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As filed with the Securities and Exchange Commission on February 26, 1999
Securities Act Registration No. 333-22467
Investment Company Act File No. 811-08073
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 2
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 3
State Farm Variable Product Trust
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(Exact name of Registrant as Specified in Charter)
One State Farm Plaza, Bloomington, Illinois 61710-0001
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code (309) 766-2029
Janet Olsen
Bell Boyd & Lloyd
Roger Joslin Three First National Plaza
One State Farm Plaza 70 West Madison St., Suite 3300
Bloomington, Illinois 61710-0001 Chicago, Illinois 60602
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(Names and addresses of agents for service)
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Amending Parts A, B and C, and filing exhibits
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It is proposed that this filing will become effective:
[ ] immediately upon filing pursuant to rule 485(b)
[ ] on __________pursuant to rule 485(b)
[ ] 60 days after filing pursuant to rule 485(a)(1)
[x] on May 1, 1999 pursuant to rule 485(a)(1)
[ ] 75 days after filing pursuant to rule 485(a)(2)
[ ] on ___________ pursuant to rule 485(a)(2)
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PROSPECTUS
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STATE FARM VARIABLE PRODUCT TRUST
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MAY 1, 1999
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.
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TABLE OF CONTENTS
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INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
MONEY MARKET FUND . . . . . . . . . . . . . . . . . . . . . . . . . 2
EQUITY INDEX FUNDS. . . . . . . . . . . . . . . . . . . . . . . . . 3
BOND FUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
STOCK AND BOND BALANCED FUND. . . . . . . . . . . . . . . . . . . . 8
HOW THE FUNDS INVEST . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
MONEY MARKET FUND . . . . . . . . . . . . . . . . . . . . . . . . . 9
EQUITY INDEX FUNDS. . . . . . . . . . . . . . . . . . . . . . . . . 10
BOND FUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
STOCK AND BOND BALANCED FUND. . . . . . . . . . . . . . . . . . . . 13
MANAGING THE INVESTMENTS OF THE FUNDS. . . . . . . . . . . . . . . . . . . 14
TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
YEAR 2000. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
FINANCIAL HIGHLIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
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INTRODUCTION
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:
[GRAPHIC]
Lower
Moderate
Higher
Risk
Money Market Funds
Bond Funds
Balanced Funds
Stock Funds
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
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
or
- 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
or
- are investing for growth or maximum current income
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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?
[GRAPHIC]
Lower
Moderate
Higher
Risk
Money Market Funds
Bond Funds
Balanced Funds
Stock Funds
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.
To the extent that it invests in certain securities, the Fund may be affected by
additional risks relating to REPURCHASE AGREEMENTS (credit risk), SHORT-TERM
TRADING (market risk, as well as potentially higher transaction costs),
WHEN-ISSUED SECURITIES (market, opportunity, and leverage risks), and FOREIGN
MONEY MARKET SECURITIES (information, natural event and political risks).
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
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
program
or
- 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
or
- are uncomfortable with an investment whose value is likely to vary
substantially
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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.
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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) This Fund invests primarily on a capitalization
weighted basis 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.
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 a representative sample of 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 a representative sample of 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")
(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.
(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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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, 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.
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?
[GRAPHIC]
Lower Moderate Higher
Risk
Money Market Bond Balanced Stock
Funds Funds Funds Funds
Lower Moderate Higher Highest
Risk
Stock Funds
Large Cap Equity International Equity Small Cap Equity
Index Fund Index Fund Index Fund
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.
- 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
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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
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
or
- require stability of your principal
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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?
[GRAPHIC]
Lower Moderate Higher
Risk
Money Market Bond Balanced Stock
Funds Funds Funds Funds
Bond Fund
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 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
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
or
* require a high degree of stability of your principal
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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?
[GRAPHIC]
Lower Moderate Higher
Risk
Money Market Bond Balanced Stock
Funds Funds Funds Funds
Stock and Bond
Balanced Fund
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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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
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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.
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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 mortgage, commercial or consumer loans
originated by credit unions.
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EQUITY INDEX FUNDSEquity 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 generally holds every stock in the S&P
500.
- 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
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- 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.
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;
- potential political or economic instability; and
-11-
<PAGE>
- 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 A
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.
-12-
<PAGE>
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% 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.
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).
-13-
<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.
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. SFIM reimburses State Farm Mutual
Automobile Insurance Company ("SFMAIC") for such costs, direct and indirect, as
are fairly attributable to the services performed and the facilities provided by
SFMAIC pursuant to a separate service agreement between SFIM and SFMAIC.
Accordingly, the Trust makes no payment to SFMAIC under the service agreement.
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>
---------------------------------------------------------------------------
FUND RATE OF
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 Ind ex Fund .55% of average daily net assets
---------------------------------------------------------------------------
Bond Fund .50% of average daily net assets
---------------------------------------------------------------------------
Stock and Bond Balanced Fund(4) None
---------------------------------------------------------------------------
</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
-14-
<PAGE>
.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 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 and on certain local
holidays when the Funds are not open for business. The days on which the Funds
are not open for business include November 26, December 23, December 24 and
December 31, 1999.
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
-15-
<PAGE>
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 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 do not properly
process and calculate date-related information and data from and after January
1, 2000. 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.
-16-
<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 December 31, 1998 annual
report. The annual report may be obtained from the Trust upon request without
charge.
STATE FARM VARIABLE PRODUCT TRUST LARGE CAP EQUITY INDEX FUND
(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.
- ---------- ---------------------------------------------
-17-
<PAGE>
STATE FARM VARIABLE PRODUCT TRUST SMALL CAP EQUITY INDEX FUND
(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 gain on investments
(both realized and unrealized) (.46)
------
Total from investment operations (.19)
LESS DISTRIBUTIONS
Net investment income (.9)
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.
- ---------- ---------------------------------------------
-18-
<PAGE>
STATE FARM VARIABLE PRODUCT TRUST INTERNATIONAL EQUITY INDEX FUND
(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.
- ---------- ---------------------------------------------
-19-
<PAGE>
STATE FARM VARIABLE PRODUCT TRUST STOCK AND BOND BALANCED FUND
(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% (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.
- ---------- ---------------------------------------------
-20-
<PAGE>
STATE FARM VARIABLE PRODUCT TRUST BOND FUND
(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.
- ---------- ---------------------------------------------
-21-
<PAGE>
STATE FARM VARIABLE PRODUCT TRUST MONEY MARKET FUND
(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 0.25% (a)
Ratio of net investment income
to average net assets 5.04% (a)
</TABLE>
(a) Determined on an annualized basis.
- ---------- ---------------------------------------------
-22-
<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.
<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.
<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
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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
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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
- -------------------
(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 (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. Under these
restrictions, no Fund may:
1. FINANCIAL FUTURES CONTRACTS. No Fund may enter into a financial futures
contract (by exercise of any option or otherwise) or acquire any options
thereon, if, immediately thereafter, the total of the initial margin
deposits required with respect to all open futures positions, at the time
such positions were established, plus the sum of the premiums paid for all
unexpired options on futures contracts would exceed 5% of the value of its
total assets.
-10-
<PAGE>
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
-11-
<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
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<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 445 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>
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<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., 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>
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<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), 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.
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<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
The duties and responsibilities of SFIM are specified in the Investment Advisory
and Management Services Agreement between the Trust and SFIM and the separate
Service Agreement among the Trust, SFIM and State Farm Mutual Automobile
Insurance Company ("SFMAIC") (collectively, the "Management Agreements"). The
Management Agreements were approved for each Fund by the Board of Trustees of
the Trust (including a majority of Trustees who are not parties to the Agreement
or interested persons, as defined by the Act, of any such party) at a meeting
held for that purpose on 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
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<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 the such Agreements relate, except for a breach of fiduciary duty or a
loss resulting from willful misfeasance, bad faith, gross negligence, or
reckless disregard on the part of SFIM in the performance of its duties
thereunder.
BETWEEN SFIM AND BGFA
Pursuant to the separate sub-advisory agreement described below (the
"Sub-advisory Agreement"), SFIM has engaged BGFA as the investment sub-adviser
to provide day-to-day portfolio management for the Large Cap, Small Cap, and
International Equity Index Funds.
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
-24-
<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
-25-
<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 and on
certain local holidays when the Funds are not open for business. The days on
which the Funds are not open for business include November 26, December 23,
December 24 and December 31, 1999. 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.
-27-
<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.
-28-
<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.
-30-
<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.
-31-
<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
-33-
<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 ("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 semi-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.
-3-
<PAGE>
STATE FARM VARIABLE PRODUCT TRUST
PART C OF THE REGISTRATION STATEMENT
ITEM 23. EXHIBITS
(a) Declaration of Trust*
(b) Bylaws*
(c) N/A
(d)(1) Investment Advisory and Management Services Contract between
Registrant and State Farm Management Investment Corp.**
(d)(2) Investment Sub-Advisory Agreement among Registrant, State
Farm Investment Management Corp., and Barclays Global Fund
Advisors**
(e) Underwriting Agreement between Registrant and State Farm
Investment Management Corp.**
(f) N/A
(g)(1) Custodial Agreement between Registrant and The Chase
Manhattan Bank***
(g)(2) Custodial Agreement between Registrant and Barclays Global
Investors, N.A.
(g)(3) Custodial Agreement between Registrant and Investors Bank
and Trust Company
(g)(4) Delegation Agreement between Investors Bank and Trust
Company and Registrant
(h)(1) Participation Agreement between Registrant and State Farm
Life Insurance Company Separate Accounts
(h)(2) Participation Agreement between Registrant and State Farm
Life and Accident Assurance Company Separate Accounts
(h)(3) Service Agreement among Registrant, State Farm Investment
Management Corp., and State Farm Mutual Automobile Insurance
Company**
(i) Consent of Sutherland, Asbill & Brennan, L.L.P.
(j) Consent of Ernst & Young LLP
(k) N/A
(l) N/A
(m) N/A
<PAGE>
(n) Financial Data Schedules
(o) N/A
- ------------
* Incorporated by reference to the initial Registration Statement on Form
N-1A filed on behalf of the Registrant on February 27, 1997 (File Nos.
333-22467, 811-08073).
** Incorporated by reference to Pre-Effective Amendment No. 1 on Form N-1A
filed on behalf of the Registrant on November 25, 1997 (File Nos.
333-22467, 811-08073).
*** Incorporated by reference to Post-Effective Amendment No. 1 on Form N-1A
filed on behalf of Registrant on May 1, 1998 (File Nos. 333-22467,
811-08073)
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
The Registrant does not consider that there are any persons directly or
indirectly controlling, controlled by, or under common control with, the
registrant within the meaning of this item. The information in the Statement of
Additional Information under the caption "Management of the Trust - Trustees
and Officers" and Additional Information - Shares is incorporated herein by
reference.
ITEM 25. INDEMNIFICATION
As a Delaware business trust, Registrant's operations are governed by its
Declaration of Trust dated February 21, 1997 (the Declaration of Trust).
Generally, Delaware business trust shareholders are not personally liable for
obligations of the Delaware business trust under Delaware law. The Delaware
Business Trust Act (the DBTA) provides that a shareholder of a trust shall be
entitled to the same limitation of liability extended to shareholders of private
for-profit Delaware corporations. Registrant's Declaration of Trust expressly
provides that it has been organized under the DBTA and that the Declaration of
Trust is to be governed by Delaware law. It is nevertheless possible that a
Delaware business trust, such as Registrant, might become a party to an action
in another state whose courts refuse to apply Delaware law, in which case
Registrant's shareholders could be subject to personal liability.
To protect Registrant's shareholders against the risk of personal
liability, the Declaration of Trust: (i) contains an express disclaimer of
shareholder liability for acts or obligations of Registrant and provides that
notice of such disclaimer may be given in each agreement, obligation and
instrument entered into or executed by Registrant or its Trustees; (ii) provides
for the indemnification out of Trust property of any shareholders held
personally liable for any obligations of Registrant or any series of Registrant;
and (iii) provides that Registrant shall, upon request, assume the defense of
any claim made against any shareholder for any act or obligation of Registrant
and satisfy any judgment thereon. Thus, the risk of a shareholder incurring
financial loss beyond his or her investment because of shareholder liability is
limited to circumstances in which all of the following factors are present: (i)
a court refuses to apply Delaware law; (ii) the liability arose under tort law
or, if not, no contractual limitation of liability
<PAGE>
was in effect; and (iii) Registrant itself would be unable to meet its
obligations. In the light of Delaware law, the nature of Registrant's business
and the nature of its assets, the risk of personal liability to a shareholder is
remote.
The Declaration of Trust further provides that Registrant shall indemnify
each of its Trustees and officers against liabilities and expenses reasonably
incurred by them, in connection with, or arising out of, any action, suit or
proceeding, threatened against or otherwise involving such Trustee or officer,
directly or indirectly, by reason of being or having been a Trustee or officer
of Registrant. The Declaration of Trust does not authorize Registrant to
indemnify any Trustee or officer against any liability to which he or she would
otherwise be subject by reason of or for willful misfeasance, bad faith, gross
negligence or reckless disregard of such person's duties.
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to Trustees, officers and controlling persons, or
otherwise, Registrant has been advised that in the opinion of the Commission
such indemnification may be against public policy as expressed in the Act and
may be, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by Registrant of expenses
incurred or paid by a Trustee, officer or controlling person of Registrant in
the successful defense of any action, suit or proceeding) is asserted by such
Trustee, officer or controlling person in connection with the securities being
registered, Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
ITEM 26 BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
The information in the statement of additional information under the
caption "Management of the Trust" is incorporated herein by reference. Other
than its status as investment adviser and principal underwriter to four other
State Farm mutual funds (see item 27 below), neither State Farm Investment
Management Corp., nor any of its directors or officers, has at any time during
the past two fiscal years engaged in any other business, profession, vocation or
employment of a substantial nature either for their own account or in the
capacity of director, officer, employee, partner or trustee.
Directors and Officers of State Farm Investment Management Corp.:
Edward B. Rust, Jr., Director and President*
Roger S. Joslin, Director, Vice President and Treasurer*
John J. Killian, Director. Vice President and Controller - State Farm
Mutual Automobile Insurance Company, State Farm Fire and Casualty Company,
and State Farm General Insurance Company; Underwriter - State Farm Lloyds;
Controller - State Farm Lloyds, Inc.; Vice President and Assistant
Treasurer - State Farm County Mutual Insurance Company of Texas; Assistant
Treasurer - State Farm Indemnity Company; Secretary and
<PAGE>
Assistant Treasurer - State Farm International Services, Inc.; Director -
Insurance Placement Services, Inc. (since 1996).
Kurt G. Moser, Director and Senior Vice President*
Vincent J. Trosino, Director. Director, Vice Chairman of the Board,
Executive Vice President and Chief Operating Officer - State Farm Mutual
Automobile Insurance Company; Director and Vice President - State Farm Fire
and Casualty Company and State Farm General Insurance Company; Director -
State Farm Lloyds, Inc., State Farm International Services, Inc., State
Farm Life Insurance Company, State Farm Annuity and Life Insurance Company,
and State Farm Life and Accident Assurance Company; Assistant Secretary -
State Farm Companies Foundation.
Paul N. Eckley, Senior Vice President*
David R. Grimes, Assistant Vice President and Secretary *
Michael L. Tipsord, Assistant Secretary *
Jerel S. Chevalier, Assistant Secretary-Treasurer *
John S. Concklin, Vice President*
Howard Thomas, Assistant Secretary - Treasurer*
Donald O. Jaynes, Assistant Secretary*
* See the information contained in the statement of additional information
under the caption "Management of the Trust," incorporated herein by reference.
ITEM 27. PRINCIPAL UNDERWRITERS
State Farm Investment Management Corp. serves as the principal underwriter to
the Registrant. Other than the Registrant, State Farm Investment Management
Corp. serves as investment adviser and principal underwriter to the following
investment companies: State Farm Growth Fund, Inc.; State Farm Balanced Fund,
Inc.; State Farm Interim Fund, Inc.; and State Farm Municipal Bond Fund, Inc.
The following table contains information concerning each director and officer of
State Farm Investment Management Corp. (unless otherwise indicated, the
principal business address for each person shown is One State Farm Plaza,
Bloomington, IL 61710-0001):
<PAGE>
Name and Principal Positions and Offices Positions and Offices
Business Address with Underwriter with Registrant
- ------------------------------------------------------------------------------
Edward B. Rust Jr. Director and President Trustee and President
Roger S. Joslin Director, Vice President and Trustee, Vice President
Treasurer and Treasurer
John J. Killian Director None
Kurt G. Moser Director and Senior Vice Vice President
President
Vincent J. Trosino Director None
Paul N. Eckley Senior Vice President Vice President
David R. Grimes Assistant Vice President and Assistant Vice President
Secretary and Secretary
Michael L. Tipsord Assistant Secretary Assistant Secretary
Jerel S. Chevalier Assistant Secretary- Assistant Secretary-
Treasurer Treasurer
Net
Name of Underwriting Compensation
Principal Discounts and on Redemption Brokerage Other
Underwriter Commissions and Repurchase Commissions Compensation
- -------------------------------------------------------------------------------
State Farm N/A N/A N/A N/A
Investment
Management
Corp.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
(a) Registrant
(b) State Farm Investment Management Corp.
One State Farm Plaza
Bloomington, Illinois 61710-0001
(c) Barclays Global Investors
45 Fremont Street
San Francisco, California 94105
<PAGE>
(d) Investors Bank and Trust Company
200 Clarendon Street
Boston, Massachusetts 02116
(e) 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
ITEM 29. MANAGEMENT SERVICES
All the management-related service contracts under which services are provided
to the Registrant are discussed in Parts A and B of this Registration Statement.
ITEM 30. UNDERTAKINGS
The Registrant hereby undertakes to furnish, upon request and without
charge, to each person to whom a prospectus for any Fund (other than the Money
Market Fund) is delivered a copy of the Registrant's latest annual report to
shareholders.
The Registrant hereby undertakes, if requested to do so by the holders of
at least 10% of the Registrant's outstanding shares, to call a meeting of
shareholders for the purpose of voting upon any question of removal of a trustee
or trustees, and to assist in communications with other shareholders as required
by Section 16(c) of the Investment Company Act of 1940, as amended.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, State Farm Variable Product
Trust, certifies that it meets all of the requirements for effectiveness of this
post-effective amendment pursuant to Rule 485(a) under the Securities Act of
1933 and has duly caused this post-effective amendment to be signed on its
behalf by the undersigned, thereto duly authorized, in the City of Bloomington,
and state of Illinois on the 25th day of February 1999.
STATE FARM VARIABLE PRODUCT TRUST
By: /s/ Edward B. Rust, Jr.
------------------------------------
Edward B. Rust, Jr.
President
Pursuant to the Securities Act of 1933, this post-effective amendment has
been signed below by the following persons in the capacities and on the dates
indicated.
Signature Title Date
--------- ----- ----
/s/ Edward B. Rust , Jr. Trustee, President and Chief
- ------------------------- Executive Officer (principal
Edward B. Rust, Jr. executive officer)
/s/ Roger S. Joslin Trustee, Vice President, and
- ------------------------- Treasurer (principal financial
Roger S. Joslin and accounting officer)
/s/ Davis U. Merwin Trustee February 25, 1999
- ------------------------- -----------------
Davis U. Merwin
/s/ James A. Shirk Trustee
- -------------------------
James A. Shirk
Trustee
/s/ Albert H. Hoopes Trustee
- -------------------------
Albert H. Hoopes
/s/ Thomas M. Mengler Trustee
- -------------------------
Thomas M. Mengler
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
N-1A ITEM 23 EXHIBIT LETTER DESCRIPTION
<S> <C>
(g)(2) Custodial Agreement between Registrant and
Barclays Global Investors, N.A.
(g)(3) Custodial Agreement between Registrant and
Investors Bank and Trust Company
(g)(4) Delegation Agreement between Investors Bank
and Trust Company and Registrant
(h)(1) Participation Agreement between Registrant and
State Farm Life Insurance Company Separate
Accounts
(h)(2) Participation Agreement between Registrant and
State Farm Life and Accident Assurance Company
Separate Accounts
(i) Consent of Sutherland, Asbill & Brennan, L.L.P.
(j) Consent of Ernst & Young LLP
(n) Financial Data Schedules
</TABLE>
<PAGE>
CUSTODIAN CONTRACT
BETWEEN
STATE FARM VARIABLE PRODUCT TRUST
AND
BARCLAYS GLOBAL INVESTORS, N.A.
<PAGE>
TABLE OF CONTENTS
Page
----
1. EMPLOYMENT OF CUSTODIAN. . . . . . . . . . . . . . . . . . . . . . . . .1
2. DUTIES OF THE CUSTODIAN. . . . . . . . . . . . . . . . . . . . . . . . .1
2.1 Holding Securities . . . . . . . . . . . . . . . . . . . . . . . . .1
2.2 Delivery of Securities . . . . . . . . . . . . . . . . . . . . . . .1
2.3 Registration of Securities . . . . . . . . . . . . . . . . . . . . .3
2.4 Bank Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . .4
2.5 Availability of Federal Funds. . . . . . . . . . . . . . . . . . . .4
2.6 Collection of Income . . . . . . . . . . . . . . . . . . . . . . . .4
2.7 Payment of Monies. . . . . . . . . . . . . . . . . . . . . . . . . .5
2.8 Acting Pursuant to Proper Instructions . . . . . . . . . . . . . . .6
2.9 Appointment of Agents. . . . . . . . . . . . . . . . . . . . . . . .6
2.10 Deposit of Securities in U.S. Securities Systems. . . . . . . . . .6
2.11 Segregated Account. . . . . . . . . . . . . . . . . . . . . . . . .7
2.12 Ownership Certificates for Tax Purposes . . . . . . . . . . . . . .7
2.13 Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
2.14 Communications Relating to Trust Portfolio Securities . . . . . . .8
2.15 Reports to Trust by Independent Public Accountants. . . . . . . . .8
3. PAYMENTS FOR REPURCHASE OR REDEMPTION AND SALES OF SHARES OF THE FUNDS .8
4. PROPER INSTRUCTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . .9
5. ACTIONS PERMITTED WITHOUT EXPRESS AUTHORITY. . . . . . . . . . . . . . .9
6. EVIDENCE OF AUTHORITY. . . . . . . . . . . . . . . . . . . . . . . . . .9
7. DUTIES OF CUSTODIAN WITH RESPECT TO THE BOOKS OF ACCOUNT AND
CALCULATION OF NET ASSET VALUE AND NET INCOME . . . . . . . . . . . . .9
8. RECORDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
9. OPINION OF TRUST'S INDEPENDENT ACCOUNTANTS . . . . . . . . . . . . . . 10
10. COMPENSATION OF CUSTODIAN. . . . . . . . . . . . . . . . . . . . . . . 10
11. RESPONSIBILITY OF CUSTODIAN. . . . . . . . . . . . . . . . . . . . . . 10
12. EFFECTIVE PERIOD, TERMINATION AND AMENDMENT. . . . . . . . . . . . . . 11
13. SUCCESSOR CUSTODIAN. . . . . . . . . . . . . . . . . . . . . . . . . . 12
14. INTERPRETIVE AND ADDITIONAL PROVISIONS . . . . . . . . . . . . . . . . 12
15. CALIFORNIA LAW TO APPLY. . . . . . . . . . . . . . . . . . . . . . . . 13
16. PRIOR CONTRACTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
17. REPRODUCTION OF DOCUMENTS. . . . . . . . . . . . . . . . . . . . . . . 13
18. SHAREHOLDER COMMUNICATIONS ELECTION. . . . . . . . . . . . . . . . . . 13
19. TAX LAW. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
20. REIMBURSEMENT OF ADVANCES. . . . . . . . . . . . . . . . . . . . . . . 14
21. REPRESENTATIVE CAPACITY AND BINDING OBLIGATION . . . . . . . . . . . . 15
22. SEVERAL OBLIGATIONS OF THE PORTFOLIOS. . . . . . . . . . . . . . . . . 15
<PAGE>
CUSTODIAN CONTRACT
This Contract between State Farm Variable Product Trust ("Trust"), a
business trust organized and existing under the laws of the State of Delaware,
having its principal place of business at One State Farm Plaza, Bloomington,
Illinois 61710, and Barclays Global Investors, N.A. ("Custodian") having its
principal place of business at 45 Fremont Street, San Francisco, CA 94105, is
dated as of January 21, 1998.
WITNESSETH: In consideration of the mutual covenants and agreements
hereinafter contained, the parties agree as follows:
1. EMPLOYMENT OF CUSTODIAN
The Trust hereby employs the Custodian as the custodian of two of the
Trust's six separate investment portfolios: the Large Cap Equity Index Fund and
the Small Cap Equity Index Fund (the "Funds" or the "Fund"). The Trust agrees to
deliver to the Custodian all securities and cash owned by each Fund, and all
payments of income, payments of principal or capital distributions received by
the Trust with respect to all securities owned by the Fund from time to time,
and the cash consideration received by the Trust for such new or treasury shares
of capital stock ("Shares") of the Fund as may be issued or sold from time to
time. The Custodian shall not be responsible for any property of the Fund held
or received by the Trust and not delivered to the Custodian.
2. DUTIES OF THE CUSTODIAN
2.1 HOLDING SECURITIES. The Custodian shall hold and physically
segregate for the account of the Trust on behalf of each Fund all
non-cash property, including all investments owned by the Fund,
other than (a) securities which are maintained pursuant to Section
2.10 in a clearing agency which acts as a securities depository or
in a book-entry system authorized by the U.S. Department of the
Treasury and certain federal agencies (each, a "U.S. Securities
System").
2.2 DELIVERY OF SECURITIES. The Trust on behalf of each Fund, by Proper
Instructions (which may be continuing instructions when deemed
appropriate by the parties), will direct Custodian to release and
deliver securities owned by each Fund held by the Custodian or in a
U.S. Securities System account of the Custodian only:
1) Upon sale of such securities and receipt of payment therefor;
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the Trust
on behalf of the Fund;
1
<PAGE>
3) In the case of a sale effected through a U.S. Securities
System, in accordance with the provisions of Section 2.10
hereof;
4) To the depository agent in connection with tender or other
similar offers for securities;
5) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable;
provided that, in any such case, the cash or other
consideration is to be delivered to the Custodian;
6) To the issuer thereof, or its agent, for transfer into the
name of the Trust on behalf of each Fund or into the name of
any nominee or nominees of the Custodian or into the name or
nominee name of any agent appointed pursuant to Section 2.9 or
into the name or nominee name of any sub-custodian appointed
pursuant to Article 1; or for exchange for a different number
of bonds, certificates or other evidence representing the same
aggregate face amount or number of units; provided that, in
any such case, the new securities are to be delivered to the
Custodian;
7) Upon the sale of such securities for the account Trust on
behalf of the Fund, to the broker or its clearing agent,
against a receipt, for examination in accordance with "street
delivery" custom; provided that in any such case, the
Custodian shall have no responsibility or liability for any
loss arising from the delivery of such securities prior to
receiving payment for such securities except as may arise from
the Custodian's own negligence or willful misconduct;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or
readjustment of the securities of the issuer of such
securities, or pursuant to provisions for conversion contained
in such securities, or pursuant to any deposit agreement;
provided that, in any such case, the new securities and cash,
if any, are to be delivered to the Custodian;
9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or
temporary securities for definitive securities; provided that,
in any such case, the new securities and cash, if any, are to
be delivered to the Custodian;
10) For delivery in connection with any loans of securities made
by the Trust on behalf of the Fund, but only against receipt
of adequate collateral as agreed upon from time to time by the
Custodian and the Trust, which may be in the form of cash or
obligations issued by the United States government, its
agencies or instrumentalities, except that
2
<PAGE>
in connection with any loans for which collateral is to be
credited to the Custodian's account in the book-entry system
authorized by the U.S. Department of the Treasury, the
Custodian will not be held liable or responsible for the
delivery of securities owned by the Fund prior to the receipt
of such collateral;
11) For delivery as security in connection with any borrowings by
the Trust on behalf of the Fund requiring a pledge of assets,
but only against receipt of amounts borrowed;
12) For delivery in accordance with the provisions of any
agreement among the Trust on behalf of the Fund, the Custodian
and a broker-dealer registered under the Securities Exchange
Act of 1934 ("Exchange Act") and a member of The National
Association of Securities Dealer, Inc. ("NASD"), relating to
compliance with the rules of The Options Clearing Corporation
and of any registered national securities exchange, or of any
similar organization or organizations, regarding escrow or
other arrangements in connection with transactions by the
Trust;
13) For delivery in accordance with the provisions of any
agreement among the Trust on behalf of the Fund, the
Custodian, and a Futures Commission Merchant registered under
the Commodity Exchange Act, relating to compliance with the
rules of the Commodity Futures Trading Commission and/or any
Contract Market or any similar organization or organizations,
regarding account deposits in connection with transactions by
the Trust;
14) Upon receipt of instructions from the transfer agent
("Transfer Agent") for the Trust on behalf of the Fund, for
delivery to such Transfer Agent or to the holders of shares in
connection with distributions in kind, as may be described
from time to time in the Trust's currently effective
prospectus and statement of additional information
("prospectus"), in satisfaction of requests by holders of
Shares for repurchase or redemption; and
15) For any other proper corporate purpose.
2.3 REGISTRATION OF SECURITIES. Securities held by the Custodian (other
than bearer securities) shall be registered in the name of Trust on
behalf of the Fund or in the name of any nominee of the Trust or of
any nominee of the Custodian which nominee shall be assigned
exclusively to the Trust, unless the Trust has authorized in writing
the appointment of a nominee to be used in common with other
registered investment companies having the same investment adviser
as the Trust, or in the name or nominee name of any agent appointed
pursuant to Section 2.9 or in the name or nominee name of any
sub-custodian appointed pursuant to Article 1. All securities
accepted by the Custodian on behalf of the Trust under the terms of
this Contract shall
3
<PAGE>
be in "street name" or other good delivery form. If, however, the
Trust directs the Custodian to maintain securities in "street name",
the Custodian shall utilize its best efforts only to timely collect
income due the Trust on such securities and to notify the Trust on a
best efforts basis only of relevant corporate actions including,
without limitation, pendency of calls, maturities, tender or
exchange offers.
2.4 BANK ACCOUNTS. The Custodian shall open and maintain a separate
bank account or accounts in the United States in the name of the
Trust on behalf of each Fund, subject only to draft or order by the
Custodian acting pursuant to the terms of this Contract, and shall
hold in such account or accounts, subject to the provisions hereof,
all cash received by it from or for the account of the Trust, other
than cash maintained by the Trust in a bank account established and
used in accordance with Rule 17f-3 under the Investment Company Act
of 1940. Funds held by the Custodian for the Trust may be deposited
by it to its credit as Custodian in such other banks or trust
companies as it may in its discretion deem necessary or desirable;
provided, however, that every such bank or trust company shall be
qualified to act as a custodian under the Investment Company Act of
1940 and that each such bank or trust company and the funds to be
deposited with each such bank or trust company shall be approved by
vote of a majority of the Board of Trustees. Such funds shall be
deposited by the Custodian in its capacity as Custodian and shall be
withdrawable by the Custodian only in that capacity.
2.5 AVAILABILITY OF FEDERAL FUNDS. Upon mutual agreement between Trust
on behalf of the Funds and the Custodian, the Custodian shall, upon
the receipt of Proper Instructions, make federal funds available to
the Trust as of specified times agreed upon from time to time by the
Trust and the Custodian in the amount of checks received in payment
for Shares of the Fund which are deposited into the Trust's account.
2.6 COLLECTION OF INCOME. Subject to the provisions of Section 2.3, the
Custodian shall collect on a timely basis all income and other
payments with respect to United States registered securities held
hereunder to which the Trust on behalf of each Fund shall be
entitled either by law or pursuant to custom in the securities
business, and shall collect on a timely basis all income and other
payments with respect to United States bearer securities if, on the
date of payment by the issuer, such securities are held by the
Custodian or its agent thereof and shall credit such income, as
collected, to the Trust's custodian account. Without limiting the
generality of the foregoing, the Custodian shall detach and present
for payment all coupons and other income items requiring
presentation as and when they become due and shall collect interest
when due on securities held hereunder. Income due the Trust on
United States securities loaned pursuant to the provisions of
Section 2.2 (10) shall be the responsibility of the Trust. The
Custodian will have no duty or responsibility in connection
therewith, other than to provide the Trust with such information or
data as may be necessary to assist the
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Trust in arranging for the timely delivery to the Custodian of the
income to which the Trust is properly entitled.
2.7 PAYMENT OF MONIES. The Trust, by Proper Instructions (which may be
continuing instructions when deemed appropriate by the parties),
shall direct the Custodian to pay out monies of the Trust on behalf
of the Fund only:
1) Upon the purchase of securities, options, futures contracts or
options on futures contracts for the account of the Trust but
only (a) against the delivery of such securities, or evidence
of title to such options, futures contracts or options on
futures contracts, to the Custodian (or any bank, banking firm
or trust company doing business in the United States or abroad
which is qualified under the Investment Company Act of 1940,
as amended, to act as a custodian and has been designated by
the Custodian as its agent for this purpose) registered in the
name of the Trust or in the name of a nominee of the Custodian
referred to in Section 2.3 hereof or in proper form for
transfer; (b) in the case of a purchase effected through a
U.S. Securities System, in accordance with the conditions set
forth in Section 2.10 hereof; (c) in the case of repurchase
agreements entered into between the Trust and the Custodian,
or another bank, or a broker-dealer which is a member of NASD,
(i) against delivery of the securities either in certificate
form or through an entry crediting the Custodian's account at
the Federal Reserve Bank with such securities or (ii) against
delivery of the receipt evidencing purchase by the Trust of
securities owned by the Custodian along with written evidence
of the agreement by the Custodian to repurchase such
securities from the Trust or (d) for transfer to a time
deposit account of the Trust in any bank such transfer may be
effected prior to receipt of a confirmation from a broker
and/or the applicable bank pursuant to Proper Instructions
from the Trust as defined in Article 5;
2) In connection with conversion, exchange or surrender of
securities as set forth in Section 2.2 hereof;
3) For the redemption or repurchase of Shares as set forth in
Article 3 hereof;
4) For the payment of any expense or liability incurred by the
Trust on behalf of the Fund, including but not limited to the
following payments for the account of the Trust; interest,
taxes, management, accounting, transfer agent and legal fees,
and operating expenses whether or not such expenses are to be
in whole or part capitalized or treated as deferred expenses;
5) For the payment of any dividends declared pursuant to the
governing documents;
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6) For payment of the amount of dividends received in respect of
securities sold short; and
7) For any other proper purpose.
2.8 ACTING PURSUANT TO PROPER INSTRUCTIONS. Provided that the Custodian
acts in accordance with Proper Instructions, it shall have no
liability for actions taken or declined to be taken.
2.9 APPOINTMENT OF AGENTS. Subject to the approval of the Trust or the
Advisor of the Trust, the Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or
trust company which is itself qualified under the Investment Company
Act of 1940, as amended, to act as a custodian, as its agent to
carry out such of the provisions of this Article 2 as the Custodian
may from time to time direct; provided, however, that the
appointment of any agent shall not relieve the Custodian of its
responsibilities or liabilities hereunder.
2.10 DEPOSIT OF SECURITIES IN U.S. SECURITIES SYSTEMS. Upon receipt of
Proper Instructions, the Custodian may deposit and/or maintain
securities held by the Trust on behalf of each Fund in a clearing
agency registered with the Securities and Exchange Commission under
Section 17A of the Exchange Act, which acts as a securities
depository, or in the book-entry system authorized by the U.S.
Department of the Treasury and certain federal agencies,
collectively referred to herein as "U.S. Securities System" in
accordance with applicable Federal Reserve Board and Securities and
Exchange Commission rules and regulations, if any, and subject to
the following provisions:
1) The Custodian may keep securities in a U.S. Securities System
provided that such securities are represented in an account
("Account") of the Custodian in the U.S. Securities System
which shall not include any assets of the Custodian other than
assets held as a fiduciary, custodian or otherwise for
customers;
2) The records of the Custodian with respect to securities of the
Trust which are maintained in a U.S. Securities System shall
identify by book-entry those securities belonging to the
Trust;
3) The Custodian shall pay for securities purchased for the
account of the Trust on behalf of the Fund upon (i) receipt of
advice from the U.S. Securities System that such securities
have been transferred to the Account, and (ii) the making of
an entry on the records of the Custodian to reflect such
payment and transfer for the account of the Trust. The
Custodian shall transfer securities sold for the account of
the Trust upon (i) receipt of advice from the U.S. Securities
System that payment for such securities has been transferred
to the Account, and (ii) the making of an entry on the records
of the Custodian to
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reflect such transfer and payment for the account of the
Trust. Copies of all advices from the U.S. Securities System
of transfers of securities for the account of the Trust shall
identify the Trust, be maintained for the Trust by the
Custodian and be provided to the Trust at its request. Upon
request, the Custodian shall furnish the Trust confirmation of
each transfer to or from the account of the Trust in the form
of a written advice or notice and shall furnish to the Trust
copies of daily transaction sheets reflecting each day's
transactions in the U.S. Securities System for the account of
the Trust;
4) The Custodian shall provide the Trust with any report obtained
by the Custodian on the U.S. Securities System's accounting
system, internal accounting control and procedures for
safeguarding securities deposited in the U.S. Securities
System; and
5) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Trust for any loss or damage
to the Trust resulting from the failure of the Custodian or
any agent to enforce effectively such rights as it may have
against the U.S. Securities System; at the election of the
Trust, it shall be entitled to be subrogated to the rights of
the Custodian with respect to any claim against the U.S.
Securities System or any other person which the Custodian may
have as a consequence of any such loss or damage if and to the
extent that the Trust has not been made whole for any such
loss or damage.
2.11 SEGREGATED ACCOUNT. Upon receipt of Proper Instructions, the
Custodian shall establish and maintain a segregated account or
accounts for the Trust on behalf of each Fund in order to comply
with applicable federal securities or commodities laws. Upon
receipt of Proper Instructions, the Custodian shall transfer into
such segregated accounts such cash and/or securities, including
securities maintained in an account by the Custodian pursuant to
Section 2.10 hereof, as it may be directed. In lieu of establishing
a segregated account or accounts, Custodian, upon receipt of Proper
Instructions, shall earmark cash or securities to comply with
applicable federal securities.
2.12 OWNERSHIP CERTIFICATES FOR TAX PURPOSES. The Custodian shall
execute ownership and other certificates and affidavits for all
federal and state tax purposes in connection with receipt of income
or other payments with respect to the securities of the Trust held
by it and in connection with transfers of such securities.
2.13 PROXIES. The Custodian shall, with respect to the securities held
hereunder, cause to be promptly executed by the registered holder of
such securities, if the securities are registered otherwise than in
the name of the Trust or a nominee of the Trust, all proxies,
without indication of the manner in which such proxies are to be
voted, and shall promptly deliver to the Trust such
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proxies, all proxy soliciting materials and all notices relating to
such securities.
2.14 COMMUNICATIONS RELATING TO TRUST PORTFOLIO SECURITIES. Subject to
the provisions of Section 2.3, the Custodian shall transmit promptly
to the Trust all written information (including, without limitation,
pendency of calls and maturities of securities and expirations of
rights in connection therewith and notices of exercise of call and
put options written by the Trust on behalf of the Fund and the
maturity of futures contracts purchased or sold by the Trust on
behalf of the Fund) received by the Custodian from issuers of the
securities being held for the Trust. With respect to tender or
exchange offers, the Custodian shall transmit promptly to the Trust
all written information, received by the Custodian from issuers of
the securities whose tender or exchange is sought and from the party
(or his agents) making the tender or exchange offer. If the Trust
desires to take action with respect to any tender offer, exchange
offer or any other similar transaction, the Trust shall notify the
Custodian at least three business days prior to the date on which
the Custodian is to take such action.
2.15 REPORTS TO TRUST BY INDEPENDENT PUBLIC ACCOUNTANTS. The Custodian
shall provide the Trust, at such times as the Trust may reasonably
require, with reports by independent public accountants on the
accounting system, internal accounting control and procedures for
safeguarding securities, futures contracts and options on futures
contracts, including securities deposited and/or maintained in a
U.S. Securities System, relating to the services provided by the
Custodian under this Contract; such reports shall be of sufficient
scope and in sufficient detail, as may reasonably be required by the
Trust to provide reasonable assurance that any material inadequacies
would be disclosed by such examination, and, if there are no such
inadequacies, the reports shall so state.
3. PAYMENTS FOR REPURCHASE OR REDEMPTION AND SALES OF SHARES OF THE FUNDS
From such funds as may be available for the purpose, the Custodian shall,
upon receipt of instructions from the Transfer Agent, make funds available for
payment to holders of Shares of the Fund who have delivered to the Transfer
Agent a request for redemption or repurchase of their Shares. In connection
with the redemption or repurchase of Shares of the Fund, the Custodian is
authorized upon receipt of instructions from the Transfer Agent to wire funds to
or through a commercial bank designated by the redeeming shareholders.
The Custodian shall receive from the distributor for each Fund's Shares or
from the Transfer Agent and deposit into the Trust's account such payments as
are received for Shares of the Fund issued or sold from time to time. The
Custodian will provide timely notification to the Trust and the Transfer Agent
of any receipt by it of payments for Shares of the Fund.
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4. PROPER INSTRUCTIONS
Proper Instructions as used herein means a writing signed or initialed by
one or more person or persons as the Board of Trustees shall have from time to
time authorized. Each such writing shall set forth the specific transaction or
type of transaction involved, including a specific statement of the purpose for
which such action is requested. Oral instructions will be considered Proper
Instructions if the Custodian reasonably believes them to have been given by a
person authorized to give such instructions with respect to the transaction
involved. The Trust shall cause all oral instructions to be confirmed in
writing. Upon receipt of a certificate of the Secretary or an Assistant
Secretary as to the authorization by the Board of Trustees of the Trust
accompanied by a detailed description of procedures approved by the Board of
Trustees, Proper Instructions may include communications effected directly
between electro-mechanical or electronic devices provided that the Board of
Trustees and the Custodian are satisfied that such procedures afford adequate
safeguard's for the Fund's assets. For purposes of this Section, Proper
Instructions shall include instructions received by the Custodian pursuant to
any three-party agreement which requires a segregated asset account in
accordance with Section 2.11.
5. ACTIONS PERMITTED WITHOUT EXPRESS AUTHORITY
The Custodian may in its discretion, without express authority from the
Trust:
1) surrender securities in temporary form for securities in
definitive form;
2) endorse for collection, in the name of the Trust on behalf of
the Fund, checks, drafts and other negotiable instruments;
and
3) in general, attend to all non-discretionary details in
connection with the sale, exchange, substitution, purchase,
transfer and other dealings with the securities and property
of the Trust except as otherwise directed by the Board of
Trustees.
6. EVIDENCE OF AUTHORITY
The Custodian shall be protected in acting upon any instructions, notice,
request, consent, certificate or other instrument or paper believed by it to be
genuine and to have been properly executed by or on behalf of the Trust. The
Custodian may receive and accept a certified copy of a vote of the Board of
Trustees as conclusive evidence (a) of the authority of any person to act in
accordance with such vote or (b) of any determination or of any action by the
Board of Trustees pursuant to the Declaration of Trust as described in such
vote, and such vote may be considered as in full force and effect until receipt
by the Custodian of written notice to the contrary.
7. DUTIES OF CUSTODIAN WITH RESPECT TO THE BOOKS OF ACCOUNT AND
CALCULATION OF NET ASSET VALUE AND NET INCOME
The Custodian shall have no obligation to keep the books of account Trust
and/or each Fund and no obligation to compute the net asset value per share of
the outstanding
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shares of each Fund. The Custodian shall, however, cooperate with and supply
necessary information to the entity or entities appointed by the Board of
Trustees to keep the books of account of the Trust and/or Fund and/or compute
the net asset value per share of the outstanding shares of the Fund.
8. RECORDS
The Custodian shall create and maintain all records relating to its
activities and obligations under this Contract in such manner as will meet the
obligations of the Trust under the Investment Company Act of 1940, with
particular attention to Section 31 thereof and Rules 31a-1 and 31a-2 thereunder.
All such records shall be the property of the Trust and shall at all reasonable
times during the regular business hours of the Custodian be open for inspection
by duly authorized officers, employees or agents of the Trust and employees and
agents of the Securities and Exchange Commission. The Custodian shall, at the
Trust's request, supply the Trust with a tabulation of securities owned by the
Fund and held by the Custodian and shall, when requested to do so by the Trust
and for such compensation as shall be agreed upon between the Trust and the
Custodian, include certificate numbers in such tabulations.
9. OPINION OF TRUST'S INDEPENDENT ACCOUNTANTS
The Custodian shall take such reasonable action, as the Trust may from time
to time request, to obtain from year to year favorable opinions from the Trust's
independent accountants with respect to its activities hereunder in connection
with the preparation of the Trust's Form N-1A, and Form N-SAR or other annual
reports to the Securities and Exchange Commission and with respect to any other
requirements of such Commission.
10. COMPENSATION OF CUSTODIAN
The Custodian shall be entitled to reasonable compensation for its services
and expenses as Custodian, as agreed upon from time to time between the Trust
and the Custodian.
11. RESPONSIBILITY OF CUSTODIAN
So long as and to the extent that it is in the exercise of reasonable care,
the Custodian shall not be responsible for the title, validity or genuineness of
any property or evidence of title thereto received by it or delivered by it
pursuant to this Contract and shall be held harmless by the Trust and/or each
Fund in acting upon any notice, request, consent, certificate or other
instrument reasonably believed by it to be genuine and to be signed by the
proper party or parties, including any futures commission merchant acting
pursuant to the terms of a three-party futures or options agreement. The
Custodian shall be held to the exercise of reasonable care in carrying out the
provisions of this Contract, but shall be kept indemnified by and shall be
without liability to the Trust and/or the Fund for any action taken or omitted
by it without negligence. It shall be entitled to rely on and may act upon
advice of counsel (who may be counsel for the Trust) on all matters, and shall
be without liability for any action reasonably taken or omitted pursuant to such
advice.
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Except as may arise from the Custodian's own negligence or willful
misconduct, the Custodian shall be without liability to the Trust and/or each
Fund for any loss, liability, claim or expense resulting from or caused by;
(i) events or circumstances beyond the reasonable control of the Custodian or
any agent or nominee, including, without limitation, nationalization or
expropriation, imposition of currency controls or restrictions, the
interruption, suspension or restriction of trading on or the closure of any
securities market, power or other mechanical or technological failures or
interruptions, computer viruses or communications disruptions, acts of war or
terrorism, riots, revolutions, work stoppages, natural disasters or other
similar events or acts; (ii) errors by the Trust in its instructions to the
Custodian; (iii) the insolvency of or acts or omissions by a Securities System;
(iv) any delay or failure of any broker, agent or intermediary, central bank or
other commercially prevalent payment or clearing system to deliver to the
custodian's sub-custodian or agent securities purchased or in the remittance or
payment made in connection with securities purchased or in the remittance or
payment made in connection with securities sold; (v) any delay or failure of any
company, corporation, or other body in charge of registering or transferring
securities in the name of the Custodian, the Trust, the Custodian's
sub-custodians, nominees or agents or any consequential losses arising out of
such delay or failure to transfer such securities including non-receipt of
bonus, dividends and rights and other accretions or benefits; (vi) delays or
inability to perform its duties due to any disorder in market infrastructure
with respect to any particular security or Securities System; and (vii) any
provision of any present or future law or regulation or order of the United
States of America, or any state thereof, or any other country, or political
subdivision thereof or of any court of competent jurisdiction.
If the Trust requires the Custodian to take any action with respect to
securities, which action involves the payment of money or which action may, in
the opinion of the Custodian, result in the Custodian or its nominee assigned to
the Trust being liable for the payment of money or incurring liability of some
other form, the Trust, as a prerequisite to requiring the Custodian to take such
action, shall provide indemnity to the Custodian in an amount and form
satisfactory to it.
In no event shall the Custodian be liable to the Trust and/or each Fund for
indirect, special or consequential damages, unless such damages arise out of the
willful misconduct or bad faith of the Custodian. In no event shall the Trust
and/or each Fund be liable to the Custodian for indirect, special or
consequential damages, unless such damages arise out of the willful misconduct
or bad faith of the Trust and/or each Fund.
12. EFFECTIVE PERIOD, TERMINATION AND AMENDMENT
This Contract shall become effective as of its execution, shall continue in
full force and effect until terminated as hereinafter provided, may be amended
at any time by mutual agreement of the parties hereto and may be terminated by
either party by an instrument in writing delivered or mailed, postage prepaid to
the other party, such termination to take effect not sooner than sixty (60) days
after the date of such delivery or mailing; provided, however, that the Trust
shall not amend or terminate this Contract in contravention of any applicable
federal or state regulations, or any provision of the Declaration of Trust, and
further provided, that the Trust may at any time by action of its Board of
Trustees (i) substitute another bank or trust company for the Custodian by
giving notice as described
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above to the Custodian, or (ii) immediately terminate this Contract in the event
of the appointment of a conservator or receiver for the Custodian by the
comptroller of the currency or upon the happening of a like event at the
direction of an appropriate regulatory agency or court of competent
jurisdiction.
Upon termination of the Contract, the Trust shall pay to the Custodian such
compensation as may be due as of the date of such termination and shall likewise
reimburse the Custodian for its costs, expenses and disbursements.
13. SUCCESSOR CUSTODIAN
If a successor custodian shall be appointed by the Board of Trustees, the
Custodian shall, upon termination, deliver to such successor custodian at the
office of the Custodian, duly endorsed and in the form for transfer, all
securities then held by it hereunder and shall transfer to an account of the
successor custodian all of the Trust's securities held in a Securities System.
If the Board of Trustees fails to appoint a successor custodian on or
before the date when termination of this Contract shall become effective, then
the Custodian shall have the right to deliver to a bank or trust company, which
is a "bank" as defined in the Investment Company Act of 1940, of its own
selection, having an aggregate capital, surplus, and undivided profits, as shown
by its last published report, of not a less than $25,000,000, all securities,
funds and other properties held by the Custodian and all instruments held by the
Custodian relative thereto and all other property held by it under this Contract
and to transfer to an account of such successor custodian all of the Trust's
securities held in any Securities System. Thereafter, such bank or trust
company shall be the successor of the Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Board of Trustees to appoint a successor custodian, the Custodian
shall be entitled to fair compensation for its services during such period as
the Custodian retains possession of such securities, funds and other properties
and the provisions of this Contract relating to the duties and obligations of
the Custodian shall remain in full force and effect.
14. INTERPRETIVE AND ADDITIONAL PROVISIONS
In connection with the operation of this Contract, the Custodian and the
Trust may from time to time agree on such provisions interpretive of or in
addition to the provisions of this Contract as may in their joint opinion be
consistent with the general tenor of this Contract. Any such interpretive or
additional provisions shall be in a writing signed by both parties and shall be
annexed hereto, provided that no such interpretive or additional provisions
shall contravene any applicable federal or state regulations or any provision of
the Declaration of Trust . No interpretive or additional provisions made as
provided in the preceding sentence shall be deemed to be an amendment of this
Contract.
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15. CALIFORNIA LAW TO APPLY
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with the laws of the State of California, without
application of principles of conflicts of law.
16. PRIOR CONTRACTS
This Contract supersedes and terminates, as of the date hereof, all prior
contracts and agreements between the Trust and the Custodian relating to the
custody of the Trust's assets.
17. REPRODUCTION OF DOCUMENTS
This Contract and all schedules, exhibits, attachments and amendments
hereto may be reproduced by any photographic, photostatic, microfilm,
micro-card, miniature photographic or other similar process. The parties hereto
each agree that any such reproduction shall be admissible in evidence as the
original itself in any judicial or administrative proceeding, whether or not the
original is in existence and whether or not such reproduction was made by a
party in the regular course of business, and that any enlargement, facsimile or
further reproduction of such reproduction shall likewise be admissible in
evidence.
18. SHAREHOLDER COMMUNICATIONS ELECTION
Securities and Exchange Commission rule 14b-2 requires banks which hold
securities for the account of customers to respond to requests by issuers of
securities for the names, addresses and holdings of beneficial owners of
securities of that issuer held by the bank unless the beneficial owner has
expressly objected to disclosure of this information. In order to comply with
the rule, the Custodian needs the Trust to indicate whether it authorizes the
Custodian to provide the Trust's name, address, and share position to requesting
companies whose securities the Trust holds on behalf of the Fund. If the Trust
tells the Custodian "yes" or does not check either "yes" or "no" below, the
Custodian is required by the rule to treat the Trust as consenting to disclosure
of this information for all securities held by the Trust on behalf of the Fund.
For the Trust's protection, the rule prohibits the requesting company from using
the Trust's name and address for any purpose other than corporate
communications. Please indicate below whether the Trust consents or objects by
checking one of the alternatives below.
YES [ ] The Custodian is authorized to
release the Trust's name, address,
and share positions.
NO [ ] The Custodian is not authorized to
release the Trust's name, address,
and share positions.
19. TAX LAW
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Custodian shall have no responsibility or liability for any obligations now
or hereafter imposed on the Trust or the Custodian as custodian by the tax law
of the United States of America or any state or political subdivision thereof.
It shall be the responsibility of the Trust to notify the Custodian of the
obligations imposed on the Trust by the tax law of jurisdictions other than
those mentioned in the above sentence, including responsibility for withholding
and other taxes, assessments or other governmental charges, certifications and
governmental reporting. The sole responsibility of the Custodian with regard to
such tax law shall be to use reasonable efforts to assist the Trust with respect
to any claim for exemption or refund under the tax law of jurisdictions for
which the Trust provided such information.
20. REIMBURSEMENT OF ADVANCES
If the Trust requires the Custodian, it affiliates, subsidiaries or agent,
to advance cash or securities or provide conditional credit for any purpose
(including but not limited to securities settlements, and assumed settlement) or
in the event that the Custodian or its nominee shall incur or be assessed any
taxes, charges, expenses, assessments, claims or liabilities in connection with
the performance of this Contract, except such as may arise from its or its
nominee's own negligent action, negligent failure to act or willful misconduct,
any property at any time held for the account of the Trust shall be security
therefor and should the Trust fail to repay the Custodian promptly, the
Custodian shall be entitled to utilize available cash and to dispose of the
Trust's assets to the extent necessary to obtain reimbursement.
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21. REPRESENTATIVE CAPACITY AND BINDING OBLIGATION
A copy of the Declaration of Trust is on file with The Secretary of the
State of Delaware, and notice is hereby given that this Contract is not executed
on behalf of the Trustees of the Trust as individuals, and the obligations of
this Contract are not binding upon any of the Trustees, officers, shareholders,
employees or agents of the Trust individually but are binding only upon the
assets and property of each Fund.
The Custodian agrees that no shareholder, trustee, officer, employee or
agent of the Trust may be held personally liable or responsible for any
obligations of the Trust arising out of this Contract.
22. SEVERAL OBLIGATIONS OF THE PORTFOLIOS
With respect to any obligations of the Trust on behalf of each Fund and
each of the related Accounts arising out of this Contract, the Custodian shall
look for payment or satisfaction of any obligation solely to the assets and
property of each Fund and such Accounts to which such obligation relates as
though the Trust had separately contracted with the Custodian by separate
written instrument with respect to each Fund and its related Accounts.
IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the 21st day of January, 1998.
Attest: STATE FARM VARIABLE ANNUITY
PRODUCT TRUST
/s/ Patricia Dysart By: /s/ David R. Grimes
--------------------------------- --------------------------------
(Name) Patricia Dysart [Name] David R. Grimes
Assistant Secretary [Title] Assistant Vice President
and Secretary
Attest: BARCLAYS GLOBAL INVESTORS, N.A.
/s/ Arlene Batle By: /s/ Tom Christofferson
--------------------------------- --------------------------------
(Name) Arlene Batle [Name] Tom Christofferson
Secretary Associate [Title] Managing Director
BARCLAYS GLOBAL INVESTORS, N.A.
By: /s/ Stephen Rogers
--------------------------------
[Name] Stephen Rogers
[Title] Principal
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CUSTODIAN AGREEMENT
AGREEMENT made as of this 21st day of January, 1998, between STATE FARM
VARIABLE PRODUCT TRUST, a business trust organized under the laws of the state
of Delaware (the "Trust"), and INVESTORS BANK & TRUST COMPANY, a Massachusetts
trust company (the "Bank").
The Trust, an open-end management investment company on behalf of the funds
listed on APPENDIX A hereto, as such APPENDIX A may be amended from time to
time, (each a "Fund" and collectively, the "Funds"), desires to place and
maintain all of its portfolio securities and cash in the custody of the Bank.
The Bank has at least the minimum qualifications required by Section 17(f)(1) of
the Investment Company Act of 1940 (the "1940 Act") to act as custodian of the
portfolio securities and cash of the Trust, and has indicated its willingness to
so act, subject to the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements contained herein, the parties hereto agree as follows:
1. BANK APPOINTED CUSTODIAN. The Trust hereby appoints the Bank as
custodian of the portfolio securities and cash of the Funds shown on Appendix A
delivered to the Bank as hereinafter described and the Bank agrees to act as
such upon the terms and conditions hereinafter set forth. For the services
rendered pursuant to this Agreement the Trust agrees to pay to the Bank the fees
set forth on APPENDIX B hereto.
2. DEFINITIONS. Whenever used herein, the terms listed below will have
the following meaning:
2.1 AUTHORIZED PERSON. Authorized Person will mean any of the persons
duly authorized to give Proper Instructions or otherwise act on behalf of the
Trust by appropriate resolution of its Board, and set forth in a certificate as
required by Section 4 hereof.
2.2 BOARD. Board will mean the Board of Trustees of the Trust.
2.3 SECURITY. The term security as used herein will have the same
meaning assigned to such term in the Securities Act of 1933, as amended,
including, without limitation, any note, stock, treasury stock, bond, debenture,
evidence of indebtedness, certificate of interest or participation in any profit
sharing agreement, collateral-trust certificate, preorganization certificate or
subscription, transferable share, investment contract, voting-trust certificate,
certificate of deposit for a security, fractional undivided interest in oil,
gas, or other mineral rights, any put, call, straddle, option, or privilege on
any security, certificate of deposit, or group or index of securities (including
any interest therein or based on the value thereof), or any put, call, straddle,
option, or privilege entered into on a national securities exchange relating to
a foreign currency, or, in general, any interest or instrument commonly known as
a "security", or any certificate of interest or participation in, temporary or
interim certificate for, receipt for, guarantee of, or warrant or right to
subscribe to, or option contract to purchase or sell any of the foregoing, and
futures, forward contracts and options thereon.
2.4 PORTFOLIO SECURITY. Portfolio Security will mean any security owned
by the Trust.
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2.5 OFFICERS' CERTIFICATE. Officers' Certificate will mean, unless
otherwise indicated, any request, direction, instruction, or certification in
writing signed by any two Authorized Persons of the Trust.
2.6 BOOK-ENTRY SYSTEM. Book-Entry System shall mean the Federal
Reserve-Treasury Department Book Entry System for United States government,
instrumentality and agency securities operated by the Federal Reserve Bank, its
successor or successors and its nominee or nominees.
2.7 DEPOSITORY. Depository shall mean The Depository Trust Company
("DTC"), a clearing agency registered with the Securities and Exchange
Commission under Section 17A of the Securities Exchange Act of 1934 ("Exchange
Act"), its successor or successors and its nominee or nominees. The term
"Depository" shall further mean and include any other person authorized to act
as a depository under the 1940 Act, its successor or successors and its nominee
or nominees, specifically identified in a certified copy of a resolution of the
Board.
2.8 PROPER INSTRUCTIONS. Proper Instructions shall mean (i)
instructions regarding the purchase or sale of Portfolio Securities, and
payments and deliveries in connection therewith, given by an Authorized Person,
such instructions to be given in such form and manner as the Bank and the Trust
shall agree upon from time to time, and (ii) instructions (which may be
continuing instructions) regarding other matters signed or initialed by an
Authorized Person. Oral instructions will be considered Proper Instructions if
the Bank reasonably believes them to have been given by an Authorized Person.
The Trust shall cause all oral instructions to be promptly confirmed in writing.
The Bank shall act upon and comply with any subsequent Proper Instruction which
modifies a prior instruction and the sole obligation of the Bank with respect to
any follow-up or confirmatory instruction shall be to make reasonable efforts to
detect any discrepancy between the original instruction and such confirmation
and to report such discrepancy to the Trust. The Trust shall be responsible, at
the Trust's expense, for taking any action, including any reprocessing,
necessary to correct any such discrepancy or error, and to the extent such
action requires the Bank to act, the Trust shall give the Bank specific Proper
Instructions as to the action required. Upon receipt by the Bank of an
Officers' Certificate as to the authorization by the Board accompanied by a
detailed description of procedures approved by the Trust, Proper Instructions
may include communication effected directly between electro-mechanical or
electronic devices provided that the Board and the Bank agree in writing that
such procedures afford adequate safeguards for the Trust's assets.
3. SEPARATE ACCOUNTS. If the Trust has more than one Fund, the Bank
will segregate the assets of each Fund to which this Agreement relates into a
separate account for each such Fund containing the assets of such Fund (and all
investment earnings thereon). Unless the context otherwise requires, any
reference in this Agreement to any actions to be taken by the Trust shall be
deemed to refer to the Trust acting on behalf of one or more of its Funds, any
reference in this Agreement to any assets of the Trust, including, without
limitation, any portfolio securities and cash and earnings thereon, shall be
deemed to refer only to assets of the applicable Fund, any duty or obligation of
the Bank hereunder to the Trust shall be deemed to refer to duties and
obligations with respect to such individual Fund and any obligation or liability
of the Trust hereunder shall be binding only with respect to such individual
Fund, and shall be discharged only out of the assets of such Fund.
4. CERTIFICATION AS TO AUTHORIZED PERSONS. The Secretary or Assistant
Secretary of the Trust will at all times maintain on file with the Bank his or
her certification to the Bank, in such form as may be acceptable to the Bank, of
(i) the names and signatures of the Authorized Persons and (ii) the names of
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the members of the Board, it being understood that upon the occurrence of any
change in the information set forth in the most recent certification on file
(including without limitation any person named in the most recent certification
who is no longer an Authorized Person as designated therein), the Secretary or
Assistant Secretary of the Trust will sign a new or amended certification
setting forth the change and the new, additional or omitted names or signatures.
The Bank will be entitled to rely and act upon any Officers' Certificate given
to it by the Trust which has been signed by Authorized Persons named in the
most recent certification received by the Bank.
5. CUSTODY OF CASH. As custodian for the Trust, the Bank will open and
maintain a separate account or accounts in the name of the Trust or in the name
of the Bank, as Custodian of the Trust, and will deposit to the account of the
Trust all of the cash of the Trust, except for cash held by a subcustodian
appointed pursuant to Sections 14.2 or 14.3 hereof, including borrowed funds,
delivered to the Bank, subject only to draft or order by the Bank acting
pursuant to the terms of this Agreement. Pursuant to the Bank's internal
policies regarding the management of cash accounts, the Bank may segregate
certain portions of the cash of the Trust into a separate savings deposit
account upon which the Bank reserves the right to require seven (7) days notice
prior to withdrawal of cash from such an account. Upon receipt by the Bank of
Proper Instructions (which may be continuing instructions) or in the case of
payments for redemptions and repurchases of outstanding shares of common stock
of the Trust, notification from the Trust's transfer agent as provided in
Section 7, requesting such payment, designating the payee or the account or
accounts to which the Bank will release funds for deposit, and stating that it
is for a purpose permitted under the terms of this Section 5, specifying the
applicable subsection, the Bank will make payments of cash held for the accounts
of the Trust, insofar as funds are available for that purpose, only as permitted
in subsections 5.1-5.9 below.
5.1 PURCHASE OF SECURITIES. Upon the purchase of securities for the
Trust, against contemporaneous receipt of such securities by the Bank or against
delivery of such securities to the Bank in accordance with generally accepted
settlement practices and customs in the jurisdiction or market in which the
transaction occurs registered in the name of the Trust or in the name of, or
properly endorsed and in form for transfer to, the Bank, or a nominee of the
Bank, or receipt for the account of the Bank pursuant to the provisions of
Section 6 below, each such payment to be made at the purchase price shown on a
broker's confirmation (or transaction report in the case of Book Entry Paper (as
that term is defined in Section 6.6 hereof)) of purchase of the securities
received by the Bank before such payment is made, as confined in the Proper
Instructions received by the Bank before such payment is made.
5.2 REDEMPTIONS. In such amount as may be necessary for the repurchase
or redemption of common shares of the Trust offered for repurchase or redemption
in accordance with Section 7 of this Agreement.
5.3 DISTRIBUTIONS AND EXPENSES OF TRUST. For the payment on the account
of the Trust of dividends or other distributions to shareholders as may from
time to time be declared by the Board, interest, taxes, management or
supervisory fees, distribution fees, fees of the Bank for its services hereunder
and reimbursement of the expenses and liabilities of the Bank as provided
hereunder, fees of any transfer agent, fees for legal, accounting, and auditing
services, or other operating expenses of the Trust.
5.4 PAYMENT IN RESPECT OF SECURITIES. For payments in connection with
the conversion, exchange or surrender of Portfolio Securities or securities
subscribed to by the Trust held by or to be delivered to the Bank.
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5.5 REPAYMENT OF LOANS. To repay loans of money made to the Trust, but,
in the case of final payment, only upon redelivery to the Bank of any Portfolio
Securities pledged or hypothecated therefor and upon surrender of documents
evidencing the loan;
5.6 REPAYMENT OF CASH. To repay the cash delivered to the Trust for
the purpose of collateralizing the obligation to return to the Trust
certificates borrowed from the Trust representing Portfolio Securities, but
only upon redelivery to the Bank of such borrowed certificates. -
5.7 FOREIGN EXCHANGE TRANSACTIONS.
(a) For payments in connection with foreign exchange contracts
or options to purchase and sell foreign currencies for spot and future delivery
(collectively, "Foreign Exchange Agreements") which may be entered into by the
Bank on behalf of the Trust upon the receipt of Proper Instructions, such Proper
Instructions to specify the currency broker or banking institution (which may be
the Bank, or any other subcustodian or agent hereunder, acting as principal)
with which the contract or option is made, and the Bank shall have no duty with
respect to the selection of such currency brokers or banking institutions with
which the Trust deals or for their failure to comply with the terms of any
contract or option.
(b) In order to secure any payments in connection with Foreign
Exchange Agreements which may be entered into by the Bank pursuant to Proper
Instructions, the Trust agrees that the Bank shall have a continuing lien and
security interest, to the extent of any payment due under any Foreign Exchange
Agreement, in and to any property at any time held by the Bank for the Trust's
benefit or in which the Trust has an interest and which is then in the Bank's
possession or control (or in the possession or control of any third party acting
on the Bank's behalf). The Trust authorizes the Bank, in the Bank's sole
discretion, at any time to charge any such payment due under any Foreign
Exchange Agreement against any balance of account standing to the credit of the
Trust on the Bank's books.
5.8 OTHER AUTHORIZED PAYMENTS. For other authorized transactions of the
Trust, or other obligations of the Trust incurred for proper Trust purposes;
provided that before making any such payment the Bank will also receive a
certified copy of a resolution of the Board signed by an Authorized Person
(other than the Person certifying such resolution) and certified by its
Secretary or Assistant Secretary, naming the person or persons to whom such
payment is to be made, and either describing the transaction for which payment
is to be made and declaring it to be an authorized transaction of the Trust, or
specifying the amount of the obligation for which payment is to be made, setting
forth the purpose for which such obligation was incurred and declaring such
purpose to be a proper corporate purpose.
5.9 TERMINATION: Upon the termination of this Agreement as hereinafter
set forth pursuant to Section 8 and Section 16 of this Agreement.
6. SECURITIES.
6.1 SEGREGATION AND REGISTRATION. Except as otherwise provided herein,
and except for securities to be delivered to any subcustodian appointed pursuant
to Sections 14.2 or 14.3 hereof, the Bank as custodian will receive and hold
pursuant to the provisions hereof, in a separate account or
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accounts and physically segregated at all times from those of other persons, any
and all Portfolio Securities which may now or hereafter be delivered to it by or
for the account of the Trust. All such Portfolio Securities will be held or
disposed of by the Bank for, and subject at all times to, the instructions of
the Trust pursuant to the terms of this Agreement. Subject to the specific
provisions herein relating to Portfolio Securities that are not physically held
by the Bank, the Bank will register all Portfolio Securities (unless otherwise
directed by Proper Instructions or an Officers' Certificate), in the name of a
registered nominee of the Bank as defined in the Internal Revenue Code and any
Regulations of the Treasury Department issued thereunder, and will execute and
deliver all such certificates in connection therewith as may be required by such
laws or regulations or under the laws of any state.
The Trust will from time to time furnish to the Bank appropriate
instruments to enable it to hold or deliver in proper form for transfer, or to
register in the name of its registered nominee, any Portfolio Securities which
may from time to time be registered in the name of the Trust.
6.2 VOTING AND PROXIES. Neither the Bank nor any nominee of the Bank
will vote any of the Portfolio Securities held hereunder, except in accordance
with Proper Instructions or an Officers' Certificate. The Bank will execute and
deliver, or cause to be executed and delivered, to the Trust all notices,
proxies and proxy soliciting materials delivered to the Bank with respect to
such Securities, such proxies to be executed by the registered holder of such
Securities (if registered otherwise than in the name of the Trust), but without
indicating the manner in which such proxies are to be voted.
6.3 CORPORATE ACTION. If at any time the Bank is notified that an
issuer of any Portfolio Security has taken or intends to take a corporate action
(a "Corporate Action") that affects the rights, privileges, powers, preferences,
qualifications or ownership of a Portfolio Security, including without
limitation, liquidation, consolidation, merger, recapitalization,
reorganization, reclassification, subdivision, combination, stock split or stock
dividend, which Corporate Action requires an affirmative response or action on
the part of the holder of such Portfolio Security (a "Response"), the Bank shall
notify the Trust promptly of the Corporate Action, the Response required in
connection with the Corporate Action and the Bank's deadline for receipt from
the Trust of Proper Instructions regarding the Response (the "Response
Deadline"). The Bank shall forward to the Trust via telecopier and/or overnight
courier all notices, information statements or other materials relating to the
Corporate Action promptly after receipt of such materials by the Bank.
(a) The Bank shall act upon a required Response only after
receipt by the Bank of Proper Instructions from the Trust no later than 5:00
p.m. on the date specified as the Response Deadline and only if the Bank (or its
agent or subcustodian hereunder) has actual possession of all necessary
Securities, consents and other materials no later than 5:00 p.m. on the date
specified as the Response Deadline.
(b) The Bank shall have no duty to act upon a required Response
if Proper Instructions relating to such Response and all necessary Securities,
consents and other materials are not received by and in the possession of the
Bank no later than 5:00 p.m. on the date specified as the Response Deadline.
Notwithstanding, the Bank may, in its sole discretion, use its best efforts to
act upon a Response for which Proper Instructions and/or necessary Securities,
consents or other materials are received by the Bank after 5:00 p.m. on the date
specified as the Response Deadline, it being acknowledged and agreed by the
parties that any undertaking by the Bank to use its best efforts in such
circumstances shall in no way create any duty upon the Bank to complete such
Response prior to its expiration.
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(c) In the event that the Trust notifies the Bank of a Corporate
Action requiring a Response and the Bank has received no other notice of such
Corporate Action, the Response Deadline shall be 48 hours prior to the Response
expiration time set by the depository processing such Corporate Action.
(d) Section 14.3(e) of this Agreement shall govern any Corporate
Action involving Foreign Portfolio Securities held by a Selected Foreign
Sub-Custodian.
6.4 BOOK-ENTRY SYSTEM. Provided (i) the Bank has received a certified
copy of a resolution of the Board specifically approving deposits of Trust
assets in the Book-Entry System, and (ii) for any subsequent changes to such
arrangements following such approval, the Board has reviewed and approved the
arrangement and has not delivered an Officer's Certificate to the Bank
indicating that the Board has withdrawn its approval:
(a) The Bank may keep Portfolio Securities in the Book-Entry
System provided that such Portfolio Securities are represented in an account
("Account") of the Bank (or its agent) in such System which shall not include
any assets of the Bank (or such agent) other than assets held as a fiduciary,
custodian, or otherwise for customers;
(b) The records of the Bank (and any such agent) with respect to
the Trust's participation in the Book-Entry System through the Bank (or any such
agent) will identify by book entry the Portfolio Securities which are included
with other securities deposited in the Account and shall at all times during the
regular business hours of the Bank (or such agent) be open for inspection by
duly authorized officers, employees or agents of the Trust. Where securities
are transferred to the Trust's account, the Bank shall also, by book entry or
otherwise, identify as belonging to the Trust a quantity of securities in a
fungible bulk of securities (i) registered in the name of the Bank or its
nominee, or (ii) shown on the Bank's account on the books of the Federal Reserve
Bank;
(c) The Bank (or its agent) shall pay for securities purchased
for the account of the Trust or shall pay cash collateral against the return of
Portfolio Securities loaned by the Trust upon (i) receipt of advice from the
Book-Entry System that such Securities have been transferred to the Account, and
(ii) the making of an entry on the records of the Bank (or its agent) to reflect
such payment and transfer for the account of the Trust. The Bank (or its agent)
shall transfer securities sold or loaned for the account of the Trust upon
(i) receipt of advice from the Book-Entry System that
payment for securities sold or payment of the initial cash collateral against
the delivery of securities loaned by the Trust has been transferred to the
Account; and
(ii) the making of an entry on the records of the Bank (or
its agent) to reflect such transfer and payment for the account of the Trust.
Copies of all advices from the Book-Entry System of transfers of securities for
the account of the Trust shall identify the Trust, be maintained for the Trust
by the Bank and shall be provided to the Trust at its request. The Bank shall
send the Trust a confirmation, as defined by Rule 17f-4 of the 1940 Act, of any
transfers to or from the account of the Trust;
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(d) The Bank will promptly provide the Trust with any report
obtained by the Bank or its agent on the Book-Entry System's accounting system,
internal accounting control and procedures for safeguarding securities deposited
in the Book-Entry System;
6.5 USE OF A DEPOSITORY. Provided (i) the Bank has received a certified
copy of a resolution of the Board specifically approving deposits in DTC or
other such Depository and (ii) for any subsequent changes to such arrangements
following such approval, the Board has reviewed and approved the arrangement and
has not delivered an Officer's Certificate to the Bank indicating that the Board
has withdrawn its approval:
(a) The Bank may use a Depository to hold, receive, exchange,
release, lend, deliver and otherwise deal with Portfolio Securities including
stock dividends, rights and other items of like nature, and to receive and remit
to the Bank on behalf of the Trust all income and other payments thereon and to
take all steps necessary and proper in connection with the collection thereof;
(b) Registration of Portfolio Securities may be made in the name
of any nominee or nominees used by such Depository;
(c) Payment for securities purchased and sold may be made
through the clearing medium employed by such Depository for transactions of
participants acting through it. Upon any purchase of Portfolio Securities,
payment will be made only upon delivery of the securities to or for the account
of the Trust and the Trust shall pay cash collateral against the return of
Portfolio Securities loaned by the Trust only upon delivery of the Securities to
or for the account of the Trust; and upon any sale of Portfolio Securities,
delivery of the Securities will be made only against payment therefor or, in the
event Portfolio Securities are loaned, delivery of Securities will be made only
against receipt of the initial cash collateral to or for the account of the
Trust; and
(d) The Bank shall use its best efforts to provide that:
(i) The Depository obtains replacement of any
certificated Portfolio Security deposited with it in the event such Security is
lost, destroyed, wrongfully taken or otherwise not available to be returned to
the Bank upon its request;
(ii) Proxy materials received by a Depository with respect
to Portfolio Securities deposited with such Depository are forwarded immediately
to the Bank for prompt transmittal to the Trust;
(iii) Such Depository promptly forwards to the Bank
confirmation of any purchase or sale of Portfolio Securities and of the
appropriate book entry made by such Depository to the Trust's account;
(iv) Such Depository prepares and delivers to the Bank
such records with respect to the performance of the Bank's obligations and
duties hereunder as may be necessary for the Trust to comply with the
recordkeeping requirements of Section 31 (a) of the 1940 Act and Rule 31 (a)
thereunder; and
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(v) Such Depository delivers to the Bank all internal
accounting control reports, whether or not audited by an independent public
accountant, as well as such other reports as the Trust may reasonably request in
order to verify the Portfolio Securities held by such Depository.
6.6 USE OF BOOK-ENTRY SYSTEM FOR COMMERCIAL PAPER. Provided (i) the
Bank has received a certified copy of a resolution of the Board specifically
approving participation in a system maintained by the Bank for the holding of
commercial paper in book-entry form ("Book-Entry Paper") and (ii) for each year
following such approval the Board has received and approved the arrangements,
upon receipt of Proper Instructions and upon receipt of confirmation from an
Issuer (as defined below) that the Trust has purchased such Issuer's Book-Entry
Paper, the Bank shall issue and hold in book-entry form, on behalf of the Trust,
commercial paper issued by issuers with whom the Bank has entered into a
book-entry agreement (the "Issuers"). In maintaining procedures for Book-Entry
Paper, the Bank agrees that:
(a) The Bank will maintain all Book-Entry Paper held by the
Trust in an account of the Bank that includes only assets held by it for
customers;
(b) The records of the Bank with respect to the Trust's purchase
of Book-Entry Paper through the Bank will identify, by book-entry, commercial
paper belonging to the Trust which is included in the Book-Entry System and
shall at all times during the regular business hours of the Bank be open for
inspection by duly authorized officers, employees or agents of the Trust;
(c) The Bank shall pay for Book-Entry Paper purchased for the
account of the Trust upon contemporaneous (i) receipt of advice from the Issuer
that such sale of Book-Entry Paper has been effected, and (ii) the making of an
entry on the records of the Bank to reflect such payment and transfer for the
account of the Trust;
(d) The Bank shall cancel such Book-Entry Paper obligation upon
the maturity thereof upon contemporaneous (i) receipt of advice that payment for
such Book-Entry Paper has been transferred to the Trust, and (ii) the making of
an entry on the records of the Bank to reflect such payment for the account of
the Trust; and
(e) The Bank will send to the Trust such reports on its system
of internal accounting control with respect to the Book-Entry Paper as the Trust
may reasonably request from time to time.
6.7 USE OF IMMOBILIZATION PROGRAMS. Provided (i) the Bank has received
a certified copy of a resolution of the Board specifically approving the
maintenance of Portfolio Securities in an immobilization program operated by a
bank which meets the requirements of Section 26(a)(1) of the 1940 Act, and (ii)
for each year following such approval the Board has reviewed and approved the
arrangement and has not delivered an Officer's Certificate to the Bank
indicating that the Board has withdrawn its approval, the Bank shall enter into
such immobilization program with such bank acting as a subcustodian hereunder.
6.8 EURODOLLAR CDS. Any Portfolio Securities which are Eurodollar CDS
may be physically held by the European branch of the U.S. banking institution
that is the issuer of such Eurodollar CD (a "European Branch"), provided that
such Portfolio Securities are identified on the books of the Bank as belonging
to the Trust and that the books of the Bank identify the European Branch holding
such Portfolio Securities. Notwithstanding any other provision of this
Agreement to the contrary, except as
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stated in the first sentence of this subsection 6.8, the Bank shall be under no
other duty with respect to such Eurodollar CDS belonging to the Trust.
6.9 OPTIONS AND FUTURES TRANSACTIONS.
(a) Puts and Calls Traded on Securities Exchanges, NASDAQ or
Over-the-Counter.
(i) The Bank shall take action as to put options ("puts")
and call options ("calls") purchased or sold (written) by the Trust regarding
escrow or other arrangements (i) in accordance with the provisions of any
agreement entered into upon receipt of Proper Instructions among the Bank, any
broker-dealer registered with the National Association of Securities Dealers,
Inc. (the "NASD"), and, if necessary, the Trust, relating to the compliance with
the rules of the Options Clearing Corporation and of any registered national
securities exchange, or of any similar organization or organizations.
(ii) Unless another agreement requires it to do so, the
Bank shall be under no duty or obligation to see that the Trust has deposited or
is maintaining adequate margin, if required, with any broker in connection with
any option, nor shall the Bank be under duty or obligation to present such
option to the broker for exercise unless it receives Proper Instructions from
the Trust. The Bank shall have no responsibility for the legality of any put or
call purchased or sold on behalf of the Trust, the propriety of any such
purchase or sale, or the adequacy of any collateral delivered to a broker in
connection with an option or deposited to or withdrawn from a Segregated Account
(as defined in subsection 6.10 below). The Bank specifically, but not by way of
limitation, shall not be under any duty or obligation to: (i) periodically check
or notify the Trust that the amount of such collateral held by a broker or held
in a Segregated Account is sufficient to protect such broker or the Trust
against any loss; (ii) effect the return of any collateral delivered to a
broker; or (iii) advise the Trust that any option it holds, has or is about to
expire. Such duties or obligations shall be the sole responsibility of the
Trust.
(b) Puts, Calls and Futures Traded on Commodities Exchanges
(i) The Bank shall take action as to puts, calls and
futures contracts ("Futures") purchased or sold by the Trust in accordance with
the provisions of any agreement entered into upon the receipt of Proper
Instructions among the Trust, the Bank and a Futures Commission Merchant
registered under the Commodity Exchange Act, relating to compliance with the
rules of the Commodity Futures Trading Commission and/or any Contract Market, or
any similar organization or organizations, regarding account deposits in
connection with transactions by the Trust.
(ii) The responsibilities of the Bank as to futures, puts
and calls traded on commodities exchanges, any Futures Commission Merchant
account and the Segregated Account shall be limited as set forth in subparagraph
(a)(ii) of this Section 6.9 as if such subparagraph referred to Futures
Commission Merchants rather than brokers, and Futures and puts and calls thereon
instead of options.
6.10 SEGREGATED ACCOUNT. The Bank shall upon receipt of Proper
Instructions establish and maintain a Segregated Account or Accounts for and on
behalf of the Trust.
(a) Cash and/or Portfolio Securities may be transferred into a
Segregated Account upon receipt of Proper Instructions in the following
circumstances:
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(i) in accordance with the provisions of any agreement
among the Trust, the Bank and a broker-dealer registered under the Exchange Act
and a member of the NASD or any Futures Commission Merchant registered under the
Commodity Exchange Act, relating to compliance with the rules of the Options
Clearing Corporation and of any registered national securities exchange or the
Commodity Futures Trading Commission or any registered Contract Market, or of
any similar organizations regarding escrow or other arrangements in connection
with transactions by the Trust;
(ii) for the purpose of segregating cash or securities in
connection with options purchased or written by the Trust or commodity futures
purchased or written by the Trust;
(iii) for the deposit of liquid assets, such as cash, U.S.
Government securities or other high grade debt obligations, having a market
value (marked to market on a daily basis) at all times equal to not less than
the aggregate purchase price due on the settlement dates of all the Trust's then
outstanding forward commitment or "when-issued" agreements relating to the
purchase of Portfolio Securities and all the Trust's then outstanding
commitments under reverse repurchase agreements entered into with broker-dealer
firms;
(iv) for the purposes of compliance by the Trust with the
procedures required by Investment Company Act Release No. 10666, or any
subsequent release or releases of the Securities and Exchange Commission
relating to the maintenance of Segregated Accounts by registered investment
companies;
(v) for other proper corporate purposes, but only, in the
case of this clause (v), upon receipt of, in addition to Proper Instructions, a
certified copy of a resolution of the Board, or of the executive committee of
the Board signed by an officer of the Trust and certified by the Secretary or an
Assistant Secretary, setting forth the purpose or purposes of such Segregated
Account and declaring such purposes to be proper corporate purposes.
(b) Cash and/or Portfolio Securities may be withdrawn from a
Segregated Account pursuant to Proper Instructions in the following
circumstances:
(i) with respect to assets deposited in accordance with
the provisions of any agreements referenced in (a)(i) or (a)(ii) above, in
accordance with the provisions of such agreements;
(ii) with respect to assets deposited pursuant to (a)(iii)
or (a)(iv) above, for sale or delivery to meet the Trust's obligations under
outstanding forward commitment or when-issued agreements for the purchase of
Portfolio Securities and under reverse repurchase agreements;
(iii) for exchange for other liquid assets of equal or
greater value deposited in the Segregated Account;
(iv) to the extent that the Trust's outstanding forward
commitment or when-issued agreements for the purchase of portfolio securities or
reverse repurchase agreements are sold to
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other parties or the Trust's obligations thereunder are met from assets of the
Trust other than those in the Segregated Account;
(v) for delivery upon settlement of a forward commitment
or when-issued agreement for the sale of Portfolio Securities; or
(vi) with respect to assets deposited pursuant to (a)(v)
above, in accordance with the purposes of such account as set forth in Proper
Instructions.
6.11 INTEREST BEARING CALL OR TIME DEPOSITS. The Bank shall, upon receipt
of Proper Instructions relating to the purchase by the Trust of interest-bearing
fixed-term and call deposits, transfer cash, by wire or otherwise, in such
amounts and to such bank or banks as shall be indicated in such Proper
Instructions. The Bank shall include in its records with respect to the assets
of the Trust appropriate notation as to the amount of each such deposit, the
banking institution with which such deposit is made (the "Deposit Bank"), and
shall retain such forms of advice or receipt evidencing the deposit, if any, as
may be forwarded to the Bank by the Deposit Bank. Such deposits shall be deemed
Portfolio Securities of the Trust and the responsibility of the Bank therefore
shall be the same as and no greater than the Bank's responsibility in respect of
other Portfolio Securities of the Trust.
6.12 TRANSFER OF SECURITIES. The Bank will transfer, exchange, deliver
or release Portfolio Securities held by it hereunder, insofar as such Securities
are available for such purpose, provided that before making any transfer,
exchange, delivery or release under this Section only upon receipt of Proper
Instructions. The Proper Instructions shall state that such transfer, exchange
or delivery is for a purpose permitted under the terms of this Section 6.12, and
shall specify the applicable subsection, or describe the purpose of the
transaction with sufficient particularity to permit the Bank to ascertain the
applicable subsection. After receipt of such Proper Instructions, the Bank will
transfer, exchange, deliver or release Portfolio Securities only in the
following circumstances:
(a) Upon sales of Portfolio Securities for the account of the
Trust, against contemporaneous receipt by the Bank of payment therefor in full,
or against payment to the Bank in accordance with generally accepted settlement
practices and customs in the jurisdiction or market in which the transaction
occurs, each such payment to be in the amount of the sale price shown in a
broker's confirmation of sale received by the Bank before such payment is made,
as confirmed in the Proper Instructions received by the Bank before such payment
is made;
(b) In exchange for or upon conversion into other securities
alone or other securities and cash pursuant to any plan of merger,
consolidation, reorganization, share split-up, change in par value,
recapitalization or readjustment or otherwise, upon exercise of subscription,
purchase or sale or other similar rights represented by such Portfolio
Securities, or for the purpose of tendering shares in the event of a tender
offer therefor, provided, however, that in the event of an offer of exchange,
tender offer, or other exercise of rights requiring the physical tender or
delivery of Portfolio Securities, the Bank shall have no liability for failure
to so tender in a timely manner unless such Proper Instructions are received by
the Bank at least two business days prior to the date required for tender, and
unless the Bank (or its agent or subcustodian hereunder) has actual possession
of such Security at least two business days prior to the date of tender;
(c) Upon conversion of Portfolio Securities pursuant to their
terms into other securities;
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(d) For the purpose of redeeming in-kind shares of the Trust
upon authorization from the Trust;
(e) In the case of option contracts owned by the Trust, for
presentation to the endorsing broker;
(f) When such Portfolio Securities are called, redeemed or
retired or otherwise become payable;
(g) For the purpose of effectuating the pledge of Portfolio
Securities held by the Bank in order to collateralize loans made to the Trust by
any bank, including the Bank; provided, however, that such Portfolio Securities
will be released only upon payment to the Bank for the account of the Trust of
the moneys borrowed, provided further, however, that in cases where additional
collateral is required to secure a borrowing already made, and such fact is made
to appear in the Proper Instructions, Portfolio Securities may be released for
that purpose without any such payment. In the event that any pledged Portfolio
Securities are held by the Bank, they will be so held for the account of the
lender, and after notice to the Trust from the lender in accordance with the
normal procedures of the lender and any loan agreement between the fund and the
lender that an event of deficiency or default on the loan has occurred, the Bank
may deliver such pledged Portfolio Securities to or for the account of the
lender;
(h) for the purpose of releasing certificates representing
Portfolio Securities, against contemporaneous receipt by the Bank of the fair
market value of such security, as set forth in the Proper Instructions received
by the Bank before such payment is made;
(i) for the purpose of delivering securities lent by the Trust
to a bank or broker dealer, but only against receipt in accordance with street
delivery custom except as otherwise provided herein, of adequate collateral as
agreed upon from time to time by the Trust and the Bank, and upon receipt of
payment in connection with any repurchase agreement relating to such securities
entered into by the Trust;
(j) for other authorized transactions of the Trust or for other
proper corporate purposes; provided that before making such transfer, the Bank
will also receive a certified copy of resolutions of the Board, signed by an
authorized officer of the Trust (other than the officer certifying such
resolution) and certified by its Secretary or Assistant Secretary, specifying
the Portfolio Securities to be delivered, setting forth the transaction in or
purpose for which such delivery is to be made, declaring such transaction to be
an authorized transaction of the Trust or such purpose to be a proper corporate
purpose, and naming the person or persons to whom delivery of such securities
shall be made; and
(k) upon termination of this Agreement as hereinafter set forth
pursuant to Section 8 and Section 16 of this Agreement.
As to any deliveries made by the Bank pursuant to this Section 6.12,
securities or cash receivable in exchange therefor shall be delivered to the
Bank.
7. REDEMPTIONS. In the case of payment of assets of the Trust held by
the Bank in connection with redemptions and repurchases by the Trust of
outstanding common shares, the Bank will rely on notification by the Trust's
transfer agent of receipt of a request for redemption and certificates, if
issued, in proper form for redemption before such payment is made. Payment
shall be made in
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accordance with the Articles of Incorporation or Declaration of Trust and
By-laws of the Trust (the "Articles"), from assets available for said purpose.
8. MERGER, DISSOLUTION, ETC. OF TRUST OR FUNDS. In the case of the
following transactions, not in the ordinary course of business, namely, the
merger of the Trust or Funds into or the consolidation of the Trust or Funds
with another investment company, the sale by the Trust or Funds of all, or
substantially all, of its assets to another investment company, or the
liquidation or dissolution of the Trust or Funds and distribution of its assets,
the Bank will deliver the Portfolio Securities held by it under this, Agreement
and disburse cash only upon the order of the Trust set forth in an Officers'
Certificate, accompanied by a certified copy of a resolution of the Board
authorizing any of the foregoing transactions. Upon completion of such delivery
and disbursement and the payment of the fees, disbursements and expenses of the
Bank, this Agreement will terminate and the Bank shall be released from any and
all obligations hereunder.
9. ACTIONS OF BANK WITHOUT PRIOR AUTHORIZATION. Notwithstanding
anything herein to the contrary, unless and until the Bank receives an Officers'
Certificate to the contrary, the Bank will take the following actions without
prior authorization or instruction of the Trust or the transfer agent:
9.1 Endorse for collection and collect on behalf of and in the name of
the Trust all checks, drafts, or other negotiable or transferable instruments or
other orders for the payment of money received by it for the account of the
Trust and hold for the account of the Trust all income, dividends, interest and
other payments or distributions of cash with respect to the Portfolio Securities
held thereunder;
9.2 Present for payment all coupons and other income items held by it
for the account of the Trust which call for payment upon presentation and hold
the cash received by it upon such payment for the account of the Trust;
9.3 Receive and hold for the account of the Trust all securities
received as a distribution on Portfolio Securities as a result of a stock
dividend, share split-up, reorganization, recapitalization, merger,
consolidation, readjustment, distribution of rights and similar securities
issued with respect to any Portfolio Securities held by it hereunder.
9.4 Execute as agent on behalf of the Trust all necessary ownership and
other certificates and affidavits required by the Internal Revenue Code or the
regulations of the Treasury Department issued thereunder, or by the laws of any
state, now or hereafter in effect, inserting the Trust's name on such
certificates as the owner of the securities covered thereby, to the extent it
may lawfully do so and as may be required to obtain payment in respect thereof.
The Bank will execute and deliver such certificates in connection with Portfolio
Securities delivered to it or by it under this Agreement as may be required
under the provisions of the Internal Revenue Code and any Regulations of the
Treasury Department issued thereunder, or under the laws of any State;
9.5 Present for payment all Portfolio Securities which are called,
redeemed, retired or otherwise become payable, and hold cash received by it
upon payment for the account of the Trust; and
9.6 Exchange interim receipts or temporary securities for definitive
securities.
10. COLLECTIONS AND DEFAULTS. The Bank will use reasonable efforts to
collect any funds which
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may to its knowledge become collectible arising from Portfolio Securities,
including dividends, interest and other income, and to transmit to the Trust
notice actually received by it of any call for redemption, offer of exchange,
right of subscription, reorganization or other proceedings affecting such
Securities. If Portfolio Securities upon which such income is payable are in
default or payment is refused after due demand or presentation, the Bank will
notify the Trust in writing of any default or refusal to pay within two business
days from the day on which it receives knowledge of such default or refusal.
11. MAINTENANCE OF RECORDS AND ACCOUNTING SERVICES. The Bank will
maintain records with respect to transactions for which the Bank is responsible
pursuant to the terms and conditions of this Agreement, and in compliance with
the applicable rules and regulations of the 1940 Act. The books and records of
the Bank pertaining to its actions under this Agreement and reports by the Bank
or its independent accountants concerning its accounting system, procedures for
safeguarding securities and internal accounting controls will be open to
inspection and audit at reasonable times by officers of or auditors employed by
the Trust and will be preserved by the Bank in the manner and in accordance with
the applicable rules and regulations under the 1940 Act.
The Bank shall perform fund accounting and shall keep the books of account
and render statements or copies from time to time as reasonably requested by the
Treasurer or any executive officer of the Trust.
The Bank shall assist generally in the preparation of reports to
shareholders and others, audits of accounts, and other ministerial matters of
like nature.
12. FUND EVALUATION AND YIELD CALCULATION
12.1 FUND EVALUATION. The Bank shall compute and, unless otherwise
directed by the Board, determine as of the close of regular trading on the New
York Stock Exchange on each day on which said Exchange is open for unrestricted
trading and as of such other days, or hours, if any, as may be authorized by the
Board, the net asset value and the public offering price of a share of capital
stock of the Funds, such determination to be made in accordance with the
provisions of the Articles and By-laws of the Trust and the Prospectus and
Statement of Additional Information relating to the Trust, as they may from time
to time be amended, and any applicable resolutions of the Board at the time in
force and applicable; and promptly to notify the Trust, the proper exchange and
the NASD or such other persons as the Trust may request of the results of such
computation and determination. In computing the net asset value hereunder, the
Bank may rely in good faith upon information furnished to it by any Authorized
Person in respect of (i) the manner of accrual of the liabilities of the Trust
and in respect of liabilities of the Trust not appearing on its books of account
kept by the Bank, (ii) reserves, if any, authorized by the Board or that no such
reserves have been authorized, (iii) the source of the quotations to be used in
computing the net asset value, (iv) the value to be assigned to any security for
which no price quotations are available, and (v) the method of computation of
the public offering price on the basis of the net asset value of the shares, and
the Bank shall not be responsible for any loss occasioned by such reliance or
for any good faith reliance on any quotations received from a source pursuant to
(iii) above.
12.2. YIELD CALCULATION. The Bank will compute the performance results of
the Funds (the "Yield Calculation") in accordance with the provisions of Release
No. 33-6753 and Release No. IC-16245 (February 2, 1988) (the "Releases")
promulgated by the Securities and Exchange Commission, and any subsequent
amendments to, published interpretations of or general conventions accepted by
the staff
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of the Securities and Exchange Commission with respect to such releases or the
subject matter thereof ("Subsequent Staff Positions"), subject to the terms set
forth below:
(a) The Bank shall compute the Yield Calculation for the Funds
for the stated periods of time as shall be mutually agreed upon, and communicate
in a timely manner the result of such computation to the Trust.
(b) In performing the Yield Calculation, the Bank will derive
the items of data necessary for the computation from the records it generates
and maintains for the Trust pursuant Section 11 hereof. The Bank shall have no
responsibility to review, confirm, or otherwise assume any duty or liability
with respect to the accuracy or correctness of any such data supplied to it by
the Trust, any of the Trust's designated agents or any of the Trust's designated
third party providers.
(c) At the request of the Bank, the Trust shall provide, and the
Bank shall be entitled to rely on, written standards and guidelines to be
followed by the Bank in interpreting and applying the computation methods set
forth in the Releases or any Subsequent Staff Positions as they specifically
apply to the Trust. In the event that the computation methods in the Releases
or the Subsequent Staff Positions or the application to the Trust of a standard
or guideline is not free from doubt or in the event there is any question of
interpretation as to the characterization of a particular security or any aspect
of a security or a payment with respect thereto (e.g., original issue discount,
participating debt security, income or return of capital, etc.) or otherwise or
as to any other element of the computation which is pertinent to the Trust, the
Trust or its designated agent shall have the full responsibility for making the
determination of how the security or payment is to be treated for purposes of
the computation and how the computation is to be made and shall inform the Bank
thereof on a timely basis. The Bank shall have no responsibility to make
independent determinations with respect to any item which is covered by this
Section, and shall not be responsible for its computations made in accordance
with such determinations so long as such computations are mathematically
correct.
(d) The Trust shall keep the Bank informed of all publicly
available information and of any non-public advice, or information obtained by
the Trust from its independent auditors or by its personnel or the personnel of
its investment adviser, or Subsequent Staff Positions related to the
computations to be undertaken by the Bank pursuant to this Agreement and the
Bank shall not be deemed to have knowledge of such information (except as
contained in the Releases) unless it has been furnished to the Bank in writing.
13. ADDITIONAL SERVICES. The Bank shall perform the additional services
for the Trust as are set forth on APPENDIX C hereto. APPENDIX C may be amended
from time to time upon agreement of the parties to include further additional
services to be provided by the Bank to the Trust, at which time the fees set
forth in APPENDIX B shall be appropriately increased.
14. DUTIES OF THE BANK.
14.1 PERFORMANCE OF DUTIES AND STANDARD OF CARE. In performing its
duties hereunder and any other duties listed on any Schedule hereto, if any, the
Bank will be entitled to receive and act upon the advice of independent counsel
of its own selection, which may be counsel for the Trust, and will be without
liability for any action taken or thing done or omitted to be done in accordance
with this Agreement in good faith in conformity with such advice.
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The Bank will be under no duty or obligation to inquire into and will not
be liable for:
(a) the validity of the issue of any Portfolio Securities
purchased by or for the Trust, the legality of the purchases thereof or the
propriety of the price incurred therefor;
(b) the legality of any sale of any Portfolio Securities by or
for the Trust or the propriety of the amount for which the same are sold;
(c) the legality of an issue or sale of any common shares of the
Trust or the sufficiency of the amount to be received therefor;
(d) the legality of the repurchase of any common shares of the
Trust or the propriety of the amount to be paid therefor;
(e) the legality of the declaration of any dividend by the Trust
or the legality of the distribution of any Portfolio Securities as payment in
kind of such dividend; and
(f) any property or moneys of the Trust unless and until
received by it, and any such property or moneys delivered or paid by it pursuant
to the terms hereof
Moreover, the Bank will not be under any duty or obligation to ascertain
whether any Portfolio Securities at any time delivered to or held by it for the
account of the Trust are such as may properly be held by the Trust under the
provisions of its Articles, By-laws, any federal or state statutes or any rule
or regulation of any governmental agency.
14.2 AGENTS AND SUBCUSTODIANS WITH RESPECT TO PROPERTY OF THE TRUST HELD
IN THE UNITED STATES. The Bank may employ agents of its own selection in the
performance of its duties hereunder and shall be responsible for the acts and
omissions of such agents as if performed by the Bank hereunder. Without
limiting the foregoing, certain duties of the Bank hereunder may be performed by
one or more affiliates of the Bank.
Upon receipt of Proper Instructions, the Bank may employ subcustodians
selected by or at the direction of the Trust, provided that any such
subcustodian meets at least the minimum qualifications required by Section
17(f)(1) of the 1940 Act to act as a custodian of the Trust's assets with
respect to property of the Trust held in the United States. The Bank shall have
no liability to the Trust or any other person by reason of any act or omission
of any such subcustodian and the Trust shall indemnify the Bank and hold it
harmless from and against any and all actions, suits and claims, arising
directly or indirectly out of the performance of any subcustodian. Upon request
of the Bank, the Trust shall assume the entire defense of any action, suit, or
claim subject to the foregoing indemnity. The Trust shall pay all fees and
expenses of any subcustodian.
14.3 DUTIES OF THE BANK WITH RESPECT TO PROPERTY OF THE TRUST HELD
OUTSIDE OF THE UNITED, STATES.
(a) APPOINTMENT OF FOREIGN CUSTODY MANAGER.
(i) If the Trust has appointed the Bank Foreign Custody
Manager (as that term is defined in Rule 17f-5 under the 1940 Act), the Bank's
duties and obligations with respect to the
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Trust's Portfolio Securities and other assets maintained outside the United
States shall be, to the extent not set forth herein, as set forth in the
Delegation Agreement between the Trust and the Bank (the "Delegation
Agreement").
(ii) If the Trust has appointed any other person or entity
Foreign Custody Manager, the Bank shall act only upon Proper Instructions from
the Trust with regard to any of the Trust's Portfolio Securities or other assets
held or to be held outside of the United States, and the Bank shall be without
liability for any Claim (as that term is defined in Section 15 hereof) arising
out of maintenance of the Trust's Portfolio Securities or other assets outside
of the United States. The Trust also agrees that it shall enter into a written
agreement with such Foreign Custody Manager that shall obligate such Foreign
Custody Manager to provide to the Bank in a timely manner all information
required by the Bank in order to complete its obligations hereunder. The Bank
shall not be liable for any Claim arising out of the failure of such Foreign
Custody Manager to provide such information to the Bank.
(b) SEGREGATION OF SECURITIES. The Bank shall identify on its
books as belonging to the Trust the Foreign Portfolio Securities held by each
foreign sub-custodian (each an "Eligible Foreign Custodian") selected by the
Foreign Custody Manager, subject to receipt by the Bank of the necessary
information from such Eligible Foreign Custodian if the Foreign Custody Manager
is not the Bank.
(c) ACCESS OF INDEPENDENT ACCOUNTANTS OF THE TRUST. If the Bank
is the Trust's Foreign Custody Manager, upon request of the Trust, the Bank will
use its best efforts to arrange for the independent accountants of the Trust to
be afforded access to the books and records of any foreign banking institution
employed as an Eligible Foreign Custodian insofar as such books and records
relate to the performance of such foreign banking institution with regard to the
Trust's Portfolio Securities and other assets.
(d) REPORTS BY BANK. If the Bank is the Trust's Foreign Custody
Manager, the Bank will supply to the Trust the reports required under the
Delegation Agreement.
(e) TRANSACTIONS IN FOREIGN CUSTODY ACCOUNT. Transactions with
respect to the assets of the Trust held by an Eligible Foreign Custodian shall
be effected pursuant to Proper Instructions from the Trust to the Bank and shall
be effected in accordance with the applicable agreement between the Foreign
Custody Manager and such Eligible Foreign Custodian. If at any time any Foreign
Portfolio Securities shall be registered in the name of the nominee of the
Eligible Foreign Custodian, the Trust agrees to hold any such nominee harmless
from any liability by reason of the registration of such securities in the name
of such nominee.
Notwithstanding any provision of this Agreement to the
contrary, settlement and payment for Foreign Portfolio Securities received for
the account of the Trust and delivery of Foreign Portfolio Securities maintained
for the account of the Trust may be effected in accordance with the customary
established securities trading or securities processing practices and procedures
in the jurisdiction or market in which the transaction occurs, including,
without limitation, delivering securities to the purchaser thereof or to a
dealer therefor (or an agent for such purchaser or dealer) against a receipt
with the expectation of receiving later payment for such securities from such
purchaser or dealer.
In connection with any action to be taken with respect to
the Foreign Portfolio Securities held hereunder, including, without limitation,
the exercise of any voting rights, subscription rights, redemption rights,
exchange rights, conversion rights or tender rights, or any other action in
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connection with any other right, interest or privilege with respect to such
Securities (collectively, the "Rights"), the Bank shall promptly transmit to the
Trust such information in connection therewith as is made available to the Bank
by the Eligible Foreign Custodian, and shall promptly forward to the applicable
Eligible Foreign Custodian any instructions, forms or certifications with
respect to such Rights, and any instructions relating to the actions to be taken
in connection therewith, as the Bank shall receive from the Trust pursuant to
Proper Instructions. Notwithstanding the foregoing, the Bank shall have no
further duty or obligation with respect to such Rights, including, without
limitation, the determination of whether the Trust is entitled to participate in
such Rights under applicable U.S. and foreign laws, or the determination of
whether any action proposed to be taken with respect to such Rights by the Trust
or by the applicable Eligible Foreign Custodian will comply with all applicable
terms and conditions of any such Rights or any applicable laws or regulations,
or market practices within the market in which such action is to be taken or
omitted.
(f) TAX LAW. The Bank shall have no responsibility or liability
for any obligations now or hereafter imposed on the Trust or the Bank as
custodian of the Trust by the tax laws of any jurisdiction, and it shall be the
responsibility of the Trust to notify the Bank of the obligations imposed on the
Trust or the Bank as the custodian of the Trust by the tax law of any non-U.S.
jurisdiction, including responsibility for withholding and other taxes,
assessments or other governmental charges, certifications and governmental
reporting. The sole responsibility of the Eligible Foreign Custodian with
regard to such tax law shall be to use reasonable efforts to assist the Trust
with respect to any claim for exemption or refund under the tax law of
jurisdictions for which the Trust has provided such information.
14.4 INSURANCE. The Bank shall use the same care with respect to the
safekeeping of Portfolio Securities and cash of the Trust held by it as it uses
in respect of its own similar property but it need not maintain any special
insurance for the benefit of the Trust.
14.5. FEES AND EXPENSES OF THE BANK. The Trust will pay or reimburse the
Bank from time to time for any transfer taxes payable upon transfer of Portfolio
Securities made hereunder, and for all necessary proper disbursements, expenses
and charges made or incurred by the Bank in the performance of this Agreement
(including any duties listed on any Schedule hereto, if any) including any
indemnities for any loss, liabilities or expense to the Bank as provided above.
For the services rendered by the Bank hereunder, the Trust will pay to the Bank
such compensation or fees at such rate and at such times as shall be agreed upon
in writing by the parties from time to time. The Bank will also be entitled to
reimbursement by the Trust for all reasonable expenses incurred in conjunction
with termination of this Agreement.
14.6 ADVANCES BY THE BANK. The Bank may, in its sole discretion, advance
funds on behalf of the Trust to make any payment permitted by this Agreement
upon receipt of any proper authorization required by this Agreement for such
payments by the Trust. Should such a payment or payments, with advanced funds,
result in an overdraft (due to insufficiencies of the Funds' account with the
Bank, or for any other reason) this Agreement deems any such overdraft or
related indebtedness a loan made by the Bank to the Trust payable on demand.
Such overdraft shall bear interest at the current rate charged by the Bank for
such loans unless the Trust shall provide the Bank with agreed upon compensating
balances. The Trust agrees that the Bank shall have a continuing lien and
security interest to the extent of any overdraft or indebtedness or to the
extent required by law, whichever is greater, in and to any property at any time
held by it for the Trust's benefit or in which the Trust has an interest and
which is then in the Bank's possession or control (or in the possession or
control of any third party acting on the Bank's behalf). The Trust authorizes
the Bank, in the Bank's sole discretion, at any time to charge any overdraft
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or indebtedness, together with interest due thereon, against any balance of
account standing to the credit of the Trust on the Bank's books.
15. LIMITATION OF LIABILITY.
15.1 Notwithstanding anything in this Agreement to the contrary, in no
event shall the Bank or any of its officers, directors, employees or agents
(collectively, the "Indemnified Parties") be liable to the Trust or any third
party, and the Trust shall indemnify and hold the Bank and the Indemnified
Parties harmless from and against any and all loss, damage, liability, actions,
suits, claims, costs and expenses, including legal fees, (a "Claim") arising as
a result of any act or omission of the Bank or any Indemnified Party under this
Agreement, except for any Claim resulting from the negligence, willful
misfeasance or bad faith of the Bank or any Indemnified Party. Without limiting
the foregoing, neither the Bank nor the Indemnified Parties shall be liable for,
and the Bank and the Indemnified Parties shall be indemnified against, any Claim
arising as a result of.
(a) Any act or omission by the Bank or any Indemnified Party in
good faith reliance upon the terms of this Agreement, any Officer's Certificate,
Proper Instructions, resolution of the Board, telegram, telecopier, notice,
request, certificate or other instrument reasonably believed by the Bank to
genuine;
(b) Any act or omission of any subcustodian selected by or at
the direction of the Trust;
(c) Any act or omission of any Foreign Custody Manager other
than the Bank or any act or omission of any Eligible Foreign Custodian if the
Bank is not the Foreign Custody Manager;
(d) Any Corporate Action, distribution or other event related to
Portfolio Securities which, at the direction of the Trust, have not been
registered in the name of the Bank or its nominee;
(e) Any Corporate Action requiring a Response for which the Bank
has not received Proper Instructions or obtained actual possession of all
necessary Securities, consents or other materials by 5:00 p.m. on the date
specified as the Response Deadline,
(f) Any act or omission of any European Branch of a U.S. banking
institution that is the issuer of Eurodollar CDS in connection with any
Eurodollar CDS held by such European Branch;
(g) Information relied on in good faith by the Bank and supplied
by any Authorized Person in connection with the calculation of (i) the net asset
value and public offering price of the shares of capital stock of the Trust or
(ii) the Yield Calculation; or
(h) Any acts of God, earthquakes, fires, floods, storms or other
disturbances of nature, epidemics, strikes, riots, nationalization,
expropriation, currency restrictions, acts of war, civil war or terrorism,
insurrection, nuclear fusion, fission or radiation, the interruption, loss or
malfunction of utilities, the unavailability of energy sources and other similar
happenings or events.
(i) IBT shall have in place reasonable business continuity and
disaster recovery procedures and systems. Neither IBT or the Indemnified
Parties shall be liable for, and IBT and the Indemnified Parties shall be
indemnified against, any Claim arising as a result of the nonperformance of
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computers (hardware and software) and computer facilities, provided that such
business continuity and disaster recovery procedures and systems operate as
intended.
15.2 Notwithstanding anything to the contrary in this Agreement, in no
event shall any party hereto be liable to the other party or any third party for
lost profits or lost revenues or any special, consequential, punitive or
incidental damages of any kind whatsoever in connection with this Agreement or
any activities hereunder, unless such damages arise out of the willful
misconduct or bad faith of such party hereto.
16. TERMINATION.
16.1 The term of this Agreement shall be three years commencing upon the
date hereof (the "Initial Term"), unless earlier terminated as provided herein.
After the expiration of the Initial Term, the term of this Agreement shall
automatically renew for successive one-year terms (each a "Renewal Term") unless
notice of non-renewal is delivered by the non-renewing party to the other party
no later than ninety days prior to the expiration of the Initial Term or any
Renewal Term, as the case may be.
(a) Either party hereto may terminate this Agreement prior to
the expiration of the Initial Term in the event the other party violates any
material provision of this Agreement, provided that the non-violating party
gives written notice of such violation to the violating party and the violating
party does not cure such violation within 90 days of receipt of such notice.
(b) Either party may terminate this Agreement during any Renewal
Term upon ninety days written notice to the other party. Any termination
pursuant to this paragraph 16.1(b) shall be effective upon expiration of such
ninety days, provided, however, that the effective date of such termination may
be postponed to a date not more than one hundred twenty days after delivery of
the written notice: (i) at the request of the Bank, in order to prepare for the
transfer by the Bank of all of the assets of the Trust held hereunder; or (ii)
at the request of the Trust, in order to give the Trust an opportunity to make
suitable arrangements for a successor custodian.
16.2 In the event of the termination of this Agreement, the Bank will
immediately upon receipt or transmittal, as the case may be, of notice of
termination, commence and prosecute diligently to completion the transfer of all
cash and the delivery of all Portfolio Securities duly endorsed and all records
maintained under Section 11 to the successor custodian when appointed by the
Trust. The obligation of the Bank to deliver and transfer over the assets of
the Trust held by it directly to such successor custodian will commence as soon
as such successor is appointed and will continue until completed as aforesaid.
If the Trust does not select a successor custodian within ninety (90) days from
the date of delivery of notice of termination the Bank may, subject to the
provisions of subsection 16.3, deliver the Portfolio Securities and cash of the
Trust held by the Bank to a bank or trust company of the Bank's own selection
which meets the requirements of Section 17(f)(1) of the 1940 Act and has a
reported capital, surplus and undivided profits aggregating not less than
$2,000,000, to be held as the property of the Trust under terms similar to those
on which they were held by the Bank, whereupon such bank or trust company so
selected by the Bank will become the successor custodian of such assets of the
Trust with the same effect as though selected by the Board. Thereafter, the
Bank shall be released from any and all obligations under this Agreement.
16.3 Prior to the expiration of ninety (90) days after notice of
termination has been given, the Trust may furnish the Bank with an order of the
Trust advising that a successor custodian cannot be found willing and able to
act upon reasonable and customary terms and that there has been submitted to
20
<PAGE>
the shareholders of the Trust the question of whether the Trust will be
liquidated or will function without a custodian for the assets of the Trust held
by the Bank. In that event the Bank will deliver the Portfolio Securities and
cash of the Trust held by it, subject as aforesaid, in accordance with one of
such alternatives which may be approved by the requisite vote of shareholders,
upon receipt by the Bank of a copy of the minutes of the meeting of shareholders
at which action was taken, certified by the Trust's Secretary and an opinion of
counsel to the Trust in form and content satisfactory to the Bank. Thereafter,
the Bank shall be released from any and all obligations under this Agreement.
16.4 The Trust shall reimburse the Bank for any reasonable expenses
incurred by the Bank in connection with the termination of this Agreement.
16.5 At any time after the termination of this Agreement, the Trust may,
upon written request, have reasonable access to the records of the Bank
relating to its performance of its duties as custodian.
17. CONFIDENTIALITY. Both parties hereto agree than any non-public
information obtained hereunder concerning the other party is confidential and
may not be disclosed without the consent of the other party, except as may be
required by applicable law or at the request of a governmental agency. The
parties further agree that a breach of this provision would irreparably damage
the other party and accordingly agree that each of them is entitled, in addition
to all other remedies at law or in equity to an injunction or injunctions
without bond or other security to prevent breaches of this provision.
18. NOTICES. Any notice or other instrument in writing authorized or
required by this Agreement to be given to either party hereto will be
sufficiently given if addressed to such party and delivered via (i) United
States Postal Service registered mail, (ii) telecopier with written
confirmation, (iii) hand delivery with signature to such party at its office at
the address set forth below, namely:
(a) In the case of notices sent to the Trust or Funds to:
State Farm Variable Product Trust
One State Farm Plaza
Bloomington, IL 61710
Attn: David R. Grimes
with a copy to:
Barclays Global Fund Advisors
45 Fremont Street
San Francisco, CA 94105
Attn: Stephen E. Rogers
(b) In the case of notices sent to the Bank to:
Investors Bank & Trust Company
200 Clarendon Street, P.O. Box 9130
Boston, Massachusetts 02117-9130
Attention: Andrew M. Nesvet, Director - Client Management
21
<PAGE>
With a copy to: John E. Henry, General Counsel
or at such other place as such party may from time to time designate
in writing.
19. AMENDMENTS. This Agreement may not be altered or amended, except by
an instrument in writing, executed by both parties.
20. PARTIES. This Agreement will be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and assigns;
provided, however, that this Agreement will not be assignable by the Trust
without the written consent of the Bank or by the Bank without the written
consent of the Trust, authorized and approved by its Board; and provided further
that termination proceedings pursuant to Section 16 hereof will not be deemed to
be an assignment within the meaning of this provision.
21. GOVERNING LAW. This Agreement and all performance hereunder will be
governed by the laws of the Commonwealth of Massachusetts, without regard to
conflict of laws provisions.
22. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but such
counterparts shall, together, constitute only one instrument.
23. ENTIRE AGREEMENT. This Agreement, together with its Appendices,
constitutes the sole and entire agreement between the parties relating to the
subject matter herein and does not operate as an acceptance of any conflicting
terms or provisions of any other instrument and terminates and supersedes any
and all prior agreements and undertakings between the parties relating to the
subject matter herein.
24. LIMITATION OF LIABILITY. The Bank agrees that the obligations
assumed by the Trust hereunder shall be limited in all cases to the assets of
the Trust and that the Bank shall not seek satisfaction of any such obligation
from the officers, agents, employees, trustees, or shareholders of the Trust.
[Remainder of Page Intentionally Left Blank]
22
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the day
and year first written above.
STATE FARM VARIABLE PRODUCT
TRUST
By: /s/ David R. Grimes
---------------------------------------
Assistant Vice President and
Secretary
INVESTORS BANK & TRUST COMPANY
By: /s/ Andrew Nesvet
----------------------------------------
Name: Andrew Nesvet
Title: Director, Client Management
23
<PAGE>
APPENDICES
Appendix A........................................ Funds
Appendix B........................................ Fee Schedule
Appendix C........................................ Additional Services
24
<PAGE>
Appendix A
Funds
International Equity Index Fund
25
<PAGE>
APPENDIX B
STATE FARM
FEE SCHEDULE*
FOR ONE INTERNATIONAL INDEX FUND
June 2, 1997
CUSTODY, FUND ACCOUNTING & CALCULATION OF N.A.V.
A. FUND ACCOUNTING AND CALCULATION OF N.A.V.
The following annual fee will be charged for each fund that we are fund
accountant. This fee does not include transactions or custody fees.
DOMESTIC FUND
GLOBAL FUND
26
<PAGE>
ANNUAL FEE
----------
$32,000
$50,000
B. DOMESTIC CUSTODY
In addition to the transaction charges below, there will be a basis point
charge per fund on domestic assets as follows:
First $200 million in assets
Assets in excess of $200 million
27
<PAGE>
1.5 BASIS POINTS
1.0 BASIS POINTS
C. TRANSACTIONS
- - DTC
- - Fed Book Entry
- - Physical Securities
- - Options and Futures
- - GNMA Securities
- - Principal Paydown
- - Foreign Currency
- - Outgoing Wires
- - Incoming Wires
28
<PAGE>
- - $ 8**
$ 9**
35
18
40
5
18***
7
5
** Trade information will be sent to Investors Bank electronically by Barclays
Global Investors. If the trades are not sent to Investors Bank
electronically there will be a $3 per trade surcharge.
*** There are no transaction charges for F/X contracts executed by Investors
Bank.
D. GLOBAL CUSTODY
- - Incremental basis point and transaction fees will be charged for all
foreign assets for which we are custodian. The asset based fees and
transaction fees vary by country, based upon the attached global custody
fee schedule. Local duties, script fees, registration, reclaims, exchange
fees, and other market charges are out-of-pocket.
- - Investors Bank will require the fund to hold all international assets at
the subcustodian of our choice.
MISCELLANEOUS
A. OUT-OF-POCKET
- These charges consist of:
-Printing, Delivery & Postage -Extraordinary Travel Expenses
-InvestView -Micro Rental
-Legal Expenses -Forms and Supplies
-Customized Systems Development/Reporting
-Pricing& Verification Services -Data Transmissions
-Third Party Review -Telecommunications
-Non-Standard Extracts -Support Equipment
B. DOMESTIC BALANCE CREDIT
- - We allow use of balance credit against fees (excluding out-of-pocket
charges) for
29
<PAGE>
fund balances arising out of the custody relationship. The credit is based
on collected balances reduced by balances required to support the activity
charges of the accounts. The monthly earnings allowance is equal to 75% of
the 90-day T-bill rate.
C. SECURITIES LENDING, FOREIGN EXCHANGE & CASH MANAGEMENT
- - This proposal is based upon Investors Bank performing securities lending,
foreign exchange and cash management for the portfolios, if applicable.
Securities Lending revenue is split with the funds and Investors Bank on a
60/40% basis: 60% going to the funds.
D. PAYMENT
- - The above fees will be charged against the fund's custodian checking
account five business days after the invoice is mailed.
E. SYSTEMS
- - The details of any systems work will be determined after a thorough
business analysis. System's work will be billed on a time and material
basis.
* This fee schedule assumes the execution of our standard contractual agreements
for a minimum of three years.
30
<PAGE>
INVESTORS BANK & TRUST COMPANY
GLOBAL CUSTODY FEE SCHEDULE - STATE FARM
Country BP Charge Trade Charge
Argentina* 22.00 $75.00
Australia 4.00 $60.00
Austria 6.00 $60.00
Bangladesh 41.00 $150.00
Belgium 6.00 $60.00
Bahrain 41.00 $140.00
Botswana 50.00 $175.00
Brazil** 29.00 $80.00
Canada 4.00 $30.00
Chile** 45.00 $100.00
China 20.00 $75.00
Colombia*** 45.00 $140.00
Croatia 45.00 $125.00
Cyprus 50.00 $150.00
Czech Republic 20.00 $75.00
Denmark 4.00 $60.00
Ecuador 45.00 $100.00
Egypt 41.00 $100.00
Estonia 30.00 $125.00
Euroclear Internal 4.00 $20.00
Euroclear Cross Border 4.00 $60.00
Finland 6.00 $70.00
France 4.00 $60.00
Germany 4.00 $30.00
Ghana 50.00 $200.00
Greece 45.00 $130.00
Hong Kong 9.00 $65.00
Hungary 50.00 $200.00
India**** 50.00 50BP
Indonesia 13.00 $65.00
Ireland 6.00 $60.00
Israel 20.00 $60.00
Italy 4.00 $50.00
Japan 4.00 $30.00
Jordan 41.00 $120.00
INVESTORS BANK CONFIDENTIAL
Page 1
31
<PAGE>
Country BP Charge Trade Charge
Kenya 50.00 $200.00
Korea 13.00 $65.00
Latvia 30.00 $125.00
Lebanon 41.00 $140.00
Lithuania 20.00 $75.00
Lithuania T Bills 25.00 $75.00
Luxembourg 6.00 $60.00
Malaysia 10.00 $70.00
Mauritius 41.00 $140.00
Mexico 9.00 $40.00
Morocco 40.00 $150.00
Namibia 50.00 $200.00
Netherlands 4.00 $40.00
New Zealand 4.00 $60.00
Norway 6.00 $90.00
Oman 41.00 $140.00
Pakistan 41.00 $140.00
Peru 50.00 $150.00
Philippines 13.00 $65.00
Poland 50.00 $150.00
Poland T Bills 29.00 $110.00
Portugal 20.00 $125.00
Romania 45.00 $125.00
Russia Equities 41.00 $250.00
Russia Min Fins 35.00 $140.00
Singapore 10.00 $65.00
Slovakia 20.00 $75.00
Slovenia 41.00 $100.00
South Africa 6.00 $40.00
Spain Eq & Corp Debt 6.00 $60.00
Spain Gvt Debt 4.00 $60.00
Sri Lanka 13.00 $65.00
Swaziland 50.00 $200.00
Sweden 4.00 $40.00
Sweden Debt 4.00 $40.00
Switzerland 4.00 $60.00
Taiwan 13.00 $65.00
Thailand 10.00 $65.00
Turkey 15.00 $100.00
INVESTORS BANK CONFIDENTIAL
Page 2
32
<PAGE>
Country BP Charge Trade Charge
UK 4.00 $50.00
Uruguay 50.00 $150.00
Venezuela** 45.00 $140.00
Zambia 50.00 $200.00
Zimbabwe 50.00 $175.00
* Bonds billed at Residual Value
** Local Administrator Fees included in Custody fee
*** 20 BP Local Administration Charge Applied to Trades
**** Trades billed at 50 BP
Out-of Pocket Charges are passed through as actuals in all markets
INVESTORS BANK CONFIDENTIAL
Page 3
33
<PAGE>
Appendix C
Additional Services
None
34
<PAGE>
DELEGATION AGREEMENT
AGREEMENT, dated as of January 21, 1998 by and between INVESTORS
BANK & TRUST COMPANY, a Massachusetts trust Company (the "Delegate"), and STATE
FARM VARIABLE PRODUCT TRUST, a business trust organized under the laws of the
state of Delaware (the "Trust").
WHEREAS, pursuant to the provisions of Rule 17f-5(b) under the Investment
Company Act of 1940, and subject to the terms and conditions set forth herein,
the Board of Trustees of the Trust, on behalf of the series/funds listed on
Schedule A hereto, as such Schedule A may be amended from time to time, (each a
"Fund" and collectively, the "Funds"), desires to delegate to the Delegate, and
the Delegate hereby agrees to accept and assume, certain responsibilities
described herein concerning Assets held outside of the United States.
NOW THEREFORE, in consideration of the premises and of the mutual
agreements
contained herein, the parties hereto agree as follows:
1. DEFINITIONS
Capitalized terms in this Agreement have the following meanings:
a. ASSETS
Assets means any of Fund's investments (including foreign currencies) for
which the primary market is outside the United States, and such cash and cash
equivalents as are reasonably necessary to effect Fund's transactions in such
investments.
b. AUTHORIZED REPRESENTATIVE
Authorized Representative means any one of the persons who are
empowered, on behalf of the parties to this Agreement, to receive notices from
the other party, to send notices to the other party, to add or delete
jurisdictions pursuant to Article 3, and to otherwise bind the respective
parties with respect to the subject matter of this Agreement.
c. BOARD
Board means the Board of Directors or the Board of Trustees of the
Fund or Trust, as the case may be.
d. COMPULSORY SECURITIES DEPOSITORY
Compulsory Securities Depository means a Securities Depository the use
of which is mandatory (i) by law or regulation; (ii) because securities cannot
be withdrawn from the
<PAGE>
depository; or (iii) because maintaining securities outside the Securities
Depository is not consistent with prevailing custodial practices.
e. COUNTRY RISK
Country Risk means all factors reasonably related to the systemic risk
of holding assets in a particular country including, but not limited to, such
country's financial infrastructure (including any Securities Depositories
operating in such country); prevailing custody and settlement practices; and
laws applicable to the safekeeping and recovery of Assets held in custody.
f. ELIGIBLE FOREIGN CUSTODIAN
Eligible Foreign Custodian has the meaning set forth in Rule
17f-5(a)(1).
g. FOREIGN CUSTODY MANAGER
Foreign Custody Manager has the meaning set forth in Rule 17f-5(a)(2).
h. MONITOR
Monitor means to re-assess or re-evaluate, at reasonable intervals, a
decision or determination previously made.
i. SECURITIES DEPOSITORY
Securities Depository has the meaning set forth in Rule 17f-5(a)(6).
2. REPRESENTATIONS
a. DELEGATE'S REPRESENTATIONS
Delegate represents that it is a trust company chartered under the
laws of the Commonwealth of Massachusetts.
b. TRUST'S REPRESENTATIONS
Trust represents that the Board has determined that it is reasonable
to rely on Delegate to perform the responsibilities delegated by this Agreement.
3. JURISDICTIONS COVERED
a. INITIAL JURISDICTIONS
The authority delegated by this Agreement applies only with respect to
Assets held in the jurisdictions listed in APPENDIX A.
b. ADDED JURISDICTIONS
2
<PAGE>
Jurisdictions may be added to APPENDIX A by written agreement in the
form of APPENDIX B. Delegate's responsibility and authority with respect to any
jurisdiction so added will commence at the later of (i) the time that Delegate's
Authorized Representative and Board's Authorized Representative have both
executed a copy of APPENDIX B listing such jurisdiction, or (ii) the time that
Delegate's Authorized Representative receives a copy of such fully executed
APPENDIX B.
c. WITHDRAWN JURISDICTIONS
Board may withdraw its delegation with respect to any jurisdiction
upon written notice to Delegate. Delegate may withdraw its acceptance of
delegated authority with respect to any jurisdiction upon written notice to
Board. Ten days (or such longer period as to which the parties agree) after
receipt of any such notice by the Authorized Representative of the party other
than the party giving notice, Delegate shall have no further responsibility or
authority under this Agreement with respect to the jurisdiction or jurisdictions
as to which authority is withdrawn.
4. DELEGATION OF AUTHORITY TO ACT AS FOREIGN CUSTODY MANAGER
a. SELECTION OF ELIGIBLE FOREIGN CUSTODIANS
Subject to the provisions of this Agreement and the requirements of
Rule 17f-5 (and any other applicable law), Delegate is authorized and directed
to place and maintain Assets in the care of any Eligible Foreign Custodian or
Custodians selected by Delegate in each jurisdiction to which this Agreement
applies.
b. CONTRACTS WITH ELIGIBLE FOREIGN CUSTODIANS
Subject to the provisions of this Agreement and the requirements of
Rule 17f-5 (and any other applicable law), Delegate is authorized to enter into,
on behalf of Fund, such written contracts governing Fund's foreign custody
arrangements with such Eligible Foreign Custodians as Delegate deems
appropriate.
5. MONITORING OF ELIGIBLE FOREIGN CUSTODIANS AND CONTRACTS
In each case in which Delegate has exercised the authority delegated
under this Agreement to place Assets with an Eligible Foreign Custodian,
Delegate is authorized to, and shall, on behalf of Fund, establish a system to
Monitor the appropriateness of maintaining Assets with such Eligible Foreign
Custodian. In each case in which Delegate has exercised the authority delegated
under this Agreement to enter into a written contract governing Fund's foreign
custody arrangements, Delegate is authorized to, and shall, on behalf of Fund,
establish a system to Monitor the appropriateness of such contract.
6. GUIDELINES AND PROCEDURES FOR THE EXERCISE OF DELEGATED AUTHORITY
a. BOARD'S CONCLUSIVE DETERMINATION REGARDING COUNTRY RISK
In exercising its delegated authority under this Agreement, Delegate may
assume, for all purposes, that Board (or Fund's investment advisor, pursuant to
authority delegated by Board) has considered, and pursuant to its fiduciary
duties to Fund and Fund's shareholders, determined to accept,
3
<PAGE>
such Country Risk as is incurred by placing and maintaining Assets in the
jurisdictions to which this Agreement applies. In exercising its delegated
authority under this Agreement, Delegate may also assume that Board (or Fund's
investment advisor, pursuant to authority delegated by Board) has, and will
continue to, Monitor such Country Risk to the extent Board deems necessary or
appropriate.
Nothing in this Agreement shall require Delegate to make any selection
or to engage in any Monitoring on behalf of Fund that would entail consideration
of Country Risk.
b. SELECTION OF ELIGIBLE FOREIGN CUSTODIANS
In exercising the authority delegated under this Agreement to place
Assets with an Eligible Foreign Custodian, Delegate shall determine that Assets
will be subject to reasonable care, based on the standards applicable to
custodians in the market in which the Assets will be held, after considering all
factors relevant to the safekeeping of such assets, including, without
limitation;
i. The Eligible Foreign Custodian's practices, procedures, and
internal controls, including, but not limited to, the physical
protections available for certificated securities (if
applicable), the method of keeping custodial records, and the
security and data protection practices;
ii. Whether the Eligible Foreign Custodian has the financial strength
to provide reasonable care for Assets;
iii. The Eligible Foreign Custodian's general reputation and standing
and, in the case of a Securities Depository, the Securities
Depository's operating history and number of participants;
iv. Whether Fund will have jurisdiction over and be able to enforce
judgments against the Eligible Foreign Custodian, such as by
virtue of the existence of any offices of the Eligible Foreign
Custodian in the United States or the Eligible Foreign
Custodian's consent to service of process in the United States;
v. In the case of an Eligible Foreign Custodian that is a banking
institution or trust company, any additional factors and criteria
set forth in APPENDIX C to this Agreement; and
c. EVALUATION OF WRITTEN CONTRACTS
In exercising the authority delegated under this Agreement to enter
into written contracts governing Fund's foreign custody arrangements with an
Eligible Foreign Custodian, Delegate shall determine that such contracts provide
reasonable care for Assets based on the standards applicable to Eligible Foreign
Custodians in the relevant market. In making this determination, Delegate shall
ensure that the terms of such contracts comply with the provisions of Rule
17f-5(c)(2).
d. MONITORING
In exercising the authority delegated under this Agreement to
establish a system to Monitor the appropriateness of maintaining Assets with an
Eligible Foreign Custodian or the
4
<PAGE>
appropriateness of a written contract governing Fund's foreign custody
arrangements, Delegate shall consider any factors and criteria set forth in
APPENDIX D to this Agreement. If, as a result of its Monitoring of Eligible
Foreign Custodian relationships hereunder or otherwise, the Delegate determines
in its sole discretion that it is in the best interest of the safekeeping of the
Assets to move such Assets to a different Eligible Foreign Custodian, the Fund
shall bear any expense related to such relocation of Assets.
7. STANDARD OF CARE
In exercising the authority delegated under this Agreement, Delegate agrees
to exercise reasonable care, prudence and diligence such as a person having
responsibility for the safekeeping of assets of an investment company registered
under the Investment Company Act of 1940 would exercise.
8. REPORTING REQUIREMENTS
Delegate agrees to provide written reports notifying Board of the placement
of Assets with a particular Eligible Foreign Custodian and of any material
change in Fund's foreign custody arrangements. Such reports shall be provided
to Board quarterly for consideration at the next regularly scheduled meeting of
the Board or earlier if deemed necessary or advisable by the Delegate in its
sole discretion.
9. PROVISION OF INFORMATION REGARDING COUNTRY RISK
With respect to the jurisdictions listed in APPENDIX A, or added thereto
pursuant to Article 3, Delegate agrees to provide annually to Board, such
information relating to Country Risk, if available, as is specified in APPENDIX
E to this Agreement. Such information relating to Country Risk shall be updated
from time to time as the Custodian deems necessary.
10. LIMITATION OF LIABILITY.
a. Notwithstanding anything in this Agreement to the contrary, in no
event shall the Delegate or any of its officers, directors, employees or agents
(collectively, the "Indemnified Parties") be liable to the Fund or any third
party, and the Fund shall indemnify and hold the Delegate and the Indemnified
Parties harmless from and against any and all loss, damage, liability, actions,
suits, claims, costs and expenses, including legal fees, (a "Claim") arising as
a result of any act or omission of the Delegate or any Indemnified Party under
this Agreement, except for any Claim resulting from the negligence, willful
misfeasance or bad faith of the Delegate or any Indemnified Party. Without
limiting the foregoing, neither the Delegate nor the Indemnified Parties shall
be liable for, and the Delegate and the Indemnified Parties shall be indemnified
against, any Claim arising as a result of:
i. Any act or omission by the Delegate or any Indemnified Party in
reasonable good faith reliance upon the terms of this Agreement,
any resolution of the Board, telegram, telecopy, notice, request,
certificate or other instrument reasonably believed by the
Delegate to genuine;
ii. Any information which the Delegate provides or does not provide
under Section 9 hereof,
iii. Any acts of God, earthquakes, fires, floods, storms or other
disturbances of nature, epidemics, strikes, riots,
nationalization, expropriation, currency
5
<PAGE>
restrictions, acts of war, civil war or terrorism, insurrection,
nuclear fusion, fission or radiation, the interruption, loss or
malfunction of utilities, the unavailability of energy sources
and other similar happenings or events.
iv. The Delegate shall have in place reasonable business continuity
and disaster recovery procedures and systems. Neither the
Delegate nor the Indemnified Parties shall be liable for, and the
Delegate and the Indemnified Parties shall be indemnified
against, any Claim arising as a result of the nonperformance of
computers (hardware and software) and computer facilities,
provided that such business continuity and disaster recovery
procedures and systems operate as intended.
b. Notwithstanding anything to the contrary in this Agreement, in no
event shall any party hereto be liable to the other party or any third party for
lost profits or lost revenues or any special, consequential, punitive or
incidental damages of any kind whatsoever in connection with this Agreement or
any activities hereunder, unless such damages arise out of the willful
misconduct or bad faith of such party hereto.
11. ARBITRATION OF DISPUTES
To the extent permitted by law, all disputes or claims arising under this
Agreement shall be resolved through arbitration. Arbitration under this Article
shall be conducted according to the Commercial Arbitration Rules of the American
Arbitration Association and shall take place in the City of Boston,
Massachusetts. This Article shall be enforced and interpreted exclusively in
accordance with applicable federal law, including the Federal Arbitration Act.
12. EFFECTIVENESS AND TERMINATION OF AGREEMENT
This Agreement shall be effective as of the later of the date of execution
on behalf of Board or Delegate and shall remain in effect until terminated as
provided herein. This Agreement may be terminated at any time, without penalty,
by written notice from the terminating party to the non-terminating party.
Termination will become effective 90 days after receipt by the non-terminating
party of such notice.
13. AUTHORIZED REPRESENTATIVES AND NOTICES
The respective Authorized Representatives of Fund and Board, and the
addresses to which notices and other documents under this Agreement are to be
sent to each, are as set forth in APPENDIX F. Any Authorized Representative of a
party may add or delete persons from that party's list of Authorized
Representatives by written notice to an Authorized Representative of the other
party.
14. GOVERNING LAW
This Agreement shall be constructed in accordance with the laws of the
Commonwealth of Massachusetts without regard to principles of choice of law.
IN WITNESS WHEREOF, Authorized Representatives of Board and of Delegate
have affixed their signatures as of the date first written above.
6
<PAGE>
INVESTORS BANK & TRUST COMPANY
By: /s/ Andrew Nesvet
---------------------------------------
Name: Andrew Nesvet
Title: Director, Client Management
STATE FARM VARIABLE PRODUCT TRUST
By: /S/ David R. Grimes
---------------------------------------
Name: David R. Grimes
Title: Assistant Vice President and Secretary
LIST OF APPENDICES
A -- Jurisdictions Covered
B -- Additional Jurisdictions Covered
C -- Additional Factors and Criteria To Be Applied in the Selection of
Eligible Foreign Custodians That Are Banking Institutions or Trust Companies
D -- Factors and Criteria To Be Applied in Establishing Systems For the
Monitoring of Foreign Custody Arrangements and Contracts
E -- Information Regarding Country Risk
F -- Authorized Representatives
LIST OF SCHEDULES
A -- Portfolios
7
<PAGE>
APPENDIX A
JURISDICTIONS COVERED
[delete those countries which are not delegated]
Argentina Euroclear Lebanon Russia
Austria Finland Lithuania Singapore
Australia France Luxembourg Slovak Republic
Bangladesh Germany Malaysia Slovenia
Belgium Ghana Mauritius South Africa
Bahrain Greece Mexico Spain
Botswana Hong Kong Morocco SriLanka
Brazil Hungary Namibia Swaziland
Canada Iceland Netherlands Sweden
Chile India New Zealand Switzerland
China Indonesia Norway Taiwan
Colombia Ireland Oman Thailand
Croatia Israel Pakistan Turkey
Cyprus Italy Papau New Guinea United Kingdom
Czech Republic Japan Peru Uruguay
Denmark Jordan Philippines Venezuela
Ecuador Kenya Poland Zambia
Egypt Korea Portugal Zimbabwe
Estonia Latvia Romania
8
<PAGE>
APPENDIX B
ADDITIONAL JURISDICTIONS COVERED
Pursuant to Article 3 of this Agreement, Delegate and Board agree that the
following
jurisdictions shall be added to Appendix A:
Bermuda
Bulgaria
Kazakhstan
Ukraine
INVESTORS BANK & TRUST COMPANY
By: /s/ Robert Gallagher
------------------------------------------------
Name: Robert Gallagher
------------------------------------------------
Title: Director, Investors Bank & Trust Company
------------------------------------------------
STATE FARM VARIABLE PRODUCT TRUST
By: /s/ David R. Grimes
------------------------------------------------
Name: David R. Grimes
------------------------------------------------
Title: Assistant Vice President and Secretary
------------------------------------------------
DATE: September 29, 1998
------------------------------------------------
9
<PAGE>
APPENDIX C
ADDITIONAL FACTORS AND CRITERIA TO BE APPLIED
IN THE SELECTION OF ELIGIBLE FOREIGN CUSTODIANS
THAT ARE BANKING INSTITUTIONS OR TRUST COMPANIES
In addition to the factors set forth in Rule 17f-5(c)(1), in selecting
Eligible Foreign Custodians that are banking institutions or trust companies,
Delegate shall consider the following factors, if such information is available
(check all that apply):
None
- ---------------
Other (list below):
- ---------------
10
<PAGE>
APPENDIX D
FACTORS AND CRITERIA TO BE APPLIED
IN THE ESTABLISHING SYSTEMS FOR THE MONITORING OF
FOREIGN CUSTODY ARRANGEMENTS AND CONTRACTS
In establishing systems for the Monitoring of foreign custody arrangements
and contracts with Eligible Foreign Custodians, Delegate shall consider the
following factors, if such information is available:
1. Operating performance
2. Established practices and procedures
3. Relationship with market regulators
4. Contingency planning
APPENDIX E
INFORMATION REGARDING COUNTRY RISK
To aid the Board in its determinations regarding Country Risk, Delegate
will furnish Board annually with respect to the jurisdictions specified in
Article 3 of this Agreement, the following information:
1. Copy of Addenda or Side Letters to Subcustodian Agreements
2. Legal Opinion, if available, with regard to:
a) Access to books and records by the Fund's accountants
b) Ability to recover assets in the event of bankruptcy of a custodian
c) Ability to recover assets in the event of a loss
d) Likelihood of expropriation or nationalization, if available
e) Ability to repatriate or convert cash or cash equivalents
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3. Audit Report
4. Copy of Balance Sheet from Annual Report
5. Summary of Central Depository Information
6. Country Profile Matrix containing market practice for:
a) Delivery versus payment
b) Settlement method
c) Currency restrictions
d) Buy-in practice
e) Foreign ownership limits
f) Unique market arrangements
7. Information Regarding Securities Depositories
a) Whether use is voluntary or compulsory
b) Ownership
c) Operating History
d) Established rules, practices and procedures
e) Membership
f) Financial Strength
g) Governing regulatory body
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APPENDIX F
AUTHORIZED REPRESENTATIVES
1. AUTHORIZED SIGNATORIES. The following parties are authorized to execute
all instructions and instruments pertaining to or considered by this Agreement.
A. TRUST
a. David R. Grimes (name)
-----------------------------------------------
Assistant Vice President & Secretary (title)
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/s/ David R. Grimes (specimen signature)
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b. Richard A. Rebholz (name)
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Manager, Investment Accounting (title)
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/s/ Richard A. Rebholz (specimen signature)
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c. Bob Vanderpool (name)
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Mutual Funds Manager (title)
-----------------------------------------------
/s/ Bob Vanderpool (specimen signature)
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B. DELEGATE
a. Andrew M. Nesvet (name)
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Director, Client Management (title)
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/s/ Andrew M. Nesvet (specimen signature)
-----------------------------------------------
b. John E. Henry (name)
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General Counsel (title)
-----------------------------------------------
/s/ John E. Henry (specimen signature)
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c. Robert Gallagher (name)
-----------------------------------------------
/s/ Robert Gallagher (specimen signature)
-----------------------------------------------
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2. ADDRESS FOR NOTICE. Notices under this Agreement shall be deemed effective
when received by the parties at the addresses listed below:
A. TRUST
State Farm Variable Product Trust
One State Farm Plaza
Bloomington, IL 61710
Attn: David R. Grimes
With a copy to:
Barclays Global Fund Advisors
45 Fremont Street
San Francisco, CA 94105
Attn: Stephen E. Rogers
B. DELEGATE
Investors Bank & Trust Company
200 Clarendon Street
P.O. Box 9130
Boston, MA 02117-9130
Attention: Andrew M. Nesvet, Director, Client Management
Fax: (617) 330-6033
With a copy to:
Investors Bank & Trust Company
200 Clarendon Street
P.O. Box 9130
Boston, MA 02117-9130
Attention: John E. Henry, General Counsel
Fax: (617) 946-1929
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SCHEDULE A
LIST OF PORTFOLIOS
INTERNATIONAL EQUITY INDEX FUND
15
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PARTICIPATION AGREEMENT
THIS AGREEMENT is made and entered into this 12th day of December,
1997 by and between STATE FARM LIFE INSURANCE COMPANY, an Illinois
corporation (the "Company"), on its own behalf and on behalf of the
segregated asset accounts of the Company set forth on Schedule A attached
hereto (each, an "Account"; collectively, the "Accounts"), STATE FARM
VARIABLE PRODUCT TRUST, a Delaware business trust (the "Trust"), and STATE
FARM INVESTMENT MANAGEMENT CORP., a Delaware corporation ("SFIM").
WHEREAS, the Trust is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
WHEREAS, the Trust issues shares of beneficial interest (the "Shares")
registered under the Securities Act of 1933, as amended (the "1933 Act")
pursuant to a registration statement initially filed with the Securities and
Exchange Commission on February 27, 1997, as amended from time to time (the
"Registration Statement");
WHEREAS, the Trust has established six separate series of Shares, each
corresponding to a separate investment portfolio having its own investment
objective, and may establish additional series of Shares in the future (such
existing and future series are collectively referred to herein as the "Funds");
WHEREAS, the Trust is available to act as the investment vehicle for
the Accounts, and other separate accounts established in connection with
variable life insurance policies and variable annuity contracts issued by the
Company and its affiliates (the "Contracts");
WHEREAS, the Accounts are duly organized, validly existing segregated
asset accounts, established by resolutions of the Board of Directors of the
Company, to set aside and invest assets attributable to the Contracts that are
allocated to the Accounts (the Contracts and the Accounts covered by this
agreement, and the corresponding Funds covered by this agreement in which the
Accounts invest, are specified in Schedule A attached hereto as may be modified
from time to time);
WHEREAS, the Company has registered the Accounts as unit investment
trusts under the 1940 Act;
WHEREAS, SFIM, the Trust's investment adviser and principal
underwriter, is an investment adviser registered under the Investment Advisers
Act of 1940, as amended (the "Advisers Act") and all applicable state securities
laws, a broker-dealer registered under the Securities Exchange Act of 1934, as
amended (the "1934 Act"), and a member of the National Association of Securities
Dealers, Inc. (the "NASD"); and
<PAGE>
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Trust, either directly or in conjunction with SFIM as its
principal underwriter, intends to make a continuous offering of its shares at
net asset value, and the Company has and intends to purchase the shares of the
Funds on behalf of the Accounts to fund the Contracts;
NOW, THEREFORE, in consideration of their mutual promises, the
Company, the Trust, and SFIM agree as follows:
ARTICLE 1
SALE OF TRUST SHARES
1.1 The Trust and SFIM agree to sell to the Company those shares of
the Trust which the Accounts order, executing such orders on a daily basis at
the net asset value next computed after receipt by the Trust, SFIM, or their
designee for the order of the shares of the Trust. For purposes of this Section
1.1, the Company shall be the Trust's and SFIM's designee for receipt of such
orders from Contract owners and receipt by the Company shall constitute receipt
by the Trust and SFIM; PROVIDED, that either the Trust or SFIM receives notice
of such order by 7:30 a.m. Chicago time on the next following Business Day.
"Business Day" shall mean any day on which the New York Stock Exchange is open
for trading and on which the Trust calculates its net asset value pursuant to
the rules of the Securities and Exchange Commission (the "SEC").
1.2 The Trust and SFIM agree to make Trust shares available
indefinitely for purchase at the applicable net asset value per share by the
Company and the Accounts on those days on which the Trust calculates its net
asset value pursuant to rules of the SEC. The Trust shall use reasonable
efforts to calculate its net asset values on the days and at the times described
in the Trust's prospectus (as of the date hereof, as of the close of the New
York Stock Exchange on each day on which the New York Stock Exchange is open for
trading, but not on the Friday following Thanksgiving nor on December 26, 1997).
Notwithstanding the foregoing, the Board of Trustees of the Trust (the "Board")
may refuse to sell shares of any Fund to the Company and the Accounts, or
suspend or terminate the offering of shares of any Fund if such action is
required by law or by regulatory authorities having jurisdiction or is, in the
sole discretion of the Board acting in good faith and in light of its fiduciary
duties under federal and any applicable state laws, necessary in the best
interests of the shareholders of such Fund.
1.3 The Trust and SFIM agree that shares of the Trust will be sold to
the Company and the Accounts. In addition, shares of the Trust may be sold to
other insurance companies affiliated with the Company or their separate
accounts. Shares will not be sold to natural persons. Nothing herein shall
prohibit the Company from establishing separate accounts or sub-accounts other
than the Accounts which purchase shares from investment companies other than the
Trust.
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1.4 The Company shall pay for the Trust shares in federal funds
transmitted by wire on the next Business Day after an order to purchase shares
is made in accordance with the provisions of Section 1.1 hereof. For purpose of
Section 2.8, upon receipt by the Trust of the federal funds so wired, such funds
shall cease to be the responsibility of the Company and shall become the
responsibility of the Trust. The amount of redemption proceeds payable pursuant
to Section 1.6 may be credited toward any purchase payments due pursuant to this
Section 1.4.
1.5 The Trust agrees to redeem for cash, on the Company's request,
any full or fractional shares of the Trust held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt by
the Trust or its designee of the request for redemption. For purposes of this
Section 1.5, the Company shall be the designee of the Trust for receipt of
requests for redemption from Contract owners and receipt by such designee shall
constitute receipt by the Trust; PROVIDED, that the Trust receives notice of
such request for redemption by 7:30 a.m. Chicago time on the next following
Business Day.
1.6 Payment of redemption proceeds will be in federal funds
transmitted by wire on the same Business Day the Trust receives notice of the
redemption order from the Company. The Trust reserves the right to delay
payment of redemption proceeds, but in no event may such payment be delayed
longer than the period permitted by the 1940 Act. If notification of redemption
is received after 7:30 a.m. Chicago time, payment for redeemed shares will be
made on the next following Business Day. For purpose of Section 2.8, upon
receipt by the Company of the federal funds so wired, such funds shall cease to
be the responsibility of the Trust and shall become the responsibility of the
Company; the Trust will not bear any responsibility whatsoever for the proper
disbursement or crediting of redemption proceeds. Purchase payments payable
pursuant to Section 1.4 may be credited toward any amounts of redemption
proceeds due pursuant to this Section 1.6.
1.7 Unless otherwise determined by the Board, issuance and transfer
of the Trust's shares will be by book entry only and share certificates will not
be issued to the Company or the Accounts. Shares ordered from the Trust will be
recorded in an appropriate title for the Accounts or the appropriate subaccounts
of the Accounts.
1.8 The Trust shall furnish same day notice (by wire or telephone
followed by written confirmation) to the Company of any income, dividends or
capital gain distributions payable on the Trust's shares. The Company hereby
elects to receive all such dividends and distributions as are payable on the
Fund shares in additional shares of that Fund. The Trust shall notify the
Company of the number of shares so issued as payment of such dividends and
distributions.
1.9 The Trust or its custodian shall make the net asset value per
share for each Fund available to the Company on each Business Day as soon as
reasonably practical after the net asset value per share is calculated and shall
use its best efforts to make such net asset value per share available by 6:00
p.m. Chicago time.
3
<PAGE>
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
2.1 The Company represents and warrants that the Contracts are or
will be registered under the 1933 Act, and that the Contracts will be issued,
sold, and distributed in material compliance with all applicable state and
federal laws, including without limitation the 1933 Act, the 1934 Act, and the
1940 Act. The Company further represents and warrants that it is an insurance
company duly organized and in good standing under applicable law, that it has
legally and validly established the Accounts as segregated asset accounts under
Illinois law, and that it has registered the Accounts as unit investment trusts
in accordance with the provisions of the 1940 Act (unless exempt therefrom) to
serve as segregated investment accounts for the Contracts and that it will
maintain such registrations for so long as any Contracts are outstanding. The
Company shall amend the registration statements under the 1933 Act for the
Contracts and the registration statements under the 1940 Act for the Accounts
from time to time as required in order to effect the continuous offering of the
Contracts or as may otherwise be required by applicable law. The Company shall
register and qualify the Contracts for sale in accordance with the securities
laws of the various states only if and to the extent deemed necessary by the
Company.
2.2 The Company represents that it believes, in good faith, that the
Contracts are currently and at the time of issuance will be treated as life
insurance, endowment or annuity contracts under applicable provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), that it will make every
effort to maintain such treatment and that it will notify the Trust immediately
upon having a reasonable basis for believing that the Contracts have ceased to
be so treated or that they might not be so treated in the future.
2.3 The Trust and SFIM represent and warrant that Trust shares sold
pursuant to this agreement shall be registered under the 1933 Act, duly
authorized for issuance and sold in material compliance with the laws of
Delaware and all applicable federal and state securities laws. The Trust
further represents that it is and shall remain registered under the 1940 Act,
and that it shall amend the Registration Statement for its shares under the 1933
Act and the 1940 Act from time to time as required in order to effect the
continuous offering of its shares. The Trust shall register and qualify the
shares for sale in accordance with the laws of the various states, including
those states designated by SFIM pursuant to its underwriting agreement with the
Trust, only if and to the extent deemed advisable by the Trust.
2.4 The Trust represents that each Fund of the Trust is currently
qualified or will be qualified as a Regulated Investment Company under
Subchapter M of the Code and that every effort will be made to maintain such
qualification (under Subchapter M or any successor or similar provision) and
that the Trust will notify the Company orally (followed by written notice) or by
wire immediately upon having a reasonable basis for believing that any Fund of
the Trust has ceased to so qualify or that any Fund might not so qualify in the
future.
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<PAGE>
2.5 The Trust currently does not intend to make any payments to
finance distribution expenses pursuant to Rule 12b-1 under the 1940 Act or
otherwise, although it may make such payments in the future. However, if the
Trust were authorized to establish a 12b-1 plan, the Trust would undertake to
have the Board, of which a majority of trustees are not interested persons, as
defined in the 1940 Act, of the Trust, formulate and approve any plan under Rule
12b-1 to finance distribution expenses.
2.6 The Trust represents that it is lawfully organized and validly
existing under the laws of the State of Delaware and that it does and will
comply in all material respects with the 1940 Act.
2.7 SFIM represents that it is and shall remain duly registered as an
investment adviser and broker-dealer under all applicable federal and state
securities laws at all times when it is the Trust's investment adviser and
principal underwriter and that it shall perform its obligations for the Trust in
material compliance with any applicable state and federal securities laws and
NASD rules and regulations relating to broker-dealers.
2.8 The Trust, SFIM, and the Company each represents and warrants
that all of its directors, trustees, officers, employees, investment advisers,
and other individuals or entities dealing with the money and/or securities of
the Trust are and shall continue to be at all times covered by a blanket
fidelity bond or similar coverage for the benefit of the Trust in an amount not
less than the minimal coverage as required currently by Section 17(g) and Rule
17g-1 of the 1940 Act or related provisions as may be promulgated from time to
time. The aforesaid bond shall include coverage for larceny and embezzlement
and shall be issued by a reputable bonding company.
ARTICLE 3
PROSPECTUS AND PROXY STATEMENTS; VOTING
3.1 At least annually, the Trust shall, at its expense or at the
expense of SFIM, as appropriate, provide the Company, free of charge, with as
many copies of the Trust's current prospectus as the Company may reasonably
request for distribution to both existing Contract owners and prospective
purchasers. If requested by the Company in lieu thereof, the Trust shall
provide such documentation (including a final "camera ready" copy of the new
prospectus as set in type at the Trust's expense) and other assistance as is
reasonably necessary in order for the parties hereto once each year (or more
frequently if the prospectus for the Trust is supplemented or amended) to have
the prospectus for the Contracts and the Trust's prospectus printed together in
one document; the expenses of such printing to be apportioned between the
Company and the Trust (or SFIM, if appropriate) in proportion to the number of
pages of the Contract and Trust prospectuses, taking account of other relevant
factors affecting the expense of printing, such as columns, charts, etc.; the
Trust or SFIM will
5
<PAGE>
bear the cost of printing the Trust's portion of such document, and the Company
will bear the expenses of printing the Accounts' portion of such document.
3.2 The Trust's prospectus shall state that the Statement of
Additional Information ("SAI") for the Trust is available from the Trust. The
Trust, at its expense or at the expense of SFIM, as appropriate, shall print and
provide the SAI to the Company (or a master of the SAI suitable for duplication
by the Company) for any Contract owner or prospective purchaser who requests the
SAI. The Company shall provide the SAI to any Contract owner or prospective
purchaser who requests it.
3.3 The Trust (or SFIM, as appropriate), at its expense, shall
provide the Company with copies of its proxy material, reports to shareholders
and other communications to shareholders in such quantity as the Company shall
reasonably require for distribution to Contract owners.
3.4 The Company shall: (a) solicit voting instructions from Contract
owners; (b) vote the Trust shares in accordance with instructions received from
Contract owners; and (c) vote Trust shares for which no instructions have been
received in the same proportion as Trust shares of such Fund for which
instructions have been received. The Company reserves the right to vote Trust
shares held in the Accounts in its own right, to the extent permitted by law.
3.5 The process of soliciting Contract owners' voting instructions,
tabulating votes, and other shareholder voting procedures shall be conducted in
accordance with procedures adopted by the Company.
ARTICLE 4
SALES MATERIAL AND INFORMATION
4.1 The Company shall furnish, or shall cause to be furnished, to the
Trust or its designee, each piece of sales literature or other promotional
material in which the Trust is named, at least five (5) Business Days prior to
its use by the Company. No such material shall be used by the Company if the
Trust or its designee object to such use within five (5) Business Days after
receipt of such material.
4.2 The Company shall not give any information or make any
representations or statements on behalf of the Trust or concerning the Trust in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus for the
Trust shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Trust
which are in the public domain or approved by the Trust for distribution to
Contract owners, or in sales literature or other promotional material approved
by the Trust or its designee, except with the permission of the Trust. The
Trust or its designee agrees to respond to any request for approval on a prompt
and timely basis.
6
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4.3 The Trust shall furnish, or shall cause to be furnished, to the
Company or its designee, each piece of sales literature or other promotional
material in which the Company and/or the Accounts is named, at least five (5)
Business Days prior to its use by the Trust. No such material shall be used by
the Trust if the Company or its designee object to such use within five (5)
Business Days after receipt of such material.
4.4 The Trust shall not give any information or make any
representations on behalf of the Company or concerning the Company, the
Accounts, or the Contracts other than information or representations contained
in a registration statement or prospectus for the Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in reports for the Accounts which are in the public domain or
approved by the Company for distribution to Contract owners, or in sales
literature or other promotional material approved by the Company or its
designee, except with the permission of the Company. The Company or its
designee agrees to respond to any request for approval on a prompt and timely
basis.
4.5 The Company and the Trust may each request that the other provide
at least one complete copy of all registration statements, prospectuses, SAIs,
reports, proxy statements, sales literature and other promotional materials,
applications for exemptions, requests for "no-action" letters, and all
amendments to any of the above, that relate to the Contracts, or to the Trust or
its shares, prior to or contemporaneously with the filing of such document with
the SEC or other regulatory authority. The Company or Trust shall also each
promptly inform the other of the results of any examination by the SEC (or other
regulatory authority) that relates to the Contracts, the Trust or its shares,
and the party that was the subject of the examination shall provide the other
party with a copy of any "deficiency letter" or other correspondence or written
report regarding any such examination.
4.6 For purposes of this Article 4, the phrase "sales literature or
other promotional material" means advertisements (defined as material published,
or designed for use in, a newspaper, magazine, or other periodical, radio,
television, telephone or tape recording, videotape display, signs or billboards,
motion pictures, telephone directories (other than routine listings), electronic
or other public media), sales literature (defined as any written or electronic
communication distributed or made generally available to customers or the public
that is not an advertisement as defined above, including, but not limited to,
circulars, research reports, market letters, performance reports or summaries,
form letters, telemarketing scripts, seminar texts, and reprints or excerpts of
any other advertisement, sales literature or published article), and educational
or training materials or communications distributed or made generally available
to some or all agents or employees.
ARTICLE 5
FEES AND EXPENSES
7
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5.1 No party hereto shall pay any fee or other compensation to any
other party hereto pursuant to this agreement, except that if the Trust or any
Fund adopts and implements a plan pursuant to Rule 12b-1 under the 1940 Act to
finance distribution expenses, then, subject to obtaining any regulatory
approvals, the Trust may make payments to the Company, SFIM, or the Company's
principal underwriter for the Contracts if and in amounts agreed to by the Trust
in writing.
5.2 Each party shall reimburse each other party for expenses
initially paid by such other party but allocated to it in accordance with any
allocation of expenses specified in Article 3 hereof.
ARTICLE 6
DIVERSIFICATION AND RELATED LIMITATIONS
6.1 Subject to the Company's obligations under Section 2.2 hereof,
the Trust and SFIM each represent and warrant that the Trust will at all times
invest its assets in such a manner as to ensure that the Contracts will be
treated as annuity, endowment, or life insurance contracts under the Code and
the regulations issued thereunder. Without limiting the scope of the foregoing,
the Trust and SFIM will at all times ensure that the Trust complies with Section
817(h) of the Code and Treas. Reg. Section 1.817-5, as amended from time to
time, and any Treasury interpretations thereof, relating to the diversification
requirements for variable annuity, endowment, or life insurance contracts and
any amendments or other modifications to such Section or Regulations.
6.2 Trust shares will not be sold to any person or entity that would
result in the Contracts not being treated as annuity, endowment, or life
insurance contracts, in accordance with the statutes and regulations referred to
in Section 6.1 hereof.
ARTICLE 7
POTENTIAL MATERIAL CONFLICTS
7.1 The Board shall monitor each Fund of the Trust for the existence
of any material irreconcilable conflict between the interests of the variable
annuity contract owners and the variable life policy owners of the Company
and/or affiliated companies (collectively, "contract owners") investing
indirectly in the Trust. The Trust represents that at all times at least a
majority of the trustees of the Trust shall not be interested persons, as
defined in the 1940 Act (the "disinterested trustees"). The Board shall have
the sole authority to determine if a material irreconcilable conflict exists,
and such determination shall be binding on the Company only if approved in the
form of a resolution by a majority of the Board, or a majority of the
disinterested trustees of the Board. The Board will give prompt notice of any
such determination to the Company.
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7.2 The Company agrees that it will be responsible for reporting any
potential or existing conflicts to the Board. The Company also agrees that, if
a material irreconcilable conflict arises, it will at its own cost remedy such
conflict up to and including: (a) withdrawing the assets allocable to some or
all of the Accounts from the Trust or any Fund and reinvesting such assets in a
different investment medium, including (but not limited to) another Fund of the
Trust, or submitting to a vote of all affected contract owners whether to
withdraw assets from the Trust or any Fund and reinvesting such assets in a
different investment medium and, as appropriate, segregating the assets
attributable to any appropriate group of contract owners that votes in favor of
such segregation, or offering to any of the affected contract owners the option
of segregating the assets attributable to their contracts or policies; and/or
(b) establishing and registering a new management investment company and
segregating the assets underlying the Contracts, unless a majority of Contract
owners materially adversely affected by the conflict have voted to decline the
offer to establish and register a new management investment company.
7.3 A majority of the disinterested trustees of the Board shall
determine whether any proposed action by the Company adequately remedies any
material irreconcilable conflict. In the event that the Board determines that
any proposed action does not adequately remedy any material irreconcilable
conflict, the Company will withdraw each Account designated by the disinterested
trustees from investment in the Trust and terminate this agreement within six
(6) months after the Board informs the Company in writing of the foregoing
determination; PROVIDED, that such withdrawal and termination shall be limited
to the extent required to remedy any such material irreconcilable conflict as
determined by a majority of the disinterested trustees of the Board.
7.4 The Trust agrees that it will not enter into any participation
agreement with a life insurance company affiliated with the Company unless such
agreement includes a section substantially identical to this Article 7.
ARTICLE 8
INDEMNIFICATION
8.1 INDEMNIFICATION BY THE COMPANY.
(a) The Company agrees to indemnify and hold harmless the Trust
and SFIM and each of the Trust's and SFIM's trustees, directors, and officers
and each person, if any, who controls the Trust or SFIM within the meaning of
Section 15 of the 1933 Act, and any agents or employees of the foregoing
(collectively, the "Indemnified Parties" for purposes of this Section 8.1),
against any and all losses, claims, damages,liabilities (including amounts paid
in settlement with the written consent of the Company) or litigation (including
legal and other expenses), to which the Indemnified Parties may become subject
under any statute, regulation, at common law or otherwise, insofar as such
losses, claims, damages,
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liabilities or expenses (or actions in respect thereof) or settlements are
related to the sale or acquisition of the Trust's shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in the registration
statement or prospectus for the Contracts or contained in the Contracts or sales
literature for the Contracts (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, PROVIDED, that this
agreement to indemnify shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission was made in reliance
upon and in conformity with information furnished the Company by or on behalf of
the Trust or SFIM for use in the registration statement or prospectus for the
Contracts or in the Contracts or sales literature (or any amendment or
supplement) or otherwise for use in connection with the sale of the Contracts or
Trust shares;
(ii) arise out of or as a result of statements or
representations (other than statements or representations contained in the
registration statement, prospectus or sales literature of the Trust not supplied
by the Company, or persons under its control) or wrongful conduct of the Company
or persons under its control, with respect to the sale or distribution of the
Contracts or Trust shares;
(iii) arise out of any untrue statement or alleged
untrue statement of a material fact contained in a registration statement,
prospectus, or sales literature of the Trust or any amendment thereof or
supplement thereto or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading if such statement or omission was made in reliance upon
information furnished to the Trust or SFIM by or on behalf of the Company; or
(iv) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this agreement or arise
out of or result from any other material breach of this agreement by the
Company;
except to the extent provided in Sections 8.1(b) and 8.1(c) hereof.
(b) The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Company in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Company of any
such claim shall not relieve the Company from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision, except to the extent that failure to
notify results in failure of actual notice to the
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Company and the Company is damaged solely as a result of failure to give notice.
In case any such action is brought against the Indemnified Parties, the Company
shall be entitled to participate, at its own expense, in the defense of such
action. The Company also shall be entitled to assume the defense thereof, with
counsel satisfactory to the party named in the action. After notice from the
Company to such party of the Company's election to assume the defense thereof,
the Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and the Company will not be liable to such party under this
agreement for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable costs
of investigation, unless: (i) the Company and the Indemnified Party shall have
mutually agreed on the retention of such counsel; or (ii) the named parties to
any such proceeding (including any impleaded parties) include both the Company
and the Indemnified Party and representation of both parties by the same counsel
would be inappropriate due to actual or potential differing interests between
them. The Company shall not be liable for any settlement of any proceeding
effected without its written consent but if settled with such consent or if
there be a final judgment for the plaintiff, the Company agrees to indemnify the
Indemnified Party from all and against any loss or liability by reason of such
settlement or judgment.
(c) The Indemnified Parties will promptly notify the Company of
the commencement of any litigation or proceedings against them in connection
with the issuance or sale of the Trust shares or the Contracts or the operation
of the Trust and the Indemnified Parties will provide the Company with all
relevant information and documents requested by the Company. For purposes of
this Section 8.1(c), the "commencement" of proceedings shall include any
informal or formal communications from the SEC or its staff (or the receipt of
information from any other persons or entities) indicating that enforcement
action by said Commission or staff may be contemplated or forthcoming; this
includes any information to the effect that any matter(s) has been referred to
the SEC's Division of Enforcement, or that any matter(s) is being discussed with
that Division.
8.2 INDEMNIFICATION BY THE TRUST AND SFIM.
(a) The Trust and SFIM, in each case solely to the extent
relating to such party's responsibilities hereunder, agree to indemnify and hold
harmless the Company and each of its directors and officers and each person, if
any, who controls the Company within the meaning of Section 15 of the 1933 Act,
and any agents or employees of the foregoing (collectively, the "Indemnified
Parties" for purposes of this Section 8.2), against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of the Trust and SFIM) or litigation (including legal and other
expenses) to which the Indemnified Parties may become subject under any statute,
at common law or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements are related to the
sale or acquisition of the Trust's shares or the Contracts and:
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(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the registration
statement or prospectus or sales literature of the Trust (or any amendment or
supplement to any of the foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
PROVIDED, that this agreement to indemnify shall not apply as to any Indemnified
Party if such statement or omission or such alleged statement or omission was
made in reliance upon and in conformity with information furnished to the Trust
by or on behalf of the Company for use in the registration statement or
prospectus for the Trust or in sales literature for the Trust (or any amendment
or supplement) or otherwise for use in connection with the sale of the Contracts
or Trust shares;
(ii) arise out of or as a result of statements or
representations (other than statements or representations contained in the
registration statement, prospectus or sales literature for the Contracts not
supplied by the Trust, or persons under its control) or wrongful conduct of the
Trust or persons under its control, with respect to the sale or distribution of
the Contracts or Trust shares;
(iii) arise out of any untrue statement or alleged
untrue statement of a material fact contained in a registration statement,
prospectus, or sales literature covering the Contracts, or any amendment thereof
or supplement thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statement
or statements therein not misleading, if such statement or omission was made in
reliance upon information furnished to the Company by or on behalf of the Trust;
or
(iv) arise out of or result from any material breach of any
representation and/or warranty made by the Trust in this agreement or arise out
of or result from any other material breach of this agreement by the Trust
(including a failure, whether unintentional or in good faith or otherwise, to
comply with the requirements specified in Article 6 of this agreement);
except to the extent provided in Sections 8.2(b) and 8.2(c) hereof.
(b) Neither the Trust nor SFIM shall be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Trust or SFIM in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Trust or SFIM
of any such claim shall not relieve the Trust or SFIM from any liability which
it may have to the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision, except to the
extent that failure to notify results in the failure of actual notice to the
Trust or SFIM and the Trust or SFIM is damaged solely as a result of failure to
give such notice. In case any such action is brought against the Indemnified
12
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Parties, the Trust and SFIM will be entitled to participate, at their own
expense, in the defense thereof. The Trust and SFIM also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Trust or SFIM to such party of its election to
assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and neither the Trust nor
SFIM shall be liable to such party under this agreement for any legal or other
expenses subsequently incurred by such party independently in connection with
the defense thereof other than reasonable costs of investigation, unless (i) the
Trust, SFIM and the Indemnified Party shall have mutually agreed to the
retention of such counsel or (ii) the named parties to any such proceeding
(including any impleaded parties) include the Trust or SFIM and the Indemnified
Party and representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them.
Neither the Trust nor SFIM shall be liable for any settlement of any proceeding
effected without their written consent but if settled with such consent or if
there be a final judgment for the plaintiff, the Trust and SFIM agree to
indemnify the Indemnified Party from and against any loss or liability by reason
of such settlement or judgment.
(c) The Indemnified Parties will promptly notify both the Trust
and SFIM of the commencement of any litigation or proceedings against them in
connection with the issuance or sale of the Trust shares or the Contracts or the
operation of the Trust and the Indemnified Parties will provide the Trust or
SFIM with all relevant information and documents requested by the Trust or SFIM,
respectively. For purposes of this Section 8.1(c), the "commencement" of
proceedings shall include any informal or formal communications from the SEC or
its staff (or the receipt of information from any other persons or entities)
indicating that enforcement action by said Commission or staff may be
contemplated or forthcoming; this includes any information to the effect that
any matter(s) has been referred to the SEC's Division of Enforcement, or that
any matter(s) is being discussed with that Division.
8.3 A successor by law of the parties to this agreement shall be
entitled to the benefits of the indemnification contained in this Article 8.
The indemnification provisions contained in this Article 8 shall survive any
termination of this agreement.
ARTICLE 9
LIMITATIONS OF LIABILITY
9.1 LIMITATION OF LIABILITY OF COMPANY. The Company shall give the
Trust and SFIM the benefit of the Company's best judgment and efforts in
fulfilling its obligations under this agreement; PROVIDED, that the Company
shall not be liable for any error of judgment or import of law, or for any loss
suffered by the Trust or SFIM in connection with the matters to which this
agreement relates, except loss resulting from: (i) willful misfeasance, bad
faith or gross negligence on the part of the Company in the performance of its
obligations and duties
13
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under this agreement; (ii) its reckless disregard of its obligations and duties
under this agreement; or (iii) a breach of Section 2.2 of this agreement.
9.2 LIMITATION OF LIABILITY OF SFIM. SFIM shall give the Trust and
the Company the benefit of SFIM's best judgment and efforts in fulfilling its
obligations under this agreement; PROVIDED, that SFIM shall not be liable for
any error of judgment or import of law, or for any loss suffered by the Trust or
the Company in connection with the matters to which this agreement relates,
except loss resulting from: (i) willful misfeasance, bad faith or gross
negligence on the part of SFIM in the performance of its obligations and duties
under this agreement; (ii) its reckless disregard of its obligations and duties
under this agreement; or (iii) a breach of Sections 2.4 or 6.1 of this
agreement.
9.3 LIMITATION OF LIABILITY OF TRUST. The Company and SFIM each
acknowledge that it has received notice of and accepts the limitations on the
Trust's liability as set forth in the Trust's Declaration of Trust, as amended
from time to time. In accordance therewith, the Company and SFIM agree that the
Trust's obligations hereunder shall be limited to the assets of the Funds, and
with respect to each Fund shall be limited to the assets of such Fund, and no
party shall seek satisfaction of any such obligation from any shareholder of the
Trust, nor from any trustee, officer, employee or agent of the Trust.
ARTICLE 10
DURATION AND TERMINATION OF THIS AGREEMENT
10.1 EFFECTIVE DATE AND TERM. This agreement shall not become
effective unless and until it is approved by the Trust's Board. This agreement
shall come into full force and effect on the date which it is so approved,
provided that it shall not became effective as to any subsequently created Fund
until it has been approved by the Board specifically for such Fund.
10.2 TERMINATION.
(a) This agreement shall terminate with respect to one, some, or
all the Accounts, or one, some, or all Funds:
(i) at the option of any party upon six months' advance
written notice to the other party;
(ii) at the option of the Company to the extent that shares
of the Funds are not reasonably available to meet the requirements of the
Contracts or are not "appropriate funding vehicles" for the Contracts, as
determined by the Company reasonably and in good faith; PROVIDED, that prompt
notice of the election to terminate for such cause and an explanation of such
cause shall be furnished by the Company;
14
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(iii) at the option of the Trust upon institution of
formal proceedings against the Company by the SEC or any insurance department or
any other regulatory body regarding the Company's duties under this agreement or
related to the sale of the Contracts, the operation of the Accounts, or the
purchase of the Trust shares;
(iv) at the option of the Company upon institution of formal
proceedings against the Trust or SFIM by the NASD, the SEC, or any state
securities or insurance department or any other regulatory body;
(v) at the option of the Company or the Trust upon receipt
of any necessary regulatory approvals and/or the vote of the Contract owners
having an interest in the Accounts (or any subaccount) to substitute the shares
of another investment company for the corresponding Fund shares of the Trust in
accordance with the terms of the Contracts for which those Fund shares had been
selected to serve as the underlying investment media; PROVIDED, that the Company
will give 30 days' prior written notice to the Trust of the date of any proposed
vote or other action taken to replace the Trust's shares; or
(vi) at the option of the Company or the Trust, upon the
other party's material breach of any provision of this agreement.
(b) Without limiting the generality of Section 10.1(a)(ii),
shares of a Fund would not be "appropriate funding vehicles" if, for example,
such shares did not meet the diversification or other requirements referred to
in Article 6 hereof, the Fund did not qualify under Subchapter M of the Code, as
referred to in Section 2.4 hereof, the investments or investment policies,
objectives, and/or limitations of the Fund would impose unanticipated risks on
the Company, or if the Company would be permitted to disregard policy owner
voting instructions under the 1940 Act or the rules promulgated thereunder.
10.3 Any notice pursuant to Section 10.1 shall specify the Fund or
Funds, Contracts and, if applicable, the Accounts as to which the agreement is
to be terminated.
10.4 It is understood and agreed that the right of any party hereto to
terminate this agreement pursuant to Section 10.1(a) may be exercised for cause
or for no cause.
10.5 Except as necessary to implement Contract owner initiated
transactions, or as required by state insurance laws or regulations, the Company
shall not redeem Trust shares attributable to the Contracts (as opposed to Trust
shares attributable to the Company's assets held in the Accounts), and the
Company shall not prevent Contract owners from allocating payments to a Fund
that was otherwise available under the Contracts, until thirty (30) days after
the Company shall have notified the Trust of its intention to do so.
10.6 Notwithstanding any termination of this agreement, the Trust
shall, at the option of the Company, continue to make available additional
shares of the Funds pursuant to the terms and conditions of this agreement for
all Contracts in effect on the effective date of
15
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termination of this agreement (the "Existing Contracts"). Specifically, without
limitation, the owners of the Existing Contracts shall be permitted to transfer
or reallocate investments under the Contracts, redeem investments in the Trust
and/or invest in the Trust upon the making of additional purchase payments under
the Existing Contracts.
ARTICLE 11
NOTICES
11.1 Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Company:
State Farm Life Insurance Company
One State Farm Plaza
Bloomington, Illinois 61710-0001
Attn:
---------------------
If to the Trust:
State Farm Variable Product Trust
One State Farm Plaza
Bloomington, Illinois 61710-0001
Attn:
----------------------
If to SFIM:
State Farm Investment Management Corp.
One State Farm Plaza
Bloomington, Illinois 61710-0001
Attn:
---------------------
ARTICLE 12
MISCELLANEOUS PROVISIONS
12.1 APPLICABLE LAW.
(a) This agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of Delaware without regard to
conflicts of law principles or precedents.
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(b) This agreement shall be subject to the provisions of the
1933, 1934 and 1940 Acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the SEC
may grant and the terms hereof shall be interpreted and construed in accordance
therewith.
12.2 SEVERABILITY. If any provision of this agreement shall be held
or made invalid by a court decision, statute, rule or otherwise, the remainder
of this agreement shall not be affected thereby.
12.3 CAPTIONS. The captions in this agreement are included for
convenience of reference only and in no way define or delineate any of the
provisions hereof or otherwise affect their construction or effect.
12.4 COUNTERPARTS. This agreement may be executed simultaneously in
multiple counterparts, each of which taken together shall constitute one and the
same instrument.
12.5 SCHEDULES. The Schedules attached hereto, as modified from time
to time, are incorporated herein by reference and are part of this agreement.
12.6 COOPERATION WITH AUTHORITIES. Each party hereto shall cooperate
with the other party and all appropriate governmental authorities (including
without limitation the SEC, the NASD, and state insurance regulators) and shall
permit such authorities reasonable access to its books and records in connection
with any investigation or inquiry relating to this agreement or the transactions
contemplated hereby.
12.7 CUMULATIVE RIGHTS. The rights, remedies and obligations
contained in this agreement are cumulative and are in addition to any and all
rights, remedies and obligations, at law or in equity, which the parties hereto
are entitled to under state and federal laws.
12.8 AMENDMENTS. This agreement may be amended at any time upon the
consent of all of the parties.
IN WITNESS WHEREOF, the parties hereto have caused this agreement to
be executed in their names and on their behalf by their duly authorized officers
all on the day and year first above written.
STATE FARM LIFE INSURANCE COMPANY
By: /s/ Kurt G. Moser
Title: /s/ Senior Vice President - Investments
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STATE FARM VARIABLE PRODUCT TRUST
By: /s/ Edward B. Rust, Jr.
Title: President
STATE FARM INVESTMENT MANAGEMENT CORP.
By: /s/ Roger Joslin
Title: Vice President and Treasurer
18
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SCHEDULE A
ACCOUNTS, CONTRACTS AND FUNDS SUBJECT
TO THE PARTICIPATION AGREEMENT
STATE FARM LIFE INSURANCE COMPANY VARIABLE ANNUITY SEPARATE
ACCOUNT:
CONTRACT: State Farm Variable Deferred Annuity Policy (After
effectiveness of registration statement for the Contract.)
FUNDS: Money Market Fund (After effectiveness of registration
statement for the Fund.)
Large Cap Equity Index Fund (After effectiveness of
registration statement for the Fund.)
Small Cap Equity Index Fund (After effectiveness of
registration statement for the Fund.)
International Equity Index Fund (After effectiveness of
registration statement for the Fund.)
Bond Fund (After effectiveness of registration statement for
the Fund.)
Stock and Bond Balanced Fund (After effectiveness of
registration statement for the Fund.)
STATE FARM LIFE INSURANCE COMPANY VARIABLE LIFE SEPARATE ACCOUNT:
CONTRACT: State Farm Variable Universal Life Insurance Policy (After
effectiveness of registration statement for the Contract.)
FUNDS: Money Market Fund (After effectiveness of registration
statement for the Fund.)
Large Cap Equity Index Fund (After effectiveness of
registration statement for the Fund.)
Small Cap Equity Index Fund (After effectiveness of
registration statement for the Fund.)
International Equity Index Fund (After effectiveness of
registration statement for the Fund.)
Bond Fund (After effectiveness of registration
statement for the Fund.)
Stock and Bond Balanced Fund (After effectiveness of
registration statement for the Fund.)
<PAGE>
PARTICIPATION AGREEMENT
THIS AGREEMENT is made and entered into this 12th day of December,
1997 by and between STATE FARM LIFE AND ACCIDENT ASSURANCE COMPANY, an Illinois
corporation (the "Company"), on its own behalf and on behalf of the segregated
asset accounts of the Company set forth on Schedule A attached hereto (each, an
"Account"; collectively, the "Accounts"), STATE FARM VARIABLE PRODUCT TRUST, a
Delaware business trust (the "Trust"), and STATE FARM INVESTMENT MANAGEMENT
CORP., a Delaware corporation ("SFIM").
WHEREAS, the Trust is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
WHEREAS, the Trust issues shares of beneficial interest (the "Shares")
registered under the Securities Act of 1933, as amended (the "1933 Act")
pursuant to a registration statement initially filed with the Securities and
Exchange Commission on February 27, 1997, as amended from time to time (the
"Registration Statement");
WHEREAS, the Trust has established six separate series of Shares, each
corresponding to a separate investment portfolio having its own investment
objective, and may establish additional series of Shares in the future (such
existing and future series are collectively referred to herein as the "Funds");
WHEREAS, the Trust is available to act as the investment vehicle for
the Accounts, and other separate accounts established in connection with
variable life insurance policies and variable annuity contracts issued by the
Company and its affiliates (the "Contracts");
WHEREAS, the Accounts are duly organized, validly existing segregated
asset accounts, established by resolutions of the Board of Directors of the
Company, to set aside and invest assets attributable to the Contracts that are
allocated to the Accounts (the Contracts and the Accounts covered by this
agreement, and the corresponding Funds covered by this agreement in which the
Accounts invest, are specified in Schedule A attached hereto as may be modified
from time to time);
WHEREAS, the Company has registered the Accounts as unit investment
trusts under the 1940 Act;
WHEREAS, SFIM, the Trust's investment adviser and principal
underwriter, is an investment adviser registered under the Investment Advisers
Act of 1940, as amended (the "Advisers Act") and all applicable state securities
laws, a broker-dealer registered under the Securities Exchange Act of 1934, as
amended (the "1934 Act"), and a member of the National Association of Securities
Dealers, Inc. (the "NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Trust, either directly or in conjunction with SFIM as its
principal underwriter,
<PAGE>
intends to make a continuous offering of its shares at net asset value, and the
Company has and intends to purchase the shares of the Funds on behalf of the
Accounts to fund the Contracts;
NOW, THEREFORE, in consideration of their mutual promises, the
Company, the Trust, and SFIM agree as follows:
ARTICLE 1
SALE OF TRUST SHARES
1.1 The Trust and SFIM agree to sell to the Company those shares of
the Trust which the Accounts order, executing such orders on a daily basis at
the net asset value next computed after receipt by the Trust, SFIM, or their
designee for the order of the shares of the Trust. For purposes of this Section
1.1, the Company shall be the Trust's and SFIM's designee for receipt of such
orders from Contract owners and receipt by the Company shall constitute receipt
by the Trust and SFIM; PROVIDED, that either the Trust or SFIM receives notice
of such order by 7:30 a.m. Chicago time on the next following Business Day.
"Business Day" shall mean any day on which the New York Stock Exchange is open
for trading and on which the Trust calculates its net asset value pursuant to
the rules of the Securities and Exchange Commission (the "SEC").
1.2 The Trust and SFIM agree to make Trust shares available
indefinitely for purchase at the applicable net asset value per share by the
Company and the Accounts on those days on which the Trust calculates its net
asset value pursuant to rules of the SEC. The Trust shall use reasonable
efforts to calculate its net asset values on the days and at the times described
in the Trust's prospectus (as of the date hereof, as of the close of the New
York Stock Exchange on each day on which the New York Stock Exchange is open for
trading, but not on the Friday following Thanksgiving nor on December 26, 1997).
Notwithstanding the foregoing, the Board of Trustees of the Trust (the "Board")
may refuse to sell shares of any Fund to the Company and the Accounts, or
suspend or terminate the offering of shares of any Fund if such action is
required by law or by regulatory authorities having jurisdiction or is, in the
sole discretion of the Board acting in good faith and in light of its fiduciary
duties under federal and any applicable state laws, necessary in the best
interests of the shareholders of such Fund.
1.3 The Trust and SFIM agree that shares of the Trust will be sold to
the Company and the Accounts. In addition, shares of the Trust may be sold to
other insurance companies affiliated with the Company or their separate
accounts. Shares will not be sold to natural persons. Nothing herein shall
prohibit the Company from establishing separate accounts or sub-accounts other
than the Accounts which purchase shares from investment companies other than the
Trust.
1.4 The Company shall pay for the Trust shares in federal funds
transmitted by wire on the next Business Day after an order to purchase shares
is made in accordance with the provisions of Section 1.1 hereof. For purpose of
Section 2.8, upon receipt by the Trust of the federal funds so wired, such funds
shall cease to be the responsibility of the Company and
<PAGE>
shall become the responsibility of the Trust. The amount of redemption proceeds
payable pursuant to Section 1.6 may be credited toward any purchase payments due
pursuant to this Section 1.4.
1.5 The Trust agrees to redeem for cash, on the Company's request,
any full or fractional shares of the Trust held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt by
the Trust or its designee of the request for redemption. For purposes of this
Section 1.5, the Company shall be the designee of the Trust for receipt of
requests for redemption from Contract owners and receipt by such designee shall
constitute receipt by the Trust; PROVIDED, that the Trust receives notice of
such request for redemption by 7:30 a.m. Chicago time on the next following
Business Day.
1.6 Payment of redemption proceeds will be in federal funds
transmitted by wire on the same Business Day the Trust receives notice of the
redemption order from the Company. The Trust reserves the right to delay
payment of redemption proceeds, but in no event may such payment be delayed
longer than the period permitted by the 1940 Act. If notification of redemption
is received after 7:30 a.m. Chicago time, payment for redeemed shares will be
made on the next following Business Day. For purpose of Section 2.8, upon
receipt by the Company of the federal funds so wired, such funds shall cease to
be the responsibility of the Trust and shall become the responsibility of the
Company; the Trust will not bear any responsibility whatsoever for the proper
disbursement or crediting of redemption proceeds. Purchase payments payable
pursuant to Section 1.4 may be credited toward any amounts of redemption
proceeds due pursuant to this Section 1.6.
1.7 Unless otherwise determined by the Board, issuance and transfer
of the Trust's shares will be by book entry only and share certificates will not
be issued to the Company or the Accounts. Shares ordered from the Trust will be
recorded in an appropriate title for the Accounts or the appropriate subaccounts
of the Accounts.
1.8 The Trust shall furnish same day notice (by wire or telephone
followed by written confirmation) to the Company of any income, dividends or
capital gain distributions payable on the Trust's shares. The Company hereby
elects to receive all such dividends and distributions as are payable on the
Fund shares in additional shares of that Fund. The Trust shall notify the
Company of the number of shares so issued as payment of such dividends and
distributions.
1.9 The Trust or its custodian shall make the net asset value per
share for each Fund available to the Company on each Business Day as soon as
reasonably practical after the net asset value per share is calculated and shall
use its best efforts to make such net asset value per share available by 6:00
p.m. Chicago time.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
<PAGE>
2.1 The Company represents and warrants that the Contracts are or
will be registered under the 1933 Act, and that the Contracts will be issued,
sold, and distributed in material compliance with all applicable state and
federal laws, including without limitation the 1933 Act, the 1934 Act, and the
1940 Act. The Company further represents and warrants that it is an insurance
company duly organized and in good standing under applicable law, that it has
legally and validly established the Accounts as segregated asset accounts under
Illinois law, and that it has registered the Accounts as unit investment trusts
in accordance with the provisions of the 1940 Act (unless exempt therefrom) to
serve as segregated investment accounts for the Contracts and that it will
maintain such registrations for so long as any Contracts are outstanding. The
Company shall amend the registration statements under the 1933 Act for the
Contracts and the registration statements under the 1940 Act for the Accounts
from time to time as required in order to effect the continuous offering of the
Contracts or as may otherwise be required by applicable law. The Company shall
register and qualify the Contracts for sale in accordance with the securities
laws of the various states only if and to the extent deemed necessary by the
Company.
2.2 The Company represents that it believes, in good faith, that the
Contracts are currently and at the time of issuance will be treated as life
insurance, endowment or annuity contracts under applicable provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), that it will make every
effort to maintain such treatment and that it will notify the Trust immediately
upon having a reasonable basis for believing that the Contracts have ceased to
be so treated or that they might not be so treated in the future.
2.3 The Trust and SFIM represent and warrant that Trust shares sold
pursuant to this agreement shall be registered under the 1933 Act, duly
authorized for issuance and sold in material compliance with the laws of
Delaware and all applicable federal and state securities laws. The Trust
further represents that it is and shall remain registered under the 1940 Act,
and that it shall amend the Registration Statement for its shares under the 1933
Act and the 1940 Act from time to time as required in order to effect the
continuous offering of its shares. The Trust shall register and qualify the
shares for sale in accordance with the laws of the various states, including
those states designated by SFIM pursuant to its underwriting agreement with the
Trust, only if and to the extent deemed advisable by the Trust.
2.4 The Trust represents that each Fund of the Trust is currently
qualified or will be qualified as a Regulated Investment Company under
Subchapter M of the Code and that every effort will be made to maintain such
qualification (under Subchapter M or any successor or similar provision) and
that the Trust will notify the Company orally (followed by written notice) or by
wire immediately upon having a reasonable basis for believing that any Fund of
the Trust has ceased to so qualify or that any Fund might not so qualify in the
future.
2.5 The Trust currently does not intend to make any payments to
finance distribution expenses pursuant to Rule 12b-1 under the 1940 Act or
otherwise, although it may make such payments in the future. However, if the
Trust were authorized to establish a 12b-1 plan, the Trust would undertake to
have the Board, of which a majority of trustees are not
<PAGE>
interested persons, as defined in the 1940 Act, of the Trust, formulate and
approve any plan under Rule 12b-1 to finance distribution expenses.
2.6 The Trust represents that it is lawfully organized and validly
existing under the laws of the State of Delaware and that it does and will
comply in all material respects with the 1940 Act.
2.7 SFIM represents that it is and shall remain duly registered as an
investment adviser and broker-dealer under all applicable federal and state
securities laws at all times when it is the Trust's investment adviser and
principal underwriter and that it shall perform its obligations for the Trust in
material compliance with any applicable state and federal securities laws and
NASD rules and regulations relating to broker-dealers.
2.8 The Trust, SFIM, and the Company each represents and warrants
that all of its directors, trustees, officers, employees, investment advisers,
and other individuals or entities dealing with the money and/or securities of
the Trust are and shall continue to be at all times covered by a blanket
fidelity bond or similar coverage for the benefit of the Trust in an amount not
less than the minimal coverage as required currently by Section 17(g) and Rule
17g-1 of the 1940 Act or related provisions as may be promulgated from time to
time. The aforesaid bond shall include coverage for larceny and embezzlement
and shall be issued by a reputable bonding company.
ARTICLE 3
PROSPECTUS AND PROXY STATEMENTS; VOTING
3.1 At least annually, the Trust shall, at its expense or at the
expense of SFIM, as appropriate, provide the Company, free of charge, with as
many copies of the Trust's current prospectus as the Company may reasonably
request for distribution to both existing Contract owners and prospective
purchasers. If requested by the Company in lieu thereof, the Trust shall
provide such documentation (including a final "camera ready" copy of the new
prospectus as set in type at the Trust's expense) and other assistance as is
reasonably necessary in order for the parties hereto once each year (or more
frequently if the prospectus for the Trust is supplemented or amended) to have
the prospectus for the Contracts and the Trust's prospectus printed together in
one document; the expenses of such printing to be apportioned between the
Company and the Trust (or SFIM, if appropriate) in proportion to the number of
pages of the Contract and Trust prospectuses, taking account of other relevant
factors affecting the expense of printing, such as columns, charts, etc.; the
Trust or SFIM will bear the cost of printing the Trust's portion of such
document, and the Company will bear the expenses of printing the Accounts'
portion of such document.
3.2 The Trust's prospectus shall state that the Statement of
Additional Information ("SAI") for the Trust is available from the Trust. The
Trust, at its expense or at the expense of SFIM, as appropriate, shall print and
provide the SAI to the Company (or a master of the SAI suitable for duplication
by the Company) for any Contract owner or pros-
<PAGE>
pective purchaser who requests the SAI. The Company shall provide the SAI to
any Contract owner or prospective purchaser who requests it.
3.3 The Trust (or SFIM, as appropriate), at its expense, shall
provide the Company with copies of its proxy material, reports to shareholders
and other communications to shareholders in such quantity as the Company shall
reasonably require for distribution to Contract owners.
3.4 The Company shall: (a) solicit voting instructions from Contract
owners; (b) vote the Trust shares in accordance with instructions received from
Contract owners; and (c) vote Trust shares for which no instructions have been
received in the same proportion as Trust shares of such Fund for which
instructions have been received. The Company reserves the right to vote Trust
shares held in the Accounts in its own right, to the extent permitted by law.
3.5 The process of soliciting Contract owners' voting instructions,
tabulating votes, and other shareholder voting procedures shall be conducted in
accordance with procedures adopted by the Company.
ARTICLE 4
SALES MATERIAL AND INFORMATION
4.1 The Company shall furnish, or shall cause to be furnished, to the
Trust or its designee, each piece of sales literature or other promotional
material in which the Trust is named, at least five (5) Business Days prior to
its use by the Company. No such material shall be used by the Company if the
Trust or its designee object to such use within five (5) Business Days after
receipt of such material.
4.2 The Company shall not give any information or make any
representations or statements on behalf of the Trust or concerning the Trust in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus for the
Trust shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Trust
which are in the public domain or approved by the Trust for distribution to
Contract owners, or in sales literature or other promotional material approved
by the Trust or its designee, except with the permission of the Trust. The
Trust or its designee agrees to respond to any request for approval on a prompt
and timely basis.
4.3 The Trust shall furnish, or shall cause to be furnished, to the
Company or its designee, each piece of sales literature or other promotional
material in which the Company and/or the Accounts is named, at least five (5)
Business Days prior to its use by the Trust. No such material shall be used by
the Trust if the Company or its designee object to such use within five (5)
Business Days after receipt of such material.
<PAGE>
4.4 The Trust shall not give any information or make any
representations on behalf of the Company or concerning the Company, the
Accounts, or the Contracts other than information or representations contained
in a registration statement or prospectus for the Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in reports for the Accounts which are in the public domain or
approved by the Company for distribution to Contract owners, or in sales
literature or other promotional material approved by the Company or its
designee, except with the permission of the Company. The Company or its
designee agrees to respond to any request for approval on a prompt and timely
basis.
4.5 The Company and the Trust may each request that the other provide
at least one complete copy of all registration statements, prospectuses, SAIs,
reports, proxy statements, sales literature and other promotional materials,
applications for exemptions, requests for "no-action" letters, and all
amendments to any of the above, that relate to the Contracts, or to the Trust or
its shares, prior to or contemporaneously with the filing of such document with
the SEC or other regulatory authority. The Company or Trust shall also each
promptly inform the other of the results of any examination by the SEC (or other
regulatory authority) that relates to the Contracts, the Trust or its shares,
and the party that was the subject of the examination shall provide the other
party with a copy of any "deficiency letter" or other correspondence or written
report regarding any such examination.
4.6 For purposes of this Article 4, the phrase "sales literature or
other promotional material" means advertisements (defined as material published,
or designed for use in, a newspaper, magazine, or other periodical, radio,
television, telephone or tape recording, videotape display, signs or billboards,
motion pictures, telephone directories (other than routine listings), electronic
or other public media), sales literature (defined as any written or electronic
communication distributed or made generally available to customers or the public
that is not an advertisement as defined above, including, but not limited to,
circulars, research reports, market letters, performance reports or summaries,
form letters, telemarketing scripts, seminar texts, and reprints or excerpts of
any other advertisement, sales literature or published article), and educational
or training materials or communications distributed or made generally available
to some or all agents or employees.
ARTICLE 5
FEES AND EXPENSES
5.1 No party hereto shall pay any fee or other compensation to any
other party hereto pursuant to this agreement, except that if the Trust or any
Fund adopts and implements a plan pursuant to Rule 12b-1 under the 1940 Act to
finance distribution expenses, then, subject to obtaining any regulatory
approvals, the Trust may make payments to the Company, SFIM, or the Company's
principal underwriter for the Contracts if and in amounts agreed to by the Trust
in writing.
<PAGE>
5.2 Each party shall reimburse each other party for expenses
initially paid by such other party but allocated to it in accordance with any
allocation of expenses specified in Article 3 hereof.
ARTICLE 6
DIVERSIFICATION AND RELATED LIMITATIONS
6.1 Subject to the Company's obligations under Section 2.2 hereof,
the Trust and SFIM each represent and warrant that the Trust will at all times
invest its assets in such a manner as to ensure that the Contracts will be
treated as annuity, endowment, or life insurance contracts under the Code and
the regulations issued thereunder. Without limiting the scope of the foregoing,
the Trust and SFIM will at all times ensure that the Trust complies with Section
817(h) of the Code and Treas. Reg. Section 1.817-5, as amended from time to
time, and any Treasury interpretations thereof, relating to the diversification
requirements for variable annuity, endowment, or life insurance contracts and
any amendments or other modifications to such Section or Regulations.
6.2 Trust shares will not be sold to any person or entity that would
result in the Contracts not being treated as annuity, endowment, or life
insurance contracts, in accordance with the statutes and regulations referred to
in Section 6.1 hereof.
ARTICLE 7
POTENTIAL MATERIAL CONFLICTS
7.1 The Board shall monitor each Fund of the Trust for the existence
of any material irreconcilable conflict between the interests of the variable
annuity contract owners and the variable life policy owners of the Company
and/or affiliated companies (collectively, "contract owners") investing
indirectly in the Trust. The Trust represents that at all times at least a
majority of the trustees of the Trust shall not be interested persons, as
defined in the 1940 Act (the "disinterested trustees"). The Board shall have
the sole authority to determine if a material irreconcilable conflict exists,
and such determination shall be binding on the Company only if approved in the
form of a resolution by a majority of the Board, or a majority of the
disinterested trustees of the Board. The Board will give prompt notice of any
such determination to the Company.
7.2 The Company agrees that it will be responsible for reporting any
potential or existing conflicts to the Board. The Company also agrees that, if
a material irreconcilable conflict arises, it will at its own cost remedy such
conflict up to and including: (a) withdrawing the assets allocable to some or
all of the Accounts from the Trust or any Fund and reinvesting such assets in a
different investment medium, including (but not limited to) another Fund of the
Trust, or submitting to a vote of all affected contract owners whether to
withdraw assets from the Trust or any Fund and reinvesting such assets in a
different investment medium and, as appropriate, segregating the assets
attributable to any appropriate
<PAGE>
group of contract owners that votes in favor of such segregation, or offering to
any of the affected contract owners the option of segregating the assets
attributable to their contracts or policies; and/or (b) establishing and
registering a new management investment company and segregating the assets
underlying the Contracts, unless a majority of Contract owners materially
adversely affected by the conflict have voted to decline the offer to establish
and register a new management investment company.
7.3 A majority of the disinterested trustees of the Board shall
determine whether any proposed action by the Company adequately remedies any
material irreconcilable conflict. In the event that the Board determines that
any proposed action does not adequately remedy any material irreconcilable
conflict, the Company will withdraw each Account designated by the disinterested
trustees from investment in the Trust and terminate this agreement within six
(6) months after the Board informs the Company in writing of the foregoing
determination; PROVIDED, that such withdrawal and termination shall be limited
to the extent required to remedy any such material irreconcilable conflict as
determined by a majority of the disinterested trustees of the Board.
7.4 The Trust agrees that it will not enter into any participation
agreement with a life insurance company affiliated with the Company unless such
agreement includes a section substantially identical to this Article 7.
ARTICLE 8
INDEMNIFICATION
8.1 INDEMNIFICATION BY THE COMPANY.
(a) The Company agrees to indemnify and hold harmless the Trust
and SFIM and each of the Trust's and SFIM's trustees, directors, and officers
and each person, if any, who controls the Trust or SFIM within the meaning of
Section 15 of the 1933 Act, and any agents or employees of the foregoing
(collectively, the "Indemnified Parties" for purposes of this Section 8.1),
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Company) or litigation (including
legal and other expenses), to which the Indemnified Parties may become subject
under any statute, regulation, at common law or otherwise, insofar as such
losses, claims, damages, liabilities or expenses (or actions in respect thereof)
or settlements are related to the sale or acquisition of the Trust's shares or
the Contracts and:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in the registration
statement or prospectus for the Contracts or contained in the Contracts or sales
literature for the Contracts (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, PROVIDED, that this
agreement to indemnify shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission was made in reliance
upon and in conformity
<PAGE>
with information furnished the Company by or on behalf of the Trust or SFIM for
use in the registration statement or prospectus for the Contracts or in the
Contracts or sales literature (or any amendment or supplement) or otherwise for
use in connection with the sale of the Contracts or Trust shares;
(ii) arise out of or as a result of statements or
representations (other than statements or representations contained in the
registration statement, prospectus or sales literature of the Trust not supplied
by the Company, or persons under its control) or wrongful conduct of the Company
or persons under its control, with respect to the sale or distribution of the
Contracts or Trust shares;
(iii) arise out of any untrue statement or alleged
untrue statement of a material fact contained in a registration statement,
prospectus, or sales literature of the Trust or any amendment thereof or
supplement thereto or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading if such statement or omission was made in reliance upon
information furnished to the Trust or SFIM by or on behalf of the Company; or
(iv) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this agreement or arise
out of or result from any other material breach of this agreement by the
Company;
except to the extent provided in Sections 8.1(b) and 8.1(c) hereof.
(b) The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Company in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Company of any
such claim shall not relieve the Company from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision, except to the extent that failure to
notify results in failure of actual notice to the Company and the Company is
damaged solely as a result of failure to give notice. In case any such action
is brought against the Indemnified Parties, the Company shall be entitled to
participate, at its own expense, in the defense of such action. The Company
also shall be entitled to assume the defense thereof, with counsel satisfactory
to the party named in the action. After notice from the Company to such party
of the Company's election to assume the defense thereof, the Indemnified Party
shall bear the fees and expenses of any additional counsel retained by it, and
the Company will not be liable to such party under this agreement for any legal
or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation, unless: (i) the Company and the Indemnified Party shall have
mutually agreed on the retention of such counsel; or (ii) the named parties to
any such proceeding (including any impleaded parties) include both the Company
and the Indemnified Party and representation of both parties by the same counsel
<PAGE>
would be inappropriate due to actual or potential differing interests between
them. The Company shall not be liable for any settlement of any proceeding
effected without its written consent but if settled with such consent or if
there be a final judgment for the plaintiff, the Company agrees to indemnify the
Indemnified Party from all and against any loss or liability by reason of such
settlement or judgment.
(c) The Indemnified Parties will promptly notify the Company of
the commencement of any litigation or proceedings against them in connection
with the issuance or sale of the Trust shares or the Contracts or the operation
of the Trust and the Indemnified Parties will provide the Company with all
relevant information and documents requested by the Company. For purposes of
this Section 8.1(c), the "commencement" of proceedings shall include any
informal or formal communications from the SEC or its staff (or the receipt of
information from any other persons or entities) indicating that enforcement
action by said Commission or staff may be contemplated or forthcoming; this
includes any information to the effect that any matter(s) has been referred to
the SEC's Division of Enforcement, or that any matter(s) is being discussed with
that Division.
8.2 INDEMNIFICATION BY THE TRUST AND SFIM.
(a) The Trust and SFIM, in each case solely to the extent
relating to such party's responsibilities hereunder, agree to indemnify and hold
harmless the Company and each of its directors and officers and each person, if
any, who controls the Company within the meaning of Section 15 of the 1933 Act,
and any agents or employees of the foregoing (collectively, the "Indemnified
Parties" for purposes of this Section 8.2), against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of the Trust and SFIM) or litigation (including legal and other
expenses) to which the Indemnified Parties may become subject under any statute,
at common law or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements are related to the
sale or acquisition of the Trust's shares or the Contracts and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the registration
statement or prospectus or sales literature of the Trust (or any amendment or
supplement to any of the foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
PROVIDED, that this agreement to indemnify shall not apply as to any Indemnified
Party if such statement or omission or such alleged statement or omission was
made in reliance upon and in conformity with information furnished to the Trust
by or on behalf of the Company for use in the registration statement or
prospectus for the Trust or in sales literature for the Trust (or any amendment
or supplement) or otherwise for use in connection with the sale of the Contracts
or Trust shares;
(ii) arise out of or as a result of statements or
representations (other than statements or representations contained in the
registration statement, prospectus or sales literature for the Contracts not
supplied by the Trust, or persons under its control) or
<PAGE>
wrongful conduct of the Trust or persons under its control, with respect to the
sale or distribution of the Contracts or Trust shares;
(iii) arise out of any untrue statement or alleged
untrue statement of a material fact contained in a registration statement,
prospectus, or sales literature covering the Contracts, or any amendment thereof
or supplement thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statement
or statements therein not misleading, if such statement or omission was made in
reliance upon information furnished to the Company by or on behalf of the Trust;
or
(iv) arise out of or result from any material breach of any
representation and/or warranty made by the Trust in this agreement or arise out
of or result from any other material breach of this agreement by the Trust
(including a failure, whether unintentional or in good faith or otherwise, to
comply with the requirements specified in Article 6 of this agreement);
except to the extent provided in Sections 8.2(b) and 8.2(c) hereof.
(b) Neither the Trust nor SFIM shall be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Trust or SFIM in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Trust or SFIM
of any such claim shall not relieve the Trust or SFIM from any liability which
it may have to the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision, except to the
extent that failure to notify results in the failure of actual notice to the
Trust or SFIM and the Trust or SFIM is damaged solely as a result of failure to
give such notice. In case any such action is brought against the Indemnified
Parties, the Trust and SFIM will be entitled to participate, at their own
expense, in the defense thereof. The Trust and SFIM also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Trust or SFIM to such party of its election to
assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and neither the Trust nor
SFIM shall be liable to such party under this agreement for any legal or other
expenses subsequently incurred by such party independently in connection with
the defense thereof other than reasonable costs of investigation, unless (i) the
Trust, SFIM and the Indemnified Party shall have mutually agreed to the
retention of such counsel or (ii) the named parties to any such proceeding
(including any impleaded parties) include the Trust or SFIM and the Indemnified
Party and representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them.
Neither the Trust nor SFIM shall be liable for any settlement of any proceeding
effected without their written consent but if settled with such consent or if
there be a final judgment for the plaintiff, the Trust and SFIM agree to
indemnify the Indemnified Party from and against any loss or liability by reason
of such settlement or judgment.
<PAGE>
(c) The Indemnified Parties will promptly notify both the Trust
and SFIM of the commencement of any litigation or proceedings against them in
connection with the issuance or sale of the Trust shares or the Contracts or the
operation of the Trust and the Indemnified Parties will provide the Trust or
SFIM with all relevant information and documents requested by the Trust or SFIM,
respectively. For purposes of this Section 8.1(c), the "commencement" of
proceedings shall include any informal or formal communications from the SEC or
its staff (or the receipt of information from any other persons or entities)
indicating that enforcement action by said Commission or staff may be
contemplated or forthcoming; this includes any information to the effect that
any matter(s) has been referred to the SEC's Division of Enforcement, or that
any matter(s) is being discussed with that Division.
8.3 A successor by law of the parties to this agreement shall be
entitled to the benefits of the indemnification contained in this Article 8.
The indemnification provisions contained in this Article 8 shall survive any
termination of this agreement.
ARTICLE 9
LIMITATIONS OF LIABILITY
9.1 LIMITATION OF LIABILITY OF COMPANY. The Company shall give the
Trust and SFIM the benefit of the Company's best judgment and efforts in
fulfilling its obligations under this agreement; PROVIDED, that the Company
shall not be liable for any error of judgment or import of law, or for any loss
suffered by the Trust or SFIM in connection with the matters to which this
agreement relates, except loss resulting from: (i) willful misfeasance, bad
faith or gross negligence on the part of the Company in the performance of its
obligations and duties under this agreement; (ii) its reckless disregard of its
obligations and duties under this agreement; or (iii) a breach of Section 2.2
of this agreement.
9.2 LIMITATION OF LIABILITY OF SFIM. SFIM shall give the Trust and
the Company the benefit of SFIM's best judgment and efforts in fulfilling its
obligations under this agreement; PROVIDED, that SFIM shall not be liable for
any error of judgment or import of law, or for any loss suffered by the Trust or
the Company in connection with the matters to which this agreement relates,
except loss resulting from: (i) willful misfeasance, bad faith or gross
negligence on the part of SFIM in the performance of its obligations and duties
under this agreement; (ii) its reckless disregard of its obligations and duties
under this agreement; or (iii) a breach of Sections 2.4 or 6.1 of this
agreement.
9.3 LIMITATION OF LIABILITY OF TRUST. The Company and SFIM each
acknowledge that it has received notice of and accepts the limitations on the
Trust's liability as set forth in the Trust's Declaration of Trust, as amended
from time to time. In accordance therewith, the Company and SFIM agree that the
Trust's obligations hereunder shall be limited to the assets of the Funds, and
with respect to each Fund shall be limited to the assets of such
<PAGE>
Fund, and no party shall seek satisfaction of any such obligation from any
shareholder of the Trust, nor from any trustee, officer, employee or agent of
the Trust.
ARTICLE 10
DURATION AND TERMINATION OF THIS AGREEMENT
10.1 EFFECTIVE DATE AND TERM. This agreement shall not become
effective unless and until it is approved by the Trust's Board. This agreement
shall come into full force and effect on the date which it is so approved,
provided that it shall not became effective as to any subsequently created Fund
until it has been approved by the Board specifically for such Fund.
10.2 TERMINATION.
(a) This agreement shall terminate with respect to one, some, or
all the Accounts, or one, some, or all Funds:
(i) at the option of any party upon six months' advance
written notice to the other party;
(ii) at the option of the Company to the extent that shares
of the Funds are not reasonably available to meet the requirements of the
Contracts or are not "appropriate funding vehicles" for the Contracts, as
determined by the Company reasonably and in good faith; PROVIDED, that prompt
notice of the election to terminate for such cause and an explanation of such
cause shall be furnished by the Company;
(iii) at the option of the Trust upon institution of
formal proceedings against the Company by the SEC or any insurance department or
any other regulatory body regarding the Company's duties under this agreement or
related to the sale of the Contracts, the operation of the Accounts, or the
purchase of the Trust shares;
(iv) at the option of the Company upon institution of
formal proceedings against the Trust or SFIM by the NASD, the SEC, or any state
securities or insurance department or any other regulatory body;
(v) at the option of the Company or the Trust upon receipt
of any necessary regulatory approvals and/or the vote of the Contract owners
having an interest in the Accounts (or any subaccount) to substitute the shares
of another investment company for the corresponding Fund shares of the Trust in
accordance with the terms of the Contracts for which those Fund shares had been
selected to serve as the underlying investment media; PROVIDED, that the Company
will give 30 days' prior written notice to the Trust of the date of any proposed
vote or other action taken to replace the Trust's shares; or
<PAGE>
(vi) at the option of the Company or the Trust, upon the
other party's material breach of any provision of this agreement.
(b) Without limiting the generality of Section 10.1(a)(ii),
shares of a Fund would not be "appropriate funding vehicles" if, for example,
such shares did not meet the diversification or other requirements referred to
in Article 6 hereof, the Fund did not qualify under Subchapter M of the Code, as
referred to in Section 2.4 hereof, the investments or investment policies,
objectives, and/or limitations of the Fund would impose unanticipated risks on
the Company, or if the Company would be permitted to disregard policy owner
voting instructions under the 1940 Act or the rules promulgated thereunder.
10.3 Any notice pursuant to Section 10.1 shall specify the Fund or
Funds, Contracts and, if applicable, the Accounts as to which the agreement is
to be terminated.
10.4 It is understood and agreed that the right of any party hereto to
terminate this agreement pursuant to Section 10.1(a) may be exercised for cause
or for no cause.
10.5 Except as necessary to implement Contract owner initiated
transactions, or as required by state insurance laws or regulations, the Company
shall not redeem Trust shares attributable to the Contracts (as opposed to Trust
shares attributable to the Company's assets held in the Accounts), and the
Company shall not prevent Contract owners from allocating payments to a Fund
that was otherwise available under the Contracts, until thirty (30) days after
the Company shall have notified the Trust of its intention to do so.
10.6 Notwithstanding any termination of this agreement, the Trust
shall, at the option of the Company, continue to make available additional
shares of the Funds pursuant to the terms and conditions of this agreement for
all Contracts in effect on the effective date of termination of this agreement
(the "Existing Contracts"). Specifically, without limitation, the owners of
the Existing Contracts shall be permitted to transfer or reallocate investments
under the Contracts, redeem investments in the Trust and/or invest in the Trust
upon the making of additional purchase payments under the Existing Contracts.
ARTICLE 11
NOTICES
11.1 Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Company:
State Farm Life and Accident Assurance Company
One State Farm Plaza
Bloomington, Illinois 61710-0001
<PAGE>
Attn:
---------------------
If to the Trust:
State Farm Variable Product Trust
One State Farm Plaza
Bloomington, Illinois 61710-0001
Attn:
----------------------
If to SFIM:
State Farm Investment Management Corp.
One State Farm Plaza
Bloomington, Illinois 61710-0001
Attn:
---------------------
ARTICLE 12
MISCELLANEOUS PROVISIONS
12.1 APPLICABLE LAW.
(a) This agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of Delaware without regard to
conflicts of law principles or precedents.
(b) This agreement shall be subject to the provisions of the
1933, 1934 and 1940 Acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the SEC
may grant and the terms hereof shall be interpreted and construed in accordance
therewith.
12.2 SEVERABILITY. If any provision of this agreement shall be held
or made invalid by a court decision, statute, rule or otherwise, the remainder
of this agreement shall not be affected thereby.
12.3 CAPTIONS. The captions in this agreement are included for
convenience of reference only and in no way define or delineate any of the
provisions hereof or otherwise affect their construction or effect.
12.4 COUNTERPARTS. This agreement may be executed simultaneously in
multiple counterparts, each of which taken together shall constitute one and the
same instrument.
12.5 SCHEDULES. The Schedules attached hereto, as modified from time
to time, are incorporated herein by reference and are part of this agreement.
<PAGE>
12.6 COOPERATION WITH AUTHORITIES. Each party hereto shall cooperate
with the other party and all appropriate governmental authorities (including
without limitation the SEC, the NASD, and state insurance regulators) and shall
permit such authorities reasonable access to its books and records in connection
with any investigation or inquiry relating to this agreement or the transactions
contemplated hereby.
12.7 CUMULATIVE RIGHTS. The rights, remedies and obligations
contained in this agreement are cumulative and are in addition to any and all
rights, remedies and obligations, at law or in equity, which the parties hereto
are entitled to under state and federal laws.
12.8 AMENDMENTS. This agreement may be amended at any time upon the
consent of all of the parties.
IN WITNESS WHEREOF, the parties hereto have caused this agreement to
be executed in their names and on their behalf by their duly authorized officers
all on the day and year first above written.
STATE FARM LIFE AND ACCIDENT ASSURANCE COMPANY
By: /s/ Kurt G. Moser
Title: /s/ Senior Vice President - Investments
STATE FARM VARIABLE PRODUCT TRUST
By: /s/ Edward B. Rust, Jr.
Title: President
STATE FARM INVESTMENT MANAGEMENT CORP.
By: /s/ Roger Joslin
Title: Vice President and Treasurer
SCHEDULE A
ACCOUNTS, CONTRACTS AND FUNDS SUBJECT
TO THE PARTICIPATION AGREEMENT
-------------------------------------
<PAGE>
STATE FARM LIFE AND ACCIDENT ASSURANCE COMPANY VARIABLE ANNUITY SEPARATE
ACCOUNT:
CONTRACT: State Farm Variable Deferred Annuity Policy*
FUNDS: Money Market Fund**
Large Cap Equity Index Fund**
Small Cap Equity Index Fund**
International Equity Index Fund**
Bond Fund**
Stock and Bond Balanced Fund**
STATE FARM LIFE AND ACCIDENT ASSURANCE COMPANY VARIABLE LIFE SEPARATE ACCOUNT:
CONTRACT: State Farm Variable Universal Life Insurance Policy*
FUNDS: Money Market Fund**
Large Cap Equity Index Fund**
Small Cap Equity Index Fund**
International Equity Index Fund**
Bond Fund**
Stock and Bond Balanced Fund**
- -------------------------
* After effectiveness of registration statement for the Contract.
** After effectiveness of registration statement for the Fund.
<PAGE>
SUTHERLAND, ASBILL & BRENNAN, L.L.P.
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2404
(202) 383-0100
Fax: (202) 637-3593
February 26, 1999
As counsel for State Farm Variable Product Trust (the "Registrant"), we
consent to the incorporation by reference of our opinion filed with the
Registrant's registration statement on Form N-1A on November 25, 1997
(Securities Act file no. 333-22467).
In giving this consent we do not admit that we are in the category of
persons whose consent is required under Section 7 of the Securities Act of 1933.
Sutherland, Asbill & Brennan, L.L.P.
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Highlights," "Independent Auditors" and "Audited Financial Statements," and to
the use of our report dated January 22, 1999 in the Registration Statement (Form
N-1A) and its incorporation by reference in the related Prospectus and Statement
of Additional Information of the State Farm Variable Product Trust filed with
the Securities and Exchange Commission in this Post-Effective Amendment No. 2 to
the Registration Statement under the Securities Act of 1933 (File No. 333-22467)
and in this Amendment No. 3 to the Registration Statement under the Investment
Company Act of 1940 (File No. 811-08073).
ERNST & YOUNG LLP
Chicago, Illinois
February 24, 1999
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0001034633
<NAME> MONEY MARKET FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 18185043
<INVESTMENTS-AT-VALUE> 18185043
<RECEIVABLES> 100744
<ASSETS-OTHER> 632913
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 18918700
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 237283
<TOTAL-LIABILITIES> 237283
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 18681417
<SHARES-COMMON-STOCK> 18681417
<SHARES-COMMON-PRIOR> 10000000
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 18681417
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 638747
<OTHER-INCOME> 0
<EXPENSES-NET> 50701
<NET-INVESTMENT-INCOME> 588046
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 588046
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (588046)<F1>
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8868290
<NUMBER-OF-SHARES-REDEEMED> 774919
<SHARES-REINVESTED> 588046
<NET-CHANGE-IN-ASSETS> 8681417
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 39751
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 61217
<AVERAGE-NET-ASSETS> 12628795
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .05
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (.05)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .43
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Per share $.0467
</FN>
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0001034633
<NAME> BOND FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 23444234
<INVESTMENTS-AT-VALUE> 23649839
<RECEIVABLES> 1288085
<ASSETS-OTHER> 1227441
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 26165365
<PAYABLE-FOR-SECURITIES> 1200000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 297979
<TOTAL-LIABILITIES> 1497979
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 24478905
<SHARES-COMMON-STOCK> 2430863
<SHARES-COMMON-PRIOR> 1000000
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (17124)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 205605
<NET-ASSETS> 24667386
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 750590
<OTHER-INCOME> 0
<EXPENSES-NET> 74866
<NET-INVESTMENT-INCOME> 675724
<REALIZED-GAINS-CURRENT> (17124)
<APPREC-INCREASE-CURRENT> 205605
<NET-CHANGE-FROM-OPS> 864205
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (675724)<F1>
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1439766
<NUMBER-OF-SHARES-REDEEMED> 75763
<SHARES-REINVESTED> 66860
<NET-CHANGE-IN-ASSETS> 14667386
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 51817
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 74866
<AVERAGE-NET-ASSETS> 13939561
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .49
<PER-SHARE-GAIN-APPREC> .15
<PER-SHARE-DIVIDEND> (.49)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.15
<EXPENSE-RATIO> .57
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Per share $.4870
</FN>
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0001034633
<NAME> SMALL CAP EQUITY INDEX FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 42741478
<INVESTMENTS-AT-VALUE> 41697936
<RECEIVABLES> 166796
<ASSETS-OTHER> 1539
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 41866271
<PAYABLE-FOR-SECURITIES> 185238
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 55597
<TOTAL-LIABILITIES> 240835
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 42540357
<SHARES-COMMON-STOCK> 4363244
<SHARES-COMMON-PRIOR> 3000000
<ACCUMULATED-NII-CURRENT> 4017
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 66054
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (984992)
<NET-ASSETS> 41625436
<DIVIDEND-INCOME> 443563
<INTEREST-INCOME> 41268
<OTHER-INCOME> 0
<EXPENSES-NET> 150046
<NET-INVESTMENT-INCOME> 334785
<REALIZED-GAINS-CURRENT> 821407
<APPREC-INCREASE-CURRENT> (984992)
<NET-CHANGE-FROM-OPS> 171200
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (330768)<F1>
<DISTRIBUTIONS-OF-GAINS> (755353)<F2>
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1262394
<NUMBER-OF-SHARES-REDEEMED> 14861
<SHARES-REINVESTED> 115711
<NET-CHANGE-IN-ASSETS> 11625436
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 118508
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 166736
<AVERAGE-NET-ASSETS> 32707878
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .27
<PER-SHARE-GAIN-APPREC> (.46)
<PER-SHARE-DIVIDEND> (.09)
<PER-SHARE-DISTRIBUTIONS> (.18)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.54
<EXPENSE-RATIO> .50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Per share $.087
<F2>Per share $.179
</FN>
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0001034633
<NAME> LARGE CAP EQUITY INDEX FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 46476230
<INVESTMENTS-AT-VALUE> 53285251
<RECEIVABLES> 274571
<ASSETS-OTHER> 944
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 53560766
<PAYABLE-FOR-SECURITIES> 141392
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 114652
<TOTAL-LIABILITIES> 256044
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 45796843
<SHARES-COMMON-STOCK> 4162934
<SHARES-COMMON-PRIOR> 1500000
<ACCUMULATED-NII-CURRENT> 4185
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 269073
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 7234621
<NET-ASSETS> 53304722
<DIVIDEND-INCOME> 326851
<INTEREST-INCOME> 130191
<OTHER-INCOME> 0
<EXPENSES-NET> 79029
<NET-INVESTMENT-INCOME> 378013
<REALIZED-GAINS-CURRENT> 269073
<APPREC-INCREASE-CURRENT> 7234621
<NET-CHANGE-FROM-OPS> 7881707
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (373828)<F1>
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2676195
<NUMBER-OF-SHARES-REDEEMED> 43444
<SHARES-REINVESTED> 30183
<NET-CHANGE-IN-ASSETS> 38304722
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 46527
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 79029
<AVERAGE-NET-ASSETS> 25651309
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .12
<PER-SHARE-GAIN-APPREC> 2.80
<PER-SHARE-DIVIDEND> (.12)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.80
<EXPENSE-RATIO> .32
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Per share $.119
</FN>
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0001034633
<NAME> INTERNATIONAL EQUITY INDEX FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 66810583
<INVESTMENTS-AT-VALUE> 76623848
<RECEIVABLES> 136608
<ASSETS-OTHER> 149926
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 76910382
<PAYABLE-FOR-SECURITIES> 30429
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 182821
<TOTAL-LIABILITIES> 213250
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 66990452
<SHARES-COMMON-STOCK> 6592448
<SHARES-COMMON-PRIOR> 5400000
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (226077)
<ACCUMULATED-NET-GAINS> 117394
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 9815363
<NET-ASSETS> 76697132
<DIVIDEND-INCOME> 1105568
<INTEREST-INCOME> 87600
<OTHER-INCOME> 0
<EXPENSES-NET> 441773
<NET-INVESTMENT-INCOME> 751395
<REALIZED-GAINS-CURRENT> 35910
<APPREC-INCREASE-CURRENT> 9815363
<NET-CHANGE-FROM-OPS> 10602668
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (895988)<F1>
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1129477
<NUMBER-OF-SHARES-REDEEMED> 18027
<SHARES-REINVESTED> 80998
<NET-CHANGE-IN-ASSETS> 22697132
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 325393
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 548815
<AVERAGE-NET-ASSETS> 62478543
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .13
<PER-SHARE-GAIN-APPREC> 1.65
<PER-SHARE-DIVIDEND> (.15)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.63
<EXPENSE-RATIO> .75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Per share $.151
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0001034633
<NAME> STOCK AND BOND BALANCED FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 5209092
<INVESTMENTS-AT-VALUE> 5556692
<RECEIVABLES> 59012
<ASSETS-OTHER> 12
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 5615716
<PAYABLE-FOR-SECURITIES> 32917
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 7987
<TOTAL-LIABILITIES> 40904
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5188944
<SHARES-COMMON-STOCK> 488711
<SHARES-COMMON-PRIOR> 10
<ACCUMULATED-NII-CURRENT> 44457
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (6189)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 347600
<NET-ASSETS> 5574812
<DIVIDEND-INCOME> 47205
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 47205
<REALIZED-GAINS-CURRENT> (6189)
<APPREC-INCREASE-CURRENT> 347600
<NET-CHANGE-FROM-OPS> 388616
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2748)<F1>
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 519686
<NUMBER-OF-SHARES-REDEEMED> 31253
<SHARES-REINVESTED> 268
<NET-CHANGE-IN-ASSETS> 5574712
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 13909
<AVERAGE-NET-ASSETS> 1450981
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .14
<PER-SHARE-GAIN-APPREC> 1.32
<PER-SHARE-DIVIDEND> (.05)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.41
<EXPENSE-RATIO> .00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Per share $.05
</FN>
</TABLE>
