<PAGE>
ANNUAL REPORT
State Farm Interim Fund, Inc.
ONE STATE FARM PLAZA . BLOOMINGTON, ILLINOIS 61710
For Account Information and Shareowner
Services:(309) 766-2029
For Price Information ONLY:
1-800/447-0740
November 30, 1995
This report is not to be distributed unless preceded or accompanied by a
prospectus.
<PAGE>
STATE FARM INTERIM FUND, INC.
Dear Shareowner:
The past fiscal year has been a good one for bond markets and investors in the
Interim Fund. Yields on U. S. Treasury securities held by your Fund have dropped
more than 200 basis points (a basis point is .01%) during the year causing the
values of the securities to increase significantly. Correspondingly, the net
asset value of the Interim Fund rose to $10.15 from $9.72, a 4.4% improvement.
The total return, which is derived by adding dividends declared by the Fund to
the change in net asset value, for the past year was 11.91%.
The following graph compares a $10,000 investment in the Interim Fund over the
last ten years to theoretical investments of the same amount in the Lehman
Brothers Intermediate Treasury Index and the Lehman Brothers Three-year Treasury
Index:
COMPARISON OF CHANGE IN VALUE OF
$10,000 INVESTMENT FOR THE YEARS
ENDED NOVEMBER 30
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
Interim
- -------
<CAPTION>
Lehman
X-Axis Interim Lehman 3-Yr
Year Fund Intermediate Treasury
- ------ ------- ------------ --------
<S> <C> <C> <C>
1985 10,000 10,000 10,000
1986 11,321 11,545 11,328
1987 11,702 11,879 11,745
1988 12,481 12,727 12,504
1989 13,954 14,312 13,903
1990 15,110 15,495 15,075
1991 16,830 17,490 16,968
1992 18,042 18,928 18,283
1993 19,441 20,667 19,685
1994 19,274 20,318 19,943
1995 21,570 23,088 22,444
</TABLE>
The fall in interest rates over the course of the year has been fueled by
evidence that growth of the U. S. economy is slowing and inflationary pressures
are slight. Furthermore, capital markets have been helped to some degree by
prospects for a program, which will hopefully be agreed upon by the President
and Congress, to eliminate the federal budget deficit over seven years.
The prevailing mood in the bond markets is quite optimistic at the moment.
Many investors seem to be convinced that the Federal Reserve Board has done its
job well and the twin perils of inflation and recession will be avoided for a
long time leaving room for further drops in interest rates. Such a view is
comforting and may well prove to be correct, but we caution you, as investors,
against believing the future is predictable. Markets are always vulnerable to
unanticipated surprises and changes in investors' perceptions, and vulnerability
along these lines tends to be greatest when optimism is rampant.
-2-
<PAGE>
The general composition of the Fund's portfolio changes very little from
year to year with primary investments consisting of U. S. Treasury issues which
mature regularly over the following six years. The high quality investments held
by the Fund continue to produce a dependable flow of dividend income to
shareowners.
As you know, the Fund declares a dividend each day from its net investment
income which is payable on the last day of the calendar quarter. All dividends
are automatically invested in shares of the Fund unless you have advised State
Farm Investment Management Corp. otherwise in writing.
Sincerely,
/s/ Kurt G. Moser
Kurt G. Moser
Vice President
December 19, 1995
-3-
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareowners
State Farm Interim Fund, Inc.
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of State Farm Interim Fund, Inc. as of November
30, 1995, the related statements of operations and changes in net assets for
each of the two years in the period then ended, and the financial highlights for
each of the fiscal periods since 1986. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits 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
November 30, 1995, 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 State
Farm Interim Fund, Inc. at November 30, 1995, the results of its operations and
changes in its net assets for each of the two years in the period then ended,
and the financial highlights for each of the fiscal periods since 1986, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
December 15, 1995
-4-
<PAGE>
STATE FARM INTERIM FUND, INC.
PORTFOLIO OF INVESTMENTS
November 30, 1995
<TABLE>
<CAPTION>
Principal
amount Value
<S> <C> <C>
LONG-TERM INVESTMENTS -- U.S. TREASURY
OBLIGATIONS (95.4%):
$2,000,000 8-7/8%, due February 15, 1996.................................................... $ 2,012,820
1,000,000 7-1/2%, due February 29, 1996.................................................... 1,004,530
1,000,000 7-5/8%, due April 30, 1996....................................................... 1,008,590
1,000,000 7-3/8%, due May 15, 1996......................................................... 1,008,440
1,000,000 4-1/4%, due May 15, 1996......................................................... 994,690
1,250,000 7-7/8%, due July 15, 1996........................................................ 1,267,963
1,000,000 7-7/8%, due July 31, 1996........................................................ 1,015,470
1,000,000 7%, due September 30, 1996....................................................... 1,012,340
6,500,000 8%, due October 15, 1996......................................................... 6,639,165
2,000,000 8%, due January 15, 1997......................................................... 2,055,320
1,000,000 6-3/4%, due February 28, 1997.................................................... 1,016,090
1,000,000 6-7/8%, due March 31, 1997....................................................... 1,018,750
1,000,000 8-1/2%, due April 15, 1997....................................................... 1,040,310
1,500,000 8-1/2%, due May 15, 1997......................................................... 1,564,215
1,000,000 6-3/8%, due June 30, 1997........................................................ 1,014,840
2,000,000 8-1/2%, due July 15, 1997........................................................ 2,094,380
1,750,000 8-5/8%, due August 15, 1997...................................................... 1,841,332
1,000,000 5-1/2%, due September 30, 1997................................................... 1,002,190
3,500,000 8-3/4%, due October 15, 1997..................................................... 3,706,185
3,000,000 7-7/8%, due January 15, 1998..................................................... 3,146,730
1,000,000 8-1/8%, due February 15, 1998.................................................... 1,055,940
3,000,000 7-7/8%, due April 15, 1998....................................................... 3,162,180
750,000 5-1/8%, due June 30, 1998........................................................ 744,960
3,000,000 8-1/4%, due July 15, 1998........................................................ 3,204,840
1,000,000 4-3/4%, due September 30, 1998................................................... 982,500
4,000,000 7-1/8%, due October 15, 1998..................................................... 4,178,760
4,000,000 6-3/8%, due January 15, 1999..................................................... 4,103,120
3,750,000 7%, due April 15, 1999........................................................... 3,922,838
4,000,000 6-3/8%, due July 15, 1999........................................................ 4,114,360
4,000,000 6%, due October 15, 1999......................................................... 4,071,240
2,000,000 6-3/8%, due January 15, 2000..................................................... 2,061,880
2,000,000 8-1/2%, due February 15, 2000.................................................... 2,218,120
2,000,000 5-1/2%, due April 15, 2000....................................................... 2,001,560
1,000,000 6-3/4%, due April 30, 2000....................................................... 1,046,720
1,000,000 8-7/8%, due May 15, 2000......................................................... 1,130,780
4,000,000 8-3/4%, due August 15, 2000...................................................... 4,523,760
3,750,000 8-1/2%, due November 15, 2000.................................................... 4,223,437
4,000,000 7-3/4%, due February 15, 2001.................................................... 4,389,360
4,000,000 8%, due May 15, 2001............................................................. 4,449,360
4,000,000 7-7/8%, due August 15, 2001...................................................... 4,437,480
4,000,000 7-1/2%, due November 15, 2001.................................................... 4,376,240
------------
Total long-term investments (cost: $100,041,445).................................... 99,863,785
SHORT-TERM INVESTMENTS (4.1%)
3,000,000 U.S. Treasury bills, 5.245% to 5.385% effective yield, due 12-1995 to 2-1996..... 2,979,571
560,000 General Motors Acceptance Corp., 5.80%, 12-5-1995................................ 560,361
550,000 General Motors Acceptance Corp., 5.78%, 12-5-1995................................ 550,265
220,000 General Motors Acceptance Corp., 5.79%, 12-5-1995................................ 220,036
------------
Total short-term investments (cost: $4,310,233)..................................... 4,310,233
------------
TOTAL INVESTMENTS (99.5%) (cost:$104,351,678).......................................... 104,174,018
CASH AND OTHER ASSETS, LESS LIABILITIES (0.5%)......................................... 524,580
------------
NET ASSETS (100.00%).................................................................. $104,698,598
============
Note: At November 30, 1995, net unrealized depreciation of $177,660 consisted of gross unrealized appreciation of
$1,103,559 and gross unrealized depreciation of $1,281,219 based on cost of $104,351,678 for federal income
tax purposes.
</TABLE>
See accompanying notes to financial statements.
-5-
<PAGE>
STATE FARM INTERIM FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
November 30, 1995
ASSETS
Investments, at value (cost $104,351,678)............ $104,174,018
Cash................................................. 343,901
Receivable for:
Interest........................................... $1,499,818
Shares of the Fund sold............................ 81,487
Sundry............................................. 3,544 1,584,849
----------
Prepaid expenses..................................... 7,520
------------
Total assets..................................... 106,110,288
LIABILITIES AND NET ASSETS
Payable for:
Dividends to shareowners........................... 1,182,549
Shares of the Fund redeemed........................ 178,615
Other accounts payable (including $44,701
to Manager)........................................ 50,526
----------
Total liabilities................................ 1,411,690
------------
Net assets applicable to 10,312,977 shares
outstanding of $1 par value common stock
(40,000,000 shares authorized)..................... $104,698,598
============
Net asset value, offering price and redemption price
per share.......................................... $ 10.15
============
ANALYSIS OF NET ASSETS
Excess of amounts received from sales of shares over
amounts paid on redemptions of shares on account
of capital......................................... $105,921,126
Accumulated net realized loss on sales
of investments..................................... (1,044,868)
Net unrealized depreciation of investments........... (177,660)
------------
Net assets applicable to shares outstanding.......... $104,698,598
============
See accompanying notes to financial statements.
-6-
<PAGE>
STATE FARM INTERIM FUND, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Year ended November 30,
1995 1994
<S> <C> <C>
Interest income...................................... $ 7,033,902 7,308,531
Expenses:
Investment advisory and management fees............ 170,812 176,259
Audit fees......................................... 16,310 16,113
Legal fees......................................... 1,789 2,026
Fidelity bond expense.............................. 3,554 3,653
Directors' fees.................................... 1,100 1,100
Reports to shareowners............................. 6,457 2,959
Securities evaluation fees......................... 2,564 3,237
Franchise taxes.................................... 8,391 6,161
Custodian fees..................................... 25,358 --
Other.............................................. 8,953 13,517
------------------------
Total expenses................................... 245,288 225,025
Less: custodian fees paid indirectly............ 16,301 --
------------------------
Net expenses..................................... 228,987 225,025
------------------------
Net investment income................................ 6,804,915 7,083,506
Realized and unrealized gain (loss) on investments:
Net realized loss on sales of investments.......... (321,293) (335,277)
Change in net unrealized appreciation/depreciation. 4,460,809 (7,628,065)
------------------------
Net realized and unrealized gain (loss) on
investments........................................ 4,139,516 (7,963,342)
------------------------
Net change in net assets resulting from operations... $10,944,431 (879,836)
========================
</TABLE>
See accompanying notes to financial statements.
-7-
<PAGE>
STATE FARM INTERIM FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year ended November 30,
1995 1995
<S> <C> <C>
From operations:
Net investment income............................ $ 6,804,915 7,083,506
Net realized loss on sales of investments........ (321,293) (335,277)
Change in net unrealized
appreciation/depreciation...................... 4,460,809 (7,628,065)
--------------------------
Net change in net assets resulting from
operations..................................... 10,944,431 (879,836)
Dividends to shareowners from net investment
income (per share $.70 in 1995 and $.71 in 1994). (6,804,915) (7,083,506)
From Fund share transactions:
Proceeds from shares sold........................ 26,160,841 30,546,445
Reinvestment of ordinary income dividends........ 6,131,262 6,479,922
--------------------------
32,292,103 37,026,367
Less payments for shares redeemed................ 25,990,885 38,546,040
--------------------------
Net increase (decrease) in net assets from Fund
share transactions............................. 6,301,218 (1,519,673)
--------------------------
Total increase (decrease) in net assets............ 10,440,734 (9,483,015)
Net assets:
Beginning of year................................ 94,257,864 103,740,879
--------------------------
End of year...................................... $104,698,598 94,257,864
==========================
</TABLE>
See accompanying notes to financial statements.
-8-
<PAGE>
STATE FARM INTERIM FUND, INC.
NOTES TO FINANCIAL STATEMENTS
1. Significant accounting policies
Security valuation --
Debt securities are valued using quotations provided by an independent
pricing service, except short-term debt securities having a maturity of 60 days
or less from the valuation date are valued on an amortized cost basis. Any
securities not valued as described above are valued at fair value as determined
in good faith by the Board of Directors or its delegate.
Security transactions and interest income --
Security transactions are accounted for on the trade date (date the order to
buy or sell is executed). Interest income is recorded on the accrual basis.
Realized gains and losses from security transactions are reported on an
identified cost basis.
Fund share valuation, dividends and distributions to shareowners --
Fund shares are sold and redeemed on a continuous basis at net asset value.
Net asset value per share is determined as of 3:00 p.m. Bloomington, Illinois
time on each business day other than customary weekend and holiday closings,
except that the Fund need not compute a net asset value on any day when no
purchase or redemption order has been received by the Fund. The net asset value
per share is computed by dividing the value of the Fund's investments and other
assets, less liabilities, by the number of Fund shares outstanding. The Fund
declares a daily dividend equal to its net investment income, and distributions
of such amounts are made at the end of each calendar quarter. Net realized gains
on sales of investments, if any, are distributed annually after the close of the
Fund's fiscal year.
Dividends and distributions payable to its shareowners are recorded by the
Fund on the ex-dividend date.
Federal income taxes --
It is the Fund's 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
Fund has complied with this policy and, accordingly, no provision for federal
income taxes is required.
The accumulated net realized loss on sales of investments at November 30,
1995, amounting to $1,044,868, is available to offset future taxable gains. If
not applied, the capital loss carryover expires as follows: $14,537 in 1996,
$55,654 in 1997, $40,572 in 1998, $92,150 in 1999, $22,669 in 2000, $162,716 in
2001, $335,277 in 2002, and $321,293 in 2003.
A capital loss carryover of $2,235 expired in 1995 and was re-classified from
Accumulated net realized loss on sales of investments to Excess of amounts
received from sales of shares over amounts paid on redemptions of shares on
account of capital.
Custodian fees --
Custodian fees are reduced based on the Fund's cash balances maintained with
the custodian. Beginning in 1995, in accordance with changes in the requirements
of the Securities and Exchange Commission, both gross custodian fees and the
amount by which such fees are reduced, are disclosed separately in the statement
of operations. This presentation does not affect the determination of net
investment income.
-9-
<PAGE>
STATE FARM INTERIM FUND, INC.
NOTES TO FINANCIAL STATEMENTS
2. Transactions with affiliates
The Fund has an investment advisory and management services agreement with
State Farm Investment Management Corp. (Manager) pursuant to which the Fund pays
the Manager an annual fee (computed on a daily basis and paid quarterly) of .20%
of the first $50 million of average net assets, .15% of the next $50 million of
average net assets and .10% of average net assets in excess of $100 million. The
Manager guarantees that all operating expenses of the Fund, including the
compensation of the Manager but excluding franchise taxes, interest,
extraordinary litigation expenses, brokerage commissions and other portfolio
transaction costs, shall not exceed .40% of average net assets annually.
Under the terms of this agreement, the Fund incurred fees of $170,812 for
1995 and $176,259 for 1994. The Fund pays no fees for transfer agent services
provided by the Manager. The Fund does not pay any discount, commission or other
compensation for underwriting services provided by the Manager.
Certain officers and/or directors of the Fund are also officers and/or
directors of the Manager. The Fund made no payments to its officers or directors
during the two years ended November 30, 1995, except for directors' fees of
$1,100 for 1995 and 1994, respectively, paid to the Fund's independent
directors.
3. Investment transactions
Investment transactions (exclusive of short-term instruments) for each of the
two years ended November 30 are as follows:
1995 1994
Purchases .............................. $20,285,313 14,830,156
Proceeds from sales .................... 15,750,313 15,750,000
=========================
4. Fund share transactions
Proceeds and payments on Fund shares as shown in the statement of changes in
net assets are in respect of the following number of shares:
Year ended November 30,
1995 1994
Shares sold .................................... 2,617,200 3,002,212
Shares issued in reinvestment of ordinary
income dividends ............................. 617,354 639,513
-----------------------
3,234,554 3,641,725
Less shares redeemed ........................... 2,615,871 3,811,808
-----------------------
Net increase (decrease) in shares outstanding .. 618,683 (170,083)
=======================
-10-
<PAGE>
STATE FARM INTERIM FUND, INC.
FINANCIAL HIGHLIGHTS
Per Share Income and Capital Changes (For a share outstanding throughout each
period)
<TABLE>
<CAPTION>
Six months
ended Year ended
Year ended November 30, November 30, May 31,
1995 1994 1993 1992 1991 1990 1989 1988 1987 1987 1986
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period........................ $ 9.72 10.52 10.46 10.50 10.16 10.17 9.86 9.99 10.05 10.21 9.91
Income from
- -----------
Investment
----------
Operations
----------
Net investment
income....................... .70 .71 .74 .78 .78 .82 .81 .78 .39 .80 .89
Net gain or
loss on
securities (both
realized and
unrealized).................. .43 (.80) .06 (.04) .34 (.01) .31 (.13) (.06) (.16) .30
-------------------------------------------------------------------------------------------------
Total from
investment
operations.................... 1.13 (.09) .80 .74 1.12 .81 1.12 .65 .33 .64 1.19
Less Distributions
- ------------------
Dividends (from
net investment
income)...................... (.70) (.71) (.74) (.78) (.78) (.82) (.81) (.78) (.39) (.80) (.89)
Distributions
(from capital
gain)........................ -- -- -- -- -- -- -- -- -- -- --
-------------------------------------------------------------------------------------------------
Total distributions............ (.70) (.71) (.74) (.78) (.78) (.82) (.81) (.78) (.39) (.80) (.89)
Net asset value, end of
period........................ $10.15 9.72 10.52 10.46 10.50 10.16 10.17 9.86 9.99 10.05 10.21
=================================================================================================
Total Return................... 11.91% (.85%) 7.82% 7.19% 11.41% 8.27% 11.82% 6.67% 6.67%(a) 6.33% 12.40%
- ------------
Ratios/
- -------
Supplemental
------------
Data
----
Net assets, end of
period (millions)............. $104.7 94.3 103.7 85.9 66.8 52.7 42.2 32.9 23.9 16.8 11.7
Ratio of expenses to
average net
assets........................ .25%(b) .22% .25% .27% .28% .30% .31% .36% .41%(a) .41% .42%
Ratio of net
investment
income to
average net assets............ 7.00% 7.00% 7.00% 7.30% 7.65% 8.12% 8.16% 7.85% 7.78%(a) 7.77% 8.75%
Portfolio turnover rate........ 17% 15% 15% 15% 14% 14% 17% 15% 9%(a) 12% 6%
Number of shares outstanding
at end of period (millions)... 10.3 9.7 9.9 8.2 6.4 5.2 4.2 3.3 2.4 1.7 1.1
</TABLE>
Notes: (a) Ratios and rates have been calculated on an annualized basis.
(b) The ratio based on net custodian expenses would have been .24%.
-11-
<PAGE>
STATE FARM INTERIM FUND, INC.
TAX INFORMATION
The Fund paid ordinary income dividends in March, June, September and
December. The dividends paid to you will be included on the Form 1099-DIV to be
sent in January 1996.
Since the Fund's investment income was derived from interest, none of the Fund's
distributions are eligible for the dividend received deduction for corporations.
NOTE: Dividends paid to you must be included in your federal income tax return
and must be reported by the Fund to the Internal Revenue Service in
accordance with provisions of the Internal Revenue Code.
