PRODUCT TRUST INTERNATIONAL EQUITY INDEX FUND
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- -----------
<C> <S> <C>
2,000 Toyo Seikan (a) $ 34,008
METALS AND MINERALS, EXCEPT PETROLEUM
3,000 Toyoda Automatic Loom Works (a) 53,167
MISCELLANEOUS TRANSPORTATION EQUIPMENT
44,000 Toyota Motor Co. 1,197,552
MOTOR VEHICLES AND MOTOR VEHICLE
EQUIPMENT
8,000 UBE Industries Ltd. (a) 12,128
CHEMICALS AND ALLIED PRODUCTS
1,000 UNI Charm (a) 46,987
CHEMICALS AND ALLIED PRODUCTS
27,000 Unitika Ltd. (a) 18,671
MISCELLANEOUS TEXTILE GOODS
3,000 UNY Company Ltd. (a) 54,922
RETAIL STORES
5,000 Wacoal Corp. 64,408
MISCELLANEOUS TEXTILE GOODS
3,000 Yamaguchi Bank (a) 28,352
FOREIGN BANKING
3,000 Yamaha Corp. 31,118
MISCELLANEOUS MANUFACTURING INDUSTRIES
4,000 Yamanouchi Pharmaceutical 129,082
DRUGS, DRUG PROPRIETORS, AND DRUGGIST
SUNDRIES
5,000 Yamato Transport Company Ltd. (a) 70,038
MISCELLANEOUS TRANSPORTATION SERVICES
4,000 Yamazaki Baking Co. 52,236
MISCELLANEOUS FOOD PREPARATIONS
22,000 Yasuda Trust & Banking (a) 16,969
FOREIGN BANKING
4,000 Yokogawa Electric (a) 19,859
ELECTRICAL INDUSTRIAL APPARATUS
13,000 Yokohama Bank (a) 31,234
FOREIGN BANKING
-----------
15,119,363
-----------
Netherlands (6.5%)
15,385 ABN Amro Holdings 323,822
MORTGAGE BANKERS AND BROKERS
5,000 Aegon NV 618,865
LIFE INSURANCE
2,960 AKZO Dutch ORD 134,856
MISCELLANEOUS CHEMICAL PRODUCTS
965 ASR Verzekeringsgroe 87,416
INSURANCE AGENTS, BROKERS, AND SERVICE
1,048 Buhrmann NV 18,248
PAPER AND PAPER PRODUCTS
6,690 Elsevier 93,755
MISCELLANEOUS PUBLISHING
1,055 Getronics NV 52,281
COMPUTER PROGRAMMING & DATA PROCESSING
<CAPTION>
SHARES VALUE
- ---------- -----------
<C> <S> <C>
4,107 Heinken NV $ 247,295
BEER, WINE, AND DISTILLED ALCOHOLIC
BEVERAGES
660 IHC Caland NV 27,432
SERVICES INCIDENTAL TO WATER
TRANSPORTATION
10,931 ING Groep NV 666,927
COMMERCIAL BANKS
980 KLM Royal Dutch (a) 29,661
AIR TRANSPORTATION & COURIER SERVICES
4,521 Koninklijke Ahold NV 167,188
GROCERY STORES
4,435 Koninklijke NV 222,144
TELEPHONE COMMUNICATIONS
3,125 Koninklijke Philips Electronic 209,813
ELECTRONIC COMPONENTS AND ACCESSORIES
1,480 OCE NV 53,233
COMPUTER AND OFFICE EQUIPMENT
22,835 Royal Dutch Petroleum Co. 1,137,692
OIL AND GAS FIELD SERVICES
4,435 TNT Post Group (a) 142,976
COMMUNICATIONS SERVICES
7,525 Unilever NV - CVA 643,567
MISCELLANEOUS NON-DURABLE GOODS
675 Wolters Kluwer NV 144,519
BOOKS
-----------
5,021,690
-----------
New Zealand (.1%)
64,900 Brierley Investments Ltd. (a) 14,745
MISCELLANEOUS INVESTING
12,400 Fletcher Challenge Energy (a) 23,581
OIL AND GAS FIELD SERVICES
14,500 Telecom New Zealand 63,192
ENGINEERING, ARCHITECTURAL, AND
SURVEYING SERVICES
-----------
101,518
-----------
Norway (.3%)
9,300 Christiania BK OG Kreditkass (a) 32,225
FOREIGN BANKING
1,600 D.Y. Bergesen (a) 19,111
SERVICES INCIDENTAL TO WATER
TRANSPORTATION
2,600 Norsk Hydro ASA (a) 87,705
MISCELLANEOUS BUSINESS SERVICES
2,300 Orkla AS A-Aksjer 34,264
GROCERIES AND RELATED PRODUCTS
1,200 Petroleum Geo-Services (a) 15,278
MISCELLANEOUS BUSINESS SERVICES
4,300 Storebrand ASA (a) 32,453
INSURANCE CARRIERS
-----------
221,036
-----------
</TABLE>
- ---------
40
<PAGE>
STATE FARM VARIABLE PRODUCT TRUST INTERNATIONAL EQUITY INDEX FUND
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- -----------
<C> <S> <C>
Portugal (.6%)
1,855 Banco Espirito Santo $ 57,575
MISCELLANEOUS INVESTING
4,100 EDP PL (a) 90,272
ELECTRIC, GAS, AND OTHER UTILITY
SERVICES
1,100 Jeronimo, Martins & Filho 60,178
MISCELLANEOUS FOOD STORES
3,400 Portugal Telecom 155,893
COMMUNICATIONS SERVICES
1,300 Sonae Industria E Investimento 63,200
SERVICES
-----------
427,118
-----------
Singapore (.8%)
10,000 City Developments 43,334
REAL ESTATE AGENTS AND MANAGERS
1,000 Creative Technology Limited (a) 14,122
COMPUTER PROGRAMMING & DATA PROCESSING
8,000 DBS Land Ltd. (a) 11,782
REAL ESTATE AGENTS AND MANAGERS
12,500 Development Bank of Singapore 112,881
FOREIGN BANKING
32,000 First Capital Corp. - Singapore (a) 21,334
REAL ESTATE AGENTS AND MANAGERS
14,000 Natsteel Ltd. (a) 15,358
MISCELLANEOUS MANUFACTURING INDUSTRIES
7,000 Overseas Chinese Banking Corp. 47,517
FOREIGN BANKING
14,000 Singapore Airlines Ltd. 102,669
AIR TRANSPORTATION & COURIER SERVICES
7,897 Singapore Press Holdings 85,673
NEWSPAPERS: PUBLISHING, OR PUBLISHING
AND PRINTING
46,000 Singapore Telecom Ltd. 70,256
TELEPHONE COMMUNICATIONS
9,000 United Overseas Bank 57,820
FOREIGN BANKING
-----------
582,746
-----------
Spain (3.3%)
975 Acerinox SA (a) 22,742
METALS AND MINERALS, EXCEPT PETROLEUM
5,300 Argentaria Caja Postal Y Banco 137,465
FOREIGN BANKING
4,772 Autopistas Concesionaria (a) 79,482
AUTOMOBILE PARKING
23,305 Banco Bilbao Vizcaya SA 365,963
FOREIGN BANKING
13,566 Banco Central Hispanoamer SA 161,327
FOREIGN BANKING
11,651 Banco Santader SA 231,883
FOREIGN BANKING
<CAPTION>
SHARES VALUE
- ---------- -----------
<C> <S> <C>
9,235 Endesa SA $ 245,066
ELECTRIC SERVICES
1,020 Fomento De Construc Y Contra (a) 75,947
CONSTRUCTION AND MINING MACHINERY &
EQUIPMENT
1,535 Gas Natural SDG SA 167,376
GAS PRODUCTION AND DISTRIBUTION
8,465 I. Iberdrola SA 158,616
ELECTRIC SERVICES
3,670 Repsol SA 196,073
OIL AND GAS FIELD SERVICES
2,800 Tabacalera SA - A 70,745
TABACCO STEMMING AND REDRYING
13,085 Telefonica 582,720
COMMUNICATIONS SERVICES
4,195 Union Electrica Fenosa SA 72,684
ELECTRIC SERVICES
-----------
2,568,089
-----------
Sweden (2.4%)
5,970 ABB AG Series A 63,710
ENGINEERING, ARCHITECTURAL, AND
SURVEYING SERVICES
2,300 Astra AB - B 46,820
DRUGS
13,080 Astra AB A-F 267,069
DRUGS
1,500 Atlas Copco AB - A Free (a) 32,940
ENGINEERING, ARCHITECTURAL, AND
SURVEYING SERVICES
223 Balder - Units (a) 2,476
REAL ESTATE OPERATORS AND LESSORS
1,800 Drott AB - B (a) 16,544
REAL ESTATE AGENTS AND MANAGERS
4,500 Electrolux Series B 77,447
HOUSEHOLD APPLIANCES
22,800 Ericsson AB - B Free 542,889
ENGINEERING, ARCHITECTURAL, AND
SURVEYING SERVICES
1,100 Forenings Sparbanken (a) 28,499
FOREIGN BANKING
1,870 Hennes and Mauritz (a) 152,728
FAMILY CLOTHING STORES
5,200 Securitas AB - B 80,833
MISCELLANEOUS BUSINESS SERVICES
7,000 Skandia Forsakrings AB Free 107,087
INSURANCE AGENTS, BROKERS, AND SERVICE
6,600 Skandinaviska Enskilda Bankn - A (a) 69,619
FOREIGN BANKING
2,600 Skanska B Free (a) 72,173
REAL ESTATE AGENTS AND MANAGERS
3,000 Svenska Cellulosa AB - B (a) 65,511
OTHER
</TABLE>
41-------
<PAGE>
STATE FARM VARIABLE PRODUCT TRUST INTERNATIONAL EQUITY INDEX FUND
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- -----------
<C> <S> <C>
2,230 Svenska Handelsbanken - A $ 94,091
FOREIGN BANKING
1,700 Volvo Akttiebolag - A (a) 38,067
ENGINEERING, ARCHITECTURAL, AND
SURVEYING SERVICES
3,100 Volvo Akttiebolag - B Free 71,137
ENGINEERING, ARCHITECTURAL, AND
SURVEYING SERVICES
-----------
1,829,640
-----------
Switzerland (8.2%)
90 ABB AG 105,498
ENGINEERING, ARCHITECTURAL, AND
SURVEYING SERVICES
220 Adecco SA 100,431
SERVICES
70 Alusuis-Lonza Holdings 81,545
MISCELLANEOUS MANUFACTURING INDUSTRIES
2,300 Credit Suisse Group (a) 360,034
FOREIGN BANKING
130 Gebruder Sulzer AG (a) 79,127
MACHINERY, EQUIPMENT, AND SUPPLIES
80 Holderbank Finan Glaris - B (a) 94,708
CONSTRUCTION AND MINING MACHINERY &
EQUIPMENT
450 Nestle 979,627
MISCELLANEOUS FOOD PREPARATIONS
60 Novartis AG - Bearer 117,948
DRUGS
710 Novartis AG - Reg 1,395,722
DRUGS
150 Roche Holdings AG (a) 271,620
CHEMICALS AND ALLIED PRODUCTS
810 Roche Holdings AG - Genusschein 988,251
DRUGS
170 Sairgroup 42,207
AIR TRANSPORTATION & COURIER SERVICES
140 SCHW Rueckversicherungs 365,014
INSURANCE CARRIERS
30 SGS Soc Gen Surviellance - B 29,378
SERVICES
150 SMH AG (a) 92,830
ELECTRONIC COMPONENTS AND ACCESSORIES
500 Swisscom AG (a) 209,322
TELEPHONE COMMUNICATIONS
300 The Swatch Group AG 44,941
ELECTRONIC COMPONENTS AND ACCESSORIES
2,053 Union Bank of Switzerland 630,781
FOREIGN BANKING
440 Zuerich Allied AG 325,800
INSURANCE CARRIERS
-----------
6,314,784
-----------
<CAPTION>
SHARES VALUE
- ---------- -----------
<C> <S> <C>
United Kingdom (19.7%)
14,390 Abbey National (a) $ 308,135
FOREIGN BANKING
14,970 Allied Zurich PLC (a) 223,293
HOLDING OFFICES
3,178 Anglian Water PLC 43,887
WATER SUPPLY
12,470 Arjo Wiggins Appleton PLC (a) 23,445
PAPER AND PAPER PRODUCTS
9,030 Associated British Foods 85,412
MISCELLANEOUS FOOD PREPARATIONS
14,250 Barclay's PLC 307,270
COMMERCIAL BANKS
4,195 Barratt Developments PLC (a) 16,123
CONSTRUCTION AND MINING MACHINERY &
EQUIPMENT
8,147 Bass PLC 118,606
EATING AND DRINKING PLACES
6,920 BBA Group (a) 42,946
ENGINEERING, ARCHITECTURAL, AND
SURVEYING SERVICES
35,250 BG PLC 222,428
GAS PRODUCTION AND DISTRIBUTION
8,690 Blue Circle Industries PLC 44,821
CONSTRUCTION AND MINING MACHINERY &
EQUIPMENT
4,890 BOC Group (a) 69,929
CHEMICALS AND ALLIED PRODUCTS
12,020 Boots Co. PLC (a) 204,689
RETAIL STORES
7,120 BPB Industries PLC 26,921
CONSTRUCTION AND MINING MACHINERY &
EQUIPMENT
16,840 British Aerospace PLC 142,754
SEARCH, DETECTION, NAVIGATION, GUIDANCE,
AERONAUTI
10,930 British Airways PLC 73,696
MISCELLANEOUS TRANSPORTATION SERVICES
14,080 British American Tobacco (a) 123,808
CIGARETTES
4,850 British Land Company PLC (a) 36,070
REAL ESTATE AGENTS AND MANAGERS
62,118 British Petroleum Co. PLC 927,583
CRUDE PETROLEUM AND NATURAL GAS
18,320 British Sky Broadcasting PLC (a) 139,144
COMMUNICATIONS SERVICES
23,960 British Steel (a) 35,480
ENGINEERING, ARCHITECTURAL, AND
SURVEYING SERVICES
67,990 British Telecommunications PLC (a) 1,024,317
TELEPHONE COMMUNICATIONS
33,426 BTR Limited 68,961
MISCELLANEOUS MANUFACTURING INDUSTRIES
</TABLE>
- ---------
42
<PAGE>
STATE FARM VARIABLE PRODUCT TRUST INTERNATIONAL EQUITY INDEX FUND
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- -----------
<C> <S> <C>
4,440 Burmah Castrol PLC (a) $ 63,531
CRUDE PETROLEUM AND NATURAL GAS
18,380 Cable & Wireless (a) 225,991
TELEPHONE COMMUNICATIONS
9,485 Cadbury Schweppes PLC (a) 161,756
MISCELLANEOUS FOOD PREPARATIONS
9,455 Carlton Communications (a) 86,994
COMMUNICATIONS SERVICES
37,950 Centrica PLC (a) 76,401
GAS PRODUCTION AND DISTRIBUTION
6,630 CGU PLC 103,802
INSURANCE CARRIERS
40,513 Diageo PLC 461,054
BEER, WINE, AND DISTILLED ALCOHOLIC
BEVERAGES
6,015 Electrocomponents PLC 40,331
MISCELLANEOUS MANUFACTURING INDUSTRIES
11,442 Elementis (a) 15,610
CHEMICALS AND ALLIED PRODUCTS
9,415 EMI Group PLC (a) 62,972
PHOTOGRAPHIC STUDIOS
13,900 FKI Babcock 30,990
ENGINEERING, ARCHITECTURAL, AND
SURVEYING SERVICES
27,535 General Electric PLC (a) 248,534
ELECTRONIC COMPONENTS AND ACCESSORIES
8,200 GKN PLC 108,804
MOTOR VEHICLES, PARTS AND SUPPLIES
38,215 Glaxo Wellcome PLC 1,314,879
DRUGS
8,050 Granada Group PLC 142,307
MISCELLANEOUS AMUSEMENT AND RECREATION
SERVICES
9,800 Great Universal Stores 103,294
RETAIL STORES
9,557 Guardian Royal Exchange 53,507
FIRE, MARINE, AND CASUALTY INSURANCE
14,235 Halifax PLC 202,026
MORTGAGE BANKERS AND BROKERS
12,010 Hanson Trust PLC 95,365
MISCELLANEOUS MANUFACTURING INDUSTRIES
8,460 HSBC Holdings PLC - 75 C 229,434
FOREIGN BANKING
17,920 HSBC Holdings PLC - C 453,193
FOREIGN BANKING
6,630 IMI PLC (a) 26,033
ENGINEERING, ARCHITECTURAL, AND
SURVEYING SERVICES
7,240 Imperial Chemical Industries (a) 62,759
CHEMICALS AND ALLIED PRODUCTS
17,115 J. Sainsbury PLC (a) 137,184
MISCELLANEOUS FOOD STORES
<CAPTION>
SHARES VALUE
- ---------- -----------
<C> <S> <C>
4,055 Johnson Matthey PLC $ 27,392
ENGINEERING, ARCHITECTURAL, AND
SURVEYING SERVICES
12,880 Kingfisher PLC 139,400
DEPARTMENT STORES
13,790 Ladbroke Group (a) 55,410
MISCELLANEOUS AMUSEMENT AND RECREATION
SERVICES
4,730 Land Securities PLC (a) 60,912
REAL ESTATE AGENTS AND MANAGERS
10,560 Legal and General Group PLC (a) 137,132
INVESTMENT OFFICES
57,280 Lloyds TSB Group PLC 814,837
FOREIGN BANKING
11,000 London & Scotland Marine Oil (a) 18,302
OIL AND GAS FIELD SERVICES
16,665 Lucasvarity 55,593
MOTOR VEHICLES AND MOTOR VEHICLE
EQUIPMENT
23,955 Marks & Spencer PLC 164,307
RETAIL STORES
4,411 MEPC PLC 29,356
REAL ESTATE AGENTS AND MANAGERS
11,360 National Grid Group PLC (a) 90,677
ELECTRIC SERVICES
12,489 National Power PLC (a) 107,636
ELECTRIC SERVICES
4,510 Next PLC (a) 37,069
RETAIL STORES
6,195 Pearson PLC (a) 122,965
COMMUNICATIONS SERVICES
7,165 Peninsular & Orient Steam Navigation (a) 84,700
MISCELLANEOUS TRANSPORTATION SERVICES
16,940 Pilkington PLC (a) 16,911
FLAT GLASS
22,630 Prudential Corp. 341,690
LIFE INSURANCE
4,745 Railtrack Group PLC 124,026
RAILROADS
11,675 Rank Group (a) 44,969
MISCELLANEOUS AMUSEMENT AND RECREATION
SERVICES
9,865 Reed International Ltd. British 77,143
COMMUNICATIONS SERVICES
7,580 Rentokil Initial PLC 57,130
MISCELLANEOUS BUSINESS SERVICES
13,871 Reuters Group PLC 145,626
SECURITIES & COMMODITIES EXCHANGE
SERVICES
6,653 Rexam PLC 18,485
PAPER AND PAPER PRODUCTS
14,960 Rio Tinto PLC (a) 173,985
METAL MINING SERVICES
</TABLE>
43-------
<PAGE>
STATE FARM VARIABLE PRODUCT TRUST INTERNATIONAL EQUITY INDEX FUND
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- -----------
<C> <S> <C>
3,385 RMC Group PLC (a) $ 46,351
CONSTRUCTION AND MINING MACHINERY &
EQUIPMENT
15,580 Rolls Royce PLC (a) 64,546
ENGINEERING, ARCHITECTURAL, AND
SURVEYING SERVICES
Royal & Sun Alliance Insurance Group PLC 122,517
15,005
INSURANCE CARRIERS
7,950 Royal Bank of Scotland Group PLC 126,981
FOREIGN BANKING
11,185 Safeway PLC (a) 56,201
MISCELLANEOUS FOOD STORES
2,745 Schroders PLC (a) 50,101
MISCELLANEOUS INVESTING
7,430 Scottish Newcastle Breweries PLC 86,287
EATING AND DRINKING PLACES
10,590 Scottish Power PLC 108,802
ELECTRIC SERVICES
18,830 Siebe PLC 74,250
ENGINEERING, ARCHITECTURAL, AND
SURVEYING SERVICES
5,840 Slough Estates PLC (a) 26,429
REAL ESTATE AGENTS AND MANAGERS
55,915 Smithkline Beecham PLC 781,462
DRUGS, DRUG PROPRIETORS, AND DRUGGIST
SUNDRIES
4,090 Smiths Industries 58,352
ELECTRONIC COMPONENTS AND ACCESSORIES
5,755 Southern Electric PLP (a) 65,063
ELECTRIC SERVICES
18,255 Tarmac PLC (a) 34,170
CONSTRUCTION AND MINING MACHINERY &
EQUIPMENT
6,965 Tate & Lyle PLC (a) 38,358
SUGAR AND CONFECTIONERY PRODUCTS
56,040 Tesco PLC 159,675
MISCELLANEOUS FOOD STORES
3,497 Thames Water PLC (a) 66,911
WATER SUPPLY
6,380 TI Group PLC (a) 34,367
MISCELLANEOUS MANUFACTURING INDUSTRIES
30,040 Unilever PLC 336,869
MISCELLANEOUS FOOD PREPARATIONS
6,370 United Utilities PLC (a) 88,284
WATER SUPPLY
29,660 Vodafone Group PLC 481,640
TELEPHONE COMMUNICATIONS
8,289 Williams PLC 47,062
MISCELLANEOUS MANUFACTURING INDUSTRIES
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE
- ---------- -----------
<C> <S> <C>
7,125 Wolseley PLC (a) $ 45,047
CONSTRUCTION AND MINING MACHINERY &
EQUIPMENT
7,530 Zeneca Group PLC 327,868
DRUGS, DRUG PROPRIETORS, AND DRUGGIST
SUNDRIES
-----------
15,089,715
-----------
Total common stocks
(cost $64,190,772) 73,961,928
PREFERRED STOCK (.6%)
Australia (.1%)
16,248 News Corporation Ltd. 98,962
COMMUNICATIONS SERVICES
-----------
Germany (.5%)
1,730 RWE (a) 62,842
MISCELLANEOUS MANUFACTURING INDUSTRIES
500 SAP AG Vorzug (a) 238,723
COMPUTER PROGRAMMING & DATA PROCESSING
1,050 Volkswagen AG (a) 52,326
AUTOMOTIVE SERVICES, EXCEPT REPAIR
-----------
353,891
-----------
Total preferred stock
(cost $411,693) 452,853
SHORT-TERM INVESTMENTS (2.9%)
U.S. Treasury bills 3.470% to 4.320%,
due January, 1999 to February, 1999
(cost $2,208,118) 2,209,067
$2,217,000
-----------
TOTAL INVESTMENTS (99.9%)
(cost $66,810,583) 76,623,848
CASH AND OTHER ASSETS, LESS LIABILITIES (0.1%)
73,284
-----------
NET ASSETS (100.0%) $76,697,132
-----------
-----------
</TABLE>
Notes:
(a) Non-income producing security.
At December 31, 1998, net unrealized appreciation of $9,813,265 consisted of
gross unrealized appreciation of $12,875,229 and gross unrealized depreciation
of $3,061,964 based on cost of $66,810,583 for federal income tax purposes.
See accompanying notes to financial statements.
- ---------
44
<PAGE>
STATE FARM VARIABLE PRODUCT TRUST INTERNATIONAL EQUITY INDEX FUND
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1998
INTERNATIONAL FUND INDUSTRY CLASSES
<TABLE>
<CAPTION>
INDUSTRY VALUE %
- ---------------------------------------- -------------- ------
<S> <C> <C>
Banks $ 10,222,368 13.33%
Communications 10,186,694 13.28
Machinery, Manufacturing & Construction 8,223,418 10.72
Consumer Goods & Services 7,623,601 9.94
Healthcare 6,935,986 9.04
Transportation 5,094,460 6.64
Mining & Refining 4,769,607 6.22
Insurance 4,534,476 5.91
Retail 3,821,768 4.98
Agriculture, Foods & Beverage 3,494,679 4.56
Real Estate and Other Financial 2,933,448 3.82
Energy & Utilities 2,558,974 3.34
Chemicals 2,262,351 2.95
Regulations 971,635 1.27
Other 781,316 1.02
-------------- ------
Total Stocks 74,414,781 97.02
Short-term Investments 2,209,067 2.88
Cash and Other Assets, Less Liabilities 73,284 0.10
-------------- ------
Net Assets $ 76,697,132 100.00%
-------------- ------
-------------- ------
</TABLE>
See accompanying notes to financial statements.
45-------
<PAGE>
STATE FARM VARIABLE PRODUCT TRUST STOCK AND BOND BALANCED FUND
PORTFOLIO OF INVESTMENTS
December 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
- -------- ----------
<C> <S> <C>
COMMON STOCKS (99.7%)
State Farm Variable Product Trust Bond
209,523 Fund $2,126,663
State Farm Variable Product Trust Large
Cap Equity Index Fund 3,430,029
267,971
----------
Total Common Stocks
(cost $5,209,092) 5,556,692
CASH AND OTHER ASSETS, LESS LIABILITIES (0.3%)
18,120
----------
NET ASSETS (100.0%) $5,574,812
----------
----------
</TABLE>
Notes:
At December 31, 1998, net unrealized appreciation of $347,600 consisted entirely
of gross unrealized appreciation based on cost of $5,209,092 for federal income
tax purposes.
See accompanying notes to financial statements.
- ---------
46
<PAGE>
STATE FARM VARIABLE PRODUCT TRUST BOND FUND
PORTFOLIO OF INVESTMENTS
December 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL COUPON MATURITY
AMOUNT RATE DATE VALUE
- ---------- -------- ------------------ -----------
<C> <S> <C> <C> <C>
CORPORATE BONDS (77.7%)
Automotive (4.1%)
$ 500,000 Ford Motor Credit Co. 6.500% February 28, 2002 $ 513,335
500,000 Paccar Financial Corp. 5.970% November 15, 2001 507,515
-----------
1,020,850
-----------
Building Materials & Construction (3.1%)
750,000 Masco Corp. 6.125% September 15, 2003 758,977
-----------
Chemicals (5.6%)
825,000 Dow Capital BV 7.375% July 15, 2002 866,011
500,000 EI du Pont de Nemours 6.000% March 6, 2013 509,315
-----------
1,375,326
-----------
Commercial Service/Supply (4.9%)
350,000 Pitney Bowes Credit 5.650% January 15, 2003 352,730
850,000 Xerox Corporation 5.500% November 15, 2003 851,827
-----------
1,204,557
-----------
Consumer & Marketing (5.7%)
150,000 Kimberly Clark Corp. 8.625% May 1, 2001 160,970
425,000 Mattel Inc. 6.000% July 15, 2003 431,766
500,000 McDonald's Corporation 5.900% May 11, 2001 508,230
300,000 Procter & Gamble Co. 5.250% September 15, 2003 300,510
-----------
1,401,476
-----------
Electronic/Electrical Mfg. (7.4%)
500,000 Emerson Electric Co. 5.500% September 15, 2008 505,130
300,000 Int'l. Business Machines Corp. 5.800% May 15, 2001 304,602
500,000 Public Service Co. of CO 6.240% November 27, 2000 507,185
500,000 Raytheon Co. 5.950% March 15, 2001 504,720
-----------
1,821,637
-----------
Financial Services (3.2%)
300,000 Associates Corp. of North
America 5.875% May 16, 2001 302,319
500,000 Household Finance 5.875% November 1, 2002 499,760
-----------
802,079
-----------
Forest Products (5.0%)
500,000 Mead Corporation 6.600% March 1, 2002 513,340
660,000 Westvaco Corp. 9.650% March 1, 2002 733,854
-----------
1,247,194
-----------
Health Care (4.1%)
500,000 Abbott Laboratories 5.400% September 15, 2008 500,265
500,000 Warner Lambert Co. 5.750% January 15, 2003 507,485
-----------
1,007,750
-----------
Machinery & Manufacturing (8.9%)
300,000 AlliedSignal Inc. 9.875% June 1, 2002 337,560
</TABLE>
47-------
<PAGE>
STATE FARM VARIABLE PRODUCT TRUST BOND FUND
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL COUPON MATURITY
AMOUNT RATE DATE VALUE
- ---------- -------- ------------------ -----------
<C> <S> <C> <C> <C>
$ 400,000 Caterpillar Finance 6.750% July 10, 2001 $ 411,524
500,000 Parker Hannifin Corp. 5.650% September 15, 2003 501,140
900,000 TRW Inc. 6.730% July 11, 2007 957,951
-----------
2,208,175
-----------
Media & Broadcasting (5.7%)
500,000 New York Times 5.000% October 8, 2003 490,865
406,000 The Walt Disney Company 6.375% March 30, 2001 416,049
500,000 Tribune Co. 5.750% September 15, 2003 502,190
-----------
1,409,104
-----------
Mining & Metals (2.1%)
500,000 Aluminum Company of America
(a) 6.125% June 15, 2005 510,410
-----------
Oil, Gas, & Other Energy (1.7%)
400,000 Mobil Corp. 8.375% February 12, 2001 425,256
-----------
Retailers (3.2%)
500,000 Sherwin Williams Co. 6.500% February 1, 2002 516,250
250,000 Wal-Mart Stores Inc. 8.625% April 1, 2001 267,920
-----------
784,170
-----------
Telecom & Telecom Equipment (9.6%)
750,000 Ameritech Capital Funding
Corp. 5.650% January 15, 2001 758,370
1,000,000 AT&T Corp. 7.000% May 15, 2005 1,086,070
200,000 Northern Telecom Ltd. 6.875% October 1, 2002 208,158
300,000 Worldcom Inc. 6.125% August 15, 2001 305,142
-----------
2,357,740
-----------
Utilities & Energy (3.4%)
300,000 Georgia Power 6.000% March 1, 2000 302,493
500,000 Virginia Electric & Power 7.375% July 1, 2002 530,265
-----------
832,758
-----------
Total corporate bonds
(cost $18,966,853) 19,167,459
LONG-TERM U.S. TREASURY OBLIGATIONS (7.2%)
675,000 U.S. Treasury Notes 6.875% March 31, 2000 692,678
1,000,000 U.S. Treasury Notes 7.500% May 15, 2002 1,086,910
-----------
Total long-term U.S. treasury obligations
(cost $1,774,589) 1,779,588
SHORT-TERM INVESTMENTS (11.0%)
500,000 Ford Motor Credit Co. 5.450% February 5, 1999 501,214
1,200,000 General Motors Acceptance
Corp. 4.910% January 29, 1999 1,200,164
</TABLE>
- ---------
48
<PAGE>
STATE FARM VARIABLE PRODUCT TRUST BOND FUND
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL COUPON MATURITY
AMOUNT RATE DATE VALUE
- ---------- -------- ------------------ -----------
<C> <S> <C> <C> <C>
$1,000,000 General Electric Capital Corp. 5.650% January 15, 1999 $ 1,001,414
-----------
Total short-term investments
(cost $2,702,792) 2,702,792
TOTAL INVESTMENTS (95.9%)
(cost $23,444,234) 23,649,839
CASH AND OTHER ASSETS, LESS LIABILITIES (4.1%) 1,017,547
-----------
NET ASSETS (100.0%) $24,667,386
-----------
-----------
</TABLE>
Notes:
(a) Security exempt from registration under Rule 144A of the Securities Act of
1933. This security may be resold in transactions exempt from registration,
normally to qualified institutional buyers. At December 31, 1998, the value
of this security amounted to $510,410 or 2% of net assets.
(b) At December 31, 1998, net unrealized appreciation of $205,605 consisted of
gross unrealized appreciation of $221,089 and gross unrealized depreciation
of $15,484 based on cost of $23,444,234 for federal income tax purposes.
See accompanying notes to financial statements.
49-------
<PAGE>
STATE FARM VARIABLE PRODUCT TRUST MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS
December 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL COUPON MATURITY
AMOUNT RATE DATE VALUE
- ---------- ----------------- ------------------ -----------
<C> <S> <C> <C> <C>
SHORT-TERM INVESTMENTS (97.3%)
Agriculture, Foods, & Beverage (9.9%)
$ 935,000 Coca-Cola 4.950% April 9, 1999 $ 922,383
920,000 Sara Lee Corp. 5.820% January 7, 1999 919,107
-----------
1,841,490
-----------
Automotive (9.9%)
915,000 Ford Motor Credit Co. 4.980% and 5.120% February 5, 1999 922,290
915,000 General Motors Acceptance
Corp. 5.030% and 5.180% January 29, 1999 923,248
-----------
1,845,538
-----------
Chemicals (4.2%)
780,000 EI du Pont de Nemours 4.960% January 28, 1999 777,072
-----------
Computers (4.6%)
850,000 Int'l Business Machines Corp. 5.100% and 5.260% January 12, 1999 861,441
-----------
Electronic/Electrical Mfg. (4.6%)
850,000 General Electric Capital Corp. 5.280% and 5.320% January 15, 1999 861,942
-----------
Financial Services (8.4%)
915,000 Associates Corp. of North
America 5.000% April 16, 1999 916,809
655,000 Caterpillar Finance 5.280% January 4, 1999 654,707
-----------
1,571,516
-----------
Health Care (9.0%)
915,000 Abbott Laboratories 5.600% January 5, 1999 914,430
785,000 Johnson & Johnson (a) 4.620% April 29, 1999 773,013
-----------
1,687,443
-----------
Machinery & Manufacturing (4.6%)
850,000 John Deere Credit Co. 5.200% and 5.270% January 14, 1999 861,909
-----------
Oil, Gas, & Other Energy (8.4%)
920,000 Chevron Corporation 5.000% March 12, 1999 920,516
650,000 Shell Oil Co. 4.950% February 11, 1999 646,306
-----------
1,566,822
-----------
Retailers (4.9%)
915,000 Sears Roebuck Acceptance Corp. 5.050% and 5.250% January 26, 1999 923,258
-----------
Telecom & Telecom Equipment (4.6%)
870,000 Ameritech Corp. 5.000% January 13, 1999 868,541
-----------
U.S. Government (24.2%)
750,000 Fannie Mae 5.190% January 26, 1999 747,254
1,000,000 Freddie Mac 5.270% January 7, 1999 999,107
787,000 Freddie Mac 5.020% and 5.180% January 15, 1999 785,427
1,000,000 Freddie Mac 4.890% February 18, 1999 993,441
</TABLE>
- ---------
50
<PAGE>
STATE FARM VARIABLE PRODUCT TRUST MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL COUPON MATURITY
AMOUNT RATE DATE VALUE
- ---------- ----------------- ------------------ -----------
<C> <S> <C> <C> <C>
$1,000,000 Freddie Mac 4.930% February 22, 1999 $ 992,842
-----------
4,518,071
-----------
Total short-term investments
(cost $18,185,043) 18,185,043
CASH AND OTHER ASSETS, LESS LIABILITIES (2.7%) 496,374
-----------
NET ASSETS (100.0%) $18,681,417
-----------
-----------
</TABLE>
Notes:
(a) Security exempt from registration under Section 4(2) of the Securities Act
of 1933. This security may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At December 31,
1998, the value of this security amounted to $773,013 or 4% of net assets.
See accompanying notes to financial statements.
51-------
<PAGE>
STATE FARM VARIABLE PRODUCT TRUST
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<TABLE>
<CAPTION>
LARGE CAP SMALL CAP INTERNATIONAL STOCK & BOND MONEY
EQUITY INDEX EQUITY INDEX EQUITY INDEX BALANCED BOND MARKET
FUND FUND FUND FUND FUND FUND
------------- ------------- -------------- ----------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments in
securities:
At identified cost $ 46,476,230 42,741,478 66,810,583 5,209,092 23,444,234 18,185,043
------------- ------------- -------------- ----------------- -------------- --------------
------------- ------------- -------------- ----------------- -------------- --------------
At value $ 53,285,251 41,697,936 76,623,848 5,556,692 23,649,839 18,185,043
Cash 448 951 590 12 1,227,342 632,695
Foreign currency at
value (cost $150,096) -- -- 149,336 -- -- --
Receivable for:
Dividends and
interest 45,300 56,657 116,108 18,108 367,449 2,041
Shares of the Fund
sold 190,862 65,377 -- 35,418 18,988 98,703
Securities sold 38,409 8,962 -- -- 901,648 --
Expense cap
reimbursement -- -- 20,500 5,486 -- --
Variation margin -- 35,800 -- -- -- --
Prepaid expenses 496 588 -- -- 99 218
------------- ------------- -------------- ----------------- -------------- --------------
Total assets 53,560,766 41,866,271 76,910,382 5,615,716 26,165,365 18,918,700
------------- ------------- -------------- ----------------- -------------- --------------
LIABILITIES AND NET
ASSETS
Dividends payable to
shareowners -- -- -- -- 259,096 207,138
Payable for:
Shares of the Fund
redeemed -- -- -- 2,501 1,275 3,199
Securities purchased 141,392 185,238 30,429 32,917 1,200,000 --
Variation margin 78,575 -- -- -- -- --
Manager 28,084 44,925 141,551 -- 27,461 16,909
Other 7,993 10,672 41,270 5,486 10,147 10,037
------------- ------------- -------------- ----------------- -------------- --------------
Total liabilities 256,044 240,835 213,250 40,904 1,497,979 237,283
------------- ------------- -------------- ----------------- -------------- --------------
Net assets applicable to
shares outstanding of
common stock 53,304,722 41,625,436 76,697,132 5,574,812 24,667,386 18,681,417
------------- ------------- -------------- ----------------- -------------- --------------
Fund shares outstanding 4,162,934 4,363,244 6,592,448 488,711 2,430,863 18,681,417
Net asset value, offering
price and redemption
price per share $ 12.80 9.54 11.63 11.41 10.15 1.00
------------- ------------- -------------- ----------------- -------------- --------------
------------- ------------- -------------- ----------------- -------------- --------------
ANALYSIS OF NET ASSETS
Excess of amounts
received from sales
of shares over
amounts paid on
redemptions of shares
on account of capital $ 45,796,843 42,540,357 66,990,452 5,188,944 24,478,905 18,681,417
Accumulated net
realized gain (loss) 269,073 66,054 117,394 (6,189) (17,124) --
Net unrealized
appreciation
(depreciation) 7,234,621 (984,992) 9,815,363 347,600 205,605 --
Undistributed
(distributions in
excess of) net
investment income 4,185 4,017 (226,077) 44,457 -- --
------------- ------------- -------------- ----------------- -------------- --------------
Net assets applicable
to shares outstanding $ 53,304,722 41,625,436 76,697,132 5,574,812 24,667,386 18,681,417
------------- ------------- -------------- ----------------- -------------- --------------
------------- ------------- -------------- ----------------- -------------- --------------
</TABLE>
See accompanying notes to financial statements.
- ---------
52
<PAGE>
STATE FARM VARIABLE PRODUCT TRUST
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
LARGE CAP SMALL CAP INTERNATIONAL STOCK & BOND MONEY
EQUITY INDEX EQUITY INDEX EQUITY INDEX BALANCED BOND MARKET
For the period from the FUND FUND FUND FUND FUND FUND
date of inception ------------- ------------- -------------- ----------------- --------------- ---------------
to December 31, 1998 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>
INVESTMENT INCOME:
Dividends $ 328,684 443,671 1,210,085 47,205 -- --
Interest 130,191 41,268 87,600 -- 750,590 638,747
------------- ------------- -------------- ------- --------------- ---------------
458,875 484,939 1,297,685 47,205 750,590 638,747
Less: foreign
withholding taxes 1,833 108 104,517 -- -- --
------------- ------------- -------------- ------- --------------- ---------------
Total investment income 457,042 484,831 1,193,168 47,205 750,590 638,747
EXPENSES:
Investment advisory and
management fees 46,527 118,508 325,393 -- 51,817 39,751
Professional fees 11,083 10,834 18,200 5,245 10,807 10,562
Fidelity bond expense 1,114 1,253 2,070 575 821 702
Trustees' fees 4,909 4,909 4,500 4,909 4,909 4,908
Reports to shareowners 1,499 1,499 1,414 1,002 1,499 1,503
Security evaluation
fees 8,866 24,587 44,336 -- 1,859 237
Custodian fees -- -- 91,529 2,178 3,139 3,541
Index license fees 5,000 5,119 10,001 -- -- --
Fund accounting expense -- -- 51,372 -- -- --
Other 31 27 -- -- 15 13
------------- ------------- -------------- ------- --------------- ---------------
Total expenses 79,029 166,736 548,815 13,909 74,866 61,217
Less: expense
reimbursement -- 16,690 107,042 13,909 -- 10,516
------------- ------------- -------------- ------- --------------- ---------------
Net expenses 79,029 150,046 441,773 -- 74,866 50,701
------------- ------------- -------------- ------- --------------- ---------------
Net investment income 378,013 334,785 751,395 47,205 675,724 588,046
REALIZED AND UNREALIZED
GAIN (LOSS):
Accumulated net
realized gain (loss)
on sales of
investments 22,524 860,154 117,394 (6,189) (17,124) --
Accumulated net
realized gain on
forward foreign
currency contracts -- -- 105,894 -- -- --
Accumulated net
realized loss on
foreign currency
transactions -- -- (187,378) -- -- --
Accumulated net
realized gain (loss)
on futures contracts 246,549 (38,747)
Net unrealized gain on
open futures
contracts 425,600 58,550 -- -- -- --
Net unrealized
appreciation or
depreciation on
investments and
foreign currency
transactions 6,809,021 (1,043,542) 9,815,363 347,600 205,605 --
------------- ------------- -------------- ------- --------------- ---------------
Net realized and
unrealized gain (loss) 7,503,694 (163,585) 9,851,273 341,411 188,481 --
------------- ------------- -------------- ------- --------------- ---------------
Net change in net assets
resulting from
operations $7,881,707 171,200 10,602,668 388,616 864,205 588,046
------------- ------------- -------------- ------- --------------- ---------------
------------- ------------- -------------- ------- --------------- ---------------
</TABLE>
See accompanying notes to financial statements.
53-------
<PAGE>
STATE FARM VARIABLE PRODUCT TRUST
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
LARGE CAP SMALL CAP INTERNATIONAL STOCK & BOND MONEY
EQUITY INDEX EQUITY INDEX EQUITY INDEX BALANCED BOND MARKET
For the period from the FUND FUND FUND FUND FUND FUND
date of inception ------------- ------------- -------------- ----------------- -------------- --------------
to December 31, 1998 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>
FROM OPERATIONS:
Net investment income $ 378,013 334,785 751,395 47,205 675,724 588,046
Accumulated net
realized gain (loss) 269,073 821,407 35,910 (6,189) (17,124) --
Net unrealized
appreciation
(depreciation) 7,234,621 (984,992) 9,815,363 347,600 205,605 --
------------- ------------- -------------- -------- -------------- --------------
Net change in net assets
resulting from
operations 7,881,707 171,200 10,602,668 388,616 864,205 588,046
DISTRIBUTIONS TO
SHAREOWNERS FROM AND IN
EXCESS OF:
Net investment income (373,828) (330,768) (895,988) (2,748) (675,724) (588,046)
Net realized gain -- (755,353) -- -- -- --
------------- ------------- -------------- -------- -------------- --------------
Total distributions to
shareowners (373,828) (1,086,121) (895,988) (2,748) (675,724) (588,046)
FROM FUND SHARE
TRANSACTIONS:
Proceeds from shares
sold 30,942,223 11,591,139 12,288,814 5,522,631 14,570,954 8,868,290
Reinvestment of
distributions 373,828 1,086,121 895,988 2,748 675,724 588,046
------------- ------------- -------------- -------- -------------- --------------
31,316,051 12,677,260 13,184,802 5,525,379 15,246,678 9,456,336
Less payments for
shares redeemed 519,208 136,903 194,350 336,535 767,773 774,919
------------- ------------- -------------- -------- -------------- --------------
Net increase in net
assets from Fund share
transactions 30,796,843 12,540,357 12,990,452 5,188,844 14,478,905 8,681,417
------------- ------------- -------------- -------- -------------- --------------
Total increase in net
assets 38,304,722 11,625,436 22,697,132 5,574,712 14,667,386 8,681,417
------------- ------------- -------------- -------- -------------- --------------
NET ASSETS:
Beginning of period 15,000,000 30,000,000 54,000,000 100 10,000,000 10,000,000
------------- ------------- -------------- -------- -------------- --------------
End of period+ $ 53,304,722 41,625,436 76,697,132 5,574,812 24,667,386 18,681,417
------------- ------------- -------------- -------- -------------- --------------
------------- ------------- -------------- -------- -------------- --------------
+ Includes undistributed
(distribution in excess
of) net investment
income of $ 4,185 4,017 (226,077) 44,457 -- --
------------- ------------- -------------- -------- -------------- --------------
------------- ------------- -------------- -------- -------------- --------------
</TABLE>
See accompanying notes to financial statements.
- ---------
54
<PAGE>
STATE FARM VARIABLE PRODUCT TRUST
NOTES TO FINANCIAL STATEMENTS
1. OBJECTIVE
The State Farm Variable Product Trust (the "Trust") is an open-end management
investment company consisting of six separate investment portfolios (the
"Funds"), each of which has a different investment objective. The Funds are
offered to separate accounts of State Farm Life Insurance Company and State Farm
Life and Accident Assurance Company as funding vehicles for certain variable
annuity and life insurance contracts issued by State Farm Life Insurance Company
and State Farm Life and Accident Assurance Company through such separate
accounts.
The LARGE CAP EQUITY INDEX FUND (LARGE CAP FUND) seeks to match the performance
of the Standard and Poors-Registered Trademark- 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 (SMALL CAP 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
diversified portfolio of stocks found in the index.
The INTERNATIONAL EQUITY INDEX FUND (INTERNATIONAL FUND) seeks to match the
performance of the Morgan Stanley Capital International Europe, Australia and
Far East Free Index (the "EAFE-Registered Trademark- Free"). This Fund will
pursue its objective by investing primarily in a diversified portfolio of stocks
found in the index.
The STOCK AND BOND BALANCED FUND (BALANCED FUND) seeks long-term growth of
capital, balanced with current income. This Fund will pursue its objective by
investing in the Large Cap and Bond Funds.
The BOND FUND (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 MONEY MARKET FUND (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.
2. SIGNIFICANT ACCOUNTING POLICIES
SECURITY VALUATION
Investments are stated at value. Portfolio securities 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. Portfolio securities that are primarily traded on foreign securities
exchanges are generally valued at the preceding closing values of such
securities on their respective exchanges where primarily traded. 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 value. Investments
in affiliated investment companies are valued each day based on the closing net
asset value of the respective fund. Futures contracts are valued at the
settlement price established each day on the exchange on which they are traded.
Forward foreign currency contracts are valued daily using quoted forward
exchange rates. 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
55-------
<PAGE>
STATE FARM VARIABLE PRODUCT TRUST
NOTES TO FINANCIAL STATEMENTS (Continued)
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 Funds'
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 Funds' 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
Funds intend to comply with this policy and, accordingly, no provision for
federal income taxes has been made.
Dividends and distributions payable to shareowners are recorded by the Large
Cap, Small Cap, International, and Balanced Funds on the ex-dividend date. The
Bond and Money Market Funds declare dividends daily equal to each Fund's
respective net investment income, and distributions of such amounts are made at
the end of each calendar quarter. Income and capital gain distributions are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. The differences are primarily due to
differing treatments for foreign currency transactions.
The accumulated net realized loss on sales of investments in the Bond Fund at
December 31, 1998, amounting to $17,124 is available to offset future taxable
gains. If not applied, the capital loss carryover will expire in 2006.
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 Funds may enter into stock index
futures contracts to hedge a portion of their portfolios. These contracts
obligate a 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.
Gains and losses are reflected as net realized gain (loss) on futures contracts
in the statement of operations. Additionally, the International 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. The 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.
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 average daily net assets
Small Cap Equity Index Fund .40% of average daily net assets
International Equity Index Fund .55% of average daily net assets
Stock and Bond Balanced Fund None
Bond Fund .50% of average daily net assets
Money Market Fund .40% of average daily net assets
</TABLE>
The Manager has agreed not to be paid an investment advisory fee for performing
its services for the Balanced Fund and has agreed to reimburse any other
expenses incurred by the 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 Balanced Fund invests.
With respect to each of the Funds other than the Balanced and International
Funds, the Manager has agreed to reimburse 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 Fund, the Manager has agreed
to reimburse the expenses incurred by the Fund, other than the investment
advisory fee, that exceed .20% of the
- ---------
56
<PAGE>
STATE FARM VARIABLE PRODUCT TRUST
NOTES TO FINANCIAL STATEMENTS (Continued)
Fund's average daily net assets. These expense limitation arrangements are
voluntary and may be eliminated by the Manager at any time.
Investment advisory and management fees and expenses reimbursed for the period
ended December 31, 1998 were as follows:
<TABLE>
<CAPTION>
INVESTMENT
ADVISORY
AND
MANAGEMENT FEES
FUND FEE REIMBURSED
- ---------------------------------------- ----------- -----------
<S> <C> <C>
Large Cap Equity Index Fund $ 46,527 $ --
Small Cap Equity Index Fund 118,508 16,690
International Equity Index Fund 325,393 107,042
Stock and Bond Balanced Fund -- 13,909
Bond Fund 51,817 --
Money Market Fund 39,751 10,516
</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 December 31, 1998, except for the following trustees' fees paid
to the Trust's independent trustees:
<TABLE>
<S> <C>
Large Cap Equity Index Fund $4,500
Small Cap Equity Index Fund 4,500
International Equity Index Fund 4,500
Stock and Bond Balanced Fund 4,500
Bond Fund 4,500
Money Market Fund 4,500
</TABLE>
The Manager has engaged Barclays Global Fund Advisors (Barclay's) as the
investment sub-advisor to provide day-to-day portfolio management for the Large
Cap, Small Cap, and International Funds. Barclay's determines which securities
to buy and sell for each of these Funds, selects the brokers and dealers to
effect the transactions, and negotiates commissions.
4. INVESTMENT TRANSACTIONS
Investment transactions (exclusive of short-term instruments) for the period
ended December 31, 1998 were as follows:
<TABLE>
<CAPTION>
SALES AT
FUND PURCHASES PROCEEDS
- ---------------------------------------- ------------ ----------
<S> <C> <C>
Large Cap Equity Index Fund $ 36,104,771 1,671,512
Small Cap Equity Index Fund 52,304,379 12,266,263
International Equity Index Fund 68,386,025 3,948,180
Stock and Bond Balanced Fund:
Large Cap Equity Index Fund 3,275,491 177,057
Bond Fund 2,239,590 122,744
Bond Fund 24,106,604 3,284,209
</TABLE>
57-------
<PAGE>
STATE FARM VARIABLE PRODUCT TRUST
NOTES TO FINANCIAL STATEMENTS (Continued)
5. FUTURES CONTRACTS
The Large Cap and Small Cap Funds had the following open futures contracts at
December 31, 1998:
<TABLE>
<CAPTION>
UNREALIZED
CONTRACT EXPIRATION GAIN
FUND TYPE AMOUNT POSITION MONTH 12/31/98
- ------------------------- ------------------ ----------- -------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Large Cap Equity Index
Fund S&P 500 Index $11,406,650 Long March '99 $425,600
Small Cap Equity Index
Fund Russell 2000 Index 1,642,450 Long March '99 58,550
</TABLE>
The aggregate market value of investments pledged to cover margin requirements
for the open positions at December 31, 1998 were $11,832,250 and $1,701,000 in
the Large Cap and Small Cap Funds, respectively.
6. FUND SHARE TRANSACTIONS
Proceeds and payments on Fund shares as shown in the statement of changes in net
assets for the period ended December 31, 1998 were in respect of the following
number of shares:
<TABLE>
<CAPTION>
LARGE CAP SMALL CAP INTERNATIONAL STOCK & BOND MONEY
EQUITY INDEX EQUITY INDEX EQUITY INDEX BALANCED BOND MARKET
FUND FUND FUND FUND FUND FUND
------------ ------------ ------------- ---------------- ------------- -------------
SHARES SHARES SHARES SHARES SHARES SHARES
------------ ------------ ------------- ---------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 2,676,195 1,262,394 1,129,477 519,686 1,439,766 8,868,290
Shares issued in
reinvestment of
ordinary
income dividends and
capital gain
distributions 30,183 115,711 80,998 268 66,860 588,046
------------ ------------ ------------- ------ ------------- -------------
2,706,378 1,378,105 1,210,475 519,954 1,506,626 9,456,336
Less shares redeemed 43,444 14,861 18,027 31,253 75,763 774,919
------------ ------------ ------------- ------ ------------- -------------
Net increase in shares
outstanding 2,662,934 1,363,244 1,192,448 488,701 1,430,863 8,681,417
------------ ------------ ------------- ------ ------------- -------------
------------ ------------ ------------- ------ ------------- -------------
</TABLE>
- ---------
58
<PAGE>
STATE FARM VARIABLE PRODUCT TRUST LARGE CAP EQUITY INDEX FUND
FINANCIAL HIGHLIGHTS
For a share outstanding throughout the period
<TABLE>
<CAPTION>
1998
------
<S> <C>
Net asset value, beginning of period (inception
date of 1/22/98) $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income .12
Net gain on investments (both realized and
unrealized) 2.80
------
Total from investment operations 2.92
LESS DISTRIBUTIONS
Net investment income (.12)
------
Total distributions (.12)
------
Net asset value, end of period $12.80
------
------
TOTAL RETURN (NOT ANNUALIZED) 29.26%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions) $ 53.3
Ratio of expenses to average net assets 0.32%(a)
Ratio of net investment income to average net
assets 1.55%(a)
Portfolio turnover rate 7%
</TABLE>
- ----------
(a) Determined on an annualized basis.
59-------
<PAGE>
STATE FARM VARIABLE PRODUCT TRUST SMALL CAP EQUITY INDEX FUND
FINANCIAL HIGHLIGHTS
For a share outstanding throughout the period
<TABLE>
<CAPTION>
1998
------
<S> <C>
Net asset value, beginning of period (inception
date of 1/29/98) $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income .27
Net loss on investments (both realized and
unrealized) (.46)
------
Total from investment operations (.19)
------
LESS DISTRIBUTIONS
Net investment income (.09)
Net realized gain (.18)
------
Total distributions (.27)
------
Net asset value, end of period $ 9.54
------
------
Total Return (not annualized) (1.89)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions) $ 41.6
Ratio of expenses to average net assets 0.50%(a)
Ratio of expenses to average net assets, absent of
expense limitation 0.55%(a)
Ratio of net investment income to average net
assets 1.11%(a)
Portfolio turnover rate 38%
</TABLE>
- ----------
(a) Determined on an annualized basis.
- ---------
60
<PAGE>
STATE FARM VARIABLE PRODUCT TRUST INTERNATIONAL EQUITY INDEX FUND
FINANCIAL HIGHLIGHTS
For a share outstanding throughout the period
<TABLE>
<CAPTION>
1998
------
<S> <C>
Net asset value, beginning of period (inception
date of 1/22/98) $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income .13
Net gain on investments (both realized and
unrealized) 1.65
------
Total from investment operations 1.78
------
LESS DISTRIBUTIONS
Net investment income (.15)
------
Total distributions (.15)
------
Net asset value, end of period $11.63
------
------
TOTAL RETURN (NOT ANNUALIZED) 17.90%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions) $ 76.7
Ratio of expenses to average net assets 0.75%(a)
Ratio of expenses to average net assets, absent of
expense limitation 0.93%(a)
Ratio of net investment income to average net
assets 1.27%(a)
Portfolio turnover rate 6%
</TABLE>
- ----------
(a) Determined on an annualized basis.
61-------
<PAGE>
STATE FARM VARIABLE PRODUCT TRUST STOCK AND BOND BALANCED FUND
FINANCIAL HIGHLIGHTS
For a share outstanding throughout the period
<TABLE>
<CAPTION>
1998
------
<S> <C>
Net asset value, beginning of period (inception
date of 1/29/98) $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income .14
Net gain on investments (both realized and
unrealized) 1.32
------
Total from investment operations 1.46
------
LESS DISTRIBUTIONS
Net investment income (.05)
------
Total distributions (.05)
------
Net asset value, end of period $11.41
------
------
TOTAL RETURN (NOT ANNUALIZED) 14.66%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions) $ 5.6
Ratio of expenses to average net assets 0.00%(a)
Ratio of expenses to average net assets, absent of
expense limitation 1.01%(a)
Ratio of net investment income to average net
assets 3.43%(a)
Portfolio turnover rate 18%
</TABLE>
- ----------
(a) Determined on an annualized basis.
- ---------
62
<PAGE>
STATE FARM VARIABLE PRODUCT TRUST BOND FUND
FINANCIAL HIGHLIGHTS
For a share outstanding throughout the period
<TABLE>
<CAPTION>
1998
------
<S> <C>
Net asset value, beginning of period (inception
date of 1/22/98) $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income .49
Net gain on investments (both realized and
unrealized) .15
------
Total from investment operations .64
------
LESS DISTRIBUTIONS
Net investment income (.49)
------
Total distributions (.49)
------
Net asset value, end of period $10.15
------
------
TOTAL RETURN (NOT ANNUALIZED) 6.49%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions) $ 24.7
Ratio of expenses to average net assets 0.57%(a)
Ratio of net investment income to average net
assets 5.14%(a)
Portfolio turnover rate 26%
</TABLE>
- ----------
(a) Determined on an annualized basis.
63-------
<PAGE>
STATE FARM VARIABLE PRODUCT TRUST MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
For a share outstanding throughout the period
<TABLE>
<CAPTION>
1998
------
<S> <C>
Net asset value, beginning of period (inception
date of 1/29/98) $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income .05
------
Total from investment operations .05
------
LESS DISTRIBUTIONS
Net investment income (.05)
------
Total distributions (.05)
------
Net asset value, end of period $ 1.00
------
------
TOTAL RETURN (NOT ANNUALIZED) 4.76%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions) $ 18.7
Ratio of expenses to average net assets 0.43%(a)
Ratio of expenses to average net assets, absent of
expense limitation 0.52%(a)
Ratio of net investment income to average net
assets 5.04%(a)
</TABLE>
- ----------
(a) Determined on an annualized basis.
- ---------
64
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Trustees and Shareowners
State Farm Variable Product Trust --
Large Cap Equity Index Fund
Small Cap Equity Index Fund
International Equity Index Fund
Stock and Bond Balanced Fund
Bond Fund
Money Market Fund
We have audited the accompanying statement of assets and liabilities, including
the portfolios of investments, of the Large Cap Equity Index Fund, Small Cap
Equity Index Fund, International Equity Index Fund, Stock and Bond Balanced
Fund, Bond Fund and Money Market Fund, comprising the State Farm Variable
Product Trust as of December 31, 1998, and the related statements of operations
and changes in net assets and the financial highlights for the periods indicated
therein. These financial statements and financial highlights are the
responsibility of the Funds' management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of investments owned as of December 31, 1998,
by correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the Funds of the State Farm Variable Product Trust at December 31, 1998, the
results of their operations, the changes in their net assets and the financial
highlights for the periods indicated therein in conformity with generally
accepted accounting principles.
[LOGO]
Chicago, Illinois
January 22, 1999
65-------
<PAGE>
APPENDIX A - DESCRIPTION OF MONEY MARKET SECURITIES
The following information includes a description of certain money market
instruments in which a Fund may invest to the extent consistent with its
investment objective.
BANK MONEY INSTRUMENTS. These include instruments, such as certificates of
deposit and bankers' acceptances. Certificates of deposit are generally short-
term, interest bearing negotiable certificates issued by commercial banks of
savings and loan associations against funds deposited in the issuing
institution. A bankers' acceptance is a time draft drawn on a commercial bank
by a borrower usually in connection with an international commercial transaction
(to finance the import, export, transfer or storage of goods). The borrower is
liable for payment as well as the bank, which unconditionally guarantees to pay
the draft at its face amount on the maturity date. Most acceptances have
maturities of six months or less and are traded in secondary markets prior to
maturity.
A Fund may not invest in any security issued by a commercial bank or a savings
and loan association unless the bank or association is organized and operating
in the United States, has total assets of at least one billion dollars and is a
member of the Federal Deposit Insurance Corporation, in the case of banks, or
the Federal Savings and Loan Insurance Corporation, in the case of savings and
loan associations provided that this limitation shall not prohibit investments
in foreign branches of banks which meet the foregoing requirements.
GOVERNMENT AGENCY SECURITIES. These include debt securities issued by
government-sponsored enterprises, federal agencies or instrumentalities and
international institutions. Such securities are not direct obligations of the
U.S. Treasury but involve government sponsorship or guarantees. Thus the Trust
may not be able to assert a claim against the United States itself in the event
the agency or instrumentality does not meet its commitment.
U.S. GOVERNMENT SECURITIES. These include marketable securities issued by the
U.S. Treasury, which consist of bills, notes and bonds. Such securities are
direct obligations of the U.S. government and differ mainly in the length of
their maturity. Treasury bills, the most frequently issued marketable
government security, have a maturity of up to one year and are issued on a
discount basis.
SHORT-TERM CORPORATE DEBT INSTRUMENTS. These include commercial paper
(including variable amount master demand notes), which refers to short-term
unsecured promissory notes issued by corporations to finance short-term credit
needs. Commercial paper is usually sold on a discount basis and has a maturity
at the time of issuance not exceeding nine months. Variable amount master
demand notes are demand obligations that permit the investment of fluctuating
amounts at varying market rates of interest pursuant to arrangements between the
issuer and a commercial bank acting as agent for the payees of such notes,
whereby both parties have the right to vary the amount of the outstanding
indebtedness on the notes.
Because variable amount master notes are direct lending arrangements between the
lender and borrower, it is not generally contemplated that such instruments will
be traded and there is no secondary market for the notes. Typically, agreements
relating to such notes provide that the
-1-
<PAGE>
lender may not sell or otherwise transfer the note without the borrower's
consent. Such notes provide that the interest rate on the amount outstanding is
adjusted periodically, typically on a daily basis in accordance with a stated
short-term interest rate benchmark. Since the interest rate of a variable
amount master note is adjusted no less often than every 60 days and since
repayment of the note may be demanded at any time, the Trust values such a note
in accordance with the amortized cost basis at the outstanding principal amount
of the note.
Also included are nonconvertible corporate debt securities (e.g., bonds and
debentures) with no more than one year remaining to maturity at the date of
settlement. Corporate debt securities with a remaining maturity of less than
one year tend to become extremely liquid and are traded as money market
securities. Such issues with less than one year remaining to maturity tend to
have greater liquidity and considerably less market value fluctuations than
longer term issues.
Commercial paper investments at the time of purchase will be rated at least "A"
by Standard and Poor's or "Prime" by Moody's, or, if not rated, issued by
companies having an outstanding debt issue rated at least "A" by Standard and
Poor's or by Moody's. See "Corporate Bond Ratings" in Appendix B.
REPURCHASE AGREEMENTS. A repurchase agreement is an instrument under which the
purchaser (i.e., a Fund) acquires ownership of the obligation (debt security)
and the seller agrees, at the time of the sale, to repurchase the obligation at
a mutually agreed upon time and price, thereby determining the yield during the
purchaser's holding period. This results in a fixed rate of return insulated
from market fluctuations during such period. The underlying securities will
consist only of U.S. government or government agency securities, certificates of
deposit, commercial paper or bankers' acceptances.
Repurchase agreements usually are for short periods, such as under one week.
Repurchase agreements are considered to be loans under the Act, with the
security subject to repurchase, in effect, serving as "collateral" for the loan.
The Trust will require the seller to provide additional collateral if the market
value of the securities falls below the repurchase price at any time during the
term of the repurchase agreement. In the event of a default by the seller
because of bankruptcy or otherwise, the Trust may suffer time delays and incur
costs or losses in connection with the disposition of the collateral.
Repurchase agreements will be entered into with primary dealers for periods not
to exceed 30 days and only with respect to underlying money market securities in
which the Fund may otherwise invest.
Because a repurchase agreement maturing in more than seven days is deemed an
illiquid investment, investments in such repurchase agreements and other
illiquid assets cannot exceed 10% of the Fund's net assets.
-2-
<PAGE>
APPENDIX B - RATINGS
DESCRIPTION OF CORPORATE BOND RATINGS
MOODY'S INVESTORS SERVICES, INC.
AAA - Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt-edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
AA - Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
BAA - Bonds which are rated Baa are considered as medium grade obligations i.e.,
they are neither highly protected not poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
BA - Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
CAA - Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
CA - Bonds which aare rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
-1-
<PAGE>
Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a midrange ranking; and the modifier 3
indicates that the issue ranks in the lower end of its generic rating category.
STANDARD & POOR'S CORPORATION
AAA - This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA - Bonds rated AA also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong, and in the majority of instances they
differ from AAA issues only in small degree.
A - Bonds rated A have a strong capacity to pay principal and interest, although
they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay principal and interest for bonds in this category
than for bonds in the A category.
BB-B-CCC-CC - Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB
indicates the lowest degree of speculation and CC the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
C - The rating C is reserved for income bonds on which no interest is being
paid.
D - Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.
The ratings from "AA" to "B" may be modified by the addition of a plus or minus
sign to relative standing within the major rating categories.
DESCRIPTION OF COMMERCIAL PAPER RATINGS
Commercial paper rated A-1 by Standard & Poor's has the following
characteristics: Liquidity ratios are adequate to meet cash requirements.
Long-term senior debt is rated "A" or better, although in some cases "BBB"
credits may be allowed. The issuer has access to at least two additional
channels of borrowing. Basic earnings and cash flow have an upward trend with
allowance made for unusual circumstances. Typically, the issuer's industry is
well established and the issuer has a strong position within the industry. The
reliability and quality of
-2-
<PAGE>
management are unquestioned. Relative strength or weakness of the above factors
determine whether the issuer's commercial paper is rated A-1, A-2 or A-3.
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Among the factors considered by Moody's in assigning ratings are the following:
(1) evaluation of the management of the issuer; (2) economic evaluation of the
issuer's industry or industries and an appraisal of speculative-type risks which
may be inherent in certain areas; (3) evaluation of the issuer's products in
relation to competition and customer acceptance; (4) liquidity; (5) amount and
quality of long-term debt; (6) trends of earnings over a period of ten years;
(7) financial strength of a parent company and the relationships which exist
with the issuer, and (8) recognition by the management of obligations which may
be present or may arise as a result of public interest questions and
preparations to meet such obligations.
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