AMERICAN BALANCED FUND, INC.
Part B
Statement of Additional Information
MARCH 1, 1996
(as amended April 1, 1996)
This document is not a prospectus but should be read in conjunction with the
current Prospectus of American Balanced Fund, Inc. (the fund or AMBAL) dated
March 1, 1996. The Prospectus may be obtained from your investment dealer or
financial planner or by writing to the fund at the following address:
American Balanced Fund, Inc.
Attention: Secretary
Four Embarcadero Center
P.O. Box 7650
San Francisco, CA 94120
Telephone: (415) 421-9360
The fund has two forms of prospectuses. Each reference to the prospectus in
this Statement of Additional Information includes both of the fund's
prospectuses. Shareholders who purchase shares at net asset value through
eligible retirement plans should note that not all of the services or features
described below may be available to them, and they should contact their
employer for details.
Table of Contents
Item
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DESCRIPTION OF CERTAIN SECURITIES
FUNDAMENTAL POLICIES AND INVESTMENT RESTRICTIONS
FUND OFFICERS AND DIRECTORS
MANAGEMENT
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES
PURCHASE OF SHARES
SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES
EXECUTION OF PORTFOLIO TRANSACTIONS
GENERAL INFORMATION
INVESTMENT RESULTS
FINANCIAL STATEMENTS
DESCRIPTION OF CERTAIN SECURITIES
BOND RATINGS - The fund may invest in debt securities which are rated in the
top four quality categories by any national rating service (or determined to be
equivalent by Capital Research and Management Company) including bonds rated at
least BBB by Standard & Poor's Corporation or Baa by Moody's Investors Service,
Inc. (see below). Although the fund is not normally required to dispose of a
security in the event that its rating is reduced below the current minimum
rating required for its purchase (or it is not rated and its quality becomes
equivalent to such a security), if, as a result of a downgrade or otherwise,
the fund holds more than 5% of its net assets in these securities (also known
as "high-yield, high-risk securities"), the fund will dispose of the excess as
expeditiously as possible.
Standard & Poor's Corporation: "AAA", "AA", "A" and "BBB" are the four
highest bond rating categories, and are described as follows:
"Debt rated 'AAA' has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong."
"Debt rated 'AA' has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in a small degree."
"Debt rated 'A' has a strong capacity to pay interest and repay principal,
although they are somewhat more susceptible to the adverse effects of change in
circumstances and economic conditions, than debt in higher categories."
"Debt rated 'BBB' is regarded as having capacity to pay interest and repay
principal. These bonds normally exhibit adequate protection parameters, but
adverse economic conditions or changing circumstances are more likely to lead
to a weakened capacity to pay interest and pay principal than for debt in
higher rated categories."
Moody's Investors Service, Inc.: "Aaa", "Aa", "A" and "Baa" are the four
highest bond rating categories, and are described as follows:
"Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as 'gilt
edge.' Interest payments are protected by a large or by an exceptionally
stable margin, and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues."
"Bonds rated Aa are judged to be of high quality by all standards. Together
with the Aaa group, they comprise what are generally known as high-grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large as in Aaa securities, or fluctuation of protective elements may be
of greater amplitude, or there may be other elements present which make the
long-term risks appear somewhat larger than the Aaa securities."
"Bonds rated A are judged to be of upper medium grade obligations. These
bonds possess many favorable investment attributes. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future."
"Bonds rated Baa are judged to be of medium grade obligations. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable over
any great length of time. Such bonds lack outstanding investment
characteristics and, in fact, have speculative characteristics as well."
CASH EQUIVALENTS - These securities include (1) commercial paper (short-term
notes up to 9 months in maturity issued by corporations or governmental
bodies), (2) commercial bank obligations (E.G., certificates of deposit,
bankers' acceptances (time drafts on a commercial bank where the bank accepts
an irrevocable obligation to pay at maturity) and documented discount notes
(corporate promissory discount notes accompanied by a commercial bank guarantee
to pay at maturity)), (3) savings association and savings bank obligations
(E.G., certificates of deposit issued by savings banks or savings
associations), (4) securities of the U.S. Government, its agencies or
instrumentalities that mature, or that may be redeemed, in one year or less,
and (5) corporate bonds and notes that mature, or that may be redeemed, in one
year or less.
WHEN-ISSUED SECURITIES, FIRM COMMITMENT AGREEMENTS AND "ROLL TRANSACTIONS" -
The fund may purchase securities on a delayed delivery or "when-issued" basis
and enter into firm commitment agreements (transactions whereby the payment
obligation and interest rate are fixed at the time of the transaction but the
settlement is delayed). The fund as purchaser assumes the risk of any decline
in value of the security beginning on the date of the agreement or purchase.
The fund will identify liquid assets such as cash, U.S. Government securities
or other appropriate high-grade debt obligations in an amount sufficient to
meet its payment obligations in these transactions. Although these
transactions will not be entered into for leveraging purposes, to the extent
the fund's aggregate commitments under these transactions exceed its holdings
of cash and securities that do not fluctuate in value (such as short-term money
market instruments), the fund temporarily will be in a leveraged position
(because it will have an amount greater than its net assets subject to market
risk). Should market values of the fund's portfolio securities decline while
the fund is in a leveraged position, greater depreciation of its net assets
will likely occur than were it not in such a position. The fund will not
borrow money to settle these transactions and, therefore, will liquidate other
portfolio securities in advance of settlement if necessary to generate
additional cash to meet its obligations thereunder.
The fund also may enter into "roll" transactions, which consist of the sale of
securities together with a commitment (for which the fund typically receives a
fee) to purchase similar, but not identical, securities at a later date. The
fund intends to treat roll transactions as two separate transactions: one
involving the purchase of a security and a separate transaction involving the
sale of a security. Since the fund does not intend to enter into roll
transactions for financing purposes, it may treat these transactions as not
falling within the definition of "borrowing" set forth in Section 2(a)(23) of
the Investment Company Act of 1940.
FUNDAMENTAL POLICIES AND INVESTMENT RESTRICTIONS
The fund has adopted certain fundamental policies and investment restrictions
which cannot be changed without shareholder approval. (Approval requires the
affirmative vote of 67% or more of the voting securities present at a meeting
of shareholders, provided more than 50% of such securities are represented at
the meeting or the vote of more than 50% of the outstanding voting securities,
whichever is less.)
1. To invest in a diversified list of securities, including common stocks,
preferred stocks, and bonds, to the extent considered advisable by management.
2. To allocate its investments among different industries as well as among
individual companies. The amount invested in an industry will vary from time
to time in accordance with the judgment of management, but 25% or more of the
value of the fund's total assets shall not be invested in securities of issuers
in any one industry (other than securities issued or guaranteed by the U.S.
government or its agencies or instrumentalities).
3. Not to invest in companies for the purpose of exercising control or
management.
4. Not to invest more than 5% of the value of its total assets in the
securities of any one issuer (except the U.S. Government).
5. Not to acquire more than 10% of the outstanding voting securities, or 10%
of all of the securities, of any one issuer.
6. Not to borrow more than 5% of the gross assets of the fund taken at cost or
at value, whichever is lower, and to borrow only from banks and as a temporary
measure for extraordinary or emergency purposes. The fund shall not mortgage,
pledge, hypothecate, or in any other manner transfer as security for any
indebtedness, any of its assets.
7. Not to underwrite the sale, or participate in any underwriting or selling
group in connection with the public distribution, of any security. The fund
may invest not more than 10% of its net assets in, and subsequently distribute,
as permitted by law, securities and other assets for which there is no ready
market.
8. Not to purchase securities on margin (except that it may obtain such
short-term credits as may be necessary for the clearance of purchases or sales
of securities).
9. Not to engage in the purchase or sale of real estate. Investments in real
estate investment trusts which may invest only in mortgages or other security
interests are not deemed purchases of real estate.
10. Not to purchase or sell commodities or commodity contracts.
11. Not to participate on a joint or a joint and several basis in any trading
account in securities. (The "bunching" of orders for the sale or purchase of
marketable portfolio securities with other accounts under the management of the
Investment Adviser to save brokerage costs or average prices among them is not
deemed to result in a securities trading account.)
12. Not to make loans of money or securities to any person or firm; provided,
however, that the acquisition for investment of bonds, debentures, notes or
other evidences of indebtedness of any corporation or government shall not be
construed to be the making of a loan.
13. Not to effect short sales of securities.
14. Not to purchase from or sell securities to the Investment Adviser or the
Principal Underwriter or their officers or directors, the fund's officers or
directors, and any companies of which they are affiliates, except in connection
with (i) an exercise of rights concerning securities owned by the fund, (ii)
the reorganization, recapitalization, consolidation or merger of a company
whose securities are owned by the fund, (iii) a transaction in fund shares, or
(iv) a permitted transaction with other investment companies advised by the
Investment Adviser.
15. Not to knowingly invest in securities of other managed investment
companies, or, in any event, invest in securities of managed registered
investment companies, except in connection with a merger, consolidation,
acquisition of assets or other reorganization approved by the fund's
shareholders.
16. Not to invest more than 75% of the value of the fund's net assets in
common stocks, such percentage including the value of that portion of
convertible securities attributable to the conversion feature.
17. Not to purchase or retain the securities issued by a corporation any of
whose officers, directors or shareholders is an officer or director of the fund
or the Investment Adviser if, after such purchase, one or more of such officers
and directors owning beneficially more than 1/2 of 1% of the securities of such
corporation together own beneficially more than 5% of such securities.
18. Not to write, purchase or sell options.
For purposes of Investment Restriction #7, restricted securities are
treated as not readily marketable by the fund, with the exception of those
securities that have been determined to be liquid pursuant to procedures
adopted by the fund's Board of Directors. Notwithstanding Investment
Restriction #15, the fund may invest in securities of other investment
companies if deemed advisable by its officers in connection with the
administration of a deferred compensation plan adopted by Directors pursuant to
an exemptive order granted by the Securities and Exchange Commission.
Although not fundamental policies, the fund has further agreed that it will
not invest more than 5% of the value of the fund's net assets in warrants,
valued at the lower of cost or market, with no more than 2% being unlisted on
the New York or American Stock Exchanges (warrants acquired by the fund in
units or attached to securities may be deemed to be without value); or invest
in oil, gas or other mineral leases.
FUND OFFICERS AND DIRECTORS
Directors and Director Compensation
<TABLE>
<CAPTION>
NAME, ADDRESS AND AGE POSITION WITH PRINCIPAL OCCUPATION(S) DURING AGGREGATE TOTAL COMPENSATION TOTAL NUMBER
REGISTRANT PAST 5 YEARS (POSITIONS WITHIN THE COMPENSATION FROM ALL FUNDS OF FUND
ORGANIZATIONS LISTED MAY HAVE (INCLUDING MANAGED BY CAPITAL BOARDS ON
CHANGED DURING THIS PERIOD) VOLUNTARILY DEFERRED RESEARCH AND WHICH
COMPENSATION/1/) FROM MANAGEMENT COMPANY/2/ DIRECTOR
FUND DURING FISCAL FOR THE YEAR ENDED SERVES
YEAR ENDED 12/31/95 12/31/95
<S> <C> <C> <C> <C> <C>
Robert A. Fox Director President and Chief Executive
P.O. Box 457 Officer, Foster Farms Inc. $8,900/3/ $78,400 5
1000 Davis Street Former President, Revlon
Livingston, CA 95334 International; Chairman and Chief
Age: 58 Executive Officer, Clarke Hooper
America (advertising).
Roberta L. Hazard Director Consultant; Rear Admiral, United
1419 Audmar Drive States Navy (Retired). 9,035 41,700 3
McLean, VA 22101
Age: 61
++ Richard H. M. Holmes Director Retired; former Vice President,
580 Laurent Road Capital Research and 7,650 55,800 4
Hillsborough, CA 94010 Management Company (retired
Age: 70 1986).
Leonade D. Jones Director Treasurer, The Washington Post
1150-15th Street, N.W. Company. 9,335 63,767 5
Washington, D.C. 20071
Age: 48
John G. McDonald Director The IBJ Professor of Finance,
Graduate School of Business Graduate School of Business, 9,167/3/ 136,300 7
Stanford University Stanford University.
Stanford, CA 94305
Age: 58
***+ George A. Miller Director Senior Vice President and
Age: 60 Director, Capital Research and none/4/ none/4/ 1
Management Company.
Theodore D. Nierenberg Director Private investor; former
15 Middle Patent Road Armonk, NY 10504 President, Dansk International 9,035 40,500 3
Age: 72 Designs, Ltd.
***+ James W. Ratzlaff Director Senior Partner, The Capital Group
Age: 59 Partners L.P. none/4/ none/4/ 8
Henry E. Riggs Director President and Professor of
Kingston Hall 201 Engineering, Harvey Mudd 8,900/3/ 65,300 5
Harvey Mudd College College.
Claremont, CA 91711
Age: 61
+ Walter P. Stern Chairman of the Board Chairman, Capital Group
630 Fifth Avenue International, Inc.; Vice none/4/ none/4/ 8
New York, NY 10111 Chairman, Capital Research
Age: 67 International; Chairman, Capital
International, Inc.; Director,
Temple-Inland Inc.
(forest products).
Patricia K. Woolf Director Private investor; Lecturer,
506 Quaker Road Department of Molecular 9,200 63,400 5
Princeton, NJ 08540 Biology, Princeton University.
Age: 61
Robert L. Cody Director Emeritus Retired; former Vice Chairman of
8545 Carmel Valley Road the Board, Capital Research and 4,000 4,000 1
Carmel, CA 93923 Management Company (retired
Age: 80 1986).
</TABLE>
+ "Interested persons" within the meaning of the Investment Company Act of 1940
(the 1940 Act) on the basis of their affiliation with the fund's Investment
Adviser, Capital Research and Management Company.
++ Not considered an "interested person" within the meaning of the 1940 Act;
but he does not participate on the Contracts or Nominating Committees due to
his former affiliation with the Investment Adviser.
*** P.O. Box 7650, San Francisco, CA 94120
/1/ Amounts may be deferred by eligible directors under a non-qualified
deferred compensation plan adopted by the Fund in 1993. Deferred amounts
accumulate at an earnings rate determined by the total return of one or more
funds in The American Funds Group as designated by the Director.
/2/ Capital Research and Management Company manages The American Funds Group
consisting of 28 funds: AMCAP Fund, Inc, American Balanced Fund, Inc.,
American High-Income Municipal Bond Fund, Inc., American High-Income Trust,
American Mutual Fund, Inc., The Bond Fund of America, Inc., The Cash Management
Trust of America, Capital Income Builder, Inc., Capital World Growth and Income
Fund, Inc., Capital World Bond Fund, Inc., EuroPacific Growth Fund, Fundamental
Investors, Inc., The Growth Fund of America, Inc., The Income Fund of America,
Inc., Intermediate Bond Fund of America, The Investment Company of America,
Limited Term Tax-Exempt Bond Fund of America, The New Economy Fund, New
Perspective Fund, Inc., SMALLCAP World Fund, Inc., The Tax-Exempt Bond Fund of
America, Inc., The Tax-Exempt Fund of California, The Tax-Exempt Fund of
Maryland, The Tax-Exempt Fund of Virginia, The Tax-Exempt Money Fund of
America, The U. S. Treasury Money Fund of America, U.S. Government Securities
Fund and Washington Mutual Investors Fund, Inc. Capital Research and
Management Company also manages American Variable Insurance Series and Anchor
Pathway Fund which serve as the underlying investment vehicle for certain
variable insurance contracts; and Bond Portfolio for Endowments, Inc. and
Endowments, Inc. whose shares may be owned only by tax-exempt organizations.
/3/ Since the plan's adoption, the total amounts of deferred compensation
accrued by the fund (plus earnings thereon) for participating Directors are as
follows: Robert A. Fox ($56,420), Leonade D. Jones ($10,283), John G.
McDonald ($19,323) and Henry E. Riggs ($21,131). Amounts deferred and
accumulated earnings thereon are not funded and are general unsecured
liabilities of the fund until paid to the Director.
/4/ George A. Miller, James W. Ratzlaff and Walter P. Stern are affiliated with
the Investment Adviser and, accordingly, receive no compensation from the fund.
OFFICERS
(with their principal occupations for the past five years)#
WALTER P. STERN, Chairman of the Board.
Fund officers whose other positions are not described above are:
ROBERT G. O'DONNELL /3/, President. Senior Vice President and Director,
Capital Research and Management Company.
ABNER D. GOLDSTINE /4/, Senior Vice President. Senior Vice President and
Director, Capital Research and Management Company.
PAUL G. HAAGA, JR. /1/, Senior Vice President; Senior Vice President and
Director, Capital Research and Management Company; Director, American Funds
Service Company.
STEVEN N. KEARSLEY /2/, Vice President. Vice President and Treasurer, Capital
Research and Management Company; Director, American Funds Service Company.
ERIC S. RICHTER /5/, Vice President. Vice President, Investment Management
Group, Capital Research and Management Company.
PATRICK F. QUAN /3/, Secretary. Vice President, Fund Business Management
Group, Capital Research and Management Company.
MARY C. HALL /2/, Treasurer. Senior Vice President, Fund Business Management
Group, Capital Research and Management Company.
R. MARCIA GOULD /2/, Assistant Treasurer; Vice President, Fund Business
Management Group, Capital Research and Management Company.
_________________
# Positions within the organizations listed may have changed during this
period.
/1/ Address is 333 South Hope Street, Los Angeles, CA 90071.
/2/ Address is 135 South State College Boulevard, Brea, CA 92621.
/3/ P.O. Box 7650, San Francisco, CA 94120.
/4/ 11100 Santa Monica Boulevard, Los Angeles, CA 90025.
/5/ 3000 K Street, N.W., Suite 230, Washington, D.C. 20007.
All of the directors and officers are also officers and/or directors and/or
trustees of one or more of the other funds for which Capital Research and
Management Company serves as Investment Adviser. No compensation is paid by
the fund to any officer or director who is a director, officer or employee of
the Investment Adviser or affiliated companies. The fund pays fees of $5,000
per annum to directors who are not affiliated with the Investment Adviser, plus
$700 for each Board of Directors meeting attended, plus $300 for each meeting
attended as a member of a committee of the Board of Directors. Directors
Emeritus receive from the fund $2,000 per year, plus $400 per Board meeting
attended. The directors may elect, on a voluntary basis, to defer all or a
portion of their fees through a deferred compensation plan in effect for the
fund. The fund also reimburses certain expenses of the directors and the
Directors Emeritus who are not affiliated with the Investment Adviser. As of
December 31, 1995 the officers and directors of the fund and their families, as
a group, owned beneficially or of record less than 1% of the outstanding
shares.
MANAGEMENT
INVESTMENT ADVISER - The Investment Adviser, founded in 1931, maintains
research facilities in the U.S. and abroad, with a staff of professionals, many
of whom have a number of years of investment experience. The Investment
Adviser's research professionals travel several million miles a year, making
more than 5,000 research visits in more than 50 countries around the world.
The Investment Adviser believes that it is able to attract and retain quality
personnel.
An affiliate of the Investment Adviser compiles indices for major stock
markets around the world and compiles and edits the Morgan Stanley Capital
International Perspective, providing financial and market information about
more than 2,400 companies around the world.
The Investment Adviser is responsible for more than $100 billion of stocks,
bonds and money market instruments and serves over five million investors of
all types. These investors include privately owned businesses and large
corporations as well as schools, colleges, foundations and other non-profit and
tax-exempt organizations.
INVESTMENT ADVISORY AND SERVICE AGREEMENT - The Investment Advisory and
Service Agreement (the Agreement) between the fund and the Investment Adviser,
dated July 1, 1993, may be renewed from year to year, provided that any such
renewal has been specifically approved at least annually by (i) the Board of
Directors of the fund, or by the vote of a majority (as defined in the 1940
Act) of the outstanding voting securities of the fund, and (ii) the vote of a
majority of directors who are not parties to the Agreement or interested
persons (as defined in said Act) of any such party, cast in person, at a
meeting called for the purpose of voting on such approval. Renewal of the
Agreement was approved by the unanimous vote of the Board of Directors of the
fund on October 11, 1995 through November 30, 1996. The Agreement also
provides that either party has the right to terminate it without penalty, upon
60 days' written notice to the other party, and that the Advisory Agreement
automatically terminates in the event of its assignment (as defined in said
Act).
The Investment Adviser, in addition to providing investment advisory services,
furnishes the services and pays the compensation and travel expenses of persons
to perform the executive, administrative, clerical and bookkeeping functions of
the fund, and provides suitable office space, necessary small office equipment
and utilities, and provides general purpose accounting forms, supplies, and
postage used at the offices of the fund relating to the services furnished by
the Investment Adviser. The fund pays all expenses not specifically assumed by
the Investment Adviser, including, but not limited to, custodian, stock
transfer and dividend disbursing fees and expenses; costs of the designing,
printing and mailing of reports, prospectuses, proxy statements, and notices to
its shareholders; taxes; expenses of the issuance and redemption of shares of
the fund (including stock certificates, registration and qualification fees and
expenses); expenses pursuant to the fund's Plan of Distribution (described
below); legal and auditing expenses; compensation, fees, and expenses paid to
directors unaffiliated with the Investment Adviser; association dues; and costs
of stationery and forms prepared exclusively for the fund.
The Agreement provides for an advisory fee reduction to the extent that the
fund's annual ordinary operating expenses exceed 1-1/2% of the first $30
million of the average net assets of the fund and 1% of the average net assets
in excess thereof. Expenses which are not subject to this limitation are
interest, taxes, and extraordinary expenses. Expenditures, including costs
incurred in connection with the purchase or sale of portfolio securities, which
are capitalized in accordance with generally accepted accounting principles
applicable to investment companies, are accounted for as capital items and not
as expenses.
During the years ended December 31, 1995, 1994 and 1993, the Investment
Adviser received from the fund advisory fees of $8,091,000, $6,234,000 and
$4,947,000, respectively.
PRINCIPAL UNDERWRITER - American Funds Distributors, Inc. (the Principal
Underwriter) is the principal underwriter of the fund's shares. The fund has
adopted a Plan of Distribution (the Plan), pursuant to rule 12b-1 (see
"Principal Underwriter" in the Prospectus). The Principal Underwriter receives
amounts payable pursuant to the Plan (described below) and commissions
consisting of that portion of the sales charge remaining after the discounts
which it allows to investment dealers. Commissions retained by the Principal
Underwriter on sales of fund shares during the year ended December 31, 1995
amounted to $1,918,000 after allowance, of $9,904,000 to dealers. During the
years ended December 31, 1994 and 1993, the Principal Underwriter retained
$1,598,000 and $2,279,000, after allowance of $8,038,000 and $11,810,000 to
dealers, respectively.
As required by rule 12b-1, the Plan (together with the Principal Underwriting
Agreement) has been approved by the Board of Directors, and separately by a
majority of the directors who are not interested persons of the fund and who
have no direct or indirect financial interest in the operation of the Plan or
the Principal Underwriting Agreement, and the Plan has been approved by the
vote of a majority of the outstanding voting securities of the fund. The
officers and directors who are "interested" persons of the fund may be
considered to have a direct or indirect financial interest in the operation of
the Plan due to present or past affiliations with the Investment Adviser and
related companies. Potential benefits of the plan to the fund include improved
shareholder services, savings to the fund in transfer agency costs, savings to
the fund in advisory fees and other expenses, benefits to the investment
process from growth or stability of assets and maintenance of a financially
healthy management organization. The selection and nomination of directors who
are not "interested persons" of the fund are committed to the discretion of the
directors who are not interested persons during the existence of the Plan. The
Plan is reviewed quarterly and must be renewed annually by the Board of
Directors.
Under the Plan the fund may expend up to 0.25% of its net assets annually to
finance any activity which is primarily intended to result in the sale of fund
shares, provided the fund's Board of Directors has approved the category of
expenses for which payment is being made. These include service fees for
qualified dealers and dealer commissions and wholesaler compensation on sales
of shares exceeding $1 million (including purchases by any employer-sponsored
403(b) plan or purchases by any defined contribution plan qualified under
Section 401(a) of the Internal Revenue Code including a "401(k)" plan with 200
or more eligible employees). Only expenses incurred during the preceding 12
months and accrued while the Plan is in effect may be paid by the fund. During
the year ended December 31, 1995, the fund paid or accrued $6,031,000 for
compensation to dealers under the Plan.
The Glass-Steagall Act and other applicable laws, among other things,
generally prohibit commercial banks from engaging in the business of
underwriting, selling or distributing securities, but permit banks to make
shares of mutual funds available to their customers and to perform
administrative and shareholder servicing functions. However, judicial or
administrative decisions or interpretations of such laws, as well as changes in
either federal or state statutes or regulations relating to the permissible
activities of banks or their subsidiaries of affiliates, could prevent a bank
from continuing to perform all or a part of its servicing activities. If a
bank were prohibited from so acting, shareholder clients of such bank would be
permitted to remain shareholders of the fund and alternate means for continuing
the servicing of such shareholders would be sought. In such event, changes in
the operation of the fund might occur and shareholders serviced by such bank
might no longer be able to avail themselves of any automatic investment or
other services then being provided by such bank. It is not expected that
shareholders would suffer with adverse financial consequences as a result of
any of these occurrences.
In addition, state securities laws on this issue may differ from the
interpretations of federal law expressed herein and certain banks and financial
institutions may be required to be registered as dealers pursuant to state law.
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES
The fund intends to meet all the requirements, and has elected the tax status
of a "regulated investment company," under the provisions of Subchapter M of
the Internal Revenue Code of 1986 (the Code). Under Subchapter M, if the fund
distributes within specified times at least 90% of its investment company
taxable income, it will be taxed only on that portion of such investment
company taxable income that it retains.
To qualify, the fund must (a) derive at least 90% of its gross income from
dividends, interest, certain payments with respect to securities loans, and
gains from the sale or other disposition of stock, securities, currencies or
other income derived with respect to its business of investing in such stock,
securities or currencies; (b) derive less than 30% of its gross income from the
gains or sale or other disposition of stock or securities held less than three
months; and (c) diversify its holdings so that, at the end of each fiscal
quarter, (i) at least 50% of the market value of the fund's assets is
represented by cash, cash items, U.S. Government securities, securities of
other regulated investment companies, and other securities (but such other
securities must be limited, in respect of any one issuer, to an amount not
greater than 5% of the fund's assets and 10% of the outstanding voting
securities of such issuer), and (ii) not more than 25% of the value of its
assets is invested in the securities of any one issuer (other than U.S.
Government securities or the securities of other regulated investment
companies), or in two or more issuers which the fund controls and which are
engaged in the same or similar trades or businesses or related trades or
businesses.
Under the Code, a nondeductible excise tax of 4% is imposed on the excess of a
regulated investment company's "required distribution" for the calendar year
ending within the regulated investment company's taxable year over the
"distributed amount" for such calendar year. The term "required distribution"
means the sum of (i) 98% of ordinary income (generally net investment income)
for the calendar year, (ii) 98% of capital gains (both long-term and
short-term) for the one-year period ending on October 31 (as though the
one-year period ending on October 31 were the regulated investment company's
taxable year), and (iii) the sum of any untaxed, undistributed net investment
income and net capital gains of the regulated investment company for prior
periods. The term "distributed amount" generally means the sum of (i) amounts
actually distributed by the fund from its current year's ordinary income and
capital gain net income and (ii) any amount on which the fund pays income tax
for the year. The fund intends to distribute net investment income and net
capital gains so as to minimize or avoid the excise tax liability.
The fund also intends to continue distributing to shareholders all of the
excess of net long-term capital gain over net short-term capital loss on sales
of securities. If the net asset value of shares of the fund should, by reason
of a distribution of realized capital gains, be reduced below a shareholder's
cost, such distribution would to that extent be a return of capital to that
shareholder even though taxable to the shareholder, and a sale of shares by a
shareholder at net asset value at that time would establish a capital loss for
federal tax purposes.
Dividends generally are taxable to shareholders at the time they are paid.
However, dividends declared in October, November and December and made payable
to shareholders of record in such a month are treated as paid and are thereby
taxable as of December 31, provided that the fund pays the dividend no later
than the end of January of the following year.
Corporate shareholders of the fund may be eligible for the dividends-received
deduction on the dividends (excluding the net capital gains dividends) paid by
the fund to the extent that the fund's income is derived from dividends (which,
if received directly, would qualify for such deduction) received from domestic
corporations. In order to qualify for the dividends-received deduction, a
corporate shareholder must hold the fund shares paying the dividends upon which
the deduction is based for at least 46 days.
If a shareholder exchanges or otherwise disposes of shares of the fund within
90 days of having acquired such shares, and if, as a result of having acquired
those shares, the shareholder subsequently pays a reduced sales charge for
shares of the fund, or of a different fund, the sales charge previously
incurred in acquiring the fund's shares shall not be taken into account (to the
extent such previous sales charges do not exceed the reduction in sales
charges) for the purpose of determining the amount of gain or loss on the
exchange, but will be treated as having been incurred in the acquisition of
such other shares. Also, any loss realized on a redemption or exchange of
shares of a fund will be disallowed to the extent substantially identical
shares are re-acquired within the 61-day period beginning 30 days before and
ending 30 days after the shares are disposed of.
The fund may be required to pay withholding and other taxes imposed by foreign
countries generally at rates from 10% to 40% which would reduce the fund's
investment income. Tax conventions between certain countries and the United
States may reduce or eliminate such taxes. Not more than 50% of the total
assets of the fund is expected to consist of securities of foreign issuers.
Therefore, the fund will not be eligible to elect to "pass through" foreign tax
credits to shareholders and, to the extent the fund does pay foreign
withholding or other foreign taxes on investments in foreign securities,
shareholders will not be able to deduct their pro rata share of such taxes in
computing their taxable income and will not be able to take their share of such
taxes as a credit against their U.S. income taxes.
Under the Code, distributions of net investment income by the fund to a
shareholder who, as to the U.S., is a nonresident alien individual, nonresident
alien fiduciary of a trust or estate, foreign corporation or foreign
partnership (a foreign shareholder) will be subject to U.S. withholding tax (at
a rate of 30% or lower treaty rate). Withholding will not apply if a dividend
paid by the fund to a foreign shareholder is "effectively connected" with a
U.S. trade or business, in which case the reporting and withholding
requirements applicable to U.S. citizens, U.S. residents, or domestic
corporations will apply. Distributions of net long-term capital gains not
effectively connected with a U.S. trade or business are not subject to tax
withholding, but in the case of a foreign shareholder who is a nonresident
alien individual, such distributions ordinarily will be subject to U.S. income
tax at a rate of 30% if the individual is physically present in the U.S. for
more than 182 days during the taxable year.
As of the date of this statement of additional information, the maximum
federal individual stated tax rate applicable to ordinary income is 39.6%
(effective tax rates may be higher for some individuals due to phase out of
exemptions and elimination of deductions); the maximum individual tax rate
applicable to net capital gains is 28%; and the maximum corporate tax
applicable to ordinary income and net capital gains is 35%. However, to
eliminate the benefit of lower marginal corporate income tax rates,
corporations which have taxable income in excess of $100,000 for a taxable year
will be required to pay an additional amount of tax of up to $11,750 and
corporations which have taxable income in excess of $15,000,000 for a taxable
year will be required to pay an additional amount of tax of up to $100,000.
Naturally, the amount of tax payable by a shareholder with respect to either
distributions from the fund or disposition of fund shares will be affected by a
combination of tax law rules covering, E.G., deductions, credits, deferrals,
exemptions, sources of income and other matters. Under the Code, an individual
is entitled to establish an IRA each year (prior to the tax return filing
deadline for the year) whereby earnings on investments are tax-deferred. In
addition, in some cases, the IRA contribution itself may be deductible.
The foregoing is limited to a summary of federal taxation and should not be
viewed as a comprehensive discussion of all provisions of the Code relevant to
investors. Dividends and capital gain distributions may also be subject to
state or local taxes. Investors are urged to consult their tax advisers with
specific reference to their own tax situations.
PURCHASE OF SHARES
PRICE OF SHARES - Purchases of shares are made at the offering price next
determined after the purchase order is received by the fund or American Funds
Service Company; this offering price is effective for orders received prior to
the time of determination of the net asset value and, in the case of orders
placed with dealers, accepted by the Principal Underwriter prior to its close
of business. The dealer is responsible for promptly transmitting purchase
orders to the Principal Underwriter. Orders received by the investment dealer,
the Transfer Agent, or the fund after the time of determination of the net
asset value will be entered at the next calculated offering price. Prices
which appear in the newspaper are not always indicative of prices at which you
will be purchasing and redeeming shares of the fund, since such prices
generally reflect the previous day's closing price whereas purchases and
redemptions are made at the next calculated price.
The price you pay for shares, the offering price, is based on the net asset
value per share which is calculated once daily at the close of trading
(currently 4:00 p.m., New York time) each day the New York Stock Exchange is
open. The New York Stock Exchange is currently closed on weekends and on the
following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving and Christmas Day. The net
asset value per share is determined as follows:
1. Stocks, and convertible bonds and debentures, traded on a national
securities exchange (or reported on the NASDAQ national market) and securities
traded in the over-the-counter market stated at the last reported sales price
on such exchange on the day of valuation; other securities, and securities for
which no sale was reported on that date, are stated at the last-quoted bid
price. Non-convertible bonds and debentures, and other long-term debt
securities normally are valued at prices obtained for the day of valuation from
a bond pricing service provided by a major dealer in bonds, when such prices
are available; however, in circumstances where the Investment Adviser deems it
appropriate to do so, such securities will be valued at the mean of their
representative quoted bid and asked prices or, if such prices are not
available, at the mean of such prices for securities of comparable maturity,
quality, and type. U.S. Treasury bills, and other short-term obligations
issued or guaranteed by the U.S. Government, its agencies or instrumentalities,
certificates of deposit issued by banks, corporate short-term notes and other
short-term investments with original or remaining maturities in excess of 60
days are valued at the mean of representative quoted bid and asked prices for
such securities or, if such prices are not available, for securities of
comparable maturity, quality and type. Short-term securities with 60 days or
less to maturity are amortized to maturity based on their cost to the fund if
acquired within 60 days of maturity or, if already held by the fund on the 60th
day, based on the value determined on the 61st day. Other securities are
valued on the basis of last sale or bid prices in what is, in the opinion of
the Investment Adviser, the broadest and most representative market, which may
be either a securities exchange or the over-the-counter market. Where
quotations are not readily available, securities are valued at fair value as
determined in good faith by the Valuation Committee of the Board of Directors.
The fair value of all other assets is added to the value of securities to
arrive at the total assets;
2. There are deducted from total assets, thus determined, the liabilities,
including proper accruals of taxes and other expense items; and
3. The value of the net assets so obtained is then divided by the total number
of shares outstanding, and the result, rounded to the nearer cent, is the net
asset value per share.
STATEMENT OF INTENTION - The reduced sales charges and offering prices set
forth in the Prospectus apply to purchases of $50,000 or more made within a
13-month period subject to the following statement of intention (the Statement)
terms. The Statement is not a binding obligation to purchase the indicated
amount. When a shareholder elects to utilize the Statement in order to qualify
for a reduced sales charge, shares equal to 5% of the dollar amount specified
in the Statement will be held in escrow in the shareholder's account out of the
initial purchase (or subsequent purchases, if necessary) by the Transfer Agent.
All dividends and any capital gain distributions on shares held in escrow will
be credited to the shareholder's account in shares (or paid in cash, if
requested). If the intended investment is not completed within the specified
13-month period, the purchaser will remit to the Principal Underwriter the
difference between the sales charge actually paid and the sales charge which
would have been paid if the total of such purchases had been made at a single
time. If the difference is not paid within 45 days after written request by
the Principal Underwriter or the securities dealer, the appropriate number of
shares held in escrow will be redeemed to pay such difference. If the proceeds
from this redemption are inadequate, the purchaser will be liable to the
Principal Underwriter for the balance still outstanding. The Statement may be
revised upward at any time during the 13-month period, and such a revision will
be treated as a new Statement, except that the 13-month period during which the
purchase must be made will remain unchanged and there will be no retroactive
reduction of the sales charges paid on prior purchases. Existing holdings
eligible for rights of accumulation (see the prospectus and account
application) may be credited toward satisfying the Statement. During the
Statement period reinvested dividends and capital gain distributions,
investments in money market funds, and investments made under a right of
reinstatement will not be credited toward satisfying the Statement.
In the case of purchase orders by the trustees of certain retirement plans by
payroll deduction, the sales charge for the investments made during the
13-month period will be handled as follows: The regular monthly payroll
deduction investment will be multiplied by 13 and then multiplied by 1.5. The
current value of existing American Funds investments (other than money market
fund investments) and any rollovers or transfers reasonably anticipated to be
invested in non-money market American Funds during the 13-month period are
added to the figure determined above. The sum is the Statement amount and
applicable breakpoint level. On the first investment and all other investments
made pursuant to the Statement, a sales charge will be assessed according to
the sales charge breakpoint thus determined. There will be no retroactive
adjustments in sales charges on investments previously made during the 13-month
period.
Shareholders purchasing shares at a reduced sales charge under a Statement
indicate their acceptance of these terms with their first purchase.
DEALER COMMISSIONS - The following commissions will be paid to dealers who
initiate and are responsible for purchases of $1 million or more, for purchases
by any employer-sponsored 403(b) plan or purchases by any defined contribution
plan qualified under Section 401(a) of the Internal Revenue Code including a
"401(k)" plan with 200 or more eligible employees, and for purchases made at
net asset value by certain retirement plans of organizations with collective
retirement plan assets of $100 million or more: 1.00% on amounts to $2
million, 0.80% on amounts over $2 million to $3 million, 0.50% on amounts over
$3 million to $50 million, 0.25% on amounts over $50 million to $100 million,
and 0.15% on amounts over $100 million. The level of dealer commissions will
be determined based on sales made over a 12-month period commencing from the
date of the first sale at net asset value. See "The American Funds Shareholder
Guide" in the fund's prospectus for more information.
SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES
AUTOMATIC INVESTMENT PLAN - The automatic investment plan enables shareholders
to make regular monthly or quarterly investments in shares through automatic
charges to their bank accounts. With shareholder authorization and bank
approval, the Transfer Agent will automatically charge the bank account for the
amount specified ($50 minimum), which will be automatically invested in shares
at the offering price on or about the 10th day of the month (or on or about the
15th day of the month in the case of accounts for retirement plans where
Capital Guardian Trust Company serves as custodian or trustee). Bank accounts
will be charged on the day or a few days before investments are credited,
depending on the bank's capabilities, and shareholders will receive a
confirmation statement at least quarterly. Participation in the plan will
begin within 30 days after receipt of the account application. If the
shareholder's bank account cannot be charged due to insufficient funds, a
stop-payment order or the closing of the account, the plan may be terminated
and the related investment reversed. The shareholder may change the amount of
the investment or discontinue the plan at any time by writing to the Transfer
Agent.
AUTOMATIC WITHDRAWALS - Withdrawal payments are not to be considered as
dividends, yield or income. Automatic investments may not be made into a
shareholder account from which there are automatic withdrawals. Withdrawals of
amounts exceeding reinvested dividends and distributions and increases in share
value would reduce the aggregate value of the shareholder's account. The
Transfer Agent arranges for the redemption by the fund of sufficient shares,
deposited by the shareholder with the Transfer Agent, to provide the withdrawal
payment specified.
CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS - A shareholder in one fund
may elect to cross-reinvest dividends or dividends and capital gain
distributions paid by that fund (the paying fund) into any other fund in The
American Funds Group (the receiving fund) subject to the following conditions:
(i) the aggregate value of the shareholder's account(s) in the paying fund(s)
must equal or exceed $5,000 (this condition is waived if the value of the
account in the receiving fund equals or exceeds that fund's minimum initial
investment requirement), (ii) as long as the value of the account in the
receiving fund is below that fund's minimum initial investment requirement,
dividends and capital gain distributions paid by the receiving fund must be
automatically reinvested in the receiving fund, and (iii) if this privilege is
discontinued with respect to a particular receiving fund, the value of the
account in that fund must equal or exceed the fund's minimum initial investment
requirement or the fund shall have the right, if the shareholder fails to
increase the value of the account to such minimum within 90 days after being
notified of the deficiency, automatically to redeem the account and send the
proceeds to the shareholder. These cross-reinvestments of dividends and
capital gain distributions will be at net asset value (without sales charge).
EXECUTION OF PORTFOLIO TRANSACTIONS
There are occasions on which portfolio transactions for the fund may be
executed as part of concurrent authorizations to purchase or sell the same
security for other of the funds served by the Investment Adviser, or for trusts
or other accounts served by affiliated companies of the Investment Adviser.
Although such concurrent authorizations potentially could be either
advantageous or disadvantageous to the fund, they are effected only when the
Investment Adviser believes that to do so is in the interest of the fund. When
such concurrent authorizations occur, the objective is to allocate the
executions in an equitable manner. The fund will not pay a mark-up for
research in principal transactions.
The fund is required to disclose information regarding investments in the
securities of broker-dealers which have certain relationships with the fund.
During the last fiscal year, J.P. Morgan and Co., General Electric Co. and
General Electric Capital Corp., were among the top 10 dealers that acted as
principals in portfolio transactions. The fund held equity securities of J.P.
Morgan and Co. and General Electric Co. in the amounts of $9,630,000 and
$21,600,000, respectively, and debt securities of General Electric Capital
Corp. in the amount of $47,537,000, as of the close of its most recent fiscal
year.
Brokerage commissions paid on portfolio transactions, including dealer
concessions on underwritings, during the years ended December 31, 1995, 1994
and 1993 amounted to $2,653,000, $1,050,000 and $1,443,000, respectively.
GENERAL INFORMATION
CUSTODIAN OF ASSETS - Securities and cash owned by the fund, including
proceeds from the sale of shares of the fund and of securities in the fund's
portfolio, are held by The Chase Manhattan Bank, N.A., One Chase Manhattan
Plaza, New York, NY 10081, as Custodian.
TRANSFER AGENT - American Funds Service Company, a wholly owned subsidiary of
the Investment Adviser, maintains the record of each shareholder's account,
processes purchases and redemptions of the fund's shares, acts as dividend and
capital gain distribution disbursing agent, and performs other related
shareholder service functions. When fund shares are purchased by an insurance
company separate account to serve as the underlying investment vehicle for
variable insurance contracts, the fund may pay a fee to the insurance company
or another party for performing certain transfer agent services with respect to
contract owners having interests in the fund.
INDEPENDENT ACCOUNTANTS - Deloitte & Touche LLP located at 1000 Wilshire
Boulevard, Los Angeles, CA 90017, serves as the fund's independent accountants
providing audit services, preparing tax returns and reviewing certain documents
of the fund to be filed with the Securities and Exchange Commission. The
financial statements included in this Statement of Additional Information from
the Annual Report have been so included in reliance on the report of Deloitte &
Touche LLP given on the authority of said firm as experts in accounting and
auditing.
REMOVAL OF DIRECTORS BY SHAREHOLDERS - At any meeting of shareholders, duly
called and at which a quorum is present, the shareholders may, by the
affirmative vote of the holders of a majority of the votes entitled to be cast
thereon, remove any director or directors from office and may elect a successor
or successors to fill any resulting vacancies for the unexpired terms of
removed directors. The fund has made an undertaking, at the request of the
staff of the Securities and Exchange Commission, to apply the provisions of
section 16(c) of the 1940 Act with respect to the removal of directors as
though the fund were a common-law trust. Accordingly, the directors of the
fund shall promptly call a meeting of shareholders for the purpose of voting
upon the question of removal of any director when requested in writing to do so
by the record holders of not less than 10% of the outstanding shares.
REPORTS TO SHAREHOLDERS - The fund's fiscal year ends on December 31.
Shareholders are provided at least semi-annually with reports showing the
investment portfolio, financial statements and other information. The annual
financial statements are audited annually by the fund's independent
accountants, Deloitte & Touche LLP, whose selection is determined annually by
the Board of Directors.
PERSONAL INVESTING POLICY - Capital Research and Management Company and its
affiliated companies have adopted a personal investing policy consistent with
Investment Company Institute guidelines. This policy includes: a ban on
acquisitions of securities pursuant to an initial public offering; restrictions
on acquisitions of private placement securities; pre-clearance and reporting
requirements; review of duplicate confirmation statements; annual
recertification of compliance with codes of ethics; disclosure of personal
holdings by certain investment personnel prior to recommendation for purchase
for the fund; blackout periods on personal investing for certain investment
personnel; ban on short-term trading profits for investment personnel;
limitations on service as a director of publicly traded companies; and
disclosure of personal securities transactions.
The financial statements including the investment portfolio and the report of
Independent Auditors contained in the Annual Report are included in this
Statement of Additional Information. The following information is not included
in the Annual Report:
<TABLE>
<CAPTION>
DETERMINATION OF NET ASSET VALUE,
REDEMPTION PRICE AND
MAXIMUM OFFERING PRICE PER SHARE--DECEMBER 31, 1995
<S> <C>
Net asset value and redemption price per share $14.15
(Net assets divided by shares outstanding)
Maximum offering price per share $15.01
(100/94.25 of net asset value per share which takes into
account the fund's current maximum sales charge.)
</TABLE>
INVESTMENT RESULTS
The fund's yield is 3.60% based on a 30-day (or one month) period ended
December 31, 1995, computed by dividing the net investment income per share
earned during the period by the maximum offering price per share on the last
day of the period, according to the following formula:
YIELD = 2[(a-b/cd+1)/6/-1]
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the period that
were entitled to receive dividends.
d = the maximum offering price per share on the last day of the period.
The fund's average annual total returns for the one, five and ten-year
periods ended on December 31, 1995 were +19.84%, +12.80% and +11.60%,
respectively. The average annual total return (T) is computed by using the
value at the end of the period (ERV) of a hypothetical initial investment of
$1,000 (P) over a period of years (n) according to the following formula as
required by the Securities and Exchange Commission: P(1+T)/n/ = ERV.
To calculate total return, an initial investment is divided by the offering
price (which includes the sales charge) as of the first day of the period in
order to determine the initial number of shares purchased. Subsequent
dividends and capital gain distributions are then reinvested at net asset value
on the reinvestment date determined by the Board of Directors. The sum of the
initial shares purchased and shares acquired through reinvestment is multiplied
by the net asset value per share as of the end of the period in order to
determine ending value. The difference between the ending value and the
initial investment divided by the initial investment converted to a percentage
equals total return. The resulting percentage indicates the positive or
negative investment results that an investor would have experienced from
reinvested dividends and capital gain distributions and changes in share price
during the period. Total return may be calculated for one year, five years,
ten years and for other periods of years. The average annual total return over
periods greater than one year also may be computed by utilizing ending values
as determined above.
The following assumptions will be reflected in computations made in accordance
with the formula stated above: (1) deduction of the maximum sales load of
5.75% from the $1,000 initial investment; (2) reinvestment of dividends and
distributions at net asset value on the reinvestment date determined by the
Board; and (3) a complete redemption at the end of any period illustrated.
The fund may also calculate a distribution rate on a taxable and tax
equivalent basis. The distribution rate is computed by dividing the dividends
paid by the fund over the last 12 months by the sum of the month-end net asset
value or maximum offering price and the capital gains paid over the last 12
months. The distribution rate may differ from the yield.
The fund may include information on its investment results and/or comparisons
of its investment results to various unmanaged indices (such as The Dow Jones
Average of 30 Industrial Stocks, The Standard and Poor's 500 Stock Composite
Index, the Lehman Brothers Corporate Bond Index, the Lehman Brothers Aggregate
Bond Index and the Salomon Brothers High-Grade Corporate Bond Index) or results
of other mutual funds or investment or savings vehicles in advertisements or in
reports furnished to present or prospective shareholders.
The fund may refer to results compiled by organizations such as CDA Investment
Technologies, Ibbotson Associates, Lipper Analytical Services, Morningstar,
Inc. and Wiesenberger Investment Companies Services and by the U.S. Department
of Commerce. Additionally, the fund may, from time to time, refer to results
published in various newspapers or periodicals, including Barrons, Forbes,
Fortune, Institutional Investor, Kiplinger's Personal Finance Magazine, Money,
U.S. News and World Report and The Wall Street Journal.
The fund may, from time to time, illustrate the benefits of tax-deferral by
comparing taxable investments to investments made through tax-deferred
retirement plans.
The fund may, from time to time, compare its investment results with the
Consumer Price Index, which is a measure of the average change in prices over
time in a fixed market basket of goods and services (E.G. food, clothing, and
fuels, transportation, and other goods and services that people buy for
day-to-day living).
The investment results for AMBAL set forth below were calculated as described
above. Data contained in Salomon's Market Performance and Lehman Brothers' The
Bond Market Report are used to calculate cumulative total return from their
base period (12/31/68 and 12/31/72, respectively) for each index. The
percentage increases shown in the table below or used in published reports of
the fund are obtained by subtracting the index results at the beginning of the
period from the index results at the end of the period and dividing the
difference by the index results at the beginning of the period.
AMBAL vs. Various Unmanaged Indices
<TABLE>
<CAPTION>
10-Year AMBAL DJIA/1/ S&P 500/2/ Lehman Lehman Salomon Average
Period Brothers Brothers High-Grade/5/ Savings
1/1 - 12/31 Corporate/3/ Aggregate/4/ Account/6/
<S> <C> <C> <C> <C> <C> <C> <C>
1986 - 1995 +200% +360% +299% +171% +151% +192% +69%
1985 - 1994 +205 +349 +282 +175 +158 +199 +77
1984 - 1993 +232 +333 +301 +233 +207 +271 +88
1983 - 1992 +246 +367 +346 +225 +203 +248 +99
1982 - 1991 +309 +452 +404 +316 +274 +353 +112
1981 - 1990 +243 +328 +267 +261 +242 +274 +122
1980 - 1989 +298 +426 +402 +236 +223 +240 +125
1979 - 1988 +252 +340 +352 +189 +187 +180 +125
1978 - 1987 +232 +289 +313 +165 +170 +153 +125
1977 - 1986 +221 +221 +264 +167 +171 +158 +125
1976 - 1985 +246 +211 +281 +173 +171 +155 +123
1975#-1984 +275 +143 +198 +134 N/A +108 +113
</TABLE>
________________
# Since July 26, 1975, the period in which Capital Research and Management
Company has been the fund's adviser.
/1/ The Dow Jones Average of 30 Industrial Stocks is comprised of 30 industrial
companies such as General Motors and General Electric.
/2/ The Standard and Poor's 500 Stock Composite Index is comprised of
industrial, transportation, public utilities, and financial stocks and
represents a large portion of the value of issues traded on the New York Stock
Exchange. Selected issues traded on the American Stock Exchange are also
included.
/3/ The Lehman Brothers Corporate Bond Index is comprised of all public, fixed
rate, non-convertible investment grade domestic corporate debt. Issues
included in this index are rated at least Baa by Moody's Investors Service, BBB
by Standard and Poor's Corporation or, in the case of bank bonds not rated by
either of the previously mentioned services, BBB by Fitch Investors Service.
/4/ The Lehman Brothers Aggregate Bond Index covers all sectors of the fixed
income market and is a combination of the Lehman Brothers Treasury Bond Index,
the Agency Bond Index, the Corporate Bond Index, the Yankee Bond Index and the
Mortgage Backed Securities Index.
/5/ The Salomon Brothers High-Grade Corporate Bond Index is comprised of a
sample of high-grade corporate bonds which have a rating of AAA or AA by
Standard and Poor's Corporation.
/6/ Based on figures supplied by the U.S. League of Savings Institutions and
the Federal Reserve Board which reflect all kinds of savings deposits,
including longer-term certificates. Savings accounts offer a guaranteed return
of principal, but no opportunity for capital growth. During a portion of the
period, the maximum rates paid on some savings deposits were fixed by law.
<TABLE>
<CAPTION>
If you are considering the fund for an
Individual Retirement Account. . .
Here's how much you would have if you had invested $2,000 on January 1
of each year in AMBAL over the past 5 and 10 years:
<S> <C>
5 years 10 years
(1/1/91-12/31/95) (1/1/86-12/31/95)
$14,056 $38,076
</TABLE>
<TABLE>
<CAPTION>
SEE THE DIFFERENCE TIME CAN MAKE IN AN INVESTMENT PROGRAM
<S> <C> <C>
If you had . . . and had taken
invested $10,000 all dividends and
in AMBAL this many capital gain
years ago distributions
in shares, your
investment would
have been worth
this much at
12/31/95
| |
Number Periods Value
of Years 1/1 - 12/31
1 1995 $11,984
2 1994-1995 12,019
3 1993-1995 13,377
4 1992-1995 14,640
5 1991-1995 18,262
6 1990-1995 17,970
7 1989-1995 21,843
8 1988-1995 24,654
9 1987-1995 25,651
10 1986-1995 29,979
11 1985-1995 38,718
12 1984-1995 42,313
13 1983-1995 49,169
14 1982-1995 63,609
15 1981-1995 66,391
16 1980-1995 75,893
17 1979-1995 81,696
18 1978-1995 86,738
19 1977-1995 87,377
20 1976-1995 110,024
21 1975#-1995 116,179
</TABLE>
__________________
# Since July 26, 1975, the period in which Capital Research and Management
Company has been the fund's adviser.
Illustration of a $10,000 investment in AMBAL with
dividends reinvested and capital gain distributions taken in shares
(for the period under CRMC management: July 26, 1975 - December 31, 1995)
<TABLE>
<CAPTION>
COST OF SHARES VALUE OF SHARES
Year Annual Dividends Total From Initial From From Total
Ended Dividends (cumulative) Investment Investment Capital Gains Dividends Value
Dec. 31 Cost Reinvested Reinvested
<S> <C> <C> <C> <C> <C> <C> <C>
1975# $ 305 $ 305 $10,305 $ 9,629 - $ 319 $ 9,948
1976 594 899 10,899 11,513 - 1,020 12,533
1977 656 1,555 11,555 10,990 - 1,630 12,620
1978 709 2,264 12,264 11,059 - 2,345 13,404
1979 801 3,065 13,065 11,252 - 3,175 14,427
1980 1,050 4,115 14,115 12,008 - 4,490 16,498
1981 1,303 5,418 15,418 11,609 - 5,615 17,224
1982 1,474 6,892 16,892 13,865 - 8,415 22,280
1983 1,724 8,616 18,616 15,007 - 10,862 25,869
1984 1,852 10,468 20,468 13,838 $2,484 11,969 28,291
1985 1,912 12,380 22,380 16,025 4,520 15,982 36,527
1986 2,202 14,582 24,582 14,897 10,863 16,930 42,690
1987 2,710 17,292 27,292 13,934 12,167 18,305 44,406
1988 2,780 20,072 30,072 14,388 14,035 21,700 50,123
1989 3,284 23,356 33,356 15,695 18,227 26,993 60,915
1990 3,457 26,813 36,813 14,195 17,968 27,796 59,959
1991 3,684 30,497 40,497 16,575 21,807 36,383 74,765
1992 3,816 34,313 44,313 16,891 23,986 40,976 81,853
1993 4,072 38,385 48,385 17,290 27,761 46,029 91,080
1994 4,131 42,516 52,516 16,506 26,866 48,014 91,386
1995 4,335 46,851 56,851 19,464 35,427 61,288 116,179
</TABLE>
The dollar amount of capital gain distributions during the period was $28,095.
# Since July 26, 1975, the period in which Capital Research and Management
Company has been the Fund's adviser.
EXPERIENCE OF INVESTMENT ADVISER - Capital Research and Management Company
manages nine common stock funds that are at least 10 years old. In the rolling
10-year periods since January 1, 1966 (121 in all), those funds have had better
total returns than the Standard and Poor's 500 Composite Stock Index in 94 of
the 121 periods.
Note that past results are not an indication of future investment results.
Also, the fund has different investment policies than the funds mentioned
above. These results are included solely for the purpose of informing
investors about the experience and history of Capital Research and Management
Company.
<PAGE>
AMERICAN BALANCED FUND
INVESTMENT PORTFOLIO DECEMBER 31, 1995
<TABLE>
<CAPTION>
- ---------------------------------------------- ----------- ----------- --------
Percent
Of
TEN LARGEST EQUITY HOLDINGS Net Assets
<S> <C> <C> <C>
Phillips Petroleum 2.02%
Wal-Mart Stores 1.95
Minnesota Mining and Manufacturing 1.74
Philip Morris 1.63
DuPont 1.44
Allstate 1.42
Warner-Lambert 1.27
Merck 1.19
Ford Motor 1.14
CSX 1.14
INVESTMENT MIX BY SECURITY TYPE
- ----------------------------------------------
Common Stocks 57%
Goverment Bonds 16
Corporate Bonds 11
Convertible Debentures 1
Cash 15
Market Percent
Number Value of Net
COMMON STOCKS of Shares (000) Assets
- ---------------------------------------------- ----------- ----------- -------
ENERGY
Energy Sources- 6.40%
Amoco Corp. 280,000 $20,125 .66%
Atlantic Richfield Co. 100,000 11,075 .36
Chevron Corp. 600,000 31,500 1.03
Exxon Corp. 270,000 21,634 .71
Kerr-McGee Corp. 210,000 13,335 .44
Phillips Petroleum Co. 1,800,000 61,425 2.02
Royal Dutch Petroleum Co.
(New York Registered Shares) 140,000 19,758 .65
Unocal Corp. 560,000 16,310 .53
Utilities: Electric & Gas - 3.15%
Consolidated Edison Co. of New York, Inc. 500,000 16,000 .53
Duke Power Co. 500,000 23,687 .78
Entergy Corp. 600,000 17,550 .58
Long Island Lighting Co. 150,000 2,456 .08
Pacific Gas and Electric Co. 700,000 19,863 .65
PP&L Resources, Inc. 650,000 16,250 .53
------- -------
290,968 9.55
------- -------
MATERIALS
Building Materials & Components - 0.37%
Masco Corp. 360,000 11,295 .37
Chemicals - 2.53%
Dow Chemical Co. 300,000 21,113 .69
E.I. du Pont de Nemours and Co. 630,000 44,021 1.44
Great Lakes Chemical Corp. 170,000 12,240 .40
Forest Products & Paper - 4.08%
Bowater Inc. 460,000 16,330 .54
Federal Paper Board Co., Inc. 400,000 20,750 .68
Georgia-Pacific Corp. 230,000 15,784 .52
International Paper Co. 500,000 18,937 .62
Louisiana-Pacific Corp. 1,075,000 26,069 .86
Union Camp Corp. 550,000 26,194 .86
Metals: Nonferrous - 0.69%
Aluminum Co. of America 400,000 21,150 .69
------- -------
233,883 7.67
------- -------
CAPITAL EQUIPMENT
Aerospace & Military Technology - 0.64%
Boeing Co. 250,000 19,593 .64
Data Processing & Reproduction - 0.78%
International Business Machines Corp. 110,000 10,093 .33
Xerox Corp. 100,000 13,700 .45
Electrical & Electronic - 0.71%
General Electric Co. 300,000 21,600 .71
Industrial Components - 0.54%
Goodyear Tire & Rubber Co. 360,000 16,335 .54
Machinery & Engineering- 0.54%
Caterpillar Inc. 280,000 16,450 .54
------- -------
97,771 3.21
------- -------
CONSUMER GOODS
Automobiles - 1.14%
Ford Motor Co., Class A 1,200,000 34,800 1.14
Beverages & Tobacco - 2.48%
Anheuser-Busch Companies, Inc. 170,000 11,369 .37
Philip Morris Companies Inc. 550,000 49,775 1.63
UST Inc. 440,000 14,685 .48
Health & Personal Care - 6.02%
Abbott Laboratories 135,000 5,636 .19
American Home Products Corp. 300,000 29,100 .96
Bristol-Myers Squibb Co. 200,000 17,175 .56
Eli Lilly and Co. 500,000 28,125 .92
Merck & Co., Inc. 550,000 36,163 1.19
Pfizer Inc 100,000 6,300 .21
Schering-Plough Corp. 400,000 21,900 .72
Warner-Lambert Co. 400,000 38,850 1.27
------- -------
293,878 9.64
------- -------
SERVICES
Broadcasting & Publishing - 1.53%
Dow Jones & Co., Inc. 400,000 15,950 .52
Gannett Co., Inc. 350,000 21,481 .70
Time Warner Inc.,preferred equity redemption
cumulative stock 135,000 4,219 .14
U S WEST Media Group/1/ 280,000 5,320 .17
Business & Public Services - 3.09%
Columbia/HCA Healthcare Corp. 250,000 12,688 .42
Dun & Bradstreet Corp. 530,000 34,317 1.13
Pitney Bowes Inc. 350,000 16,450 .54
U.S. Healthcare, Inc. 370,000 17,205 .56
WMX Technologies, Inc. 450,000 13,444 .44
Leisure & Tourism - 0.12%
Marriott International, Inc. 100,000 3,825 .12
Merchandising - 1.95%
Wal-Mart Stores, Inc. 2,650,000 59,294 1.95
Telecommunications - 2.29%
AT&T Corp. 300,000 19,425 .64
MCI Communications Corp. 540,000 14,107 .46
Pacific Telesis Group 360,000 12,105 .40
Sprint Corp. 350,000 13,956 .46
U S WEST Communications Group
(Formerly U S WEST Inc.) 280,000 10,010 .33
Transportation: Rail & Road - 1.94%
CSX Corp. 760,000 34,675 1.14
Union Pacific Corp. 370,000 24,420 .80
------- -------
332,891 10.92
------- -------
FINANCE
Banking - 7.21%
Banc One Corp. 450,000 16,987 .56
BankAmerica Corp. 400,000 25,900 .85
Boatmen's Bancshares, Inc. 400,000 16,350 .54
First Fidelity Bancorporation 150,000 11,306 .37
First Hawaiian Bank 769,000 23,070 .76
First Union Corp. 250,000 13,906 .46
First Virginia Banks, Inc. 320,300 13,373 .44
Fleet Financial Group, Inc. 750,000 30,563 1.00
Integra Financial Corp. 350,000 22,050 .72
J.P. Morgan & Co. Inc. 120,000 9,630 .32
NationsBank Corp. 300,000 20,887 .68
PNC Bank Corp. 175,000 5,644 .18
U.S. Bancorp 300,000 10,088 .33
Financial Services - 1.22%
Beneficial Corp. 90,000 4,196 .14
Federal Home Loan Mortgage Corp. 200,000 16,700 .55
Federal National Mortgage Assn. 130,000 16,136 .53
Insurance - 5.15%
Allstate Corp. 1,050,000 43,181 1.42
American General Corp. 350,000 12,206 .40
CIGNA Corp. 188,200 19,432 .64
Lincoln National Corp. 230,000 12,363 .40
SAFECO Corp. 1,000,000 34,500 1.13
St. Paul Companies, Inc. 260,000 14,463 .47
USLIFE Corp. 700,000 20,912 .69
------- -------
413,843 13.58
------- -------
MULTI-INDUSTRY AND MISCELLANEOUS
Multi-Industry - 2.07%
Minnesota Mining and Manufacturing Co. 800,000 53,000 1.74
Tenneco Inc. 200,000 9,925 .33
Miscellaneous - 0.19%
Other common stocks in initial period of acquisition 5,660 .19
------- -------
68,585 2.26
------- -------
TOTAL COMMON STOCKS 1,731,819 56.83
------- -------
- ---------------------------------------------- --------- ------- -------
Principal
Amount
CONVERTIBLE DEBENTURES (000)
- ---------------------------------------------- --------- ------- -------
Broadcasting & Publishing - 0.21%
Time Warner Inc. 0% 2012 $6,500 2,283 .07
Time Warner Inc. 0% 2013 10,000 4,125 .14
Industrials - 0.27%
Hanson America Inc. 2.39% 2001/2/ 10,000 8,325 .27
Trasportation: Airlines - 0.10%
Airborne Freight Corp. 6.75% 2001 3,000 3,015 .10
Miscellaneous - 0.23%
Other convertible debentures in initial period
of acquisition 7,075 .23
------- -------
TOTAL CONVERTIBLE DEBENTURES 24,823 .81
------- -------
TOTAL COMMON STOCKS AND CONVERTIBLE DEBENTURES 1,756,642 57.64
------- -------
- ---------------------------------------------- --------- ------- -------
BONDS & NOTES
- ---------------------------------------------- --------- ------- -------
INDUSTRIALS - 4.90%
Dayton Hudson Corp. 10.00% 2010 5,000 6,244 .20
Dayton Hudson Corp. 9.50% 2015 1,000 1,232 .04
Deere & Co. 8.95% 2019 3,400 4,182 .14
Federal Paper Board Co., Inc. 10.00% 2011 10,000 13,337 .44
General Motors Corp. 8.80% 2021 12,500 15,407 .51
Inco Ltd. 9.875% 2019 3,000 3,365 .11
Inco Ltd. 9.60% 2022 5,000 5,783 .19
May Department Stores Co. 9.875% 2021 6,500 7,818 .26
Mobil Corp. 8.00% 2032 5,000 5,529 .18
News America Holdings Inc. 10.125% 2012 5,000 6,051 .20
News America Holdings Inc. 8.45% 2034 2,500 2,884 .09
Occidental Petroleum Corp. 8.50% 2004 2,500 2,686 .09
Occidental Petroleum Corp. 9.25% 2019 5,000 6,291 .21
Pohang Iron & Steel Co., Ltd. 7.375% 2005 5,000 5,312 .17
Polaroid Corp. 8.00% 1999 10,000 10,564 .35
Samsung Electric Co., Ltd. 8.50% 2002/2/ 5,000 5,563 .18
Swire Pacific Ltd. 8.50% 2004/2/ 7,500 8,238 .27
TCI Communications Inc. 8.75% 2015 4,000 4,435 .15
Tele-Communications, Inc. 9.25% 2023 7,500 8,187 .27
Tenneco Credit Inc. 9.625% 2001 2,000 2,329 .08
Tenneco Credit Inc. 10.00% 2001 1,500 1,764 .06
Time Warner Inc. 10.15% 2012 5,000 6,197 .20
TKR Cable I, Inc. 10.50% 2007 4,000 4,650 .15
USX Corp., Series A, 9.375% 2012 7,700 8,895 .29
USX Corp., Series A, 9.125% 2013 2,000 2,299 .07
------- -------
149,242 4.90
------- -------
ELECTRIC UTILITIES - 0.15%
Big Rivers Electric Corp. 10.70% 2017 4,000 4,507 .15
------- -------
GAS UTILITIES - 0.24%
The Columbia Gas System, Inc.7.32% 2010 5,000 5,144 .17
The Columbia Gas System Inc.7.42% 2015 2,000 2,025 .07
------- -------
7,169 .24
------- -------
TELEPHONE - 0.21%
AT&T Corp. 8.625% 2031 5,600 6,516 .21
------- -------
TRANSPORTATION - 0.90%
American Airlines, 1991-A1, pass-through
certificates, 9.71% 2007/3/ 1,849 2,147 .07
AMR Corp. 9.20% 2012 2,000 2,265 .07
Delta Air Lines, Inc. 9.875% 2000 1,500 1,696 .05
Delta Air Lines, Inc. 10.375% 2011 3,000 3,753 .12
Delta Air Lines, Inc., 1992-A2, pass-through
certificates, 9.20% 2014/3/ 1,500 1,704 .06
Delta Air Lines, Inc., 1993-A2, pass-through
certificates, 10.50% 2016/3/ 5,000 6,303 .21
Federal Express Corp., A310-A1, pass-through
certificates, 7.53% 2006/3/ 1,888 1,988 .07
United Air Lines, Inc. 9.00% 2003 1,500 1,668 .05
United Air Lines, Inc. 10.67% 2004 5,000 6,031 .20
------ -------
27,555 .90
------ -------
FINANCIAL - 2.97%
H.F. Ahmanson & Co. 9.875% 1999 3,000 3,399 .11
American Re Corp. 10.875% 2004 5,000 5,578 .18
Bank of Nova Scotia 6.00%/4/ 4,000 3,120 .10
Bankers Trust New York Corp. 8.25% 2005 2,000 2,246 .07
Beneficial Corp. 12.875% 2013 1,500 1,814 .06
Canadian Imperial Bank of Commerce 6.125%/4/ 1,600 1,256 .04
Capital One Bank 8.33% 1997 5,000 5,132 .17
CIGNA Corp. 6.375% 2006 5,000 4,927 .16
Continental Bank, NA 12.50% 2001 2,000 2,569 .08
Den Danske Bank 7.25% 2005 5,000 5,278 .17
Den Norske AS 6.125%/4/ 3,000 2,385 .08
First Interstate Bancorp 8.625% 1999 4,300 4,661 .15
General Motors Acceptance Corp. 7.875% 1997 10,000 10,257 .34
General Motors Acceptance Corp. 8.625% 1999 5,000 5,418 .18
General Motors Acceptance Corp. 9.375% 2000 5,000 5,605 .19
General Motors Acceptance Corp. 9.625% 2000 4,000 4,548 .15
General Motors Acceptance Corp. 9.625% 2001 7,000 8,235 .27
General Motors Acceptance Corp. 8.75% 2005 4,000 4,646 .15
General Motors Acceptance Corp. 8.875% 2010 1,000 1,217 .04
Golden West Financial Corp. 10.25% 2000 1,400 1,641 .05
Midland Bank 5.8125%/4/ 4,000 3,208 .11
Security Pacific Corp. 11.00% 2001 3,000 3,659 .12
------ -------
90,799 2.97
------ -------
REAL ESTATE - 0.59%
ERP Operating Limited Partnership 7.95% 2002 1,500 1,603 .05
Irvine Co. 7.46% 2006/2/ 2,500 2,497 .08
Security Capital Industrial Trust 7.875% 2009 5,000 5,313 .18
Shopping Center Associates 6.75% 2004/2/ 5,000 5,006 .16
Wharf Capital International Ltd. 8.875% 2004 3,500 3,759 .12
------ -------
18,178 .59
------ -------
OTHER - 0.06%
Trustees of Columbia University in the City of
New York, Series B, 8.62% 2001 1,500 1,685 .06
------ -------
COLLATERALIZED MORTGAGE/ASSET-BACKED
OBLIGATIONS/3/ - 1.38%
Case Equipment Loan Trust, 1995-A, 7.30% 2002 7,754 7,909 .26
Green Tree Financial Corp. 6.80% 2027 10,000 10,225 .33
Grupo Financiero Banamex Accival, SA de CV
0% 2002/2/ 6,467 4,801 .16
Jet Equipment Trust, Series 1995-A, Class B,
8.64% 2015/2/ 4,977 5,519 .18
Jet Equipment Trust, Series 1995-B, Class B,
7.83% 2015/2/ 8,000 8,410 .28
Merrill Lynch Mortgage Investors, Inc. 1995-A
7.4283% 2021 4,968 5,115 .17
------ -------
41,979 1.38
------ -------
GOVERNMENTS (EXCLUDING U.S. GOVERNMENT) AND
GOVERNMENTAL AUTHORITIES - 0.45%
British Columbia Hydro & Power Authority
12.50% 2014 2,000 2,442 .08
Israel (State of) 6.375% 2005 9,000 9,090 .30
Ontario (Province of) 11.50% 2013 2,000 2,317 .07
------ -------
13,849 .45
------ -------
FEDERAL AGENCY OBLIGATIONS/3/ - 0.53%
Federal Home Loan Mortgage Corp.
8.50% 2008 322 336 .01
Federal Home Loan Mortgage Corp.
8.50% 2020 10,240 10,691 .35
Government National Mortgage Assn. 11.00% 2015 135 153 .01
Government National Mortgage Assn. 9.50% 2018 145 156 .01
Government National Mortgage Assn. 10.50% 2019 100 112 .00
Government National Mortgage Assn. 8.50% 2025 4,422 4,644 .15
------ -------
16,092 .53
------ -------
FEDERAL AGENCY OBLIGATIONS - OTHER - 2.37%
Federal Home Loan Mortgage Corp. 6.945% 2005 6,500 6,617 .22
Federal National Mortgage Assn. 8.16% 2000 20,000 20,625 .68
Federal National Mortgage Assn. 8.71% 2005 22,000 23,269 .76
FNSM Callable Principal STRIPS 0%/8.20% 2022/5/ 10,000 8,181 .27
FNSM Callable Principal STRIPS 0%/8.25% 2022/5/ 1,500 1,255 .04
Student Loan Marketing Assn. 7.67% 2000 11,850 12,146 .40
------ -------
72,093 2.37
------ -------
U.S. TREASURY OBLIGATIONS - 12.99%
9.25% due 1/15/96 15,000 15,021 .49
7.50% due 1/31/96 15,000 15,026 .49
8.875% due 2/15/96 20,000 20,085 .66
9.375% due 4/15/96 15,000 15,171 .50
4.25% due 5/15/96 10,000 9,964 .33
7.25% due 8/31/96 20,000 20,244 .66
7.25% due 11/15/96 15,000 15,248 .50
4.75% February 1997 50,000 49,703 1.63
6.75% February 1997 4,000 4,068 .13
8.50% July 1997 4,000 4,193 .14
8.75% October 1997 5,000 5,299 .17
7.375% November 1997 25,000 25,945 .85
8.875% November 1997 10,000 10,644 .35
5.625% January 1998 25,000 25,207 .83
8.25% July 1998 25,000 26,758 .88
8.875% May 2000 8,000 9,080 .30
8.75% August 2000 7,500 8,518 .28
13.125% May 2001 2,000 2,719 .09
14.25% February 2002 2,000 2,906 .10
10.75% February 2003 12,800 16,702 .55
11.125% August 2003 1,000 1,342 .04
10.75% August 2005 8,500 11,678 .39
8.75% November 2008 10,000 11,928 .39
10.375% November 2009 6,750 8,906 .29
10.375% November 2012 32,000 44,240 1.45
10.625% August 2015 10,000 15,317 .50
------ -------
395,912 12.99
------ -------
TOTAL BONDS & NOTES 845,576 27.74
------ -------
- ---------------------------------------------- --------- ------ -------
SHORT-TERM SECURITIES
- ---------------------------------------------- --------- ------ -------
CORPORATE SHORT-TERM NOTES - 15.25%
A. I. Credit Corp. 5.70% due 1/4/96 20,000 19,987 .65
American Express Credit Corp. 5.68% due 2/1/96 21,000 20,894 .69
American Telephone & Telegraph Co. 5.57%-5.75%
due 2/2-2/22/96 24,900 24,733 .81
Associates Corp. of North America 5.99% due 1/2/96 11,020 11,016 .36
BellSouth Telecommunications Inc. 5.67%-5.70%
due 1/10/-2/21/96 25,000 24,931 .82
Chevron Oil Finance Co. 5.70% due 2/9/96 11,500 11,427 .37
CIT Group Holdings, Inc. 5.68% due 2/2/96 25,000 24,872 .82
Emerson Electric Co. 5.66% due 1/25/96 4,500 4,482 .15
Ford Motor Credit Co. 5.70%-5.72% due 1/5-2/7/96 36,600 36,550 1.20
General Electric Capital Corp. 5.68%-5.70%
due 1/17-1/25/96 47,700 47,537 1.56
Kimberly-Clark Corp. 5.75% due 1/26/96 15,000 14,938 .49
Eli Lilly and Co. 5.70%-5.71% due 1/5-1/12/96 24,700 24,659 .81
Motorola Inc. 5.72% due 1/30/96 21,100 20,999 .69
Pactel Capital Resources 5.90% due 1/2/96 7,600 7,598 .25
PepsiCo, Inc. 5.58% due 2/8/96 30,000 29,819 .98
Pitney Bowes Credit Corp. 5.64%-5.72% due 1/30-2/1/96 32,900 32,745 1.07
Procter & Gamble Co. 5.63%-5.66% due 1/29-2/12/96 29,000 28,837 .95
Safeco Credit Co., Inc. 5.68% due 1/12/96 10,000 9,981 .33
United Parcel Service of America Inc.
5.50% due 2/23/96 9,200 9,123 .30
Vermont American Corp. 5.70% due 1/19/96 15,000 14,955 .49
Xerox Corp. 5.68%-5.70% due 1/9-1/26/96 44,700 44,583 1.46
------ -------
464,666 15.25
------ -------
FEDERAL AGENCY DISCOUNT NOTES - 2.28%
Federal Home Loan Bank 5.61% due 1/18/96 19,000 18,947 .62
Federal National Mortgage Assn. 5.54%-5.67%
due 1/5-2/14/96 50,700 50,505 1.66
------ -------
69,452 2.28
------ -------
TOTAL SHORT-TERM SECURITIES 534,118 17.53
------ -------
TOTAL INVESTMENT SECURITIES
(cost: $2,720,196,000) 3,136,336 102.91
Excess of payables over cash and receivables 88,823 2.91
------ -------
NET ASSETS $3,047,513 100.00%
====== =======
</TABLE>
/1/ Non-income-producing security
/2/ Purchased in a private placement transaction; resale to the public may
require registration or may extend only to qualified institutional buyers.
/3/ Pass-through securities backed by a pool of mortgages or other loans on
which principal payments are periodically made. Therefore, the effective
maturity of these securities is shorter than the stated maturity.
/4/ Coupon rates may change periodically.
/5/ Represents a zero coupon bond which will convert to an interest-bearing
security at a later date.
See Notes to Financial Statements
EQUITY-TYPE SECURITIES APPEARING IN THE
PORTFOLIO SINCE JUNE 30, 1995
- -----------------------------------------
Anhauser-Busch
Boatmens's Bancshares
Bowater
Caterpillar
Duke Power
Federal Home Loan Mortage
Federal Paper Board
First Virginia Banks
Integra Financial
International Paper
NationsBank
PP&L Resources
U.S. Healthcare
UST
EQUITY-TYPE SECURITIES ELIMINATED FROM THE
PORTFOLIO SINCE JUNE 30, 1995
- ----------------------------------------------
American Brands
Ameritech
Burlington Northern
Carolina Power
Comerica
First Chicago
Houston Industries
Huntington Bancshares
Melville
Monsato
Northrop Grumman
Telefonos de Mexico
Texas Utilities
Textron
Wachovia
American Balanced Fund
Financial Statements
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES (dollars in
at December 31, 1995 thousands)
- ---------------------------------------------- --------- ----------
<S> <C> <C>
ASSETS:
Investment securities at market
(cost: $2,720,196) $3,136,336
Cash 64
Receivables for -
Sales of investments $ 6,982
Sales of fund's shares 9,227
Dividends and accrued interest 20,349 36,558
--------- ----------
3,172,958
LIABILITIES:
Payables for -
Purchases of investments 120,233
Repurchases of fund's shares 3,688
Management services 799
Accrued expenses 725 125,445
--------- ----------
NET ASSETS AT DECEMBER 31, 1995 -
Equivalent to $14.15 per share on
215,418,149 shares of $1 par value
capital stock outstanding (authorized
capital stock--300,000,000 shares) $3,047,513
==========
STATEMENT OF OPERATIONS
for the year ended December 31, 1995 (dollars in
thousands)
- ---------------------------------------------- --------- ----------
INVESTMENT INCOME:
Income:
Dividends $ 48,037
Interest 79,534 $127,571
---------
Expenses:
Management services fee 8,091
Distribution expenses 6,031
Transfer agent fee 1,928
Reports to shareholders 161
Registration statement and prospectus 234
Postage, stationery and supplies 322
Directors' fees 75
Auditing and legal fees 48
Custodian fee 84
Taxes other than federal income tax 2
Other expenses 40 17,016
--------- ----------
Net investment income 110,555
----------
REALIZED GAIN AND UNREALIZED
APPRECIATION ON INVESTMENTS:
Net realized gain 113,063
Net increase in unrealized appreciation on
investments:
Beginning of year 38,612
End of year 416,140 377,528
--------- ----------
Net realized gain and increase in unrealized
appreciation on investments 490,591
----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ 601,146
==========
See Notes to Financial Statements
- ---------------------------------------------- --------- ----------
STATEMENT OF CHANGES IN NET ASSETS (dollars in
thousands)
Year ended December 31
--------- ----------
1995 1994
- ---------------------------------------------- --------- ----------
OPERATIONS:
Net investment income $110,555 $88,658
Net realized gain on investments 113,063 4,768
Net increase (decrease) in unrealized appreciation
on investments 377,528 (86,455)
--------- ----------
Net increase in net assets
resulting from operations 601,146 6,971
--------- ----------
DIVIDENDS AND DISTRIBUTIONS PAID TO
SHAREHOLDERS:
Dividends from net investment income (105,991) (86,005)
Distributions from net realized gain on
investments (97,006) (7,886)
--------- ----------
Total dividends and distributions (202,997) (93,891)
--------- ----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold: 64,847,892
and 54,791,351 shares, respectively 866,745 669,530
Proceeds from shares issued in reinvestment
of net investment income dividends and
distributions of net realized gain on
investments: 14,004,916 and 6,959,833 shares,
respectively 189,603 84,678
Cost of shares repurchased: 36,977,727
and 24,180,499 shares, respectively (488,870) (294,907)
--------- ----------
Net increase in net assets resulting from
capital share transactions 567,478 459,301
--------- ----------
TOTAL INCREASE IN NET ASSETS 965,627 372,381
NET ASSETS:
Beginning of year 2,081,886 1,709,505
--------- ----------
End of year (including undistributed
net investment income: $10,254
and $5,690, respectively) $3,047,513 $2,081,886
========= ==========
</TABLE>
<PAGE>
American Balanced Fund
Financial Statements
Notes to Financial Statements
1. American Balanced Fund, Inc. (the "fund") is registered under the Investment
Company Act of 1940 as an open-end, diversified management investment company.
The fund seeks conservation of capital, current income, and long-term growth of
both capital and income by investing in stocks and fixed income securities. The
following paragraphs summarize the significant accounting policies consistently
followed by the fund in the preparation of its financial statements:
Common stocks and convertible debentures traded on a national securities
exchange (or reported on the NASDAQ national market) and securities traded in
the over-the-counter market are stated at the last reported sales price on the
day of valuation; other securities, and securities for which no sale was
reported on that date, are stated at the last quoted bid price.
Non-convertible bonds, debentures, and other long-term debt securities are
valued at prices obtained from a bond pricing service provided by a major
dealer in bonds, when such prices are available; however, in circumstances
where the investment adviser deems it appropriate to do so, such securities
will be valued at the mean of their representative quoted bid and asked prices
or, if such prices are not available, at the mean of such prices for securities
of comparable maturity, quality, and type.
Short-term securities with original or remaining maturities in excess of 60
days are valued at the mean of their quoted bid and asked prices. Short-term
securities with 60 days or less to maturity are valued at amortized cost, which
approximates market value. Securities for which market quotations are not
readily available are valued at fair value as determined in good faith by the
Valuation Committee of the Board of Directors.
As is customary in the mutual fund industry, securities transactions are
accounted for on the date the securities are purchased or sold. Realized gains
and losses from securities transactions are reported on an identified cost
basis. Dividend and interest income is reported on the accrual basis.
Discounts on securities purchased are amortized over the life of the respective
securities. The fund does not amortize premiums on securities purchased.
Dividends and distributions paid to shareholders are recorded on the
ex-dividend date.
Pursuant to the custodian agreement, the fund receives credits against its
custodian fee for imputed interest on certain balances with the custodian bank.
The custodian fee of $84,000 includes $61,000 that was paid by these credits
rather than in cash.
2.It is the fund's policy to continue to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its net taxable income, including any net realized gain on
investments, to its shareholders. Therefore, no federal income tax provision
is required.
As of December 31, 1995, net unrealized appreciation on investments for
federal income tax purposes aggregated $416,161,000, of which $431,952,000
related to appreciated securities and $15,791,000 related to depreciated
securities. There was no difference between book and tax realized gains on
securities transactions for the year ended December 31, 1995. The cost of
portfolio securities for federal income tax purposes was $2,720,196,000 at
December 31, 1995.
3.The fee of $8,091,000 for management services was paid pursuant to an
agreement with Capital Research and Management Company (CRMC), with which
certain officers and Directors of the fund are affiliated. The Investment
Advisory and Service Agreement provides for monthly fees, accrued daily, based
on an annual rate of 0.42% of the first $500 million of average net assets;
0.324% of such assets in excess of $500 million but not exceeding $1 billion;
0.30% of such assets in excess of $1 billion but not exceeding $1.5 billion;
0.282% of such assets in excess of $1.5 billion but not exceeding $2.5 billion;
0.27% of such assets in excess of $2.5 billion but not exceeding $4 billion;
and 0.264% of such assets in excess of $4 billion.
Pursuant to a Plan of Distribution, the fund may expend up to 0.25% of its
average net assets annually for any activities primarily intended to result in
sales of fund shares, provided the categories of expenses for which
reimbursement is made are approved by the fund's Board of Directors. Fund
expenses under the Plan include payments to dealers to compensate them for
their selling and servicing efforts. During the year ended December 31, 1995,
distribution expenses under the Plan were $6,031,000. As of December 31, 1995,
accrued and unpaid distribution expenses were $380,000.
American Funds Service Company (AFS), the transfer agent for the fund, was
paid a fee of $1,928,000. American Funds Distributors, Inc. (AFD), the
principal underwriter of the fund's shares, received $1,918,000(after
allowances to dealers) as its portion of the sales charges paid by purchasers
of the fund's shares. Such sales charges are not an expense of the fund and,
hence, are not reflected in the accompanying statement of operations.
Directors of the fund who are unaffiliated with CRMC may elect to defer part
or all of the fees earned for services as members of the Board. Amounts
deferred are not funded and are general unsecured liabilities of the fund. As
of December 31, 1995, aggregate amounts deferred were $90,000.
CRMC is owned by The Capital Group Companies, Inc. AFS and AFD are both
wholly owned subsidiaries of CRMC. Certain Directors and officers of the fund
are or may be considered to be affiliated with CRMC, AFS, and AFD. No such
persons received any remuneration directly from the fund.
4.As of December 31, 1995, accumulated undistributed net realized gain on
investments was $15,997,000 and additional paid-in capital was $2,389,704,000.
The fund made purchases and sales of investment securities, excluding
short-term securities, of $1,257,401,000 and $814,947,000, respectively, during
the year ended December 31, 1995.
<PAGE>
PER-SHARE DATA AND RATIOS
<TABLE>
<CAPTION>
Year ended December 31
------- ------- ------- ------- -------
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
------- ------- ------- ------- -------
Net Asset Value, Beginning of Year $12.00 $12.57 $12.28 $12.05 $10.32
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .57 .57 .59 .61 .62
Net realized and unrealized gain
(loss) on investments 2.61 (.53) .76 .49 1.86
------- ------- ------- ------- -------
Total income from
investment operations 3.18 .04 1.35 1.10 2.48
------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment
income (.56) (.56) (.60) (.60) (.62)
Distributions from net realized
gains (.47) (.05) (.46) (.27) (.13)
------- ------- ------- ------- -------
Total Distributions (1.03) (.61) (1.06) (.87) (.75)
------- ------- ------- ------- -------
Net Asset Value, End of Year $14.15 $12.00 $12.57 $12.28 $12.05
======= ======= ======= ======= =======
Total Return * 27.13% .34% 11.27% 9.48% 24.69%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(in millions) $3,048 $2,082 $1,710 $1,067 $642
Ratio of expenses to average
net assets .67% .68% .71% .74% .82%
Ratio of net income to average
net assets 4.38% 4.76% 4.74% 5.19% 5.56%
Portfolio turnover rate 39.03% 32.05% 27.81% 17.00% 24.65%
</TABLE>
* This was calculated without
deducting a sales charge. The
maximum sales charge is 5.75% of the
fund's offering price.
Independent Auditors' Report
To the Board of Directors and Shareholders of American Balanced Fund, Inc.:
We have audited the accompanying statement of assets and liabilities of
American Balanced Fund, Inc., including the schedule of portfolio investments,
as of December 31, 1995, and the related statement of operations for the year
then ended, the statement of changes in net assets for each of the two years in
the period then ended, and the per-share data and ratios for each of the five
years in the period then ended. These financial statements and per-share data
and ratios are the responsibility of the fund's management. Our responsibility
is to express an opinion on these financial statements and the per-share data
and ratios 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 the
per-share data and ratios 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 securities
owned at December 31, 1995 by correspondence with the custodian and brokers;
where replies were not received from brokers, we performed other procedures.
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 per-share data and ratios
referred to above present fairly, in all material respects, the financial
position of American Balanced Fund, Inc. at of December 31, 1995, the results
of its operations for the year then ended, the changes in its net assets for
each of the two years in the period then ended, and the per-share data and
ratios for the each of the five years in the period then ended, in conformity
with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Los Angeles, California
January 26, 1996
1995 Tax Information (unaudited)
We are required to advise you within 60 days of the fund's fiscal year-end
regarding the federal tax status of distributions received by shareholders
during such fiscal year. The distributions made during the fiscal year by the
fund were earned from the following sources:
Dividends and Distributions per Share
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
From Net From Net
Realized Realized
To From Net Short- Long-
Shareholders Investment Term Term
of Record Payment Date Income Gains Gains
February 10, 1995 February 13, 1995 $0.14 - -
May 19, 1995 May 22, 1995 0.14 - -
August 11, 1995 August 14, 1995 0.14 - -
December 20, 1995 December 21, 1995 0.14 $0.20 $0.27
</TABLE>
Corporate shareholders may exclude up to 70% of qualifying dividends received
during the year. For purposes of computing this exclusion, 43% of the
dividends paid by the fund from net investment income represent qualifying
dividends.
Certain states may exempt from income taxation that portion of the dividends
paid from net investment income that was derived from direct U.S. Treasury
obligations. For purposes of computing this exclusion, 16% of the dividends
paid by the fund from net investment income were derived from interest on
direct U.S. Treasury obligations.
