Variable Product Trust Semi-Annual Report
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June 30, 2018 State Farm Variable Product Trust SEMI-ANNUAL REPORT Large Cap Equity Fund Small/Mid Cap Equity Fund International Equity Fund Large Cap Equity Index Fund Small Cap Equity Index Fund International Equity Index Fund Stock and Bond Balanced Fund Bond Fund Money Market Fund Table of Contents 1-888-702-2307 Message to Variable Product Customers 1 State Farm VP Management Corp. Customer Service Representatives are available Portfolio Summary 4 8:00 a.m. until 5:00 p.m. (Central Time) Monday through Friday (except holidays) Expense Example 7 This report and any financial information contained herein are submitted for the general information of the owners of interests Board Approval of Investment in State Farm Life Insurance Company and State Farm Life and Advisory and Sub-Advisory Agreements 9 Accident Assurance Company Variable Life Separate Accounts or Variable Annuity Separate Accounts (the “Accounts”). This Schedule of Investments report provides the results of operations for each of the Funds of the State Farm Variable Product Trust. It is possible to Large Cap Equity Fund 12 invest in these underlying Funds only through the Small/Mid Cap Equity Fund 14 purchase of a State Farm Variable Universal Life Insurance International Equity Fund 16 policy or State Farm Variable Deferred Annuity policy. Large Cap Equity Index Fund 19 Please read the prospectus and consider the investment Small Cap Equity Index Fund 25 objectives, charges and expenses and other information it contains about the Accounts carefully before investing. International Equity Index Fund 45 Stock and Bond Balanced Fund 56 Variable Deferred Annuity (VA) policy series 97040 & 97090 in all states except MT, NY,WI; 97090 in MT; A97040 & A97090 in Bond Fund 57 NY,WI. Money Market Fund 61 Financial Statements Variable Universal Life (VUL) policy series 97035, and also 97036 in TX, except MT, NY,WI; 97085 in MT; A97035 in NY & Statements of Assets and Liabilities 62 WI. Statements of Operations 64 Before investing, consider the Funds’ investment Statements of Changes in Net Assets 66 objectives, risks, charges and expenses. Contact State Notes to Financial Statements 70 Farm VP Management Corp. (1-888-702-2307) for a Financial Highlights 82 prospectus containing this and other information. Read it carefully. Investing involves risk, including potential for loss. Issued by: State Farm Life Insurance Company (Not licensed in MA, NY, or WI) State Farm Life and Accident Assurance Company (Licensed in NY and WI) Home Office, Bloomington, Illinois State Farm VP Management Corp. (Underwriter and Distributor of Securities Products) One State Farm Plaza Bloomington, Illinois 61710-0001 statefarm.com® A description of the policies and procedures that the Funds use to determine how to vote proxies relating to portfolio securities, and information regarding how the Funds voted proxies relating to portfolio securities during the most recent 12 month period ended June 30, are available without charge upon request at 1-800-447-4930 and at sec.gov. The Funds file complete schedules of portfolio holdings for each Fund with the Securities and Exchange Commission (the “Commission”) for the first and third quarters of each fiscal year on Form N-Q. The Funds’ Forms N-Q are available on the Commission’s website at sec.gov. The Funds’ Forms N-Q may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C., and information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The Funds make the information on Form N-Q available to shareholders upon request without charge at 1-800-447-4930. Any website referenced in this report is an inactive textual reference only, and information contained in or otherwise accessible through that website does not form a part of, and is not incorporated by reference into, this report. Distributor: State Farm VP Management Corp. [THIS PAGE INTENTIONALLY LEFT BLANK] Message to Variable Product Customers Dear Policyowners, Thank you for purchasing a State Farm® Variable Product. Enclosed is the Semi-Annual Report for the 6-month period ended June 30, 2018, for the State Farm Variable Product Trust (“the Trust”). We encourage your review and consideration of this entire report. While changes in the markets, either positive or negative, are part of investing, State Farm Investment Management Corp. has consistently maintained a long-term, disciplined approach to managing investment risk.1 We believe individuals increase their chance for investment success by remaining focused on their long-term goals and maintaining an appropriate asset allocation mix.2 Market Review During the 6-month period ended June 30, 2018, the U.S. equity markets experienced positive returns while the fixed income results were mixed and international equity returns turned negative. Beginning the calendar year at 2,673, the S&P 500 Index3 hit a period and new historical closing price high of 2,872 on January 26. That record was followed shortly thereafter by a period low of 2,581 on February 8, after which the index staged a series of uneven climbs and pullbacks before finishing at 2,718. During this 6-month timeframe, U.S. equities entered the 10th year of their current bull market run, while the S&P 500 posted a 2.65% total return, including dividends. As illustrated in the accompanying table, in addition to the 2.65% Year-to-Date Total Return total return from large-cap stocks (as represented by the S&P 500 Major Market Indices as of 6/30/2018 Index), mid-cap stocks (as represented by the Russell Midcap S&P 500 Index 2.65% 4 Index ) and small cap stocks (as represented by the Russell Russell Midcap Index 2.35% 5 2000® Index ) returned 2.35% and 7.66%, respectively, for the Russell 2000 Index 7.66% 6-month period ended June 30, 2018. MSCI EAFE Free Index -2.75% Rising corporate earnings, increasing consumer confidence, and MSCI All Country World Index ex-U.S. Index -3.77% historically low unemployment levels positively influenced the U.S. MSCI Emerging Markets Index -6.66% equity markets during this time, but these factors were partially Bloomberg Barclays U.S. Intermediate offset by rising geopolitical tension, inflationary concerns, and Government/Credit Index -0.98% interest rate increases. Supported by increasing consumer confidence levels during a solid 2017 holiday shopping season, stocks moved higher early in the period after shrugging off the Federal Reserve’s (the “Fed”) December interest rate hike. Equities rose unevenly until late January when fears of inflation helped lead to a sharp pullback. Stocks rebounded by the end of February, but experienced additional volatility in March upon digesting other news, including the Trump administration introducing tariffs on steel and aluminum imports and the Fed voting to raise rates once again. Market volatility was present throughout the remainder of the 6-month period, as among other factors, stocks were impacted by threats of an ensuing trade war between the U.S. and its trading partners, as well as higher oil prices in April that contributed to a return of inflationary concerns. However, stocks still managed to finish April slightly higher, as reports of robust first- quarter corporate earnings positively influenced U.S. equity markets. These profits were, in part, influenced by the Tax Cuts and Jobs Act that became law in December 2017, which reduced the corporate tax rate. In May, earnings strength continued and U.S. unemployment fell to 3.8%, its lowest level in eighteen years. The Fed voted to raise rates once again in June, citing dynamics such as smoothly progressing economic growth, a strengthening labor market, and inflation hovering around the Fed’s inflation target. The evidence of a healthier U.S. economy helped domestic equities finish the 6-month period with modest gains, despite the aforementioned concerns over rising inflation, protectionist trade policy, and less accommodative global monetary policy that had investors worried about a potential economic slowdown outside the U.S. 1 Investing involves risk, including potential for loss. 2 Asset allocation cannot guarantee a profit or protect against a loss in a declining market. 3 Source: Standard and Poor’s. The S&P 500 Index is a capitalization-weighted measure of common stocks of 500 large U.S. companies. It is not possible to invest directly in an index. Past performance does not guarantee future results. 4 Source: Bloomberg. The Russell Midcap Index measures the performance of the mid-cap segment of the U.S. equity universe. The Russell Midcap is a subsetofthe Russell 1000 Index. It includes approximately 800 of the smallest securities of the Russell 1000 Index based on a combination of their market cap and current index membership. The Russell Midcap represents approximately 31% of the total market capitalization of the Russell 1000 companies. It is not possible to invest directly in an index. Past performance does not guarantee future results. 5 Source: Bloomberg. The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe. The Russell 2000 is a subset of the Russell 3000 Index representing approximately 10% of the total market capitalization of that index. It includes approximately 2000 of the smallest securities of the Russell 3000 Index based on a combination of their market cap and current index membership. The stocks of small companies are more volatile than the stocks of larger, more established companies. It is not possible to invest directly in an index. Past performance does not guarantee future results. 1 Message to Variable Product Customers (continued) While 2017 was a banner year for the global economy, which grew at its fastest pace since 2011, international equity returns turned negative for the first half of 2018.