SEMI-ANNUAL REPORT
State Farm Balanced 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 BALANCED FUND, INC.
Dear Shareowner:
The U.S. equity market continues to post very strong returns. The S&P 500
Index has produced total returns of 29.4% and 13.1% respectively for the
twelve and six months ended May 31, 1997, while the Balanced Fund yielded
16.0% and 5.8% for the same periods. Returns of this magnitude are somewhat
surprising since they follow extraordinary results in 1995 and 1996. As is to
be expected in periods of robust equity markets, the total return of the
entire Fund is pulled down by results of its fixed income portfolio.
The S&P 500 Index has rebounded sharply since the middle of April. After
rising roughly 10% in January and February, the S&P 500 lost virtually all of
those gains in March and early April as investors worried about the
possibility of protracted monetary tightening by the Federal Reserve Board and
accompanying increases in market interest rates. Stock prices have bounced
back vigorously over the last 45 days or so. Investors are encouraged by good
earnings results which were reported by most companies for the first quarter
of 1997 and now seem to be less concerned about a significant rise in interest
rates anytime soon.
The strong advance in stock prices became very narrow over the past twelve
months. A few large- capitalization growth stocks have been leading the market
higher, while values of many other stocks have been moving upward at a slower
pace or declining. Newsweek published an analysis which illustrated how the
"two-tier" nature of the market played out in 1996. As illustrated below,
price gains experienced by the 500 stocks which are included in the S&P Index
vary greatly when broken down by market capitalization:
<TABLE>
<CAPTION>
<S> <C>
S&P 500 (all stocks)............................................ +20.3% for the year
S&P 500 (without the 25 biggest capitalization stocks).......... +12.2% for the year
S&P 500 (without the 50 biggest capitalization stocks).......... +9.1% for the year
S&P 500 (without the 100 biggest capitalization stocks)......... +5.4% for the year
</TABLE>
One can readily observe that portfolios which did not contain a full
weighting of the largest capitalization companies clearly were at a
disadvantage in 1996. Although the breadth of the market expanded somewhat in
May when small capitalization and economically sensitive stocks did quite
well, the same phenomenon continues to exist so far in 1997. A major brokerage
firm recently reported that they monitor the price performance of 7,764
stocks, and over the last 12 months 61.6% of those stocks showed price changes
which lagged the S&P 500 Index by 15 percentage points or more. In a narrow
market environment such as this, most portfolios, including that of the Fund,
do not keep up with results of the Index. Eventually the overwhelming
popularity of investing in large capitalization growth companies will
diminish. One can never know when, but most often the general preferences of
investors change when economic fundamentals dictate a different investment
course or valuations of a certain group of stocks reach levels which are very
high when compared to other stocks.
2
<PAGE>
Fixed income investments of your Fund are presently providing very
satisfactory levels of real interest income in a world where domestic
inflation seems to be increasing at an annual rate in the 2-3% range.
Present valuations of common stocks seem to leave little room for negative
surprises. When measured by virtually all general standards, common stocks,
viewed as an asset class, are selling at the high end of historical valuation
levels. Corporate earnings and interest rates probably need to remain
supportive if the market is to maintain present levels or move significantly
higher. In periods of relatively high valuations, we feel it becomes more
important than ever to invest in companies that are growing and displaying
operational progress. As is always the case, such an orientation is the focus
of our work.
The directors have declared a semi-annual dividend of $.75 per Balanced
Fund share which will be used to purchase additional shares of your account at
the net asset value at the close of business on June 30, 1997 unless you have
elected to receive payment directly by check.
Sincerely,
/s/ Paul N. Eckley /s/ John S. Concklin /s/ Kurt G. Moser
Paul N. Eckley John S. Concklin Kurt G. Moser
Vice President Vice President Vice President
June 20, 1997
3
<PAGE>
STATE FARM BALANCED FUND, INC.
PORTFOLIO OF INVESTMENTS
MAY 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
SHARES VALUE
COMMON STOCKS (63.0%)
AGRICULTURE & FOOD (6.4%)
736,957 Archer-Daniels-Midland Company $ 14,739,140
26,000 Campbell Soup Company 1,196,000
190,000 The Coca-Cola Company 12,967,500
155,000 Kellogg Company 11,431,250
27,000 Pioneer Hi-Bred International, Inc. 1,883,250
29,000 Sara Lee Corporation 1,185,375
----------------
43,402,515
BANKS (6.6%)
48,000 ABN AMRO Holding N.V. 888,379
23,250 Amsouth Bancorporation 909,656
95,000 Banc One Corporation 4,108,750
35,000 First Chicago NBD Corporation 2,073,750
1,900 First Empire State Corporation 609,900
17,100 First Security Corporation 418,950
8,200 First Virginia Banks, Inc. 459,200
17,700 Golden West Financial Corporation 1,199,175
38,400 J.P. Morgan & Co. Incorporated 4,128,000
71,400 MBNA Corporation 2,418,675
20,500 Northern Trust Corporation 1,007,063
86,400 Norwest Corporation 4,622,400
90,480 Pacific Century Financial Corporation 4,162,080
83,462 Popular, Inc. 3,077,661
66,000 Southtrust Corporation 2,565,750
21,400 Suntrust Banks, Inc. 1,142,225
8,800 TCF Financial Corporation 374,000
8,500 U.S. Bancorp 521,687
75,700 Wachovia Corporation 4,608,238
16,500 Washington Federal, Inc. 435,188
20,100 Wells Fargo & Company 5,296,350
----------------
45,027,077
4
<PAGE>
STATE FARM BALANCED FUND, INC.
PORTFOLIO OF INVESTMENTS
MAY 31, 1997
(UNAUDITED)
SHARES VALUE
CHEMICALS (5.2%)
115,000 Air Products and Chemicals, Inc. $ 8,941,250
23,000 The Dow Chemical Company 1,917,625
98,000 Great Lakes Chemical Corporation 4,789,750
120,000 International Flavors & Fragrances Inc. 5,325,000
110,000 Raychem Corporation 8,153,750
207,000 Sigma-Aldrich Corporation 6,339,375
----------------
35,466,750
COMPUTERS AND SOFTWARE (4.4%)
8,800 Electronic Data Systems Corporation 328,900
377,000 Hewlett-Packard Company 19,415,500
68,600 International Business Machines Corporation 5,933,900
31,500(a) Microsoft Corporation 3,906,000
10,625(a) NCR Corporation 345,313
----------------
29,929,613
CONSUMERS & MARKETING (4.1%)
150,000 The Gillette Company 13,331,250
80,000 Hon Industries Inc. 3,880,000
27,100 Jostens, Inc. 667,338
16,900 McDonald's Corporation 849,225
47,700 Minnesota Mining and Manufacturing Company 4,376,475
172,800 Rubbermaid International 4,816,800
----------------
27,921,088
ELECTRONIC MANUFACTURING (1.9%)
31,200 Emerson Electric Co. 1,684,800
107,400 General Electric Company 6,484,275
31,000 Intel Corporation 4,696,500
----------------
12,865,575
5
<PAGE>
STATE FARM BALANCED FUND, INC.
PORTFOLIO OF INVESTMENTS
MAY 31, 1997
(UNAUDITED)
SHARES VALUE
HEALTH CARE (9.0%)
38,700 Allergan, Inc. $ 1,146,488
427,751 Ballard Medical Products 8,234,207
405,000 Biomet, Inc. 7,568,437
31,025 Covance Inc. 577,840
198,000 Johnson & Johnson 11,855,250
106,000 Eli Lilly and Company 9,858,000
5,400 Medtronic, Inc. 399,600
50,000 Merck & Co., Inc. 4,493,750
160,000 Pfizer Inc. 16,460,000
15,512 Quest Diagnostics Inc. 286,972
----------------
60,880,544
MEDIA (6.3%)
331,165 The Walt Disney Company 27,114,134
84,000 Lee Enterprises, Inc. 2,121,000
200,000 Reuters Holdings PLC (ADR) 13,690,620
----------------
42,925,754
MINING AND METALS (2.0%)
160,000 Nucor Corporation 9,440,000
50,000 The RTZ Corporation PLC (ADR) 3,487,500
18,750 Steel Dynamics, Inc. 421,875
----------------
13,349,375
NON-ELECTRIC MANUFACTURING (0.9%)
50,000 Caterpillar Inc. 4,881,250
20,000 Illinois Tool Works Inc. 992,500
----------------
5,873,750
OIL AND GAS (5.4%)
34,000 Amoco Corporation 3,038,750
144,000 Chevron Corporation 10,080,000
152,000 Exxon Corporation 9,006,000
180,000 KN Energy, Inc. 7,582,500
65,220 Pennzoil Company 3,611,558
17,000 Royal Dutch Petroleum Company (ADR) 3,319,250
----------------
36,638,058
RETAILING (0.2%)
47,000 Wal-Mart Stores, Inc. 1,398,250
6
<PAGE>
STATE FARM BALANCED FUND, INC.
PORTFOLIO OF INVESTMENTS
MAY 31, 1997
(UNAUDITED)
SHARES VALUE
TELECOMMUNICATIONS & EQUIPMENT (7.5%)
258,200(a) ADC Telecommunications, Inc. $ 8,843,350
170,000 AT & T Corp. 6,268,750
24,000(a) Airtouch Communications, Inc. 669,000
32,000 Ameritech Corporation 2,096,000
83,000 Deutsche Telekom (ADR) 1,888,250
68,000 LM Ericsson Telephone Company (ADR) 2,422,500
55,094 Lucent Technologies Inc. 3,505,356
261,000 MCI Communications Corporation 10,015,875
64,000 Motorola, Inc. 4,248,000
192,900 SBC Communications Inc. 11,284,650
----------------
51,241,731
UTILITIES - ELECTRIC (1.4%)
69,000 Central and South West Corporation 1,466,250
36,000 Duke Power Company 1,620,000
25,200 FPL Group, Inc. 1,171,800
85,000 Pacificorp 1,689,375
80,000 Southern Company 1,700,000
47,300 Teco Energy, Inc. 1,176,587
28,000 Texas Utilities Company 962,500
----------------
9,786,512
MISCELLANEOUS (1.7%)
124,100 Corning Incorporated 6,251,538
84,375(a) Osmonics, Inc. 1,381,640
53,400 Vulcan Materials Company 3,898,200
----------------
11,531,378
----------------
Total common stocks (cost: $209,683,800) 428,237,970
</TABLE>
7
<PAGE>
STATE FARM BALANCED FUND, INC.
PORTFOLIO OF INVESTMENTS
May 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
LONG-TERM U.S. TREASURY OBLIGATIONS (26.6%)
$ 4,000,000 U.S. Treasury Notes, 8.625%, due August 15, 1997 $ 4,028,400
3,000,000 U.S. Treasury Notes, 8.750%, due October 15, 1997 3,035,340
4,000,000 U.S. Treasury Notes, 8.125%, due February 15, 1998 4,062,840
2,000,000 U.S. Treasury Notes, 7.875%, due April 15, 1998 2,034,500
2,500,000 U.S. Treasury Notes, 9.000%, due May 15, 1998 2,572,175
3,000,000 U.S. Treasury Notes, 9.250%, due August 15, 1998 3,111,660
2,500,000 U.S. Treasury Notes, 7.125%, due October 15, 1998 2,535,800
3,000,000 U.S. Treasury Notes, 8.875%, due February 15, 1999 3,130,440
2,000,000 U.S. Treasury Notes, 7.000%, due April 15, 1999 2,028,940
2,000,000 U.S. Treasury Notes, 9.125%, due May 15, 1999 2,105,660
3,000,000 U.S. Treasury Notes, 6.375%, due July 15, 1999 3,010,470
1,500,000 U.S. Treasury Notes, 6.000%, due October 15, 1999 1,493,100
2,500,000 U.S. Treasury Notes, 7.875%, due November 15, 1999 2,588,375
3,000,000 U.S. Treasury Notes, 6.375%, due January 15, 2000 3,007,560
2,000,000 U.S. Treasury Notes, 8.500%, due February 15, 2000 2,105,520
3,000,000 U.S. Treasury Notes, 6.875%, due March 31, 2000 3,040,230
3,000,000 U.S. Treasury Notes, 5.500%, due April 15, 2000 2,934,690
3,000,000 U.S. Treasury Notes, 8.750%, due August 15, 2000 3,201,360
3,000,000 U.S. Treasury Notes, 8.500%, due November 15, 2000 3,190,860
4,200,000 U.S. Treasury Notes, 7.750%, due February 15, 2001 4,378,836
625,000 U.S. Treasury Bonds, 13.125%, due May 15, 2001 768,250
2,000,000 U.S. Treasury Notes, 8.000%, due May 15, 2001 2,105,640
680,000 U.S. Treasury Bonds, 13.375%, due August 15, 2001 850,047
1,000,000 U.S. Treasury Notes, 7.875%, due August 15, 2001 1,050,390
5,500,000 U.S. Treasury Notes, 7.500%, due November 15, 2001 5,709,165
5,000,000 U.S. Treasury Bonds, 14.250%, due February 15, 2002 6,547,550
2,000,000 U.S. Treasury Notes, 7.500%, due May 15, 2002 2,083,500
7,500,000 U.S. Treasury Notes, 6.375%, due August 15, 2002 7,455,600
2,570,000 U.S. Treasury Bonds, 11.625%, due November 15, 2002 3,164,184
5,000,000 U.S. Treasury Notes, 6.250%, due February 15, 2003 4,931,250
3,000,000 U.S. Treasury Bonds, 10.750%, due May 15, 2003 3,609,840
3,500,000 U.S. Treasury Notes, 5.750%, due August 15, 2003 3,356,115
5,500,000 U.S. Treasury Bonds, 11.875%, due November 15, 2003 7,003,810
5,000,000 U.S. Treasury Notes, 5.875%, due February 15, 2004 4,808,650
8
<PAGE>
STATE FARM BALANCED FUND, INC.
PORTFOLIO OF INVESTMENTS
May 31, 1997
(Unaudited)
PRINCIPAL
AMOUNT VALUE
LONG-TERM U.S. TREASURY OBLIGATIONS (Continued)
$ 5,000,000 U.S. Treasury Notes, 7.250%, due May 15, 2004 $ 5,176,900
6,000,000 U.S. Treasury Notes, 7.250%, due August 15, 2004 6,212,220
1,500,000 U.S. Treasury Bonds, 11.625%, due November 15, 2004 1,933,215
5,000,000 U.S. Treasury Notes, 7.500%, due February 15, 2005 5,254,600
1,785,000 U.S. Treasury Bonds, 8.250%, due May 15, 2005 1,864,647
3,500,000 U.S. Treasury Notes, 6.500%, due May 15, 2005 3,467,415
4,800,000 U.S. Treasury Bonds, 10.750%, due August 15, 2005 6,018,000
2,000,000 U.S. Treasury Notes, 5.875%, due November 15, 2005 1,897,700
11,500,000 U.S. Treasury Bonds, 9.375%, due February 15, 2006 13,543,435
2,000,000 U.S. Treasury Notes, 6.875%, due May 15, 2006 2,025,140
3,000,000 U.S. Treasury Notes, 7.000%, due July 15, 2006 3,062,550
10,000,000 U.S. Treasury Notes, 6.250%, due February 15, 2007 9,718,000
1,000,000 U.S. Treasury Bonds, 10.375%, due November 15, 2009 1,209,080
7,000,000 U.S. Treasury Bonds, 10.000%, due May 15, 2010 8,375,780
------------
Total long-term U.S. Government obligations
(cost: $182,509,622) 180,799,429
</TABLE>
9
<PAGE>
STATE FARM BALANCED FUND, INC.
PORTFOLIO OF INVESTMENTS
MAY 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
SHORT-TERM INVESTMENTS (10.0%)
$27,000,000 U.S. Treasury bills, 5.02% to 5.14% effective yield, due June to
to August, 1997 $ 26,851,950
21,100,000 General Electric Capital Corp.,5.60%, 6-3-1997 21,136,166
18,710,000 General Motors Acceptance Corp.,5.53%, 6-10-1997 18,718,626
1,255,000 General Motors Acceptance Corp.,5.62%, 6-10-1997 1,255,196
----------------
Total short-term investments (cost $67,939,541) 67,961,938
----------------
TOTAL INVESTMENTS (99.6%) (cost: $460,132,963) 676,999,337
CASH AND OTHER ASSETS,
LESS LIABILITIES (.4%) 2,389,707
----------------
NET ASSETS (100.0%) 679,389,044
================
</TABLE>
Notes (a) Non-income producing security.
(b) At May 31, 1997, net unrealized appreciation of $216,866,374
consisted of gross unrealized appreciation of $221,931,678 and
gross unrealized depreciation of $5,065,304 based on cost of
$460,132,963 for federal income tax purposes.
See accompanying notes to financial statements.
10
<PAGE>
STATE FARM BALANCED FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
<S> <C> <C>
Investments, at value (cost $460,132,963) $ 676,999,337
Cash 655,012
Receivable for:
Dividends and interest $ 3,579,460
Shares of the Fund sold 645,474
Sundry 4,725 4,229,659
------------
Prepaid expenses 29,755
---------------
Total assets 681,913,763
LIABILITIES AND NET ASSETS
Payable for:
Shares of the Fund redeemed 1,049,178
Securities purchased 1,255,000
Other accounts payable (including $198,578 to Manager) 220,541
------------
Total liabilities 2,524,719
---------------
Net assets applicable to 16,064,882 shares outstanding
of $1.00 par value common stock (40,000,000
shares authorized) $ 679,389,044
===============
Net asset value, offering price and redemption
price per share $ 42.29
===============
ANALYSIS OF NET ASSETS
Excess of amounts received from sales of shares
over amounts paid on redemptions of shares
on account of capital $ 428,156,951
Undistributed net realized gain on sales of investments 11,981,519
Net unrealized appreciation of investments 216,866,374
Undistributed net investment income 22,384,200
---------------
Net assets applicable to shares outstanding $ 679,389,044
===============
</TABLE>
See accompanying notes to financial statements.
11
<PAGE>
STATE FARM BALANCED FUND, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1997 NOVEMBER 30,
(UNAUDITED) 1996
<S> <C> <C>
INVESTMENT INCOME:
Dividends (net of foreign withholding taxes of
$64,379 in 1997 and $50,782 in 1996) $ 3,400,224 5,482,441
Interest 8,431,872 15,309,121
------------ ------------
Total investment income 11,832,096 20,791,562
EXPENSES:
Investment advisory and management fees 391,177 699,356
Professional fees 13,298 24,573
ICI dues 10,751 20,958
Registration fees 11,133 21,227
Fidelity bond expense 2,472 4,981
Directors' fees 1,800 4,500
Reports to shareowners 5,350 14,319
Franchise taxes 8,230 13,277
Custodian fees 13,706 31,864
Other 2,740 4,000
------------ ------------
Total expenses 460,657 839,055
Less: custodian fees paid indirectly -- 22,206
------------ ------------
Net expenses 460,657 816,849
------------ ------------
Net investment income 11,371,439 19,974,713
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on sales of investments 11,981,519 19,696,852
Change in net unrealized appreciation 13,972,574 44,174,789
------------ ------------
Net realized and unrealized gain on investments 25,954,093 63,871,641
------------ ------------
Net change in net assets resulting
from operations $ 37,325,532 83,846,354
============ ============
</TABLE>
See accompanying notes to financial statements.
12
<PAGE>
STATE FARM BALANCED 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 $ 11,371,439 19,974,713 15,776,783
Net realized gain on sales of
investments 11,981,519 19,696,852 3,027,922
Change in net unrealized appreciation 13,972,574 44,174,789 82,375,184
--------------- --------------- ---------------
Net change in net assets resulting
from operations 37,325,532 83,846,354 101,179,889
Undistributed net investment
income included in price of
shares issued and redeemed 281,604 1,103,905 1,310,468
Distributions to shareowners from:
Net investment income (per share $.72
in 1997, $1.30 in 1996 and $1.19 in
1995) (10,750,448) (17,457,079) (14,601,565)
Net realized gain (per share $1.325
in 1997, $.19 in 1996 and $.185 in 1995) (19,696,852) (3,027,922) (2,185,924)
--------------- --------------- ---------------
Total distributions to shareowners (30,447,300) (20,485,001) (16,787,489)
From Fund share transactions:
Proceeds from shares sold 58,409,732 101,714,529 71,322,157
Reinvestment of ordinary income dividends
and capital gain distributions 29,484,196 19,818,987 15,888,903
--------------- --------------- ---------------
87,893,928 121,533,516 87,211,060
Less payments for shares redeemed 41,758,186 59,654,782 43,678,734
--------------- --------------- ---------------
Net increase in net assets from Fund
share transactions 46,135,742 61,878,734 43,532,326
--------------- --------------- ---------------
Total increase in net assets 53,295,578 126,343,992 129,235,194
Net assets:
Beginning of period 626,093,466 499,749,474 370,514,280
--------------- --------------- ---------------
End of period (including undistributed
net investment income of $22,384,200
in 1997, $21,481,605 in 1996 and
$17,860,066 in 1995) $ 679,389,044 626,093,466 499,749,474
=============== =============== ===============
</TABLE>
See accompanying notes to financial statements
13
<PAGE>
STATE FARM BALANCED FUND, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
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 last reported
bid price for the day. 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 daily as of
3:00 p.m. Bloomington, Illinois time on each business day other than 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 June 13, 1997, an ordinary income dividend of $.75 per share was
declared, payable June 30, 1997 (reinvestment date June 30, 1997) to
shareowners of record on June 13, 1997.
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 shares.
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.
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 taxes, interest, extraordinary
litigation expenses, brokerage commissions and other portfolio transaction
costs, shall not exceed .40% of average net assets annually.
14
<PAGE>
STATE FARM BALANCED FUND, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
Under the terms of this agreement, the Fund incurred fees of $391,177, for
the six months ended May 31, 1997 and $699,356 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 $1,800 for the six months ended May
31, 1997 and $4,500 for the year ended November 30, 1996 paid to the Fund's
independent directors.
3. INVESTMENT TRANSACTIONS
Investment transactions (exclusive of short-term instruments) are as
follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED NOVEMBER 30,
MAY 31, 1997 1996 1995
<S> <C> <C> <C>
Purchases $ 40,265,959 124,248,498 50,802,670
Proceeds from sales 31,840,452 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>
SIX MONTHS ENDED YEAR ENDED NOVEMBER 30,
MAY 31, 1997 1996 1995
<S> <C> <C> <C>
Shares sold 1,468,110 2,713,063 2,152,790
Shares issued in reinvestment of ordinary
income dividends and capital gain
distributions 749,090 525,667 501,082
--------- --------- ---------
2,217,200 3,238,730 2,653,872
Less shares redeemed 1,046,519 1,579,058 1,326,997
--------- --------- ---------
Net increase in shares
outstanding 1,170,681 1,659,672 1,326,875
========= ========= =========
</TABLE>
15
<PAGE>
STATE FARM BALANCED FUND, INC.
FINANCIAL HIGHLIGHTS
<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 $ 42.04 37.76 31.12 30.88 31.24 27.98
Income from Investment
----------------------
Operations
----------
Net Investment Income .67 1.39 1.25 1.03 .98 .98
Net Gains or Losses on
Securities (both realized
and unrealized) 1.63 4.38 6.77 .17 (.09) 3.29
--------------------------------------------------------------------
Total from Investment
Operations 2.30 5.77 8.02 1.20 .89 4.27
Less Distributions
------------------
Net investment income (.72) (1.30) (1.19) (.89) (1.01) (.89)
Capital gains (1.33) (.19) (.19) (.07) (.24) (.12)
--------------------------------------------------------------------
Total Distributions (2.05) (1.49) (1.38) (.96) (1.25) (1.01)
Net Asset Value, End of Period $ 42.29 42.04 37.76 31.12 30.88 31.24
====================================================================
Total Return 5.82% 15.78% 26.53% 3.98% 2.91% 15.43%
- ------------
Ratios/Supplemental Data
- ------------------------
Net assets, end of period
(millions) $ 679.4 626.1 499.7 370.5 327.8 259.7
Ratio of expenses to average
net assets .15%(a) .15% .17%(b) .17% .19% .22%
Ratio of net investment income
to average net assets 3.60%(a) 3.63% 3.66% 3.36% 3.20% 3.29%
Portfolio turnover rate 6%(a) 9% 6% 4% 4% 4%
Number of shares outstanding
at end of period
(millions) 16.1 14.9 13.2 11.9 10.6 8.3
Average commission rate paid (c) $ .0469 .0599 - - - -
</TABLE>
(a) Determined on an annualized basis.
(b) The ratio based on net custodian expenses would have been .16% in 1995.
(c) For fiscal years beginning 1996, a fund is required to disclose its
average commission rate per share for trades in which a commission is
charged.
16
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000093716
<NAME> STATE FARM BALANCED FUND, INC.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-END> MAY-31-1997
<INVESTMENTS-AT-COST> 460132963
<INVESTMENTS-AT-VALUE> 676999337
<RECEIVABLES> 4229659
<ASSETS-OTHER> 684767
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 681913763
<PAYABLE-FOR-SECURITIES> 1255000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1269719
<TOTAL-LIABILITIES> 2524719
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 428156951
<SHARES-COMMON-STOCK> 16064882
<SHARES-COMMON-PRIOR> 14894201
<ACCUMULATED-NII-CURRENT> 22384200
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 11981519
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 216866374
<NET-ASSETS> 679389044
<DIVIDEND-INCOME> 3400224<F1>
<INTEREST-INCOME> 8431872
<OTHER-INCOME> 0
<EXPENSES-NET> 460657
<NET-INVESTMENT-INCOME> 11371439
<REALIZED-GAINS-CURRENT> 11981519
<APPREC-INCREASE-CURRENT> 13972574
<NET-CHANGE-FROM-OPS> 37325532
<EQUALIZATION> 281604
<DISTRIBUTIONS-OF-INCOME> 10750448<F2>
<DISTRIBUTIONS-OF-GAINS> 19696852<F3>
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1468110
<NUMBER-OF-SHARES-REDEEMED> 1046519
<SHARES-REINVESTED> 749090
<NET-CHANGE-IN-ASSETS> 53295578
<ACCUMULATED-NII-PRIOR> 21481605
<ACCUMULATED-GAINS-PRIOR> 19696852
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 391177
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 460657
<AVERAGE-NET-ASSETS> 633452647
<PER-SHARE-NAV-BEGIN> 42.04
<PER-SHARE-NII> .67
<PER-SHARE-GAIN-APPREC> 1.63
<PER-SHARE-DIVIDEND> .72
<PER-SHARE-DISTRIBUTIONS> 1.33
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 42.29
<EXPENSE-RATIO> .15
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Net of foreign withholding taxes of $64,379
<F2>Per share $.72
<F3>Per share $1.325
</FN>
</TABLE>
