Glossary

Asset allocation -- The process of spreading your assets among different types of investments.

Bond investment risk -- The risk of fixed income investing. Although these risks include short-term and prolonged price declines, such price declines in the bond market have historically been less severe than stock declines.

Capital gains distribution -- Distributions (usually annually) to mutual fund shareholders of gains realized on the sale of portfolio securities.

Capital gain -- The profit realized when a capital asset is sold for a higher price than the purchase price.

Capital loss -- Loss incurred when a capital asset is sold for a lower price than the purchase price.

Credit risk -- The risk that the issuer of the security, fails to make principal or interest payments when due, or that the credit quality of the issuer falls.

Cost basis -- The price paid for an asset, including any commissions or fees, used to calculate capital gains or losses when the asset is sold.

Custodian -- The bank or trust company that maintains a mutual fund's assets, including its portfolio of securities or some record of them. Provides safekeeping of securities but has no role in portfolio management.

Direct Rollover -- A tax-free movement of funds from a Qualified Plan to another Qualified Plan/IRA. A check would be made payable to the receiving custodian for the benefit of the shareowner. In some instances, the check could be mailed to the shareowner's address.

Distributions -- Payment from the fund of dividends or capital gains of the portfolio. Distributions may be paid in cash or reinvested to purchase additional shares.

Diversification -- A method of portfolio asset allocation, which spreads investments over a broad range of securities and/or asset classes. The goal of diversification is to reduce the portfolio's risk exposure to a specific security, sector, or asset class, thus balancing the portfolio's risk and return potential.

Dividend -- A distribution of cash from a fund's net income to its shareowners. Dividends can be reinvested to purchase additional shares.

EAFE® Free Index -- An index that tracks the performance of companies in Europe, Australia, New Zealand, and the Far East. The EAFE® Free Index is the exclusive property of Morgan Stanley Capital International, Inc.

Eligible Rollover Distribution -- distribution from a qualified retirement plan that is eligible to be rolled into another retirement plan/IRA. To be eligible to get a distribution, a qualifying event must occur:

• Separation from service
• Disability
• Death-Spouse is beneficiary
• Other events may include: Qualified Domestic Relations Order

Exchange -- The sale of shares in one fund to purchase shares in another fund.

Foreign investing risk -- Investing in foreign securities involves higher trading and custody costs than investing in U.S. companies. Accounting, legal and reporting practices are different than in the US and regulation is often less stringent. Potential political or economical instability presents risks, as does the fluctuation in currency exchange rates, as well as the possible imposition of exchange control regulation or currency restrictions that could prevent the conversion of local currencies into US dollars.

Income risk -- The risk that the income from a Fund's investments will decline because of falling market interest rates.

Index -- A measurement of the price performance of a group of securities that serves as a benchmark against which performance is measured.

Indexing risk -- For Funds that attempt to match the performance of a benchmark index, there is indexing risk. This is the risk that an Index Fund will be unable to track the performance of the benchmark index. Even when stock prices are falling, an Index Fund will stay fully invested and may decline more than the Fund's benchmark index. 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.

Indirect Rollover -- A distribution from a Qualified Plan or IRA into another IRA, where a check is made payable from the surrendering custodian to the shareowner.  The shareowner will then have 60 days to roll the funds into an IRA.

Inflation risk -- The risk that the value of assets or income from investments will be less in the future as inflation decreases the value of money. As inflation increases, the value of a Fund's assets, and the value of the Fund's distributions, can decline.

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. Another risk associated with interest rate changes is call risk. Call risk is the risk that during periods of falling interest rates, a bond issuer will "call" or repay its higher yielding bonds before the maturity date of the bond. Under these circumstances, the Fund may have to reinvest the proceeds in an investment that provides a lower yield than the called bond.

Liquidity risk -- The risk that the Manager may have difficulty selling securities the Fund holds at the time it would like to sell, and at the value the Fund has placed on those securities.

Management fees -- A fee, paid directly from the assets of a mutual fund, to compensate the fund's investment advisor for managing the fund's investments.

Management risk -- The risk that the Manager's assessment of companies whose securities are held in the Fund may prove incorrect, resulting in losses or poor performance, even in a rising market.

Market risk -- The risk that securities prices may fluctuate widely over short or even extended periods in response to company, market, or economic news. Securities markets also tend to move in cycles, with periods of rising prices and periods of falling prices.

Model risk -- Although the model used to manage the Funds' assets has been developed and refined over many years, there is no assurance that the recommended allocation will either maximize returns or minimize risks. There is no assurance that a recommended allocation will prove the ideal allocation in all circumstances for every investor with a particular time horizon.

Mortgage-backed securities -- Represent interests in or instruments backed by a pool of loans secured by mortgages, and the resulting cash flow is used to pay principal and interest on the securities.

Municipal bond risk -- The risk that the value of a municipal security may fluctuate due to political, taxation, and legislative changes. It also involves the risk exposure to the conditions of economic sectors that municipal securities are normally issued to finance (such as education, health care, and transportation).

Mutual Fund -- An investment that pools the money of numerous investors who have similar investment goals and invests that money in a number of securities on their behalf.

Net Asset Value (NAV) -- The current price of a share, calculated daily by taking the fair market value of the fund's total assets less liabilities and dividing the remainder by the number of outstanding shares.

Plan Administrator -- the person responsible for administrating the plan.

Portfolio -- A group of securities that are managed by a professional money manager who decides which securities to buy and sell in order to track the investment goal of the portfolio.

Prepayment risk -- The risk that homeowners or consumers may repay mortgage or consumer loans, which may effect the yield of mortgage -- or asset-backed securities related to such loans.

Realized vs. unrealized capital gain (loss) -- In general, a capital gain (or loss) is realized once the shareowner redeems or exchanges shares from his/her account for more (or less) than the purchase price. Unrealized gains (losses) are reflected in the net asset value of the unredeemed shares in the account.

Redemption -- The sale of mutual fund shares.

Reinvested dividends -- Dividends that are reinvested by the shareowner to purchase additional shares in a mutual fund. These dividends are fully taxable and become part of the cost basis of shares held in the account.

Russell 2000® Index -- An index that tracks performance of 2,000 small US companies. The Russell 2000® Index is a trademark/service mark of The Frank Russell Company. Russell^TMis a trademark of The Frank Russell Company.

Securities -- Any investment vehicle, including stocks, bonds, derivatives, and money market instruments.

Shareholder servicing fees -- A fee, paid directly from the assets of a mutual fund, to reimburse the broker dealer for certain expenses related to servicing shareholders' accounts.

Short-term vs. long-term capital gain (loss) -- A short-term capital gain/loss is realized if the investment was owned for one year or less. A long-term capital gain/loss is realized if the investment was owned for more than one year.

Signature guarantee -- A written representation signed by an officer or authorized employee of the guarantor, showing that the signature of a shareowner is genuine. A commercial bank, broker-dealer, or other authorized guarantor can provide this service. A notary cannot be accepted.

Smaller company size risk -- The risk of investing in securities of small capitalization companies. The securities of small capitalization companies are often more difficult to value or dispose of, more difficult to obtain information about, and more volatile than stocks of larger, more established companies. In addition, the markets for the Fund's investments may not be actively traded, which increases the risk that the Fund Manager may have difficulty selling securities the Fund holds.

S&P 500® Index -- A broad-based unmanaged weighted index of the average performance of 500 widely held common stocks. It is considered one of the more accurate measures of overall stock market performance because it includes approximately 75% of the market value of all publicly traded equities. The S&P 500® Index is the exclusive property of The McGraw-Hill Companies, Inc. (McGraw-Hill). S&P 500® is a trademark of McGraw-Hill.

Stock investment risk -- The risk of investing in stocks. These include both short-term and prolonged price declines.

Total return -- The annualized rate of return for a mutual fund, including reinvested income from dividends and capital gains and the capital appreciation/depreciation of the securities within the fund's portfolio.

Transfer -- A tax-free movement of funds from an IRA to another IRA. The shareowner does not receive the money, since the check is made payable to the receiving custodian for the benefit of the shareowner. In most cases the check is mailed directly to the receiving custodian.

Trustee -- legal owner of the trust assets who has authority over the assets and the investments and must exercise that authority for the benefit of the beneficiary.

12b-1 distribution fees -- A fee, paid directly from the assets of a mutual fund, to reimburse the broker dealer for certain marketing and distribution expenses.

State Farm VP Management Corp Risk/Important Disclosures. State Farm Mutual Funds Prospectus. The State Farm College Savings Plan Enrollment Handbook (PDF 276 KB).

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AP2007/12/9705