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Measures Of The Market
If you invest in stocks or own shares in a mutual fund that invests mainly in stocks, you probably have an interest in what the market is doing. But what exactly do people mean when they talk about the market? There are many indexes that measure activity in the various stock markets. Some assess the activity of a few companies while others take a much broader approach.
Some of the more popular indexes in the United States are the Dow Jones Industrial Average, NASDAQ®, the S&P 500®, the Russell 2000® and the Wilshire 5000®. A well-known measure of foreign stocks is the MSCI EAFE Free® Index.
To gain better knowledge of what these indexes are, youll find a brief historical summary below that may help guide you to the appropriate index for your investments needs.
The Dow Jones Industrial Average
The Dow Jones Industrial Average (DJIA) is the oldest market indicator in the United States and comprises 30 blue chip companies.
Each company in the DJIA has sales of over $7 billion each year. It was developed in 1896 by Charles Dow, a co-founder of the Wall Street Journal, to provide market data to his readers. The price-weighted average was determined by taking the price of each companys stock and dividing it by the number of companies. That approach is still used today, but the divisor is adjusted to preserve historical continuity.
Originally consisting of 12 industrial companies, the DJIA was increased to 30 companies in 1928. Only one of the 12 original companies is included in the DJIA today: General Electric®. Other companies include Microsoft®, Intel, Johnson & Johnson®, and Exxon Mobil®.
To be included in the DJIA, a company must have a history of substantial growth and a wide interest among investors. The most recent change to the 30 companies occurred in September 2008 when Kraft was added and American International Group (AIG) was removed. Dow Jones & Company also has the Dow Jones Transportation Averages and the Dow Jones Utilities Averages.
The NASDAQ National Market Index tracks the more than 5,000 companies listed on the NASDAQ Stock Exchange and includes domestic and non-U.S. companies of varying sizes.
Each company represented in the index is weighted based on its market value. Many of the companies represented are associated with technology and other highly speculative areas. The NASDAQ 100 Index tracks the top 100 companies in the NASDAQ Index.
Originally called the National Association of Securities Dealers Automated Quotation, the NASDAQ was the first electronic stock market. It has been in operation since 1971. The broad-based NASDAQ Index is calculated throughout the day and is one of the most widely quoted of the major indexes.
S&P 500 Index
The Standard & Poors 500 Index tracks the 500 most widely held U.S.-based common stocks. It is a market-value weighted index that does not contain foreign-based companies. Although the S&P 500 focuses on the large cap segment of the market, with approximately 75 percent coverage of U.S. equities, it is also an ideal proxy for the total market.
The diverse collection of companies listed in the S&P 500 include Microsoft, General Electric®, Cisco® and Wal-Mart®. While the index tracks only 500 companies, those companies account for over 70 percent of all capitalization of the U.S. equity markets. As of February 28, 2013, the average market cap of the S&P 500 was $27.9 billion.
The Standard and Poors Index Committee meets at least once a month to review the index and determine if a company should be considered for inclusion or removal. Because inclusion and removal can have a great effect on the index, the committee completes an extensive review process before such decisions are made.
The State Farm® S&P 500 Index Fund attempts to mirror the returns of the S&P 500 Index. Assets of the Fund are invested in a master fund called the S&P 500 Index Master Portfolio that is advised by BlackRock Fund Advisors (BlackRock), a subsidiary of BlackRock Institutional Trust Company, N.A.
The stocks held by the master fund are purchased in amounts that reflect the weighting of those companies within the Index.
Russell 2000 Index
The Russell 2000 Index tracks the performance of the smallest companies contained in the Russell 3000® Index. As of February 28, 2013, the weighted average market capitalization of companies represented in the index is $1.5 billion, with the largest company having $6.1 billion in market capitalization. Because the index focuses on so many smaller companies, it is highly diversified.
However, by concentrating on smaller companies, the Russell 2000 Index is also very volatile.
Companies included in the Russell 2000 Index are re-evaluated annually based on their market capitalization on May 31. Any resulting changes to the index will occur in late June.
The State Farm Small Cap Index Fund seeks to match as closely as practicable, before fees and expenses, the performance of the Russell 2000 Index. Assets of the Fund are sub-advised by Northern Trust.
Wilshire 5000 Index
The Wilshire 5000 Index is also known as the Total Stock Market Index because it seeks to track nearly every publicly traded stock in the United States.
At this time, the index is comprised of close to 7,000 U.S.-based companies and is the worlds largest index in market value. The index, created in 1974, is weighted by market value. In other words, the greater the value of the company, the more the stock will influence the index.
The top 500 companies in the index account for over 70 percent of the index value.
MSCI EAFE Free Index
When created in 1969, the Morgan Stanley Capital International Europe Australia and Far East Free Index originally tracked stocks from 14 countries outside the United States. Today, it has grown to include companies in 22 countries.
Because the index includes companies throughout the world, there is a diverse selection of stocks. Of the more than 1,000 stocks represented, the greatest concentration is in European companies. The MSCI EAFE Index is rebalanced on a quarterly basis. However, changes within a company such as a spinoff or acquisition may prompt an index change at any time.
The State Farm International Index Fund seeks to match as closely as practicable, before fees and expenses, the performance of the MSCI EAFE Free Index. Assets of the Fund are sub-advised by Northern Trust.
Have Questions About These Indexes Or Where To Invest?
The answer is an easy one: Talk with your registered State Farm Agent who will discuss your current needs and opportunities and help you develop a plan to fit your goals. Simply click, call, or stop by an office in your neighborhood today!
Investing involves risk, including potential for loss.
Diversification does not assure a profit or protect against loss.
The stocks of small companies are more volatile than the stocks of larger, more established companies.
Foreign investments involve greater risks than U.S. investments, including political and economic risks and the risk of currency fluctuations.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.
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 Funds 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.
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 Moodys 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 Japans 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.
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 & Poors®, S&P®, S&P 500®, Standard and Poors 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 & Poors, and Standard & Poors 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 Trusts Prospectus contains a more detailed description of the limited relationship MSCI has with the Trust and the Fund.
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 customers 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.
1-800-447-4930 Mutual Funds
1-888-702-2307 Variable Products
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