<PAGE>
===============================================================================
SEMI-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
May 31, 1996
This report is not to be distributed unless preceded
or accompanied by a prospectus.
===============================================================================
<PAGE>
STATE FARM INTERIM FUND, INC.
Dear Shareowner:
Interest rates have risen markedly since our last correspondence with you.
Yields on the U.S. Treasury securities which dominate the investments of your
Fund have jumped about 100 basis points (a basis point is .01%) since November
causing their values to fall. Correspondingly, the net asset value of the
Interim Fund declined 2.9% to $9.86 from $10.15 over the past six months. The
total return, which considers the reinvestment of dividends and the change in
net asset value, for the past twelve months was 4.6%.
The U.S. economy has bounced back smartly from last winter's weakness which
was made worse by harsh weather and federal government shutdowns. Most sectors
of the economy are showing renewed strength at the moment. Economists have
switched from talking about the possibility of an impending recession to
discussing the consequences of the recent spurt. They are now debating whether
this is a 'growth blip' which will fade away to a much slower pace of general
economic activity later this year or a sustainable improvement in general
economic conditions that may even lead to an overheated economy.
In today's capital markets interest rates tend to rise when evidence
suggests the economy has the possibility of growing more rapidly than its
perceived sustainable long-term growth rate. Following this line of reasoning,
interest rates started to rise in February when economic reports began to show
a strong rebound was occurring. It is somewhat surprising to us that market
interest rates have risen so much over the last three months or so even though
the Federal Reserve Board has not engineered any increase in short-term
interest rates.
Frankly however, we believe interest rate changes are generally
unpredictable since their movements represent the collective interpretation of
many complex factors by investors. A review of past market forecasts and of
interest rate fluctuations over the last few years reinforces our opinion in
this regard. As shareholders in the Interim Fund, we suggest that you adopt
this viewpoint and expect that the net asset value of the Fund will inevitably
fluctuate unpredictably over time with interest rate changes. The relatively
short maturity structure of your Fund's portfolio will tend to mitigate
fluctuations in the net asset value. With this orientation you can then
concentrate on the Fund's investment objective, which is the realization over
a period of years of the highest yield consistent with relative price
stability.
As you know, the Fund declares a dividend each day from its 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,
Kurt G. Moser John S. Concklin
Vice President Vice President
June 21, 1996
-2-
<PAGE>
STATE FARM INTERIM FUND, INC.
PORTFOLIO OF INVESTMENTS
MAY 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
LONG-TERM INVESTMENTS --U.S. TREASURY
OBLIGATIONS (93.5%):
<C> <S> <C>
$1,250,000 7-7/8%, due July 15, 1996......................... $1,253,750
1,000,000 7-7/8%, due July 31, 1996......................... 1,004,020
1,000,000 7%, due September 30, 1996........................ 1,005,290
6,500,000 8%, due October 15, 1996.......................... 6,560,125
2,000,000 8%, due January 15, 1997.......................... 2,028,760
1,000,000 6-3/4%, due February 28, 1997..................... 1,007,660
1,000,000 6-7/8%, due March 31, 1997........................ 1,009,010
1,000,000 8-1/2%, due April 15,1997......................... 1,022,760
1,500,000 8-1/2%, due May 15, 1997.......................... 1,536,540
1,000,000 6-3/8%, due June 30, 1997......................... 1,005,040
2,000,000 8-1/2%, due July 15, 1997......................... 2,054,700
1,750,000 8-5/8%, due August 15, 1997....................... 1,802,693
1,000,000 5-1/2%, due September 30, 1997.................... 993,540
3,500,000 8-3/4%, due October 15, 1997...................... 3,622,255
3,000,000 7-7/8%, due January 15, 1998...................... 3,077,970
1,000,000 8-1/8%, due February 15, 1998..................... 1,030,580
3,000,000 7-7/8%, due April 15, 1998........................ 3,085,290
750,000 5-1/8%, due June 30, 1998......................... 733,650
3,000,000 8-1/4%, due July 15, 1998......................... 3,114,540
1,000,000 4-3/4%, due September 30, 1998.................... 966,710
4,000,000 7-1/8%, due October 15, 1998...................... 4,068,560
4,000,000 6-3/8%, due January 15, 1999...................... 3,998,360
3,750,000 7%, due April 15, 1999............................ 3,805,050
4,000,000 6-3/8%, due July 15, 1999......................... 3,989,560
4,000,000 6%, due October 15, 1999.......................... 3,944,800
2,000,000 6-3/8%, due January 15, 2000...................... 1,988,980
2,000,000 8-1/2%, due February 15, 2000..................... 2,125,440
2,000,000 5-1/2%, due April 15, 2000........................ 1,929,360
1,000,000 6-3/4%, due April 30, 2000........................ 1,005,500
1,000,000 8-7/8%, due May 15, 2000.......................... 1,078,840
4,000,000 8-3/4%, due August 15, 2000....................... 4,309,840
3,750,000 8-1/2%, due November 15, 2000..................... 4,018,312
4,000,000 7-3/4%, due February 15, 2001..................... 4,177,880
4,000,000 8%, due May 15, 2001.............................. 4,225,280
</TABLE>
See accompanying notes to financial statements.
-3-
<PAGE>
STATE FARM INTERIM FUND, INC.
PORTFOLIO OF INVESTMENTS
MAY 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
LONG-TERM INVESTMENTS -- U.S. TREASURY
OBLIGATIONS (93.5%): (CONTINUED)
$4,000,000 7-7/8%, due August 15, 2001......................... $ 4,208,680
4,000,000 7-1/2%, due November 15, 2001....................... 4,145,320
1,000,000 7-1/2%, due May 15, 2002............................ 1,038,950
1,000,000 6-3/8%, due August 15, 2002......................... 982,760
-----------
Total long-term investments (cost: $95,881,758)..... 92,956,355
SHORT-TERM INVESTMENTS (6.4%):
2,300,000 U.S. Treasury bills, 4.81% to 4.99% effective
yield, due June to August, 1996................... 2,283,428
3,975,000 General Motors Acceptance Corp., 5.24%,
6-4-1996.......................................... 3,977,315
100,000 General Electric Capital Corp., 5.3%,
6-11-1996......................................... 100,015
-----------
Total short-term investments (cost: $6,360,093)..... 6,360,758
-----------
TOTAL INVESTMENTS (99.9%)(cost:$102,241,851).......... 99,317,113
CASH AND OTHER ASSETS, LESS LIABILITIES (.1%)......... 128,096
-----------
NET ASSETS (100.0%)................................... $99,445,209
===========
</TABLE>
Note: At May 31, 1996, net unrealized depreciation of $2,924,738 consisted of
gross unrealized appreciation of $206,808 and gross unrealized
depreciation of $3,131,546 based on cost of $102,241,851 for federal
income tax purposes.
See accompanying notes to financial statements.
-4-
<PAGE>
STATE FARM INTERIM FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
<S> <C> <C>
Investments, at value (cost: $102,241,851).............. $ 99,317,113
Cash.................................................... 537,151
Receivable for:
Interest.............................................. $1,463,663
Shares of the Fund sold............................... 19,961
Sundry................................................ 3,544 1,487,168
----------
Prepaid expenses........................................ 16,811
Total assets........................................ 101,358,243
LIABILITIES AND NET ASSETS
Payable for:
Dividends to shareowners.............................. 1,194,441
Shares of the Fund redeemed........................... 567,172
Securities purchased.................................. 100,000
Other accounts payable (including $44,752 to
Manager)............................................ 51,421
----------
Total liabilities................................. 1,913,034
------------
Net assets applicable to 10,084,019 shares outstanding
of $1 par value common stock (40,000,000 shares
authorized)........................................... $ 99,445,209
============
Net asset value, offering price and redemption price per
share................................................. $ 9.86
============
ANALYSIS OF NET ASSETS
Excess of amounts received from sales of shares over
amounts paid on redemptions of shares on account of
capital............................................... $103,620,006
Accumulated net realized loss on
sales of investments.................................. (1,250,059)
Unrealized depreciation of investments.................. (2,924,738)
------------
Net assets applicable to shares outstanding............. $ 99,445,209
============
</TABLE>
See accompanying notes to financial statements.
-5-
<PAGE>
STATE FARM INTERIM FUND, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS YEAR
ENDED ENDED
MAY 31, NOVEMBER 30,
1996 1995
(UNAUDITED)
<S> <C> <C>
INTEREST INCOME.................................................... $ 3,630,565 7,033,902
EXPENSES:
Investment advisory and management fees.......................... 88,852 170,812
Audit fees....................................................... 8,191 16,310
Legal fees....................................................... 767 1,789
Fidelity bond expense............................................ 1,680 3,554
Directors' fees.................................................. 900 1,100
Reports to shareowners........................................... 1,535 6,457
Securities evaluation fees....................................... 1,433 2,564
Franchise Taxes.................................................. 3,958 8,391
Custodian Fees................................................... 10,490 25,358
Other............................................................ 2,896 8,953
------------ ----------
Total expenses................................................. 120,702 245,288
Less: custodian fees paid indirectly........................... 8,755 16,301
------------ ----------
Net expenses................................................... 111,947 228,987
------------ ----------
Net investment income.............................................. 3,518,618 6,804,915
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on sales of investments........................ (205,191) (321,293)
Change in net unrealized appreciation/depreciation............... (2,747,078) 4,460,809
------------ ----------
Net realized and unrealized gain (loss) on investments............. (2,952,269) 4,139,516
------------ ----------
Net change in net assets resulting from operations................. $ 566,349 10,944,431
============ ==========
</TABLE>
See accompanying notes to financial statements
-6-
<PAGE>
<TABLE>
<CAPTION>
STATE FARM INTERIM FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS
ENDED YEAR ENDED
MAY 31, NOVEMBER 30,
1996 1995 1994
(UNAUDITED)
<S> <C> <C> <C>
From operations:
Net investment income........................ $ 3,518,618 6,804,915 7,083,506
------------ ----------- -----------
Net realized loss on sales
of investments............................. (205,191) (321,293) (335,277)
Change in net unrealized
appreciation/depreciation.................... (2,747,078) 4,460,809 (7,628,065)
------------ ----------- -----------
Net change in net assets resulting
from operations.............................. 566,349 10,944,431 (879,836)
Distributions to shareowners from
net investment income (per share
$.34 in 1996, $.70 in 1995 and
$.71 in 1994)................................ (3,518,618) (6,804,915) (7,083,506)
From Fund share transactions:
Proceeds from shares sold.................... 14,439,849 26,160,841 30,546,445
Reinvestment of ordinary income
dividends.................................. 3,178,303 6,131,262 6,479,922
------------ ----------- -----------
17,618,152 32,292,103 37,026,367
Less payments for shares
redeemed..................................... 19,919,272 25,990,885 38,546,040
------------ ----------- -----------
Net increase (decrease) in net assets from Fund
share transactions........................... (2,301,120) 6,301,218 (1,519,673)
------------ ----------- -----------
Total increase (decrease) in net assets....... (5,253,389) 10,440,734 (9,483,015)
Net assets:
Beginning of period.......................... 104,698,598 94,257,864 103,740,879
------------ ----------- -----------
End of period................................ $ 99,445,209 104,698,598 94,257,864
============ =========== ===========
</TABLE>
See accompanying notes to financial statements.
-7-
<PAGE>
STATE FARM INTERIM FUND, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
SECURITY VALUATION --
Long-term debt securities and U.S. Treasury bills are valued using
quotations provided by an independent pricing service. Short-term debt
securities, other than U.S. Treasury bills, 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.
The 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 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.
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.
-8-
<PAGE>
STATE FARM INTERIM FUND, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
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 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 $88,852
for the six months ended May 31, 1996 and $170,812 for the year ended November
30, 1995. The Fund does not pay any discount, commission or other compensation
for transfer agent or 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 six months ended May 31, 1996 and the year ended
November 30, 1995, except for director's fees of $900 and $1,100, respectively,
paid to the Fund's independent directors.
3. INVESTMENT TRANSACTIONS
Investment transactions (exclusive of short-term instruments) are as
follows:
<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS YEAR
ENDED ENDED
MAY 31, NOVEMBER 30,
1996 1995
Purchases............................................................ $ 2,045,859 20,285,313
Proceeds from sales.................................................. 6,000,000 15,750,313
=========== ==========
</TABLE>
-9-
<PAGE>
STATE FARM INTERIM FUND, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
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:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
MAY 31, NOVEMBER 30,
1996 1995 1994
<S> <C> <C> <C>
Shares sold............................................. 1,433,326 2,617,200 3,002,212
Shares issued in reinvestment of
ordinary income dividends.............................. 315,010 617,354 639,513
----------- -----------------------
1,748,336 3,234,554 3,641,725
Less shares redeemed.................................... 1,977,294 2,615,871 3,811,808
Net increase (decrease) in shares ----------- -----------------------
outstanding............................................ (228,958) 618,683 (170,083)
=========== =======================
</TABLE>
-10-
<PAGE>
<TABLE>
<CAPTION>
STATE FARM INTERIM FUND, INC.
FINANCIAL HIGHLIGHTS
PER SHARE INCOME AND CAPITAL CHANGES (For a share outstanding throughout the period)
SIX MONTHS ENDED YEAR ENDED NOVEMBER 30,
MAY 31, 1996 1995 1994 1993 1992 1991
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.................... $ 10.15 9.72 10.52 10.46 10.50 10.16
Income from Investment
- ----------------------
Operations
----------
Net Investment Income.................. .34 .70 .71 .74 .78 .78
Net Gains or Losses
on Securities
(both realized and
unrealized)........................... (.29) .43 (.80) .06 (.04) .34
-----------------------------------------------------------------------
Total from Investment
Operations .05 1.13 (.09) .80 .74 1.12
Less Distributions
- ------------------
Dividends (from net
investment income).................... (.34) (.70) (.71) (.74) (.78) (.78)
Net Asset Value, End of
Period................................. $ 9.86 10.15 9.72 10.52 10.46 10.50
=======================================================================
Total Return............................ .52% 11.91% (.85%) 7.82% 7.19% 11.41%
- ------------
Ratios/Supplemental Data
- ------------------------
Net Asset, end of period
(millions)............................ $ 99.4 104.7 94.3 103.7 85.9 66.8
Ratio of expenses to average
net assets............................ .22%(a) .25% .22% .25% .27% .28%
Ratio of net investment
income to average net
assets................................ 6.85%(a) 7.00% 7.00% 7.00% 7.30% 7.65%
Portfolio turnover rate................. 4%(a) 17% 15% 15% 15% 14%
Number of shares out-
standing at end of period
(millions)............................ 10.1 10.3 9.7 9.9 8.2 6.4
</TABLE>
Notes: (a) Determined on an annualized basis.
-11-
<PAGE>
SEMI-ANNUAL
REPORT
MAY 31, 1996
STATE
FARM
INTERIM
FUND, INC.
ONE STATE FARM PLAZA
BLOOMINGTON, ILLINOIS 61710
TELEPHONE (309) 766-2029
