One of the advantages of investing in a mutual fund is the ability to purchase and redeem shares on any day the market is open. Potential shareowners indicate the amount they wish to invest and the share price is determined after the next closing of the financial markets.

Buying The Dividend Or Capital Gain Distribution

There are times when it may not be in your best interest to purchase shares because the fund is about to make a dividend or capital gain distribution. These shares may generate income, which may lead to a tax liability for you. When this occurs, it’s called “buying the dividend” or “capital gain distribution.”

Example:

Consider this hypothetical scenario of two investors who are interested in shares of a stock fund investing primarily in large companies:

Investor A

Invests $10,000 in the fund on June 24th. Because the net asset value (NAV) of the shares is $50, Investor A is able to purchase 200 shares.


On June 25th, the fund makes a previously announced distribution of $1.50 per share, reducing the NAV to $48.50 per share. Investor A receives $300 in dividend income or capital gain that is reinvested in the fund.


Investor A's original shares are now worth $9,700 ($48.50 x 200) and the reinvested dividend purchases 6.186 additional shares ($300 ÷ 48.50). Investor A now has 206.186 shares and a taxable income of $300.


Investor B

Waited until the day after the distribution is made. Her $10,000 purchased 206.186 shares (10,000 ÷ 48.50) but she has not received any dividend income, so there are no taxes assessed.

The dividend example is hypothetical and is not intended to represent any specific type of investment. The example doesn’t include the impact of any expenses or taxes that would be associated with an actual investment. If such costs had been taken into account, the results shown would have been lower. It merely shows what can happen when a purchase is made immediately prior to a dividend or capital gain distribution. You should consult a tax advisor for additional information.

Wash Sales

Another transaction that may carry tax consequences is a wash sale. This occurs when shares of a mutual fund or individual securities are sold at a loss and substantially identical replacement shares are purchased within 30 calendar days either before or after the sale. Rules set by the Internal Revenue Service prohibit shareowners from declaring a capital loss when a wash sale occurs.

The initial sale may have been made in order to declare a short- or long-term capital loss for tax purposes. A capital loss can ordinarily be used to offset a capital gain on your personal income taxes, lowering the amount you may owe for the year. However, purchasing substantially identical shares within either 30 calendar days before or after the sale will prevent you from declaring a loss on your tax return.

The disallowed loss is added to the cost basis of the replacement shares. In other words, if you had originally paid $20 for the individual shares, sold them for $10 (a loss of $10 per share), and purchased replacement shares for $11, your cost basis for the new shares is now $21 (the $11 purchase price plus the $10 loss). In this way, depending on your tax situation, the capital loss on the initial sale may eventually be realized when the replacement shares are sold.

Your holding period for the replacement shares is also changed to include the amount of time you held the original shares. While that may not seem like such a problem, it can make a difference in determining a long- or short-term capital loss or gain when you decide to sell the shares.

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Risk Disclosures

Investing involves risk, including potential for loss.

Additional Disclosures

Mutual Funds Disclosures

Before investing, consider the funds' investment objectives, risks, charges and expenses. Contact State Farm VP Management Corp (1-800-447-4930) for a prospectus or summary prospectus containing this and other information. Read it carefully.

General

Automatic investment plans do not assure a profit or protect against loss.

Neither State Farm nor its agents provide investment, tax, or legal advice.

It is not possible to invest directly in an index.

State Farm VP Management Corp. is a separate entity from those State Farm entities which provide banking and insurance products.

As of June 2nd, 2010, additional fees may apply to certain accounts with balances less than $5000.

Each State Farm LifePath Fund invests all of its assets in a corresponding LifePath Master Portfolio under a master/feeder structure. BlackRock Fund Advisors (“BFA”) is the investment advisor to the LifePath Master Portfolios. State Farm Investment Management Corp. (SFIMC) is the investment advisor to the State Farm LifePath Funds. State Farm VP Management Corp. (SFVPMC) is the distributor of the State Farm LifePath Funds. Neither SFIMC or SFVPMC, or their affiliates, are affiliated with BFA or its affiliates.

BlackRock Investors Services (BIS) provides marketing support to the LifePath Master Portfolios. BFA and BIS are wholly owned subsidiaries of BlackRock Institutional Trust Company, N.A. (“BTC”). Neither BTC or its affiliates are affiliated with State Farm. BTC is located at 400 Howard Street, San Francisco, CA 94105.

BlackRock Fund Advisors (“BFA”) is the investment sub-advisor to the S&P 500 Index Fund.

Ascensus provides recordkeeping and administrative services for retail 401(k) retirement plans offered by State Farm Investment Management Corp.

Net Asset Value (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.

Money market mutual fund data is not available for funds other than the State Farm Money Market Fund.

Indices

The Russell 2000® Index tracks the common stock performance of the 2,000 smallest U.S. companies in the Russell 3000® Index.

The Russell 2500 Index tracks the 2,500 smallest companies in the Russell 3000 Index.

The Russell 1000 Index is a stock market index that represents the highest-ranking 1,000 stocks in the Russell 3000 Index.

The Russell Midcap Index measures the performance of the mid-cap segment of the US equity market and is a subset of the Russell 1000 Index.

The Dow Jones Industrial Average is an unmanaged average of 30 actively traded stocks.

The NASDAQ Composite is an unmanaged market capitalization weighted index that is designed to represent the performance of the National Market System.

The S&P 500® Index tracks the common stock performance of 500 large U.S. companies.

The S&P 1500 Index is a stock market index of U.S. stock that includes all stocks in the large cap S&P 500 Index, the mid cap S&P 400 Index, and the small cap S&P 600 Index.

The Morgan Stanley Capital International Europe, Australasia and Far East Free (EAFE® Free) Index currently measures the performance of stock markets of Europe, Australia, New Zealand, and the Far East.

The Morgan Stanley Capital International Europe Index is a free float-adjusted market capitalization index that is designed to measure developed market equity performance in Europe.

The Barclays 1-5 Year U.S. Treasury Index measures the performance of short-term U.S. Treasury Securities maturing within one to five years.

The Barclays U.S. Aggregate Bond Index represents debt securities in the U.S. investment grade fixed rate bond market.

The Barclays Municipal Bond Index is an unmanaged index representative of the tax-exempt bond market.

The Barclays High Yield Index includes all fixed income securities having a maximum quality rating from Moody’s Investor Service of Ba1, a minimum amount outstanding of $100 million, and at least one year to maturity.

The Barclays TIPS Index measures the performance of the US Treasury Inflation-Protected Securities (TIPS) market.

The Citigroup 3 Month T-Bill Index is an average of the last 3-month Treasury bill issues (excluding the current month-end bill).

The FTSE EPRA/NAREIT Developed REIT and Non-Reit Index is a subset of the Developed Index, which is designed to track the performance of listed real estate companies and REITS worldwide.

The MSCI ACWI (All Country World Index) Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets.

The Nikkei 225 Index is a price-weighted index comprised of Japan’s top 225 blue-chip companies on the Tokyo Stock Exchange.

The Credit Suisse High Yield Index is designed to mirror the investible universe of the $U.S. – Denominated high yield debt market.

The New York Stock Exchange is considered the largest equities-based exchange in the world based on total market capitalization of its listed securities.

The CBOE 10-Year Treasury Note (TNX) is based on 10 times the yield-to-maturity on the most recently auctioned 10-year Treasury note. The notes are usually auctioned every three months following the refunding cycle: February, May, August and November. The expiration period of these notes is three near-term months plus three additional months from the March quarterly cycle. The aggregate position and exercise limits are 25,000 contracts on the same side of the market.

The Blended Benchmark for the Equity and Bond Fund is a combination of 60% of the S&P 500 Index and 40% of the Barclays U.S. Aggregate Bond Index, rebalanced monthly.

The Blended Benchmark for the LifePath Funds is a combination of the holdings in the Barclays U.S Aggregate Bond Index, Russell 1000 Index, MSCI ACWI ex-U.S. Index, FTSE EPRA/NAREIT Developed Real Estate Index and Barclays TIPS Index. The weightings of the indices are adjusted quarterly to reflect the funds' changing asset allocations over time.

Trademarks

iShares and LifePath®, LifePath 2020®, LifePath 2030®, LifePath 2040®, and LifePath 2050® are all registered trademarks of BlackRock Institutional Trust Company, N.A. All other trademarks, service marks or registered trademarks are the property of their respective owners.

“Standard & Poor’s®”, “S&P®”, “S&P 500®”, “Standard and Poor’s 500”, and “500” are trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use by State Farm Life Insurance Company, State Farm Life and Accident Assurance Company and the State Farm Variable Product Trust. Neither the Large Cap Equity Index Fund nor the Stock and Bond Balanced Fund is sponsored, endorsed, sold or promoted by Standard & Poor’s, and Standard & Poor’s makes no representation regarding the advisability of investing in the Large Cap Equity Index Fund or the Stock and Bond Balanced Fund.

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

The EAFE® Free Index is a trademark, service mark and the exclusive property of Morgan Stanley Capital International, Inc. (“MSCI”) and its affiliates and has been licensed for use by the State Farm Variable Product Trust (the “Trust”). The International Equity Index Fund (the “Fund”), based on the EAFE® Free Index, has not been passed on by MSCI as to its legality or suitability, and is not issued, sponsored, endorsed, sold or promoted by MSCI. MSCI makes no warranties and bears no liability with respect to the Fund. MSCI has no responsibility for and does not participate in the management of the Fund assets or sale of the Fund shares. The Trust’s Prospectus contains a more detailed description of the limited relationship MSCI has with the Trust and the Fund.

Non-US Residents

Each of the investment products and services referred to on the State Farm Mutual Funds web site is intended to be made available to customers or prospective customers residing in the United States. The customer’s U.S. permanent residence address must be a street address. This web site shall not be considered a solicitation or offering for any investment product or service to any person in any jurisdiction where such solicitation or offer would be unlawful.

Business Continuity Plan

State Farm VP Management Corp. has developed a Business Continuity Plan on how we will respond to events that significantly disrupt our business. Since the timing and impact of disasters and disruptions is unpredictable, we will have to be flexible in responding to actual events as they occur. With that in mind, download this information (PDF 27 KB) on our business continuity plan.

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AP2012/03/0381

Not FDIC Insured
  • No Bank Guarantee
  • May Lose Value

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