SEMI-ANNUAL REPORT
State Farm Interim Fund, Inc.
ONE STATE FARM PLAZA - BLOOMINGTON, ILLINOIS 61710
For Account Information and Shareowner
Services: (309) 766-2029
(800) 447-0740
May 31, 1997
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 since our last correspondence with you. At May
31, yields on the U.S. Treasury securities which dominate the investments of
your Fund stood at levels about 65 basis points (a basis point is .01%) higher
than those which existed last November. Consequently, the value of investments
held by the Fund declined, and its net asset value fell 2.0% to $9.78 from
$9.98 over the past six months. The total return, which considers the
reinvestment of dividends and the change in net asset value, was 6.6% for the
past twelve months and 1.6% for the past six months.
The upward movement of interest rates since November occurred as the
U.S. economy exhibited significant, and probably unsustainable, strength in
the latter part of 1996 and early 1997. Concerned that the rapid pace of
general economic growth might lead to higher inflation, the Federal Reserve
increased the federal funds rate 25 basis points in late March. Members of the
Federal Reserve Board have repeatedly stated that monetary policy will be
tightened if evidence of inflationary pressure is on their radar screens. Its
action in March was a move in that direction even though few definitive signs
of rising inflation presently exist.
Growth of the U.S. economy has recently slowed from the heady pace of
the first quarter, but general economic conditions remain quite healthy. As
this letter is being written market interest rates are falling, which suggests
that investors are collectively thinking that the economy is slowing
sufficiently to keep inflationary tendencies at bay. We caution that
volatility in bond markets will likely persist as investors attempt to sort
out whether general economic growth is slowing down to a comfortable,
sustainable pace or just taking a pause before moving back to more rapid
growth which will again spawn concerns about inflation and higher interest
rates.
We always encourage you to view your investment in the Fund as a genuinely
long-term commitment and to accept market volatility as an inevitable
consequence of owning a mutual fund. The relatively short maturity strucutre
of the Interim Fund portfolio will tend to mitigate fluctuations in its net
asset value. The high quality investments of the Fund provide a dependable
flow of dividend income.
2
<PAGE>
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 /s/ John S. Concklin
Kurt G. Moser John S. Concklin
Vice President Vice President
June 20, 1997
3
<PAGE>
STATE FARM INTERIM FUND, INC.
PORTFOLIO OF INVESTMENTS
MAY 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
LONG-TERM INVESTMENTS - U.S. TREASURY
OBLIGATIONS (93.7%)
1,000,000 6.375%, due June 30, 1997 $ 1,001,230
2,000,000 8.500%, due July 15, 1997 2,008,140
1,750,000 8.625%, due August 15, 1997 1,762,425
1,000,000 5.500%, due September 30, 1997 1,000,520
3,500,000 8.750%, due October 15, 1997 3,541,230
3,000,000 7.875%, due January 15, 1998 3,038,790
1,000,000 8.125%, due February 15, 1998 1,015,710
4,000,000 7.875%, due April 15, 1998 4,069,000
750,000 5.125%, due June 30, 1998 744,240
3,000,000 8.250%, due July 15, 1998 3,075,420
1,000,000 4.750%, due September 30, 1998 984,260
4,000,000 7.125%, due October 15, 1998 4,057,280
4,000,000 6.375%, due January 15, 1999 4,018,080
1,000,000 5.875%, due March 31, 1999 995,350
3,750,000 7.000%, due April 15, 1999 3,804,263
4,000,000 6.375%, due July 15, 1999 4,013,960
4,000,000 6.000%, due October 15, 1999 3,981,600
2,000,000 6.375%, due January 15, 2000 2,005,040
2,000,000 8.500%, due February 15, 2000 2,105,520
1,000,000 6.875%, due March 31, 2000 1,013,410
2,000,000 5.500%, due April 15, 2000 1,956,460
1,000,000 6.750%, due April 30, 2000 1,010,220
1,000,000 8.875%, due May 15, 2000 1,067,700
4,000,000 8.750%, due August 15, 2000 4,268,480
3,750,000 8.500%, due November 15, 2000 3,988,575
4,000,000 7.750%, due February 15, 2001 4,170,320
5,000,000 8.000%, due May 15, 2001 5,264,100
4,000,000 7.875%, due August 15, 2001 4,201,560
4,000,000 7.500%, due November 15, 2001 4,152,120
4,000,000 14.250%, due February 15, 2002 5,238,040
4,000,000 7.500%, due May 15, 2002 4,167,000
5,000,000 6.375%, due August 15, 2002 4,970,400
4,000,000 11.625%, due November 15, 2002 4,924,800
1,000,000 6.250%, due February 15, 2003 986,250
1,000,000 10.750%, due May 15, 2003 1,203,280
1,000,000 11.125%, due August 15, 2003 1,228,060
1,000,000 11.875%, due November 15, 2003 1,273,420
----------------
Total long-term investments (cost: $105,720,195) 102,306,253
See accompanying notes to financial statements.
4
<PAGE>
STATE FARM INTERIM FUND, INC.
PORTFOLIO OF INVESTMENTS
MAY 31, 1997
(UNAUDITED)
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
SHORT-TERM INVESTMENTS (6.4%):
$1,750,000 U.S. Treasury bills, 5.02% to 5.14% effective yield,
due June to August, 1997 $ 1,737,934
4,700,000 General Motors Acceptance Corp., 5.48%, 6-3-1997 4,702,147
600,000 General Motors Acceptance Corp., 5.53%, 6-12-1997 600,277
----------------
Total short-term investments (cost: $7,038,898) 7,040,358
----------------
TOTAL INVESTMENTS (100.1%) (cost: $112,759,093) 109,346,611
CASH AND OTHER ASSETS, LESS LIABILITIES (-.1%) (129,486)
----------------
NET ASSETS (100.0%) $ 109,217,125
================
</TABLE>
Note: At May 31, 1997 net unrealized depreciation of $3,412,482 consisted of
gross unrealized appreciation of $77,822 and gross unrealized
depreciation of $3,490,304 based on cost of $112,759,093 for federal
income tax purposes.
See accompanying notes to financial statements.
5
<PAGE>
STATE FARM INTERIM FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
<S> <C> <C>
Investments, at value (cost $112,759,093) $ 109,346,611
Cash 386,173
Receivable for:
Interest $ 1,561,530
Securities sold 646,013
Shares of the Fund sold 55,037
Sundry 3,544 2,266,124
------------
Prepaid expenses 18,599
---------------
Total assets 112,017,507
LIABILITIES AND NET ASSETS
Payable for:
Dividends to shareowners 1,252,540
Shares of the Fund redeemed 1,497,936
Other accounts payable (including $46,819 to Manager) 49,906
------------
Total liabilities 2,800,382
---------------
Net assets applicable to 11,172,191 shares outstanding of
$1 par value common stock (40,000,000 shares
authorized) $ 109,217,125
===============
Net asset value, offering price and redemption price per
share $ 9.78
===============
ANALYSIS OF NET ASSETS
Excess of amounts received from sales of shares over
amounts paid on redemptions of shares on account of
capital $ 114,348,769
Accumulated net realized loss on sales of investments (1,719,162)
Net unrealized depreciation of investments (3,412,482)
---------------
Net assets applicable to shares outstanding $ 109,217,125
===============
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
STATE FARM INTERIM FUND, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED NOVEMBER 30,
MAY 31, 1997 1996
(UNAUDITED)
<S> <C> <C>
INTEREST INCOME: $ 3,952,642 7,436,515
EXPENSES:
Investment advisory and management fees 91,583 177,555
Audit fees 8,603 16,242
Legal fees 274 1,106
Fidelity bond expense 1,443 3,103
Directors' fees 600 1,500
Reports to shareowners 1,168 3,471
Securities evaluation fees 1,067 2,288
Franchise taxes 4,679 7,235
Custodian fees 4,936 21,035
Other 3,719 6,205
------------ ----------
Total expenses 118,072 239,740
Less: custodian fees paid indirectly -- 17,978
------------ ----------
Net expenses 118,072 221,762
------------ ----------
Net investment income 3,834,570 7,214,753
REALIZED AND UNREALIZED LOSS ON INVESTMENTS:
Net realized loss on sales
of investments (324,874) (363,957)
Change in net unrealized appreciation (depreciation) (1,903,281) (1,331,541)
------------ ----------
Net realized and unrealized loss on
investments (2,228,155) (1,695,498)
------------ ----------
Net change in net assets
resulting from operations $ 1,606,415 5,519,255
============ ==========
</TABLE>
See accompanying notes to financial statements.
7
<PAGE>
STATE FARM INTERIM FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED NOVEMBER 30,
MAY 31, 1997 1996 1995
(UNAUDITED)
<S> <C> <C> <C>
From operations:
Net investment income $ 3,834,570 7,214,753 6,804,915
Net realized loss on sales
of investments (324,874) (363,957) (321,293)
Change in net unrealized
appreciation (depreciation) (1,903,281) (1,331,451) 4,460,809
--------------- ------------ ------------
Net change in net assets resulting
from operations 1,606,415 5,519,255 10,944,431
Distributions to shareowners from
net investment income (per share
$.35 in 1997, $.70 in 1996
and $.70 in 1995) (3,834,570) (7,214,753) (6,804,915)
From Fund share transactions:
Proceeds from shares sold 29,345,327 36,298,430 26,160,841
Reinvestment of ordinary income dividends 3,551,576 6,439,866 6,131,262
--------------- ------------ ------------
32,896,903 42,738,296 32,292,103
Less payments for shares redeemed 29,095,935 38,097,084 25,990,885
--------------- ------------ ------------
Net increase in net assets from Fund
share transactions 3,800,968 4,641,212 6,301,218
--------------- ------------ ------------
Total increase in net assets 1,572,813 2,945,714 10,440,734
Net assets:
Beginning of period 107,644,312 104,698,598 94,257,864
--------------- ------------ ------------
End of period $ 109,217,125 107,644,312 104,698,598
=============== ============ ============
</TABLE>
See accompanying notes to financial statements
8
<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,
1996 (the Fund's most recent fiscal year end), amounting to $1,394,288 is
available to offset future taxable gains. If not applied, the carryover
expires as follows: $55,654 in 1997, $40,572 in 1998, $92,150 in 1999, $22,669
in 2000, $162,716 in 2001, $335,277 in 2002, $321,293 in 2003, and $363,957
in 2004.
CUSTODIAN FEES - For the period ended May 31, 1997, the Fund no longer
receives fee reductions for balances maintained with the custodian, as
interest on cash balances is reflected as income rather than an offset to
custodian fees. Custodian fees for the year ended November 30, 1996 were
reduced based on the Fund's cash balances maintained with the custodian.
9
<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 the 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 $91,583, for
the six months ended May 31, 1997 and $177,555 for the year ended November 30,
1996. 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, 1997 and the year ended November
30, 1996, except for directors' fees of $600 and $1,500, respectively, paid to
the Fund's independent directors.
3. INVESTMENT TRANSACTIONS
Investment transactions (exclusive of short-term instruments) are as
follows:
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED NOVEMBER 30,
MAY 31, 1997 1996
<S> <C> <C>
Purchases $ 9,355,000 19,122,109
Proceeds from sales 6,500,000 15,750,000
============ ============
</TABLE>
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 NOVEMBER 30,
MAY 31, 1997 1996 1995
(UNAUDITED)
<S> <C> <C> <C>
Shares sold 2,998,573 3,641,452 2,617,200
Shares issued in reinvestment of
ordinary income dividends 353,860 644,965 617,354
---------- ---------- ----------
3,352,433 4,286,417 3,234,554
Less shares redeemed 2,964,475 3,815,161 2,615,871
---------- ---------- ----------
Net increase in shares
outstanding 387,958 471,256 618,683
========== ========== ==========
</TABLE>
10
<PAGE>
STATE FARM INTERIM FUND, INC.
FINANCIAL HIGHLIGHTS
PER SHARE INCOME AND CAPITAL CHANGES (For a share outstanding throughout the
period)
<TABLE>
<CAPTION>
Six months ended Year ended November 30,
May 31, 1997 1996 1995 1994 1993 1992
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $ 9.98 10.15 9.72 10.52 10.46 10.50
Income from Investment
Operations
Net Investment Income .35 .70 .70 .71 .74 .78
Net Gains or Losses
on Securities (both realized
and unrealized) (.20) (.17) .43 (.80) .06 (.04)
----------------------------------------------------------------
Total from Investment
Operations .15 .53 1.13 (.09) .80 .74
Less Distributions
Net investment income (.35) (.70) (.70) (.71) (.74) (.78)
Net Asset Value, End of Period $ 9.78 9.98 10.15 9.72 10.52 10.46
================================================================
Total Return 1.56% 5.44% 11.91% (.85%) 7.82% 7.19%
Ratios/Supplemental Data
Net assets, end of period
(millions) $ 109.2 107.6 104.7 94.3 103.7 85.9
Ratio of expenses to average
net assets .22%(a) .23%(b) .25%(b) .22% .25% .27%
Ratio of net investment income
to average net assets 7.12%(a) 7.03% 7.00% 7.00% 7.00% 7.30%
Portfolio turnover rate 6%(a) 17%(a) 17% 15% 15% 15%
Number of shares outstanding
at end of period
(millions) 11.2 10.8 10.3 9.7 9.9 8.2
</TABLE>
Notes: (a) Determined on an annualized basis.
(b) The ratio based on net custodian expenses would have been .22%
in 1996 and .24% in 1995.
11
<PAGE>
SEMI-ANNUAL
REPORT
May 31, 1997
STATE
FARM
INTERIM
FUND, INC.
ONE STATE FARM PLAZA
BLOOMINGTON, ILLINOIS 61710
TELEPHONE (309) 766-2029
(800) 447-0740
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000205925
<NAME> STATE FARM INTERIM FUND, INC.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-END> MAY-31-1997
<INVESTMENTS-AT-COST> 112759093
<INVESTMENTS-AT-VALUE> 109346611
<RECEIVABLES> 2266124
<ASSETS-OTHER> 404772
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 112017507
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2800382
<TOTAL-LIABILITIES> 2800382
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 114348769
<SHARES-COMMON-STOCK> 11172191
<SHARES-COMMON-PRIOR> 10784233
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1719162)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (3412482)
<NET-ASSETS> 109217125
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3952642
<OTHER-INCOME> 0
<EXPENSES-NET> 118072
<NET-INVESTMENT-INCOME> 3834570
<REALIZED-GAINS-CURRENT> (324874)
<APPREC-INCREASE-CURRENT> (1903281)
<NET-CHANGE-FROM-OPS> 1606415
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3834570<F1>
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2998573
<NUMBER-OF-SHARES-REDEEMED> 2964475
<SHARES-REINVESTED> 353860
<NET-CHANGE-IN-ASSETS> 1572813
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 91583
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 118072
<AVERAGE-NET-ASSETS> 107659392
<PER-SHARE-NAV-BEGIN> 9.98
<PER-SHARE-NII> .35
<PER-SHARE-GAIN-APPREC> (.20)
<PER-SHARE-DIVIDEND> .35
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.78
<EXPENSE-RATIO> .22
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Per share $.35
</FN>
</TABLE>
