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, 1998
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. stock market has generated strong returns over the past six and
twelve month periods. The S&P 500 Index produced total returns of 15.0% and
30.6% for the six and twelve months ended May 31, 1998. The Balanced Fund,
which has approximately two-thirds of its assets invested in common stocks,
had total returns of 8.4% and 20.2% for the same periods.
The portion of your Fund that is not invested in common stocks holds high
quality fixed-income securities. Values of the fixed-income securities
increased slightly over the past six months as interest rates declined
somewhat.
Returns earned by U.S. common stocks have been extraordinary over the
past 3 1/2 years. In our opinion, returns of this magnitude are not
sustainable over long periods of time. Historical studies indicate that the
average annual return of the U.S. stock market was approximately 11% from
1926-97. Obviously, returns have fluctuated significantly from this average
over shorter time periods.
Business conditions are quite favorable in the United States and Europe.
However, economic activity appears to be contracting in Asia. Several U.S. and
European firms are experiencing significant weakness in Asian markets.
Increasingly, economic activity and financial markets are linked globally.
We are confident that common stock investments in growing companies with
fine managements will produce satisfactory long-term results. Your Fund
manages risk through fundamental analysis and broad diversification. Most of
the time fixed income investments held by the Fund should serve to provide
shareowners higher levels of income and smaller changes in net asset values
than is likely from a portfolio that contains only common stocks.
Returns to shareowners depend primarily on results achieved by the Fund's
common stock portfolio. When measured by virtually all general standards, U.S.
Common stocks are selling at the high end of historical valuation levels. We
encourage a disciplined long-term program of periodic investments in the
Balanced Fund. Such an investment program allows shareholders to capture the
benefits of dollar cost averaging and to participate in any long-term
appreciation of common stock prices.
The directors have declared a semi-annual income dividend of $.83 per
share which was paid on June 15, 1998. It was used to purchase additional
shares for your account unless you have elected to receive payment directly by
check.
Sincerely,
/s/ Paul N. Eckley /s/ Kurt G. Moser
Paul N. Eckley Kurt G. Moser
Vice President Vice President
June 22, 1998
2
<PAGE>
STATE FARM BALANCED FUND, INC.
PORTFOLIO OF INVESTMENTS
MAY 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
COMMON STOCKS (66.3%)
AGRICULTURE, FOODS & BEVERAGE (5.7%)
773,804 Archer-Daniels-Midland Company $ 14,605,551
26,000 Campbell Soup Company 1,417,000
190,000 The Coca-Cola Company 14,891,250
310,000 Kellogg Company 12,806,875
81,000 Pioneer Hi-Bred International, Inc. 3,083,063
29,000 Sara Lee Corporation 1,707,375
2,600(a) Vlasic Foods International 56,388
-------------
48,567,502
BANKS (7.4%)
48,000 ABN AMRO Holding N.V. 1,161,425
34,875 AmSouth Bancorporation 1,340,508
104,500 Banc One Corporation 5,760,563
35,000 First Chicago NBD Corporation 3,060,313
1,900 First Empire State Corporation 965,200
25,650 First Security Corporation 583,537
12,300 First Virginia Banks, Inc. 642,675
17,700 Golden West Financial Corporation 1,911,600
38,400 J.P. Morgan & Co. Incorporated 4,768,800
107,100 MBNA Corporation 3,393,731
20,500 Northern Trust Corporation 1,445,892
172,800 Norwest Corporation 6,717,600
180,960 Pacific Century Financial Corporation 4,535,310
83,462 Popular, Inc. 5,790,176
99,000 Southtrust Corporation 4,015,688
21,400 Suntrust Banks, Inc. 1,690,600
17,600 TCF Financial Corporation 573,100
19,251 U.S. Bancorp 753,195
75,700 Wachovia Corporation 6,060,731
18,150 Washington Federal, Inc. 504,797
20,100 Wells Fargo & Company 7,266,150
-------------
62,941,591
BUILDING MATERIALS & CONSTRUCTION (.7%)
53,400 Vulcan Materials Company 6,060,900
3
<PAGE>
STATE FARM BALANCED FUND, INC.
PORTFOLIO OF INVESTMENTS
MAY 31, 1998
(UNAUDITED)
SHARES VALUE
CHEMICALS (4.0%)
115,000 Air Products and Chemicals, Inc. $ 10,005,000
23,000 The Dow Chemical Company 2,228,125
54,700 E.I. du Pont de Nemours and Company 4,211,900
98,000 Great Lakes Chemical Corporation 3,920,000
120,000 International Flavors & Fragrances Inc. 5,760,000
207,000 Sigma-Aldrich Corporation 7,555,500
-------------
33,680,525
COMPUTERS AND SOFTWARE (4.4%)
8,800 Electronic Data Systems Corporation 320,100
377,000 Hewlett-Packard Company 23,421,125
68,600 International Business Machines Corporation 8,051,925
63,000 (a) Microsoft Corporation 5,343,188
-------------
37,136,338
CONSUMERS & MARKETING (4.5%)
150,000 The Gillette Company 17,568,750
160,000 Hon Industries Inc. 5,120,000
27,100 Jostens, Inc. 684,275
16,900 McDonald's Corporation 1,109,063
68,000 The Proctor & Gamble Company 5,707,750
172,800 Rubbermaid Incorporated 5,637,600
17,800 Steelcase Incorporated 530,662
25,600 Unilever N.V. 2,020,800
-------------
38,378,900
ELECTRONIC/ELECTRICAL (3.9%)
10,100 Diebold, Inc. 295,425
31,200 Emerson Electric Co. 1,895,400
159,900 General Electric Company 13,331,662
125,700 Intel Corporation 8,979,694
220,000 Raychem Corporation 8,277,500
-------------
32,779,681
FINANCIAL SERVICES (.1%)
9,900 The Finova Group Incorporated 547,594
4
<PAGE>
STATE FARM BALANCED FUND, INC.
PORTFOLIO OF INVESTMENTS
MAY 31, 1998
(UNAUDITED)
SHARES VALUE
HEALTH CARE (10.6%)
38,700 Allergan, Inc. $ 1,625,400
427,751 Ballard Medical Products 9,570,929
405,000 Biomet, Inc. 11,694,375
31,025 Covance Inc. 657,342
198,000 Johnson & Johnson 13,674,375
212,000 Eli Lilly and Company 13,024,750
10,800 Medtronic, Inc. 600,750
50,000 Merck & Co., Inc. 5,853,125
320,000 Pfizer Inc. 33,540,000
15,512(a) Quest Diagnostics Inc. 336,416
-------------
90,577,462
MACHINERY & MANUFACTURING (2.1%)
100,000 Caterpillar Incorporated 5,493,750
124,100 Corning Incorporated 4,894,194
14,700 Deere & Company 762,562
20,000 Illinois Tool Works Inc. 1,320,000
47,700 Minnesota Mining and Manufacturing Company 4,418,212
84,375(a) Osmonics, Inc. 1,249,805
-------------
18,138,523
MEDIA & BROADCASTING (6.1%)
331,165 The Walt Disney Company 37,463,041
42,000 Lee Enterprises, Inc. 1,275,750
42,000 Lee Enterprises, Inc. (Class B) 1,275,750
173,333 Reuters Holdings PLC (ADR) 11,873,310
-------------
51,887,851
MINING AND METALS (2.5%)
180,000 KN Energy, Inc. 9,742,500
29,200 Newmont Mining Corporation 728,175
160,000 Nucor Corporation 8,240,000
50,000 Rio Tinto PLC (ADR) 2,525,000
18,750 Steel Dynamics, Inc. 363,281
-------------
21,598,956
OIL, GAS & OTHER ENERGY(4.7%)
68,000 Amoco Corporation 2,843,250
144,000 Chevron Corporation 11,502,000
152,000 Exxon Corporation 10,716,000
11,800(a) Octel Corporation 257,387
65,220 Pennzoil Company 3,770,531
188,700 Royal Dutch Petroleum Company (ADR) 10,578,994
-------------
39,668,162
RETAILERS (.3%)
47,000 Wal-Mart Stores, Inc. 2,593,812
5
<PAGE>
STATE FARM BALANCED FUND, INC.
PORTFOLIO OF INVESTMENTS
MAY 31, 1998
(UNAUDITED)
SHARES VALUE
TELECOMMUNICATIONS & EQUIPMENT (7.9%)
258,200(a) ADC Telecommunications, Inc. $ 7,261,875
170,000 AT&T Corp. 10,348,750
24,000(a) Airtouch Communications, Inc. 1,143,000
64,000 Ameritech Corporation 2,716,000
83,000 Deutsche Telekom (ADR) 2,266,937
136,000 LM Ericsson Telephone Company (ADR) 3,791,000
110,188 Lucent Technologies Inc. 7,816,461
261,000 MCI Communications Corporation 13,955,357
64,000 Motorola, Inc. 3,388,000
385,800 SBC Communications Inc. 14,997,975
-------------
67,685,355
UTILITIES & ENERGY (1.4%)
16,400 AES Corporation 780,025
20,800 CMS Energy Corporation 906,100
36,000 Duke Energy Corporation 2,074,500
25,200 FPL Group, Inc. 1,548,225
85,000 Pacificorp 1,960,312
80,000 Southern Company 2,125,000
47,300 Teco Energy, Inc. 1,238,669
28,000 Texas Utilities Company 1,106,000
-------------
11,738,831
-------------
Total common stocks (cost: $237,707,985) 563,981,983
</TABLE>
6
<PAGE>
STATE FARM BALANCED FUND, INC.
PORTFOLIO OF INVESTMENTS
MAY 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
LONG-TERM U.S. TREASURY OBLIGATIONS (27.9%)
$ 3,000,000 U.S. Treasury notes, 9.250%, due August 15, 1998 $ 3,024,150
2,500,000 U.S. Treasury notes, 7.125%, due October 15, 1998 2,516,225
3,000,000 U.S. Treasury notes, 8.875%, due February 15, 1999 3,068,190
2,000,000 U.S. Treasury notes, 7.000%, due April 15, 1999 2,025,040
2,000,000 U.S. Treasury notes, 9.125%, due May 15, 1999 2,065,420
3,000,000 U.S. Treasury notes, 6.375%, due July 15, 1999 3,028,350
3,000,000 U.S. Treasury notes, 7.125%, due September 30, 1999 3,059,040
1,500,000 U.S. Treasury notes, 6.000%, due October 15, 1999 1,508,835
2,500,000 U.S. Treasury notes, 7.875%, due November 15, 1999 2,579,950
3,000,000 U.S. Treasury notes, 6.375%, due January 15, 2000 3,037,170
2,000,000 U.S. Treasury notes, 8.500%, due February 15, 2000 2,094,340
3,000,000 U.S. Treasury notes, 6.875%, due March 31, 2000 3,068,310
3,000,000 U.S. Treasury notes, 5.500%, due April 15, 2000 2,998,170
5,000,000 U.S. Treasury notes, 6.250%, due May 31, 2000 5,065,800
3,000,000 U.S. Treasury notes, 8.750%, due August 15, 2000 3,196,680
3,000,000 U.S. Treasury notes, 8.500%, due November 15, 2000 3,199,620
4,200,000 U.S. Treasury notes, 7.750%, due February 15, 2001 4,427,556
5,000,000 U.S. Treasury notes, 6.375%, due March 31, 2001 5,101,600
625,000 U.S. Treasury bonds, 13.125%, due May 15, 2001 752,200
2,000,000 U.S. Treasury notes, 8.000%, due May 15, 2001 2,130,060
680,000 U.S. Treasury bonds, 13.375%, due August 15, 2001 833,911
4,000,000 U.S. Treasury notes, 7.875%, due August 15, 2001 4,265,000
5,500,000 U.S. Treasury notes, 7.500%, due November 15, 2001 5,825,600
5,000,000 U.S. Treasury bonds, 14.250%, due February 15, 2002 6,433,850
2,000,000 U.S. Treasury notes, 7.500%, due May 15, 2002 2,132,860
5,000,000 U.S. Treasury notes, 6.000%, due July 31, 2002 5,071,900
7,500,000 U.S. Treasury notes, 6.375%, due August 15, 2002 7,714,350
2,570,000 U.S. Treasury bonds, 11.625%, due November 15, 2002 3,174,747
5,000,000 U.S. Treasury notes, 6.250%, due February 15, 2003 5,131,950
3,000,000 U.S. Treasury bonds, 10.750%, due May 15, 2003 3,656,100
9,000,000 U.S. Treasury notes, 5.750%, due August 15, 2003 9,068,490
5,500,000 U.S. Treasury bonds, 11.875%, due November 15, 2003 7,091,370
9,000,000 U.S. Treasury notes, 5.875%, due February 15, 2004 9,127,980
9,000,000 U.S. Treasury notes, 7.250%, due May 15, 2004 9,734,580
6,000,000 U.S. Treasury notes, 7.250%, due August 15, 2004 6,508,560
1,500,000 U.S. Treasury bonds, 11.625%, due November 15, 2004 1,979,835
5,000,000 U.S. Treasury notes, 7.500%, due February 15, 2005 5,514,650
1,785,000 U.S. Treasury bonds, 8.250%, due May 15, 2005 1,868,770
7
<PAGE>
STATE FARM BALANCED FUND, INC.
PORTFOLIO OF INVESTMENTS
MAY 31, 1998
(UNAUDITED)
PRINCIPAL
AMOUNT VALUE
LONG-TERM U.S. TREASURY OBLIGATIONS (Continued)
$ 7,500,000 U.S. Treasury notes, 6.500%, due May 15, 2005 $ 7,875,000
4,800,000 U.S. Treasury bonds, 10.750%, due August 15, 2005 6,225,216
6,000,000 U.S. Treasury notes, 5.875%, due November 15, 2005 6,079,800
11,500,000 U.S. Treasury bonds, 9.375%, due February 15, 2006 14,143,275
6,000,000 U.S. Treasury notes, 6.875%, due May 15, 2006 6,456,900
3,000,000 U.S. Treasury notes, 7.000%, due July 15, 2006 3,253,980
4,000,000 U.S. Treasury notes, 6.500%, due October 15, 2006 4,215,080
10,000,000 U.S. Treasury notes, 6.250%, due February 15, 2007 10,395,200
11,000,000 U.S. Treasury notes, 6.625%, due May 15, 2007 11,717,750
4,000,000 U.S. Treasury notes. 6.125%, due August 15, 2007 4,128,680
1,000,000 U.S. Treasury bonds, 10.375%, due November 15, 2009 1,246,710
7,000,000 U.S. Treasury bonds, 10.000%, due May 15, 2010 8,684,480
-------------
Total long-term U.S. Government obligations
(cost: $233,656,615) 237,503,280
8
<PAGE>
STATE FARM BALANCED FUND, INC.
PORTFOLIO OF INVESTMENTS
MAY 31, 1998
(UNAUDITED)
PRINCIPAL
AMOUNT VALUE
SHORT-TERM INVESTMENTS (5.5%)
$27,250,000 U.S. Treasury bills, 4.935% to 5.03% effective yield, due June to
to August, 1998 $ 27,129,270
1,250,000 Ford Motor Credit Co., 5.54%, June, 1998 1,250,192
18,700,000 General Motors Acceptance Corp., 5.53% to 5.54%, June, 1998 18,719,083
-------------
Total short-term investments (cost: $47,085,124) 47,098,545
-------------
TOTAL INVESTMENTS (99.7%) (cost: $518,449,724) 848,583,808
CASH AND OTHER ASSETS,
LESS LIABILITIES (.3%) 2,720,833
-------------
NET ASSETS (100%) $ 851,304,641
=============
</TABLE>
Notes (a) Non-income producing security.
(b) At May 31, 1998, net unrealized appreciation of $330,134,084
consisted of gross unrealized appreciation of $333,608,911 and
gross unrealized depreciation of $3,474,827 based on cost of
$518,449,724 for federal income tax purposes.
See accompanying notes to financial statements.
9
<PAGE>
STATE FARM BALANCED FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
<S> <C> <C>
Investments, at value (cost $518,449,724) $ 848,583,808
Cash 1,076,849
Receivable for:
Dividends and interest $ 4,077,482
Shares of the Fund sold 47,357
Securities Sold 353,581
Sundry 4,725 4,483,145
-----------
Prepaid expenses 38,876
-------------
Total assets 854,182,678
LIABILITIES AND NET ASSETS
Payable for:
Shares of the Fund redeemed 1,349,558
Securities purchased 1,250,000
Other accounts payable (including $254,203 to Manager) 278,479
-----------
Total liabilities 2,878,037
-------------
Net assets applicable to 17,559,251 shares outstanding
of $1.00 par value common stock (40,000,000
shares authorized) $ 851,304,641
=============
Net asset value, offering price and redemption
price per share $ 48.48
=============
ANALYSIS OF NET ASSETS
Excess of amounts received from sales of shares
over amounts paid on redemptions of shares
on account of capital $ 495,627,139
Accumulated net realized loss on sales of investments (105,245)
Net unrealized appreciation of investments 330,134,084
Undistributed net investment income 25,648,663
-------------
Net assets applicable to shares outstanding $ 851,304,641
=============
</TABLE>
See accompanying notes to financial statements.
10
<PAGE>
STATE FARM BALANCED FUND, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1998 NOVEMBER 30,
(UNAUDITED) 1997
<S> <C> <C>
INVESTMENT INCOME:
Dividends (net of foreign withholding taxes of
$70,962 in 1998 and $64,379 in 1997) $ 5,770,638 6,930,199
Interest 9,391,674 17,286,259
------------ ------------
Total investment income 15,162,312 24,216,458
EXPENSES:
Investment advisory and management fees 483,135 829,724
Audit Fees 10,850 21,151
Legal Fees 6,521 4,262
ICI dues 9,914 21,227
Registration fees 15,165 17,826
Fidelity bond expense 2,500 4,990
Directors' fees 4,080 4,950
Reports to shareowners 6,218 12,077
Franchise taxes 9,310 15,667
Custodian fees 7,593 22,820
Securities evaluation fees 2,617 5,475
Proxy and mailing expenses 4,701 --
Other -- 103
------------ ------------
Total expenses 562,604 960,272
------------ ------------
Net investment income 14,599,708 23,256,186
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on sales of investments (105,245) 11,354,841
Change in net unrealized appreciation 50,239,458 77,000,826
------------ ------------
Net realized and unrealized gain on investments 50,134,213 88,355,667
------------ ------------
Net change in net assets resulting
from operations $ 64,733,921 111,611,853
============ ============
</TABLE>
See accompanying notes to financial statements.
11
<PAGE>
STATE FARM BALANCED FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED NOVEMBER 30,
MAY 31, 1998 1997 1996
(UNAUDITED)
<S> <C> <C> <C>
From operations:
Net investment income $ 14,599,708 23,256,186 19,974,713
Net realized gain (loss) on sales of
investments (105,245) 11,354,841 19,696,852
Change in net unrealized appreciation 50,239,458 77,000,826 44,174,789
------------- ----------- -----------
Net change in net assets resulting
from operations 64,733,921 111,611,853 83,846,354
Undistributed net investment
income included in price of
shares issued and redeemed 265,701 728,764 1,103,905
Distributions to shareowners from:
Net investment income (per share $.71
in 1998, $1.47 in 1997 and $1.30 in
1996) (11,859,036) (22,824,265) (17,457,079)
Net realized gain (per share $.69
in 1998, $1.325 in 1997 and $.19 in 1996) (11,354,841) (19,696,852) (3,027,922)
------------- ----------- -----------
Total distributions to shareowners (23,213,877) (42,521,117) (20,485,001)
From Fund share transactions:
Proceeds from shares sold 75,206,888 107,496,503 101,714,529
Reinvestment of ordinary income dividends
and capital gain distributions 22,365,390 41,061,305 19,818,987
------------- ----------- -----------
97,572,278 148,557,808 121,533,516
Less payments for shares redeemed 50,332,579 82,191,577 59,654,782
------------- ----------- -----------
Net increase in net assets from Fund
share transactions 47,239,699 66,366,231 61,878,734
------------- ----------- -----------
Total increase in net assets 89,025,444 136,185,731 126,343,992
Net assets:
Beginning of period 762,279,197 626,093,466 499,749,474
------------- ----------- -----------
End of period (including undistributed
net investment income of $25,648,663
in 1998, $22,642,290 in 1997 and
$21,481,605 in 1996) $ 851,304,641 762,279,197 626,093,466
============= =========== ===========
</TABLE>
See accompanying notes to financial statements
12
<PAGE>
STATE FARM BALANCED FUND, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. OBJECTIVE
The investment objective of the State Farm Balanced Fund, Inc. (the Fund)
is to provide its shareowners income and some long-term growth of both
principal and income. The Fund seeks to achieve its objective by distributing
its investments among common stocks, preferred stocks and bonds in varying
proportions according to prevailing market conditions and the judgment of the
Manager.
2. 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 at amortized cost
which approximates market value. 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 12, 1998, an ordinary income dividend of $.83 per share was
declared, payable June 15, 1998 (reinvestment date June 15, 1998) to
shareowners of record on June 12, 1998.
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.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
13
<PAGE>
STATE FARM BALANCED FUND, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
3. 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.
Under the terms of this agreement, the Fund incurred fees of $483,135,
for the six months ended May 31, 1998 and $829,724 for the year ended November
30, 1997. 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, 1998 and the year ended November
30, 1997, except for directors' fees of $4,080 for the six months ended May
31, 1998 and $4,950 for the year ended November 30, 1997 paid to the Fund's
independent directors.
4. INVESTMENT TRANSACTIONS
Investment transactions (exclusive of short-term instruments) are as
follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED NOVEMBER 30,
MAY 31, 1998 1997 1996
<S> <C> <C> <C>
Purchases $ 74,935,104 69,819,614 124,248,498
Proceeds from sales 17,202,624 39,223,469 49,420,816
============ ========== ===========
</TABLE>
5. 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, 1998 1997 1996
<S> <C> <C> <C>
Shares sold 1,600,162 2,605,702 2,713,063
Shares issued in reinvestment of ordinary
income dividends and capital gain
distributions 487,688 1,017,327 525,667
--------- --------- ---------
2,087,850 3,623,029 3,238,730
Less shares redeemed 1,066,793 1,979,036 1,579,058
--------- --------- ---------
Net increase in shares
outstanding 1,021,057 1,643,993 1,659,672
========= ========= =========
</TABLE>
14
<PAGE>
STATE FARM BALANCED 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, 1998 1997 1996 1995 1994 1993
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period $ 46.09 42.04 37.76 31.12 30.88 31.24
Income from Investment
----------------------
Operations
----------
Net Investment Income .80 1.40 1.39 1.25 1.03 .98
Net Gains or Losses on
Securities (both realized
and unrealized) 2.99 5.45 4.38 6.77 .17 (.09)
-------------------------------------------------------------------------
Total from Investment
Operations 3.79 6.85 5.77 8.02 1.20 .89
Net investment income (.71) (1.47) (1.30) (1.19) (.89) (1.01)
Capital gains (.69) (1.33) (.19) (.19) (.07) (.24)
-------------------------------------------------------------------------
Total Distributions (1.40) (2.80) (1.49) (1.38) (.96) (1.25)
Net Asset Value, End of Period $ 48.48 46.09 42.04 37.76 31.12 30.88
=========================================================================
Total Return 8.40% 17.33% 15.78% 26.53% 3.98% 2.91%
- ------------
Ratios/Supplemental Data
- ------------------------
Net assets, end of period
(millions) $ 851.3 762.3 626.1 499.7 370.5 327.8
Ratio of expenses to average
net assets .14%(a) .14% .15% .17%(b) .17% .19%
Ratio of net investment income
to average net assets 3.58%(a) 3.42% 3.63% 3.66% 3.36% 3.20%
Portfolio turnover rate 5%(a) 6% 9% 6% 4% 4%
Number of shares outstanding
at end of period
(millions) 17.6 16.5 14.9 13.2 11.9 10.6
</TABLE>
(a) Determined on an annualized basis.
(b) The ratio based on net custodian expenses would have been .16% in 1995.
15
<PAGE>
VOTING RESULTS OF THE SPECIAL MEETING OF SHAREOWNERS
At a Special Meeting of Shareowners of the Fund held on March 13, 1998, the
following actions were taken:
A. The shareowners of the Fund elected the following individuals to serve on
the Board of Directors until the next meeting of shareowners called for
this purpose and until their successors shall be elected and qualified.
- ------------------------------------------------------------------------------
Name of Director Number of Votes For Number of Votes Withheld
- ------------------------------------------------------------------------------
Edward B. Rust, Jr. 11,284,096 9,296
Roger S. Joslin 11,331,739 9,034
Albert H. Hoopes 11,180,830 13,695
Davis U Merwin 11,274,657 9,804
James A. Shirk 11,295,015 10,718
Thomas M. Mengler 11,271,270 11,169
- ------------------------------------------------------------------------------
B. The shareowners of the Fund approved the proposed bylaw amendment that
would permit the board of directors to adopt further amendments without
shareowner approval:
- ------------------------------------------------------------------------------
Number of Votes For Number of Votes Against Number of Votes Withheld
- ------------------------------------------------------------------------------
10,174,603 824,172 421,295
- ------------------------------------------------------------------------------
16
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000093716
<NAME> STATE FARM BALANCED FUND, INC.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-END> MAY-31-1998
<INVESTMENTS-AT-COST> 518449724
<INVESTMENTS-AT-VALUE> 848583808
<RECEIVABLES> 4483145
<ASSETS-OTHER> 1115725
<OTHER-ITEMS-ASSETS> 0
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<DISTRIBUTIONS-OF-INCOME> (11859036)
<DISTRIBUTIONS-OF-GAINS> (11354841)
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<NET-CHANGE-IN-ASSETS> 89025444
<ACCUMULATED-NII-PRIOR> 22642290
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<PER-SHARE-NII> .80
<PER-SHARE-GAIN-APPREC> 2.99
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</TABLE>
