ANNUAL REPORT
STATE FARM BALANCED 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, 1996
This report is not to be distributed unless preceded or accompanied by a
prospectus.
<PAGE>
STATE FARM BALANCED FUND, INC.
Dear Shareowner:
Another good year has passed for owners of common stocks and investors in
the Balanced Fund. The S&P 500 Index, which tends to be the most widely
followed of the broadly based indices, produced a total return of 27.9% over
the past twelve months, while the common stock portfolio of your Fund yielded
23.1%. With results of the fixed-income portfolio included, the Balanced Fund
provided an overall total return of 15.8% for the fiscal year ended November.
The following graph compares a $10,000 investment in the Balanced Fund
over the last ten years to theoretical investments of the same amount in the
S&P 500 Index and the Lehman Brothers Intermediate Treasury Index. As one might
expect, returns of your Fund tend to fall in between those of the indices.
COMPARISON OF CHANGE IN VALUE OF
$10,000 INVESTMENT FOR THE YEARS
ENDED NOVEMBER 30
Fund's Avg Annual Total Return
1 YEAR 5 YEAR 10 YEAR
15.78% 12.59% 14.07%
BALANCED S&P 500* LEHMAN
FUND INTERMED**
- -----------------------------------------------------------------------
1986 $10,000 $10,000 $10,000
1987 10,029 9,541 10,286
1988 11,608 11,755 11,024
1989 14,520 15,373 12,397
1990 15,724 14,830 13,421
1991 20,613 17,851 15,150
1992 23,793 21,140 16,389
1993 24,485 23,271 17,895
1994 25,460 23,521 17,593
1995 32,214 32,202 19,990
1996 37,297 41,172 21,110
Past performance is not predictive of future performance.
* The S&P 500 Index is a capitalization-weighted measure of 500 widely
held common stocks listed on the New York and American Stock
Exchanges and traded in the Over-The-Counter Market.
** The Lehman Brothers Intermediate Treasury Index contains approximately
130 U.S. Treasury securities with maturities ranging from one to ten years.
The S & P 500 Index and the Lehman Brothers Intermediate Treasury Index
represent unmanaged groups of stocks and bonds that differ from the
composition of the Balanced Fund. Unlike an investment in the Balanced Fund,
theoretical investments in the indeces do not reflect expenses.
The investment portfolio of the Fund has more or less been carried upward
in value by the same factors which have pulled general common stock prices
higher over the course of the year. These factors include a reasonably healthy
domestic economy, numerous corporate mergers, good growth in corporate profits
and strong demand for common stocks generated by record flows of monies into
equity mutual funds. Towards the end of the year, common stock prices sprinted
ahead as a positive spin was put on election results and market interest rates
declined.
2
<PAGE>
The shares of companies generally classified in the financial, computer,
pharmaceutical, consumer product, energy and telecommunication supplier sectors
tended to perform most strongly over the past twelve months. The stocks of
telephone, utility, metals and construction companies did not do as well.
The general composition of the Fund's common stock portfolio was changed
somewhat over the last twelve months. A discussion of alterations which we
consider most significant follows. Early in the year, the Fund received
approximately equal amounts of cash and Disney stock when Capital Cities/ABC
was merged into Disney, and the cash was redeployed in companies which we feel
are quite sensitive to general global economic growth. In a move to make the
stock portfolio more diversified, all or portions of nine holdings were sold
later in the year with proceeds from the sales used to establish new investment
positions in shares of 23 different companies. Some of the sales involved
companies that are not meeting our expectations, while in other instances
holdings were reduced as we reacted to high market valuations placed on the
stocks or to portfolio weightings which had grown to uncomfortable levels.
Additions to the portfolio include stocks of companies which we feel are
growing satisfactorily and have prospects for earning good long-term
returns.
U.S. Treasury bonds continue to dominate the fixed-income portfolio of the
Fund and the overall maturity structure has not changed much over the course of
the year. The average weighted maturity of long-term U.S. Treasury obligations
stands at approximately 5.6 years with maturities or likely calls spread mostly
over the next ten years.
The general mood of investors is quite upbeat at the moment. We must admit
that we are bothered by the rapid rise of stock prices after some market
difficulties in the middle of the year. Again, investors have seen
reinforcement of the belief that any indigestion in the market merely presents
an opportunity to pour money into stocks. Times like these remind us that
market dynamics change over time, but the basic human characteristics of greed
and fear, which tend to drive securities markets to extremes in both
directions, are timeless. Investor perceptions will ultimately change, we just
don't know when or what will cause the change.
As always we encourage you to view your investment in the Fund as a truly
long term commitment. Its assets are invested in good quality securities which
over time should provide you with satisfactory investment results.
The directors have declared a capital gain distribution of $1.325 per
Balanced Fund share which will be paid on December 31, 1996. A semi-annual
income dividend of $.720 per share will also be paid on December 31, 1996. Both
will be used to purchase additional shares for your account unless you have
elected to receive payments directly by check.
Sincerely,
Paul N. Eckley John S. Concklin Kurt G. Moser
Vice President Vice President Vice President
December 17, 1996
3
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareowners
State Farm Balanced Fund, Inc.
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of State Farm Balanced Fund, Inc. as of
November 30, 1996, 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 years since 1987. 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, 1996, by correspondence with the custodian and brokers. 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 Balanced Fund, Inc. at November 30, 1996, 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 years
since 1987, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
December 13, 1996
4
<PAGE>
STATE FARM BALANCED FUND, INC.
PORTFOLIO OF INVESTMENTS
November 30, 1996
<TABLE>
<CAPTION>
SHARES VALUE
COMMON STOCKS (62.3%)
AGRICULTURE & FOOD (6.5%):
<C> <S> <C>
736,957 Archer-Daniels-Midland Company $ 16,213,054
13,000 Campbell Soup Company 1,074,125
190,000 The Coca-Cola Company 9,713,750
155,000 Kellogg Company 10,520,625
27,000 Pioneer Hi-Bred International, Inc. 1,883,250
29,000 Sara Lee Corporation 1,138,250
------------
40,543,054
BANKS (6.9%):
137,280 Bancorp Hawaii, Inc. 5,988,840
236,962 Banponce Corporation 7,701,265
21,000 J.P. Morgan & Co. Incorporated 1,981,875
212,000 Norwest Corporation 9,911,000
229,000 Wachovia Corporation 13,740,000
13,100 Wells Fargo & Company 3,728,587
------------
43,051,567
CHEMICALS (5.8%):
115,000 Air Products and Chemicals, Inc. 7,992,500
23,000 The Dow Chemical Company 1,926,250
98,000 Great Lakes Chemical Corporation 5,255,250
120,000 International Flavors & Fragrances Inc. 5,460,000
110,000 Raychem Corporation 9,377,500
103,500 Sigma-Aldrich Corporation 6,468,750
------------
36,480,250
COMPUTERS AND SOFTWARE (4.4%):
377,000 Hewlett-Packard Company 20,310,875
34,300 International Business Machines Corporation 5,466,562
13,000 (a) Microsoft Corporation 2,039,375
------------
27,816,812
CONSUMERS & MARKETING (3.7%):
80,000 Hon Industries Inc. 2,480,000
65,000 Jostens, Inc. 1,381,250
47,700 Minnesota Mining and Manufacturing Company 3,994,875
172,800 Rubbermaid Incorporated 4,147,200
150,000 The Gillette Company 11,062,500
------------
23,065,825
ELECTRONIC MANUFACTURING (1.4%):
19,000 AMP Incorporated 726,750
38,100 General Electric Company 3,962,400
31,000 Intel Corporation 3,933,125
------------
8,622,275
</TABLE>
5
<PAGE>
STATE FARM BALANCED FUND, INC.
PORTFOLIO OF INVESTMENTS
November 30, 1996
<TABLE>
<CAPTION>
SHARES VALUE
HEALTH CARE (8.6%):
<C> <S> <C>
38,700 Allergan, Inc. $ 1,243,238
427,751 Ballard Medical Products 8,020,331
405,000 Biomet, Inc. 6,682,500
198,000 Johnson & Johnson 10,518,750
106,000 Eli Lilly and Company 8,109,000
46,000 Medaphis Corporation 477,250
5,400 Medtronic, Inc. 357,075
50,000 Merck & Co., Inc. 4,150,000
160,000 Pfizer Inc. 14,340,000
------------
53,898,144
MEDIA (6.5%):
42,000 Lee Enterprises, Incorporated 934,500
42,000 Lee Enterprises, Incorporated, Class B 934,500
200,000 Reuters Holdings PLC (ADR) 14,525,000
331,165 The Walt Disney Company 24,423,419
------------
40,817,419
MINING AND METALS (1.9%):
160,000 Nucor Corporation 8,700,000
50,000 The RTZ Corporation PLC (ADR) 3,381,250
------------
12,081,250
NON-ELECTRIC MANUFACTURING (.8%):
50,000 Caterpillar Inc. 3,956,250
10,000 Illinois Tool Works Inc. 857,500
------------
4,813,750
OIL AND GAS (5.3%):
34,000 Amoco Corporation 2,639,250
144,000 Chevron Corporation 9,648,000
76,000 Exxon Corporation 7,191,500
180,000 K N Energy, Inc. 7,312,500
65,220 Pennzoil Company 3,668,625
17,000 Royal Dutch Petroleum Company (ADR) 2,887,875
------------
33,347,750
</TABLE>
6
<PAGE>
STATE FARM BALANCED FUND, INC.
PORTFOLIO OF INVESTMENTS
November 30, 1996
<TABLE>
<CAPTION>
SHARES VALUE
RETAILING (.2%):
<C> <S> <C>
47,000 Wal-Mart Stores, Inc. $ 1,198,500
TELECOMMUNICATIONS & EQUIPMENT (7.5%):
258,200 (a) ADC Telecommunications, Inc. 9,359,750
170,000 AT&T Corp. 6,672,500
24,000 (a) Airtouch Communications, Inc. 615,000
32,000 Ameritech Corporation 1,884,000
83,000 Deutsche Telekom (ADR) 1,774,125
68,000 LM Ericsson Telephone Company (ADR) 2,099,500
55,094 Lucent Technologies Inc. 2,823,567
261,000 MCI Communications Corporation 7,960,500
64,000 Motorola, Inc. 3,544,000
192,900 SBC Communications Inc. 10,151,363
------------
46,884,305
UTILITIES-ELECTRIC (1.1%):
69,000 Central and South West Corporation 1,845,750
36,000 Duke Power Company 1,669,500
85,000 Pacificorp 1,785,000
80,000 Southern Company 1,780,000
------------
7,080,250
MISCELLANEOUS (1.7%):
124,100 Corning Incorporated 5,026,050
84,375 (a) Osmonics, Inc. 1,792,969
53,400 Vulcan Materials Company 3,324,150
18,750 Other 342,188
------------
10,485,357
------------
Total common stocks (cost: $191,079,463) 390,186,508
</TABLE>
7
<PAGE>
STATE FARM BALANCED FUND, INC.
PORTFOLIO OF INVESTMENTS
November 30, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
LONG-TERM U.S. TREASURY OBLIGATIONS (29.4%)
<C> <S> <C>
$ 2,500,000 U.S. Treasury notes, 6 1/2%, due 11-30-1996 $ 2,499,425
2,000,000 U.S. Treasury notes, 8%, due 1-15-1997 2,006,400
3,000,000 U.S. Treasury notes, 8 1/2%, due 5-15-1997 3,042,750
4,000,000 U.S. Treasury notes, 8 5/8%, due 8-15-1997 4,088,280
3,000,000 U.S. Treasury notes, 8 3/4%, due 10-15-1997 3,083,520
4,000,000 U.S. Treasury notes, 8 1/8%, due 2-15-1998 4,120,440
2,000,000 U.S. Treasury notes, 7 7/8%, due 4-15-1998 2,061,280
2,500,000 U.S. Treasury notes, 9%, due 5-15-1998 2,620,325
3,000,000 U.S. Treasury notes, 9 1/4%, due 8-15-1998 3,176,520
2,500,000 U.S. Treasury notes, 7 1/8%, due 10-15-1998 2,567,775
3,000,000 U.S. Treasury notes, 8 7/8%, due 2-15-1999 3,198,930
2,000,000 U.S. Treasury notes, 7%, due 4-15-1999 2,059,820
2,000,000 U.S. Treasury notes, 9 1/8%, due 5-15-1999 2,157,380
3,000,000 U.S. Treasury notes, 6 3/8%, due 7-15-1999 3,052,620
1,500,000 U.S. Treasury notes, 6%, due 10-15-1999 1,514,085
2,500,000 U.S. Treasury notes, 7 7/8%, due 11-15-1999 2,646,100
3,000,000 U.S. Treasury notes, 6 3/8%, due 1-15-2000 3,058,260
2,000,000 U.S. Treasury notes, 8 1/2%, due 2-15-2000 2,159,980
3,000,000 U.S. Treasury notes, 6 7/8%, due 3-31-2000 3,102,420
3,000,000 U.S. Treasury notes, 5 1/2%, due 4-15-2000 2,979,720
3,000,000 U.S. Treasury notes, 8 3/4%, due 8-15-2000 3,294,900
3,000,000 U.S. Treasury notes, 8 1/2%, due 11-15-2000 3,285,690
4,200,000 U.S. Treasury notes, 7 3/4%, due 2-15-2001 4,503,744
625,000 U.S. Treasury bonds, 13 1/8%, due 5-15-2001 802,712
2,000,000 U.S. Treasury notes, 8%, due 5-15-2001 2,170,660
680,000 U.S. Treasury bonds, 13 3/8%, due 8-15-2001 889,345
1,000,000 U.S. Treasury notes, 7 7/8%, due 8-15-2001 1,083,430
5,500,000 U.S. Treasury notes, 7 1/2%, due 11-15-2001 5,887,970
5,000,000 U.S. Treasury bonds, 14 1/4%, due 2-15-2002 6,867,000
2,000,000 U.S. Treasury notes, 7 1/2%, due 5-15-2002 2,152,840
7,500,000 U.S. Treasury notes, 6 3/8%, due 8-15-2002 7,684,725
2,570,000 U.S. Treasury bonds, 11 5/8%, due 11-15-2002 3,304,763
5,000,000 U.S. Treasury notes, 6 1/4%, due 2-15-2003 5,086,800
3,000,000 U.S. Treasury bonds, 10 3/4%, due 5-15-2003 3,763,080
3,500,000 U.S. Treasury notes, 5 3/4%, due 8-15-2003 3,462,795
5,500,000 U.S. Treasury bonds, 11 7/8%, due 11-15-2003 7,322,810
5,000,000 U.S. Treasury notes, 5 7/8%, due 2-15-2004 4,973,450
5,000,000 U.S. Treasury notes, 7 1/4%, due 5-15-2004 5,377,800
6,000,000 U.S. Treasury notes, 7 1/4%, due 8-15-2004 6,456,900
1,500,000 U.S. Treasury bonds, 11 5/8%, due 11-15-2004 2,024,385
5,000,000 U.S. Treasury notes, 7 1/2%, due 2-15-2005 5,470,450
1,785,000 U.S. Treasury bonds, 8 1/4%, due 5-15-2005 1,907,594
3,500,000 U.S. Treasury notes, 6 1/2%, due 5-15-2005 3,606,715
4,800,000 U.S. Treasury bonds, 10 3/4%, due 8-15-2005 6,301,872
2,000,000 U.S. Treasury notes, 5 7/8%, due 11-15-2005 1,975,680
11,500,000 U.S. Treasury bonds, 9 3/8%, due 2-15-2006 14,182,950
</TABLE>
8
<PAGE>
STATE FARM BALANCED FUND, INC.
PORTFOLIO OF INVESTMENTS
November 30, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
$ 2,000,000 U.S. Treasury notes, 6 7/8%, due 5-15-2006 $ 2,113,860
3,000,000 U.S. Treasury notes, 7%, due 7-15-2006 3,198,120
1,000,000 U.S. Treasury bonds, 10 3/8%, due 11-15-2009 1,263,910
7,000,000 U.S. Treasury bonds, 10%, due 5-15-2010 8,757,910
------------
Total long-term U.S. Treasury obligations (cost: $180,594,154) 184,370,890
SHORT-TERM INVESTMENTS (7.9%)
27,000,000 U.S. Treasury bills, 5.005% to 5.155% effective
yield, due 12-1996 to 2-1997 26,840,970
800,000 Ford Motor Credit Company, 5.40%, 12-3-1996 800,360
11,665,000 General Electric Capital Corp., 5.25%, 12-3-1996 11,683,743
100,000 General Motors Acceptance Corp., 5.28%, 12-3-1996 100,147
9,945,000 General Motors Acceptance Corp., 5.31%, 12-10-1996 9,950,871
------------
Total short-term investments (cost: $49,366,072) 49,376,091
------------
TOTAL INVESTMENTS (99.6%)(cost: $421,039,689) 623,933,489
CASH AND OTHER ASSETS, LESS LIABILITIES (.4%) 2,159,977
------------
NET ASSETS (100.0%) $626,093,466
============
</TABLE>
Notes: (a) Non-income producing security.
(b) At November 30, 1996, net unrealized appreciation of $202,893,800
consisted of gross unrealized appreciation of $205,609,682 and
gross unrealized depreciation of $2,715,882 based on cost of
$421,039,689 for federal income tax purposes.
See accompanying notes to financial statements.
9
<PAGE>
STATE FARM BALANCED FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
November 30, 1996
<TABLE>
<CAPTION>
ASSETS
<S> <C> <C>
Investments, at value (cost: $421,039,689) $ 623,933,489
Cash 331,341
Receivable for:
Dividends and interest $ 3,483,062
Securities sold 2,007,000
Shares of the Fund sold 20,269
Sundry 4,725 5,515,056
-----------
Prepaid expenses 23,939
-------------
Total assets 629,803,825
LIABILITIES AND NET ASSETS
Payable for:
Securities purchased 1,893,697
Shares of the Fund redeemed 1,574,912
Other accounts payable (including $213,535 to Manager) 241,750
-----------
Total liabilities 3,710,359
Net assets applicable to 14,894,201 shares outstanding of -------------
$1.00 par value common stock (40,000,000 shares
authorized) $ 626,093,466
=============
Net asset value, offering price and redemption price per share $ 42.04
=============
ANALYSIS OF NET ASSETS
Excess of amounts received from sales of shares over amounts
paid on redemptions of shares on account of capital $ 382,021,209
Undistributed net realized gain on sales of investments 19,696,852
Net unrealized appreciation of investments 202,893,800
Undistributed net investment income 21,481,605
-------------
Net assets applicable to shares outstanding $ 626,093,466
=============
</TABLE>
See accompanying notes to financial statements.
10
<PAGE>
STATE FARM BALANCED FUND, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1996 1995
<S> <C> <C>
INVESTMENT INCOME:
Dividends (net of foreign withholding taxes of
$50,782 in 1996 and $51,552 in 1995) $ 5,482,441 $ 4,786,907
Interest 15,309,121 11,685,903
----------------------------
Total investment income 20,791,562 16,472,810
EXPENSES:
Investment advisory and management fee 699,356 580,820
Professional fees 24,573 26,243
ICI dues 20,958 18,897
Registration fees 21,227 16,296
Fidelity bond expense 4,981 5,077
Directors' fees 4,500 3,300
Reports to shareowners 14,319 24,442
Franchise taxes 13,277 11,706
Custodian fees 31,864 35,265
Other 4,000 2,562
----------------------------
Total expenses 839,055 724,608
Less:custodian fees paid indirectly 22,206 28,581
----------------------------
Net expenses 816,849 696,027
----------------------------
Net investment income 19,974,713 15,776,783
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on sales of investments 19,696,852 3,027,922
Change in net unrealized appreciation 44,174,789 82,375,184
----------------------------
Net realized and unrealized gain on investments 63,871,641 85,403,106
----------------------------
Net change in net assets resulting from operations $83,846,354 $101,179,889
============================
</TABLE>
See accompanying notes to financial statements.
11
<PAGE>
STATE FARM BALANCED FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1996 1995
<S> <C> <C>
From operations:
Net investment income $ 19,974,713 $ 15,776,783
Net realized gain on sales of investments 19,696,852 3,027,922
Change in net unrealized appreciation 44,174,789 82,375,184
-----------------------------
Net change in net assets resulting
from operations 83,846,354 101,179,889
Undistributed net investment income included in
price of shares issued and redeemed 1,103,905 1,310,468
Distributions to shareowners from:
Net investment income (per share $1.30 in 1996 and
$1.19 in 1995) (17,457,079) (14,601,565)
Net realized gain (per share $.19 in 1996 and
$.185 in 1995) (3,027,922) (2,185,924)
-----------------------------
Total distributions to shareowners (20,485,001) (16,787,489)
From Fund share transactions:
Proceeds from shares sold 101,714,529 71,322,157
Reinvestment of ordinary income dividends
and capital gain distributions 19,818,987 15,888,903
-----------------------------
121,533,516 87,211,060
Less payments for shares redeemed 59,654,782 43,678,734
-----------------------------
Net increase in net assets from Fund share
transactions 61,878,734 43,532,326
-----------------------------
Total increase in net assets 126,343,992 129,235,194
Net assets:
Beginning of year 499,749,474 370,514,280
-----------------------------
End of year (including undistributed net
investment income of $21,481,605 in 1996 and
$17,860,066 in 1995) $626,093,466 499,749,474
=============================
</TABLE>
See accompanying notes to financial statements.
12
<PAGE>
STATE FARM BALANCED FUND, INC.
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
SECURITY VALUATION -- Investments are stated at value. Stocks
traded on securities exchanges, or in the over-the-counter market in
which transaction prices are reported, are valued at the last sales
prices on the day of valuation or, if there are no reported sales on
that day, at the mean of the last bid and asked quotations. Other stocks
traded over-the-counter are valued at the mean of the last bid and asked
prices. 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 INVESTMENT INCOME -- Security transactions
are accounted for on the trade date (date the order to buy or sell is
executed) and dividend income is recorded on the ex-dividend date.
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 -- 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 total value of the Fund's investments
and other assets, less liabilities, by the number of Fund shares
outstanding.
FEDERAL INCOME TAXES, DIVIDENDS AND DISTRIBUTIONS TO SHAREOWNERS --
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.
On December 13, 1996, an ordinary income dividend of $.72 per share and
a capital gain distribution of $1.325 per share were declared, payable
December 31, 1996 (reinvestment date December 31, 1996) to shareowners
of record December 13, 1996.
Dividends and distributions payable to its shareowners are recorded by
the Fund on the ex-dividend date.
EQUALIZATION ACCOUNTING -- A portion of proceeds from sales and payments
on redemptions of Fund shares is credited or charged to undistributed
net investment income. As a result, undistributed net investment income
per share is unaffected by sales or redemptions of Fund shares.
RECLASSIFICATION -- Certain reclassifications have been made to the
Statement of Operations for 1995 to conform with 1996 presentation.
13
<PAGE>
STATE FARM BALANCED 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 $100 million of average
net assets, .15% of the next $100 million of average net assets and .10%
of the average net assets in excess of $200 million. The Manager
guarantees that all 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
$699,356 for 1996 and $580,820 for 1995. 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, 1996,
except for directors' fees of $4,500 for 1996 and $3,300 for 1995 paid
to the Fund's independent directors.
3. INVESTMENT TRANSACTIONS
Investment transactions (exclusive of short-term investments)
for each of the two years ended November 30 were as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Purchases $124,248,498 $ 50,802,670
Proceeds from sales 49,420,816 21,538,464
==============================
</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>
YEAR ENDED NOVEMBER 30,
1996 1995
<S> <C> <C>
Shares sold 2,713,063 2,152,790
Shares issued in reinvestment of ordinary income
dividends and capital gain distributions 525,667 501,082
------------------------------
3,238,730 2,653,872
Less shares redeemed 1,579,058 1,326,997
------------------------------
Net increase in shares outstanding 1,659,672 1,326,875
==============================
</TABLE>
14
<PAGE>
STATE FARM BALANCED FUND, INC.
FINANCIAL HIGHLIGHTS
PER SHARE INCOME AND CAPITAL CHANGES (For a share outstanding throughout each
year)
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
year $37.76 31.12 30.88 31.24 27.98 22.72 22.27 18.81 17.32 18.69
Income From Investment
Operations
Net investment income 1.39 1.25 1.03 .98 .98 .94 1.06 .92 .89 .81
Net gain or loss on
securities (both realized
and unrealized) 4.38 6.77 .17 (.09) 3.29 5.81 .74 3.61 1.76 (.72)
-------------------------------------------------------------------------------------------------
Total from investment
operations 5.77 8.02 1.20 .89 4.27 6.75 1.80 4.53 2.65 .09
Less Distributions
Net investment
income (1.30) (1.19) (.89) (1.01) (.89) (1.03) (.92) (.86) (.83) (.74)
Capital gain (.19) (.19) (.07) (.24) (.12) (.46) (.43) (.21) (.33) (.72)
-------------------------------------------------------------------------------------------------
Total Distributions (1.49) (1.38) (.96) (1.25) (1.01) (1.49) (1.35) (1.07) (1.16) (1.46)
Net asset value, end of year $42.04 37.76 31.12 30.88 31.24 27.98 22.72 22.27 18.81 17.32
=================================================================================================
Total Return 15.78% 26.53% 3.98% 2.91% 15.43% 31.09% 8.29% 25.09% 15.73% .38%
Ratios/Supplemental Data
Net assets, end of year
(millions) $626.1 499.7 370.5 327.8 259.7 173.5 108.8 88.7 63.8 50.9
Ratio of expenses to average
net assets .15% .17%(a) .17% .19% .22% .26% .27% .29% .31% .38%
Ratio of net investment income
to average net assets 3.63% 3.66% 3.36% 3.20% 3.29% 3.66% 4.87% 4.50% 4.86% 4.24%
Portfolio turnover rate 9% 6% 4% 4% 4% 1% 10% 10% 7% 12%
Number of shares outstanding
at end of year (millions) 14.9 13.2 11.9 10.6 8.3 6.2 4.8 4.0 3.4 2.9
</TABLE>
Average commission rate paid per share on stock transactions for the
year ended November 30, 1996 was $.0599.
Note: (a) The ratio based on net custodian expenses would have been .16%
in 1995.
_________________________
STATE FARM BALANCED FUND, INC.
TAX INFORMATION
The Fund paid ordinary income dividends of $.64 per share in June 1996
and $.72 per share in December 1996. Of these dividends, 24% qualifies
for the 70% deduction for dividends received by corporations as provided
by the Internal Revenue Code. The remaining amounts of each dividend
should be reported as income from non-qualifying dividends.
In December 1996, the Fund made a capital gain distribution of $1.325
per share, 100% of which was paid from long-term capital gain and is
designated as a capital gain dividend.
NOTE: Dividends and distributions 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 the provisions of the
Internal Revenue Code.
15
<PAGE>
ANNUAL
REPORT
November 30, 1996
STATE
FARM
BALANCED
FUND, INC.
ONE STATE FARM PLAZA
BLOOMINGTON, ILLINOIS 61710
TELEPHONE (309) 766-2029
G 4030.06
