AMERICAN BALANCED FUND
Annual Report for the year ended December 31, 1996
[Illustration: Napa, California vineyard]
[The American Funds Group(r)]
[marble design in top border throughout Annual Report]
YOUR FUND'S OBJECTIVE
American Balanced Fund(r) seeks conservation of capital, current income, and
long-term growth of both capital and income by investing in stocks and
fixed-income securities. It is managed as though it constitutes the complete
investment program of the prudent investor.
About our cover: The colorful rows of a vineyard cover a hillside in Napa,
California.
[watermark: vineyard]
RESULTS OVER THE PAST 21 YEARS*
Total return+
<TABLE>
<CAPTION>
Value of Income Total
Principal Return Return
<S> <C> <C> <C>
1976 + 20.0% +6.0% +26.0%
1977 -4.5 +5.2 +0.7
1978 +0.6 +5.6 +6.2
1979 +1.6 +6.0 +7.6
1980 +7.1 +7.3 +14.4
1981 -3.5 +7.9 +4.4
1982 +20.8 +8.6 +29.4
1983 +8.4 +7.7 +16.1
1984 +2.2 +7.2 +9.4
1985 +22.3 +6.8 +29.1
1986 +10.9 +6.0 +16.9
1987 -2.4 +6.4 +4.0
1988 +6.6 +6.3 +12.9
1989 +15.0 +6.5 +21.5
1990 -7.3 +5.7 -1.6
1991 +18.6 +6.1 +24.7
1992 +4.4 +5.1 +9.5
1993 +6.3 +5.0 +11.3
1994 -4.2 +4.5 +0.3
1995 +22.4 +4.7 +27.1
1996 +9.2 +4.0 +13.2
AVERAGE ANNUAL COMPOUND RETURN: +13.1%
</TABLE>
*All of the full calendar years since Capital Research and Management Company
became the fund's investment adviser on July 26, 1975.
+Total return measures both value of principal (the changes in the fund's net
asset value) and income return (from dividends), assuming reinvestment of all
dividends and capital gain distributions.
Fund results in this report were computed without a sales charge unless
otherwise indicated. The fund's 30-day yield as of January 31, 1997, calculated
in accordance with the Securities and Exchange Commission formula, was 3.54%.
THE FIGURES IN THIS REPORT REFLECT PAST RESULTS. SHARE PRICE AND RETURN WILL
VARY, SO YOU MAY LOSE MONEY BY INVESTING IN THE FUND. THE SHORTER THE TIME
PERIOD OF YOUR INVESTMENT, THE GREATER THE POSSIBILITY OF LOSS. FUND SHARES ARE
NOT DEPOSITS OR OBLIGATIONS OF, OR INSURED OR GUARANTEED BY, THE U.S.
GOVERNMENT, ANY FINANCIAL INSTITUTION, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, OR ANY OTHER AGENCY, ENTITY OR PERSON.
FELLOW SHAREHOLDERS:
The stock and bond markets marched to different drummers during 1996. The year
saw substantially higher-than-average returns from common stocks and
below-average returns from bonds. Against this background, American Balanced
Fund generated a solid return.
The fund's 13.2% total return was slightly higher than the 13.0% increase of
the Lipper Balanced Funds Index. It also represents the 20th year of positive
total returns in the 21 calendar years since Capital Research and Management
Company became the fund's investment adviser in 1975. The fund's total return
assumes you reinvested your dividends and capital gains, as most shareholders
do. In 1996, American Balanced Fund paid quarterly dividends totaling 56 cents
a share and capital gain distributions totaling 85 cents a share.
Stocks, as measured by the unmanaged Standard & Poor's 500 Composite Index,
gained 22.9% with dividends reinvested. Bonds produced a 3.6% return on a
reinvested basis, as measured by the unmanaged Lehman Brothers Aggregate Bond
Index.
At the end of 1996, stocks accounted for 53% of the fund's portfolio, down
slightly from 57% a year ago. We took advantage of the strength of financial
stocks and reduced the fund's bank holdings to 5.2% from 7.2% a year ago. Banks
have been a significant part of the fund's portfolio for several years and have
served it well.
While reducing banks, we added to the fund's significant position in oil
stocks, making energy sources the largest industry in the portfolio at 7.0%.
The price of oil rose dramatically during the year, but oil stocks generally
moved only in line with the market. Consequently, we believe they now offer
increasingly attractive value for our shareholders.
We continue to hold a significant portion of the portfolio in forest products
and paper companies, amounting to 3.6% of net assets. This was again a
disappointing area for the fund as pricing remained under pressure. However, we
are optimistic that as inventories adjust and demand accelerates, this group
will produce a superior return from exceedingly low valuations.
American Balanced Fund increased its holdings of non-U.S. companies during
1996. Among others, we added the Finnish company Nokia and Ericsson of Sweden,
leading manufacturers of cellular phones and other telecommunications
equipment. This brought the fund's equity holdings of companies domiciled
outside the United States to 3.5% of total assets, up from 0.9% at the
beginning of the year.
HOW AMERICAN BALANCED FUND HAS FARED WITH CAPITAL RESEARCH AND MANAGEMENT
COMPANY AS INVESTMENT ADVISER
Since the fund invests in both stocks and bonds, its results should be weighed
against a combination of stock and bond indexes.
<TABLE>
<CAPTION>
Average
For the period Cumulative Annual
7/26/75<UNDEF>12/31/96 Total Compound
Return Return
<S> <C> <C>
AMERICAN BALANCED FUND +1,295.4% +13.1%
Standard & Poor's 500 Stock
Composite Index +1,827.0% +14.8%
Lehman Brothers Aggregate
Bond Index* +648.7% +9.8%
Consumer Price Index +192.6% +5.1%
</TABLE>
Figures are based on the assumption that all distributions were reinvested.
*Lehman Brothers Aggregate Bond Index did not exist until December 31, 1975.
For the period between July 31, 1975 and December 31, 1975, Lehman Brothers
Corporate Bond Index results were used. The Lehman Brothers indexes are based
on July 31, 1975 index value.
Over the course of the year, the fund shifted the makeup of its bond portfolio
slightly, increasing its holdings of federal agency obligations and shorter
term U.S. Treasury bonds. In times of rising interest rates, such as we saw
through much of 1996, shorter term bonds provide better total returns than
longer term bonds. The fund increased the total bond portion of the portfolio
to 34%, from 28% at the end of 1995.
The stock market has been abnormally strong in the past two years. Prices have
risen dramatically and valuations are at levels unprecedented in this century.
We feel compelled to remind our shareholders that recent returns are not
sustainable. When returns are so extraordinary over such a prolonged period,
the risk to investors' capital increases dramatically. Because one of the
fund's primary objectives is conservation of capital, we take a cautious
approach to the management of assets within the fund.
The equity portion of the fund's portfolio ranges between 50% and 75%. When the
valuations of common stocks seem attractive, the equity portion will be toward
the upper end of that range. Conversely, when common stocks seem expensive, the
fund will be toward the bottom of the range. Our current position of 53% in
stocks should be seen in that context.
We recognize that this disciplined approach may cause lost opportunities in a
very strong market. However, it also has reduced the loss of principal to our
shareholders during difficult periods. Our prospectus states "the fund
approaches the management of its investments as if they constituted the
complete investment program of the prudent investor." We are confident that
careful selection of a balanced portfolio of stocks and bonds will continue to
serve the prudent investor, as it has throughout the fund's history.
On a closing note, we are saddened to report the death of Robert L. Cody,
Director Emeritus of the fund. Bob began his association with the fund in 1938.
He helped shape and guide American Balanced Fund with the single goal of acting
in the shareholders' best interest.
American Balanced Fund continued to grow during 1996, with an increase of
almost 20,000 shareholder accounts. We welcome all our new shareholders and
look forward to reporting to you again in six months.
Cordially,
[signature]
Walter P. Stern
Chairman of the Board
[signature]
Robert G. O'Donnell
President
February 14, 1997
FOLLOWING THE COURSE OF AN INVESTMENT IN AMERICAN BALANCED FUND
This chart shows how a $10,000 investment in the fund grew between July 26,
1975 - when Capital Research and Management Company became American Balanced
Fund's investment adviser - and December 31, 1996.
As you can see, that $10,000 would have grown to $131,475 with all
distributions reinvested. Since the fund invests in both stocks and bonds, it
should not be surprising that its return lies between the two major unmanaged
stock and bond indexes tracked on the chart.
The fund's year-by-year results appear under the chart. You can use this table
to estimate how the value of your own holdings has grown. Let's say, for
example, that you have been reinvesting all your distributions and want to know
how your investment has done since December 31, 1986. At that time, according
to the table, the value of the investment illustrated here was $42,690. Since
then it has increased to $131,475, more than three times the original amount.
HOW A $10,000 INVESTMENT HAS GROWN
Average Annual Compound Returns*
(for periods ended December 31, 1996)
Ten Years: +11.25%
Five Years: +10.63%
One Year: + 6.68%
*Assumes reinvestment of all distributions and payment of the current 5.75%
maximum sales charge at the beginning of the stated periods.
[chart]
<TABLE>
<CAPTION>
Year Ended Dec. 31 1975# 1976 1977 1978 1979 1980 1981 1982
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TOTAL VALUE
Dividends Reinvested $305 594 656 709 801 1,050 1,303 1,474
Value at Year-End/1/ $9,948 12,533 12,620 13,404 14,427 16,498 17,224 22,280
AMBAL Total Return (0.5)% 26.0 0.7 6.2 7.6 14.4 4.4 29.4
Year Ended Dec. 31 1983 1984 1985 1986 1987 1988 1989 1990
TOTAL VALUE
Dividends Reinvested 1,724 1,852 1,912 2,202 2,710 2,780 3,284 3,457
Value at Year-End/1/ 25,869 28,291 36,527 42,690 44,406 50,123 60,915 59,959
AMBAL Total Return 16.1 9.4 29.1 16.9 4.0 12.9 21.5 (1.6)
Year Ended Dec. 31 1991 1992 1993 1994 1995 1996
TOTAL VALUE
Dividends Reinvested 3,684 3,816 4,072 4,131 4,335 4,684
Value at Year-End/1/ 74,765 81,853 91,080 91,386 116,179 131,475/2/
AMBAL Total Return 24.7 9.5 11.3 0.3 27.1 13.2
</TABLE>
- -----
<TABLE>
<CAPTION>
Year Ended 7/26/75 1975 1976 1977 1978 1979 1980
<S> <C> <C> <C> <C> <C> <C> <C>
December 31
S&P 500 with
dividends reinvested 10,000 10,312 12,785 11,871 12,648 15,003 19,848
Lehman Brothers
Aggregate Bond Index/3/ 10,000 10,614 12,270 12,642 12,818 13,066 13,419
Year Ended 1981 1982 1983 1984 1985 1986 1987
December 31
S&P 500 with
dividends reinvested 18,862 22,914 28,081 29,845 39,295 46,590 49,053
Lehman Brothers
Aggregate Bond Index/3/ 14,258 18,909 20,489 23,593 28,807 33,206 34,119
Year Ended 1988 1989 1990 1991 1992 1993 1994
December 31
S&P 500 with
dividends reinvested 57,179 75,259 72,904 95,058 102,274 112,551 114,007
Lehman Brothers
Aggregate Bond Index/3/ 36,810 42,159 45,936 53,287 57,231 62,811 60,979
Year Ended 1995 1996
December 31
S&P 500 with
dividends reinvested 156,799 192,706
Lehman Brothers
Aggregate Bond Index/3/ 72,244 74,867
</TABLE>
Average annual compound return for 21-1/2 years
12.8% /1/
$10,000 original investment /1/
/1/ These figures, unlike those shown elsewhere in this report, reflect payment
of the maximum sales charge of 5.75% on the $10,000 investment. Thus, the net
amount invested was $9,425. As outlined in the prospectus, the sales charge is
reduced for larger investments. There is no sales charge on dividends or
capital gain distributions that are reinvested in additional shares. The
maximum initial sales charge was 8.5% prior to July 1, 1988. Results shown do
not take into account income or capital gain taxes.
/2/ Includes reinvested dividends of $51,535 and reinvested capital gain
distributions of $35,296.
/3/ Lehman Brothers Aggregate Bond Index did not exist until December 31, 1975.
For the period between July 31, 1975 and December 31, 1975, Lehman Brothers
Corporate Bond Index results were used. The Lehman Brothers indexes are based
on July 31, 1975 index value.
#For the period July 26, 1975 (when Capital Research and Management Company
became investment adviser) through December 31, 1975.
The indexes are unmanaged and do not reflect sales charges, commissions or
expenses.
Past results are not predictive of future results.
[end chart]
A BALANCED COURSE
[Photo Caption]
Robert O'Donnell
Portfolio Counselor and fund President
[End Photo Caption]
[bar chart]
Returns for Stocks, Bonds and American Balanced Fund
<TABLE>
<CAPTION>
Year Stocks American Balanced Fund Bonds
<S> <C> <C> <C>
1976 23.99 25.98 15.6
1977 -7.2 0.7 3.0
1978 6.5 6.2 1.4
1979 18.6 7.6 1.9
1980 32.3 14.4 2.7
1981 -5.0 4.4 6.3
1982 21.5 29.4 32.6
1983 22.6 16.1 8.4
1984 6.3 9.4 15.2
1985 31.7 29.1 22.1
1986 18.6 16.9 15.3
1987 5.3 4.0 2.8
1988 16.6 12.9 7.9
1989 31.6 21.5 14.5
1990 -3.0 -1.6 9.0
1991 30.4 24.7 16.0
1992 7.6 9.5 7.4
1993 10.1 11.3 9.8
1994 1.3 0.3 -2.9
1995 37.5 27.1 18.5
1996 22.9 13.2 3.6
</TABLE>
The table above plots the total return earned by American Balanced Fund as well
as stocks, as measured by Standard & Poor's 500 Composite Index, and bonds, as
measured by the Lehman Brothers Aggregate Bond Index, since 1976. The past 21
years have been exceptional. Investors should remember that stocks can decline
precipitously, as they did from 1973 to 1974 when the S&P 500 lost 37%.
[end bar chart]
[Illustration: wheat field]
[Photo Caption]
Like farmers who plan next year's crop, American Balanced Fund's portfolio
counselors invest for the shareholders' long-term benefit, not quick gains.
[End Photo Caption]
AMERICAN BALANCED FUND: BALANCING OBJECTIVES
[watermark: vineyard]
Sixty-five years ago American Balanced Fund helped introduce a new concept in
investing: a mutual fund that spread its portfolio among stocks, bonds and
cash. Today this balanced approach is familiar to most investors, including
many who invest through their retirement plans at work. But in the early 1930s
it was a welcome innovation. At the time, the United States was in the midst of
the Depression, the Dow Jones Industrial Average was well below 100, and the
average wage, for those who could find work, was $16 a week.
After the stock market crash in 1929, people were understandably wary of
investing in equities. But bond investments also were not without risk during
the Depression: More than 300 corporate issues went into default in 1932 alone.
However, despite the bleak outlook, it was a time of innovation. In 1932
college dropout Edwin Herbert Land invented Polaroid film. That same year,
American Balanced Fund, then known as the Commonwealth Investment Company,
joined a handful of other funds to offer a new approach to investing, one that
balanced the growth potential of stocks with the income generated by bonds.
Other aspects of these new funds also appealed to cautious investors: Balanced
funds were less volatile than stock funds and, while seldom leading the pack in
rising markets, didn't decline as much in down markets.
1975: AMERICAN BALANCED FUND BEGINS A NEW ERA
Capital Research and Management Company (CRMC) assumed investment management of
the fund in 1975 and renamed it American Balanced Fund. At that time, the Dow
Jones Industrial Average was closing in on 1,000, factory workers were earning
an average of $249 a week, and a 19-year-old whiz named William Henry Gates
founded a company called Microsoft. By then, balanced funds were widely
accepted by the investing public.
The past 21 years have ushered in even more changes. By the end of 1996 the Dow
was above 6,500, manufacturing workers in the U.S. were earning more than $520
a week, and area codes were multiplying to keep up with the exploding growth of
cellular phones, pagers, modems and fax machines.
Even with all the shifts in the U.S. economy over the past two decades, the
balanced approach to investing remains popular, and CRMC manages American
Balanced Fund the way it always has <UNDEF> as though it were the complete
investment program of the prudent investor. The reason so little has changed is
simple: Balanced investing, much like common sense, has proved its value over
time.
Balanced funds have proved durable in part because their design is basic. The
bond portion of the fund provides steady income, while the equity portion seeks
both income and opportunities for growth.
THE MULTIPLE PORTFOLIO COUNSELOR SYSTEM
While American Balanced Fund's design may appear simple, reaching its goals
requires skill and constant vigilance. The assets are managed by four portfolio
counselors; two invest only in stocks, one only in bonds and the fourth moves
his portion of the portfolio between stocks and bonds, depending on market
conditions and relative valuations. Overall, stocks make up between 50% and 75%
of the fund's portfolio. Within these broad guidelines, each portfolio
counselor has wide latitude to search for the best values.
"This fund has flexibility," says Dale Harvey, who invests solely in stocks.
"We can invest in very large companies or in smaller, rapidly growing companies
if that's where we see value."
The fund's portfolio, which includes companies in such diverse industries as
health care, banking and electric utilities, reflects the variety of
experience, background and expertise of the portfolio counselors.
"One of the advantages of the multiple portfolio counselor system," adds
Harvey, "is that if I'm excited about oil stocks, it is unlikely the other
counselors will be equally excited about those same equities. So the multiple
portfolio counselor system itself provides some of the balance in terms of
industries."
Balance means more than simply buying a mix of stocks and bonds, of course. For
the managers of American Balanced Fund, it also means aiming for three
objectives simultaneously. These objectives <UNDEF> conservation of capital,
current income, and long-term growth of capital and income <UNDEF> help define
the balanced approach to investing.
"You achieve those objectives by not going 100% for any one of them but by
balancing all three. You always weigh them together when you construct the
fund's portfolio," says Bob O'Donnell, the fund's president and a portfolio
counselor who invests only in equities. "When I build my part of the portfolio,
I have a few stocks that I think are probably more in the conservation of
principal and generation of income areas. Then I weave in some that I think are
going to provide capital growth. It's the type of thing you would keep in mind
when creating a financial plan for an individual client. Any single stock or
bond may not achieve all the objectives of the fund, but the portfolio in its
totality should."
SEEKING BALANCE IN DIVERGENT RESULTS
The fund's division between stocks and bonds is designed, in part, to take
advantage of the fact that stocks and bonds often have divergent results. In
the 21 years that CRMC has managed American Balanced Fund, stocks and bonds, as
measured by Standard & Poor's 500 Stock Composite Index and the Lehman Brothers
Aggregate Bond Index, have never achieved identical results. While stocks
historically have produced better results than bonds, five times in the last 21
years bonds have had higher total returns.
The fund's bond portfolio is far more than a simple counterweight to equities,
however. "The bonds generate a significant amount of the fund's income, a
disproportionate share of the income in relation to the assets," says Abner
Goldstine, senior vice president of the fund, who invests solely in bonds.
"This income allows the equity portfolio the flexibility to include more
low-yielding stocks than it would be able to if all the fund's income had to
come from equities."
American Balanced Fund's bond investments are all investment-grade securities
(the highest four rankings given bonds by independent rating agencies). But it
seeks opportunities within that limit. "We try to look to see where the best
relative values are. What we're looking for is the type of securities that will
give us a combination of income, total return and preservation of capital,"
Goldstine says. "We look at corporate bonds, mortgage-backed bonds and
Treasuries.
Typically, we have a balance among these types of securities. Given our
objectives, it's not really prudent to concentrate the portfolio in any one
industry or one type of security."
At the end of 1996, bonds accounted for 34% of the fund's portfolio. As the
stock market continued its long run, the fund's investment managers have tried
to balance the stock market's growth potential with one of the fund's other
goals: preservation of capital.
PRESERVING INVESTORS' CAPITAL
"It's not the case that the higher the stock market goes, the more aggressive
you should become," says Victor Parachini, the portfolio counselor who invests
in both stocks and bonds. "Usually it should work the other way. As a result,
we tend to become more conservative after extended market advances. Over time,
the higher the stock market goes, the more risk we're exposed to throughout the
market, so we end up lowering the equity portion and becoming more defensive."
His portion of the portfolio ranges from 60% to 90% invested in equities. But,
as the bull market has progressed, Parachini has tried to balance the risks of
a correction against possible further gains in the market and has become more
cautious. By the end of 1996, he was near the low end of his range for equity
investments.
During bull and bear markets and rising and falling interest rates, the concept
of balanced investing remains as popular as ever. Many of today's investors
have the same goals as their parents and grandparents - conservation of
capital, current income, and long-term growth of capital and income -
and they understand the value of clear goals and a simple concept. We intend to
remain faithful to these time-tested ideas.
RESILIENCE IN DOWN MARKETS
[bar chart]
Major Stock Market Declines vs. American Balanced Fund
<TABLE>
<CAPTION>
Period Standard & Poor's 500 American Balanced
Stock Composite Index Fund
<S> <C> <C>
9/21/76-3/6/78 -13.4 0.0
11/28/80-8/12/82 -20.0 5.5
8/25/87-12/4/87 -32.4 -19.0
7/16/90-10/11/90 -19.2 -12.4
</TABLE>
[end bar chart]
[bar chart]
Major Bond Market Declines vs. American Balanced Fund
<TABLE>
<CAPTION>
Period Lehman Brothers American Balanced
Aggregate Bond Index Fund
<S> <C> <C>
12/31/76-3/31/80 -2.8 8.2
6/30/80-9/30/81 -9.0 5.9
4/30/83-5/31/84 -0.9 -3.0
8/31/93-11/30/94 -3.3 0.2
</TABLE>
[end bar chart]
[Chart Caption]
During the past 21 years the stock market, as measured by the S&P 500, has
experienced price declines of more than 15% four times. American Balanced Fund
lost ground during three of those declines and on each occasion it lost less
than the S&P. Bonds, as measured by the Lehman Brothers Aggregate Bond Index,
have experienced principal declines of more than 10% during four periods in the
past 21 years. American Balanced Fund lost ground during only one of the bond
market declines. Results in the charts above are shown on a total return
basis.
[End Chart Caption]
[watermark: vineyard]
[Illustration: mature wheat field]
[Photo Caption]
As growers balance their hard work with the blessings of nature, American
Balanced Fund's portfolio counselors balance the objectives of capital
preservation, income and growth.
[End Photo Caption]
[Photo Caption]
Abner Goldstine
Portfolio Counselor
[End Photo Caption]
Balancing Volatility and Return
[watermark: vineyard]
[bar chart]
Annualized Returns and Standard Deviations
<TABLE>
<CAPTION>
Annualized
Annualized Standard
Return Deviation
<S> <C> <C>
Standard & Poor's 500 Stock Composite
Index 15.26 14.33
American Balanced Fund 11.91 8.7
Lipper Balanced Funds Index 11.31 9.45
Lehman Brothers Aggregate Bond Index 8.47 4.51
</TABLE>
[end bar chart]
[Chart Caption]
Most investors know there is a tradeoff between return and risk, as measured by
volatility. This chart shows the average annual returns and the average
volatility, as measured by standard deviation, for the 10 years ended December
31, 1996. (Standard deviation is a gauge of how far each year's return varies
from the mean.) Stocks had the greatest returns but were highly volatile;
American Balanced Fund had more than 75% the return of the S&P with only 60% of
the volatility. Your fund also had better returns and lower volatility than the
average balanced fund. Bonds had the lowest returns and the lowest
volatility.[End Chart Caption]
[Photo Caption]
Victor Parachini
Portfolio Counselor
[End Photo Caption]
[Photo Caption]
Dale Harvey
Portfolio Counselor
[End Photo Caption]
[Illustration: cultivated wheat field]
[Photo Caption]
Achieving long-term growth, whether in the cultivated fields or a closely
tended investment portfolio, requires a combination of hard work and
knowledge.
[End Photo Caption]
<TABLE>
American Balanced Fund
Investment Portfolio December 31, 1996
- ---------------------------------------------- --------- --------- ---------
Percent
of
TEN LARGEST EQUITY HOLDINGS Net Assets
<S> <C> <C> <C>
Philip Morris 1.81%
Atlantic Richfield 1.68
Phillips Petroleum 1.46
Amoco 1.43
DuPont 1.39
Ameritech 1.31
General Re 1.30
Warner-Lambert 1.29
Fleet Financial 1.27
Georgia-Pacific 1.11
INVESTMENT MIX BY SECURITY TYPE
- ----------------------------------------------
Stocks 53%
Goverment Bonds 22%
Corporate Bonds 12%
Convertible Debentures 1%
Cash 12%
Market Percent
Number Value of Net
STOCKS (common and preferred) of Shares (000) Assets
- ---------------------------------------------- --------- --------- ---------
ENERGY
Energy Sources- 5.57%
Amoco Corp. 700,000 $56,350 1.43%
Atlantic Richfield Co. 500,000 66,250 1.68
Exxon Corp. 270,000 26,460 .67
Pennzoil Co. 325,000 18,363 .46
Phillips Petroleum Co. 1,300,000 57,525 1.46
Royal Dutch Petroleum Co.
(New York Registered Shares) 140,000 23,905 .61
Ultramar Diamond Shamrock Corp. 864,000 27,324 .69
Utilities: Electric & Gas - 2.66%
Baltimore Gas and Electric Co. 900,000 24,075 .61
Consolidated Edison Co. of New York, Inc. 500,000 14,625 .37
Duke Power Co. 500,000 23,125 .59
Pacific Gas and Electric Co. 700,000 14,700 .37
PP&L Resources, Inc. 650,000 14,950 .38
Southwestern Public Service Co. 375,000 13,265 .34
--------- ---------
380,917 9.66
--------- ---------
MATERIALS
Chemicals - 1.99%
Dow Chemical Co. 300,000 23,513 .60
E.I. du Pont de Nemours and Co. 580,000 54,737 1.39
Forest Products & Paper - 3.59% #VALUE!
Bowater Inc. 525,000 19,753 .50
Georgia-Pacific Corp. 610,000 43,920 1.11
International Paper Co. 650,000 26,244 .67
Louisiana-Pacific Corp. 1,086,000 22,942 .58
Union Camp Corp. 600,000 28,650 .73
Metals: Nonferrous - 1.09%
Aluminum Co. of America 675,000 43,031 1.09
--------- ---------
262,790 6.67
--------- ---------
CAPITAL EQUIPMENT
Data Processing & Reproduction - 0.23%
International Business Machines Corp. 60,000 9,060 .23
Electrical & Electronic - 1.33%
Nokia Corp., Class A (American Depositary Receipts) 650,000 37,456 .95
Telefonaktiebolaget LM Ericsson, Class B
(American Depositary Receipts) 500,000 15,094 .38
Industrial Components - 0.75%
Echlin Inc. 600,000 18,975 .48
Rockwell International Corp. 175,000 10,653 .27
Machinery & Engineering- 1.21%
Caterpillar Inc. 350,000 26,338 .67
Parker Hannifin Corp. 550,000 21,312 .54
--------- ---------
138,888 3.52
--------- ---------
CONSUMER GOODS
Appliances & Household Durables - 0.51%
Philips Electronics NV (New York Registered Shares) 500,000 20,000 .51
Automobiles - 1.32%
Ford Motor Co., Class A 750,000 23,906 .60
Volvo AB, Class B (American Depositary Receipts) 1,300,000 28,275 .72
Beverages & Tobacco - 2.91%
PepsiCo, Inc. 700,000 20,475 .52
Philip Morris Companies Inc. 635,000 71,517 1.81
UST Inc. 700,000 22,663 .58
Food & Household Products - 1.02%
General Mills, Inc. 400,000 25,350 .64
Sara Lee Corp. 400,000 14,900 .38
Health & Personal Care - 5.32%
Abbott Laboratories 102,500 5,202 .13
American Home Products Corp. 550,000 32,244 .82
Bristol-Myers Squibb Co. 200,000 21,750 .55
Eli Lilly and Co. 200,000 14,600 .37
Kimberly-Clark Corp. 285,000 27,146 .69
Merck & Co., Inc. 300,000 23,775 .60
Pfizer Inc 100,000 8,288 .21
Schering-Plough Corp. 400,000 25,900 .66
Warner-Lambert Co. 680,000 51,000 1.29
Recreation & Other Consumer Products - 1.44%
American Greetings Corp., Class A 1,300,000 36,887 .94
Polaroid Corp. 450,000 19,575 .50
--------- ---------
493,453 12.52
--------- ---------
SERVICES
Broadcasting & Publishing - 1.12%
Gannett Co., Inc. 350,000 26,206 .67
Time Warner Inc., preferred equity redemption
cumulative stock 135,000 5,231
Time Warner Inc. 340,000 12,750 .45
Business & Public Services - 2.47%
ACNielsen Corp. /1/ 116,666 1,764 .05
Browning-Ferris Industries, Inc. 1,475,000 38,719 .98
Cognizant Corp. /1/ 350,000 11,550 .29
Dun & Bradstreet Corp. 485,000 11,519 .29
Pitney Bowes Inc. 350,000 19,075 .49
WMX Technologies, Inc. 450,000 14,681 .37
Merchandising - 1.03%
Circuit City Stores, Inc. 550,000 16,569 .42
Wal-Mart Stores, Inc. 1,050,000 24,019 .61
Telecommunications - 3.15%
Ameritech Corp. 850,000 51,531 1.31
AT&T Corp. 1,000,000 41,750 1.06
MCI Communications Corp. 275,000 8,989 .23
U S WEST Communications Group 675,000 21,769 .55
--------- ---------
306,122 7.77
--------- ---------
FINANCE
Banking - 5.20%
BankAmerica Corp. 400,000 39,900 1.01
CoreStates Financial Corp 340,000 17,638 .45
First Virginia Banks, Inc. 320,300 15,334 .39
Fleet Financial Group, Inc. 1,000,000 49,875 1.27
J.P. Morgan & Co. Inc. 80,000 7,810 .20
National City Corp. 600,000 26,925 .68
NationsBank Corp. 300,000 29,325 .74
U.S. Bancorp 400,000 17,975 .46
Financial Services - 0.83%
ADVANTA Corp., Class B 300,000 12,263 .31
Beneficial Corp. 90,000 5,704 .14
Federal National Mortgage Assn. 400,000 14,900 .38
Insurance - 5.24%
Allstate Corp. 350,000 20,256 .51
American General Corp. 500,000 20,437 .52
General Re Corp. 325,000 51,269 1.30
Lincoln National Corp. 230,000 12,075 .31
SAFECO Corp. 1,000,000 39,437 1.00
St. Paul Companies, Inc. 460,000 26,968 .68
U S WEST, Inc., DECS convertible preferred shares 216,700 6,907 .18
USLIFE Corp. 875,000 29,094 .74
--------- ---------
444,092 11.27
--------- ---------
MULTI-INDUSTRY AND MISCELLANEOUS
Multi-Industry - 0.16%
Swire Pacific Offshore Financing Ltd. 9.33%
Cumulative Guaranteed Perpetual Capital Securities /2/ 240,000 6,326 .16
Miscellaneous - 1.94%
Other common stocks in initial period of acquisition 76,259 1.94
--------- ---------
82,585 2.10
--------- ---------
TOTAL STOCKS 2,108,847 53.51
--------- ---------
- ---------------------------------------------- --------- --------- ---------
Principal
Amount
CONVERTIBLE DEBENTURES (000)
- ---------------------------------------------- --------- --------- ---------
CONVERTIBLE PREFERRED SECURITIES
----------- --------
CONVERTIBLE DEBENTURES
Broadcasting & Publishing - 0.33%
Time Warner Inc. 0% 2012 $6,500 2,446
Time Warner Inc. 0% 2013 25,000 10,844 .33
Telecommunications - 0.29%
U S WEST Communications Group 0% 2011 32,000 11,600 .29
Transportation: Airlines - 0.08%
Airborne Freight Corp. 6.75% 2001 3,000 3,000 .08
--------- ---------
TOTAL CONVERTIBLE DEVENTURES 27,890 .70
--------- ---------
TOTAL EQUITY-TYPE SECURITIES 2,136,737 54.21
--------- ---------
- ---------------------------------------------- --------- --------- ---------
BONDS & NOTES
- ---------------------------------------------- --------- --------- ---------
Industrials - 4.21%
360/0/ Communications Co. 7.125% 2003 $5,000 4,940
360/0/ Communications Co. 7.50% 2006 5,000 4,960 .25
Dayton Hudson Corp. 10.00% 2010 5,000 6,038
Dayton Hudson Corp. 9.50% 2015 1,000 1,173 .18
Deere & Co. 8.95% 2019 7,330 8,290 .21
Federal Paper Board Co., Inc. 10.00% 2011 10,000 12,383 .31
Freeport McMoRan Copper & Gold Inc. 7.20% 2026 8,000 7,960 .20
General Motors Corp. 8.80% 2021 10,000 11,398 .29
Inco Ltd. 9.875% 2019 4,200 4,500
Inco Ltd. 9.60% 2022 5,000 5,448 .25
May Department Stores Co. 9.875% 2021 6,500 7,310 .19
Mobil Corp. 8.00% 2032 5,000 5,201 .13
News America Holdings Inc. 10.125% 2012 4,000 4,587
News America Holdings Inc. 7.43% 2026 10,000 10,100 .37
Occidental Petroleum Corp. 8.50% 2004 2,500 2,512
Occidental Petroleum Corp. 9.25% 2019 3,000 3,596 .15
OXYMAR 7.50% 2016 /2/ 6,000 5,760 .15
Philips Electronics NV 7.20% 2026 10,000 10,137 .26
Pohang Iron & Steel Co., Ltd. 7.375% 2005 3,500 3,548 .09
Polaroid Corp. 8.00% 1999 10,000 10,264 .26
Swire Pacific Ltd. 8.50% 2004 /2/ 5,000 5,357 .14
TCI Communications, Inc. 8.75% 2015 4,000 3,952 .10
Tele-Communications, Inc. 9.25% 2023 3,000 2,916 .07
Time Warner Inc. 7.75% 2005 5,000 5,030
Time Warner Inc. 9.125% 2013 5,000 5,458 .27
TKR Cable I, Inc. 10.50% 2007 4,000 4,204 .11
USX Corp. 9.375% 2012 7,700 8,935 .23
--------- ---------
165,957 4.21
--------- ---------
Electric Utilities - 0.29%
Big Rivers Electric Corp. 10.70% 2017 4,000 4,331 .11
Israel Electric Corp. Ltd. 7.25% 2006 /2/ 7,000 6,983 .18
--------- ---------
11,314 .29
--------- ---------
Gas Utilities - 0.26%
Columbia Gas System, Inc., Series E, 7.32% 2010 5,000 4,917 .12
Southern California Gas Co., Series Y, 8.75% 2021 5,000 5,320 .14
--------- ---------
10,237 .26
--------- ---------
Telephone - 0.25%
AT&T Corp. 8.625% 2031 9,350 9,901 .25
--------- ---------
Transportation - 1.71%
Airplanes Pass Through Trust, pass-through
certificates, Series 1, Class B, 6.705% 2019 /3/ /4/ 4,856 4,881
Airplanes Pass Through Trust, pass-through
certificates, Series 1, Class C, 8.15% 2019 /3/ 7,500 7,772 .32
Continental Airlines, Inc., pass-through certificates,
Series 1996-2B, 8.56% 2014 /3/ 2,000 2,175
Continental Airlines, Inc., pass-through certificates,
Series 1996-A, 6.94% 2015 /3/ 10,000 9,900 .31
Delta Air Lines, Inc., pass-through certificates,
Series 1992-A2, 9.20% 2014 /3/ 1,500 1,660
Delta Air Lines, Inc., pass-through certificates,
Series 1993-A2, 10.50% 2016 /3/ 5,000 6,108 .20
Federal Express Corp., pass-through certificates,
Series 1996-A1, 7.85% 2015 /3/ 10,000 10,382 .26
United Air Lines, Inc. 10.67% 2004 5,000 5,913
United Air Lines, Inc., pass-through certificates,
Series 1995-A1, 9.02% 2012 /3/ 6,235 6,747
United Air Lines, Inc., pass-through certificates,
Series 1995-A2, 9.56% 2018 /3/ 4,000 4,529 .44
USAir, Inc., Class A, 6.76% 2008 7,305 7,132 .18
--------- ---------
67,199 1.71
--------- ---------
Financial - 2.52%
Aetna Services, Inc. 6.97% 2036 10,000 10,183 .26
American Re Corp. 10.875% 2004 5,000 5,387 .14
Bank of Nova Scotia 5.875% /4/ 4,000 3,460 .09
BankAmerica Corp. 8.95% 2004 1,900 2,016 .05
Beneficial Corp. 12.875% 2013 1,500 1,711 .04
Canadian Imperial Bank of Commerce
Eurodollar Note 5.813% /4/ 1,600 1,366 .03
Capital One Bank 8.33% 1997 5,000 5,010
Capital One Bank 7.35% 2000 10,000 10,154 .51
Capital One Bank 7.15% 2006 5,000 5,080
Den Danske Bank AS 7.25% 2005 /2/ 5,000 5,033 .13
Den Norske CreditBank 5.75% /4/ 3,000 2,584 .07
First Union Corp. 6.824%/7.574% 2026 7,500 7,521 .19
General Motors Acceptance Corp. 9.375% 2000 5,000 5,405
General Motors Acceptance Corp. 9.625% 2000 4,000 4,351
General Motors Acceptance Corp. 9.625% 2001 7,000 7,843 .56
General Motors Acceptance Corp. 8.75% 2005 4,000 4,424
Golden West Financial Corp. 10.25% 2000 1,400 1,574 .04
Metropolitan Life Insurance Co. 7.45% 2023 /2/ 7,500 6,981 .18
Midland Bank PLC 5.875% /4/ 4,000 3,519 .09
Terra Nova Insurance (UK) Holdings PLC 10.75% 2005 5,000 5,663 .14
--------- ---------
99,265 2.52
--------- ---------
Real Estate - 0.43%
ERP Operating LP 7.95% 2002 1,500 1,556 .04
Irvine Co. 7.46% 2006 /2/ /5/ 2,500 2,389 .06
Security Capital Industrial Trust 7.95% 2008 3,000 3,085
Security Capital Industrial Trust 7.875% 2009 5,000 5,142 .21
Shopping Center Associates 6.75% 2004 /2/ 5,000 4,860 .12
--------- ---------
17,032 .43
--------- ---------
Collateralized Mortgage/Asset-Backed
Obligations /3/ - 2.08%
Aames Mortgage Trust, pass-through certificates,
Series 1996-D, Class A-1E, 6.87% 2024 5,000 4,976 .13
Case Equipment Loan Trust, Series 1995-A, 7.30% 2002 4,705 4,758 .12
Collateralized Mortgage Obligation Trust 28,
Class Z, 8.45% 2017 18,903 19,299 .49
FIRSTPLUS Home Loan Owner Trust, Series 1996-4,
Class A-3, 6.28% 2009 5,000 4,956 .12
Green Tree Financial Corp., Net Interest Margin
Trust, Series 1995-A, 7.25% 2005 6,578 6,570
Green Tree Financial Corp., Seller and Servicer
Manufactured Housing Contract, Series 1995-9,
Class A-5, 6.80% 2027 10,000 9,850 .42
Grupo Financiero Banamex Accival, SA de CV
0% 2002 /2/ 5,509 4,359 .11
IMC Home Equity Loan Trust, Series 1996-4,
Class A-1, 6.59% 2011 4,613 4,613 .12
J.P. Morgan Commercial Mortgage Finance Corp.,
pass-through certificates, Series 1996-C3,
Class A-1, 7.33% 2028 4,926 5,030 .13
Jet Equipment Trust, Series 1995-B, Class B,
7.83% 2015 /2/ 7,781 8,029
Jet Equipment Trust, Series 1995-A, Class B,
8.64% 2015 /2/ 4,858 5,271 .33
Merrill Lynch Mortgage Investors, Inc., Seller
Manufactured Housing Contract, Series 1995-C2,
Class A-1, 7.219% 2021 4,129 4,191 .11
--------- ---------
81,902 2.08
--------- ---------
Governments (excluding U.S. Government) and
Governmental Authorities - 0.25%
British Columbia Hydro and Power Authority
12.50% 2014 2,000 2,310 .06
United Mexican States 7.563% 2001 /2/ 7,500 7,516 .19
--------- ---------
9,826 .25
--------- ---------
Federal Agency Obligations - Mortgage Pass-Throughs /3/ - 3.08%
Federal Home Loan Mortgage Corp.:
8.50% 2008 261 274
10.00% 2018 9,059 9,914
8.50% 2020 8,338 8,738 .57
7.50% 2022 771 775
7.50% 2024 2,723 2,729
Federal National Mortgage Assn.:
7.00% 2008 4,464 4,486
7.50% 2026 20,000 19,987 .62
Government National Mortgage Assn.:
11.00% 2015 99 113
9.50% 2018 124 134
10.50% 2019 80 90
8.00% 2023 4,948 5,113
8.00% 2024 4,725 4,820 1.89
8.50% 2025 2,621 2,716
7.50% 2026 24,572 24,580
8.00% 2026 34,986 35,689
8.50% 2026 1,060 1,099
--------- ---------
121,257 3.08
--------- ---------
Federal Agency Obligations - Other - 2.04%
Federal Home Loan Mortgage Corp.:
6.945% 2005 6,500 6,389
6.555% 2006 10,000 9,652 .41
Federal National Mortgage Assn.:
8.16% 2000 20,000 20,084
8.71% 2005 22,000 22,587 1.08
FNSM Callable Principal STRIPS:
0%/8.20% 2022 /6/ 10,000 8,516
0%/8.25% 2022 /6/ 1,500 1,285 .25
Student Loan Marketing Assn. 7.67% 2000 11,850 11,894 .30
--------- ---------
80,407 2.04
--------- ---------
U.S. Treasury Obligations - 16.59%
4.75% February 1997 50,000 49,946 1.27
8.50% July 1997 20,000 20,322 .51
8.875% November 1997 25,000 25,672 .65
5.625% January 1998 30,000 29,986 .76
6.125% March 1998 50,000 50,242 1.27
6.25% July 1998 50,000 50,320 1.28
8.25% July 1998 25,000 25,890 .65
5.875% August 1998 20,000 20,009 .51
6.75% June 1999 15,000 15,265 .39
6.875% July 1999 25,000 25,508 .65
7.75% November 1999 25,000 26,121 .66
7.125% February 2000 70,000 72,067 1.83
8.875% May 2000 8,000 8,668 .22
8.75% August 2000 7,500 8,128 .21
13.125% May 2001 2,000 2,522 .06
14.25% February 2002 2,000 2,698 .07
10.75% February 2003 12,800 15,672 .40
11.125% August 2003 8,500 10,683 .27
7.25% May 2004 25,000 26,305 .67
7.25% August 2004 20,000 21,050 .53
10.75% August 2005 8,500 10,905 .27
8.75% November 2008 10,000 11,228 .28
10.375% November 2009 20,000 24,709 .63
10.375% November 2012 78,000 100,449 2.55
--------- ---------
654,365 16.59
--------- ---------
TOTAL BONDS & NOTES 1,328,662 33.71
--------- ---------
- ---------------------------------------------- --------- --------- ---------
SHORT-TERM SECURITIES
- ---------------------------------------------- --------- --------- ---------
Corporate Short-Term Notes - 11.80%
American Express Credit Corp. 5.33% due 1/23-2/3/97 37,900 37,714 .96
Beneficial Corp. 5.30% due 1/8/97 21,700 21,674 .54
E.I. du Pont de Nemours and Co. 5.27% due 1/14/97 14,400 14,370 .36
Emerson Electric Co. 5.32% due 1/21-1/24/97 35,000 34,882 .89
Ford Motor Credit Co. 5.31%-5.32% due 1/13-1/17/97 35,300 35,224 .89
General Electric Capital Corp. 5.31%-6.50%
due 1/2-1/9/97 52,700 52,648 1.34
IBM Credit Corp. 5.30%-5.49% due 1/7-1/29/97 48,600 48,443 1.23
International Lease Finance Corp. 5.26%-5.30%
due 1/10-2/24/97 51,500 51,340 1.30
Kellogg Co. 5.37% due 2/5/97 /2/ 34,500 34,315 .87
Lucent Technologies Inc. 5.30% due 2/19/97 31,200 30,966 .79
PepsiCo, Inc. 5.35%-5.37% due 1/17-1/24/97 38,600 38,491 .98
U S WEST Communications, Inc. 5.30%-5.35%
due 1/31-2/24/97 65,600 65,157 1.65
--------- ---------
465,224 11.80
--------- ---------
Federal Agency Short-Term Obligations - 0.61%
Federal Home Loan Mortgage Corp. 5.295%-5.34%
due 1/23-2/20/97 23,830 23,705 .61
--------- ---------
TOTAL SHORT-TERM SECURITIES 488,929 12.41
--------- ---------
TOTAL INVESTMENT SECURITIES
(cost: $3,474,889,000) 3,954,328 100.33
Excess of payables over cash and receivables 13,075 .33
--------- ---------
NET ASSETS $3,941,253 100.00%
======== ========
/1/ Non-income-producing securities.
/2/ Purchased in a private placement transaction; resale to the public may require registration or
sale 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 is shorter than the
stated maturity.
/4/ Coupon rates may change periodically.
/5/ Valued under procedures established by the Board of Directors.
/6/ 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, 1996
- ----------------------------------------------
ADVANTA
Browning-Ferris Industries
Echlin
Pennzoil
PepsiCo
Polaroid
Southwestern Public Service
Swire Pacific Offshore Financing
Telefonaktiebolaget LM Ericsson
Ultramar Diamond Shamrock
- ----------------------------------------------
Equity-type securities eliminated from the
portfolio since June 30, 1996
- ----------------------------------------------
Anheuser-Busch
Boatmen's Bancshares
Chevron
Columbia/HCA Healthcare
CSX
Dow Jones
Federal Home Loan Mortgage
First Hawaiian Bank
Goodyear Tire & Rubber
Great Lakes Chemical
Hanson America
Minnesota Mining and Manufacturing
Union Pacific
Unocal
</TABLE>
<TABLE>
American Balanced Fund
Financial Statements
- ------------------------------------ ---------------- ----------------
Statement of Assets and Liabilities (dollars in
at December 31, 1996 thousands)
- ------------------------------------ ---------------- ----------------
<S> <C> <C>
Assets:
Investment securities at market
(cost: $3,474,889) $3,954,328
Cash 566
Receivables for -
Sales of investments $5,944
Sales of fund's shares 7,368
Dividends and accrued interest 28,005 41,317
---------------- ----------------
3,996,211
Liabilities:
Payables for -
Purchases of investments 49,833
Repurchases of fund's shares 3,413
Management services 1,010
Accrued expenses 702 54,958
---------------- ----------------
Net Assets at December 31, 1996 -
Equivalent to $14.55 per share on
270,878,634 shares of $1 par value
capital stock outstanding (authorized
capital stock-500,000,000 shares) $3,941,253
==========
Statement of Operations
for the year ended December 31, 1996 (dollars in
thousands)
- ------------------------------------ ---------------- ----------------
Investment Income:
Income:
Dividends $ 56,691
Interest 108,074 $ 164,765
----------------
Expenses:
Management services fee 10,835
Distribution expenses 8,808
Transfer agent fee 2,582
Reports to shareholders 223
Registration statement and prospect 431
Postage, stationery and supplies 403
Directors' fees 95
Auditing and legal fees 48
Custodian fee 104
Taxes other than federal
income tax 2
Other expenses 63 23,594
---------------- ----------------
Net investment income 141,171
----------------
Realized Gain and Unrealized
Appreciation on Investments:
Net realized gain 240,061
Net increase in unrealized appreciation on
investments:
Beginning of year 416,140
End of year 479,439 63,299
---------------- ----------------
Net realized gain and increase in unrealized
appreciation on investments 303,360
----------------
Net Increase in Net Assets Resulting
from Operations $444,531
==========
- ------------------------------------ ---------------- ----------------
Statement of Changes in Net Assets (dollars in
thousands)
Year ended December 31
1996 1995
- ------------------------------------ ---------------- ----------------
Operations:
Net investment income $ 141,171 $ 110,555
Net realized gain on investments 240,061 113,063
Net increase in unrealized appreciation
on investments 63,299 377,528
---------------- ----------------
Net increase in net assets
resulting from operations 444,531 601,146
---------------- ----------------
Dividends and Distributions Paid to
Shareholders:
Dividends from net investment income (135,064) (105,991)
Distributions from net realized gain on
investments (214,394) (97,006)
---------------- ----------------
Total dividends and distributions (349,458) (202,997)
---------------- ----------------
Capital Share Transactions:
Proceeds from shares sold: 78,359,035
and 64,847,892 shares, respectively 1,133,395 866,745
Proceeds from shares issued in reinvestment
of net investment income dividends and
distributions of net realized gain on
investments: 22,959,812 and 14,004,916 shares,
respectively 330,564 189,603
Cost of shares repurchased: 45,858,362
and 36,977,727 shares, respectively (665,292) (488,870)
---------------- ----------------
Net increase in net assets resulting from
capital share transactions 798,667 567,478
---------------- --------------
Total Increase in Net Assets 893,740 965,627
Net Assets:
Beginning of year 3,047,513 2,081,886
---------------- ----------------
End of year (including undistributed
net investment income: $16,361
and $10,254, respectively) $3,941,253 $3,047,513
========== ==========
See Notes to Financial Statements
</TABLE>
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:
Equity-type securities 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. Nonconvertible 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 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 by the Board of Directors or a
committee thereof.
As is customary in the mutual fund industry, securities transactions are
accounted for on the date the securities are purchased or sold. In the event
the fund purchases securities on a delayed delivery or "when-issued" basis, it
will segregate with its custodian liquid assets in an amount sufficient to meet
its payment obligations in these transactions. 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 and premiums on
securities purchased are amortized over the life of the respective securities.
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 $104,000 includes $53,000 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, 1996, net unrealized appreciation on investments for
federal income tax purposes aggregated $479,427,000, of which $511,400,000
related to appreciated securities and $31,973,000 related to depreciated
securities. During the year ended December 31, 1996, the fund realized, on a
tax basis, a net capital gain of $240,094,000 on securities transactions. The
cost of portfolio securities for federal income tax purposes was $3,474,901,000
at December 31, 1996.
3. The fee of $10,835,000 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, 1996,
distribution expenses under the Plan were limited to $8,808,000, representing
0.25% of average net assets. Had no limitation been in effect, the fund would
have paid 9,022,000 in distribution expenses under the Plan. As of December 31
1996, accrued and unpaid distribution expenses were $521,000.
American Funds Service Company (AFS), the transfer agent for the fund, was
paid a fee of $2,582,000. American Funds Distributors, Inc. (AFD), the
principal underwriter of the fund's shares, received $2,545,000 (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 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,
1996, aggregate amounts deferred and earnings thereon were $174,000.
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, 1996, accumulated undistributed net realized gain on
investments was $41,664,000 and additional paid-in capital was $3,132,910,000.
The fund made purchases and sales of investment securities, excluding
short-term securities, of $1,879,146,000 and $1,319,612,000, respectively,
during the year ended December 31, 1996.
SHAREHOLDERS SHOULD CONSULT THEIR TAX ADVISERS.
Per-Share Data and Ratios
<TABLE>
<CAPTION>
Year ended December 31
------- ------- ------- ------- -------
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $14.15 $12.00 $12.57 $12.28 $12.05
------- ------- ------- ------- -------
Income from Investment Operations:
Net investment income .57 .57 .57 .59 .61
Net realized and unrealized gain
(loss) on investments 1.24 2.61 (.53) .76 .49
------- ------- ------- ------- -------
Total income from
investment operations 1.81 3.18 .04 1.35 1.10
------- ------- ------- ------- -------
Less Distributions:
Dividends from net investment
income (.56) (.56) (.56) (.60) (.60)
Distributions from net realized
gains (.85) (.47) (.05) (.46) (.27)
------- ------- ------- ------- -------
Total Distributions (1.41) (1.03) (.61) (1.06) (.87)
------- ------- ------- ------- -------
Net Asset Value, End of Year $14.55 $14.15 $12.00 $12.57 $12.28
====== ======= ======= ======= =======
Total Return /1/ 13.17% 27.13% .34% 11.27% 9.48%
Ratios/Supplemental Data:
Net assets, end of year
(in millions) $3,941 $3,048 $2,082 $1,710 $1,067
Ratio of expenses to average
net assets .67% .67% .68% .71% .74%
Ratio of net income to average
net assets 4.01% 4.38% 4.76% 4.74% 5.19%
Average commissions paid per share /2/ 5.78 c 6.16 c 6.25 c 6.81 c 7.21 c
Portfolio turnover rate 43.85% 39.03% 32.05% 27.81% 17.00%
/1/ Calculated without deducting a sales charge. The maximum sales charge is 5.75% of
the fund's offering price.
/2/ Brokerage commissions paid on portfolio transactions increase the cost of securities
purchased or reduce the proceeds of securities sold and are not separately reflected in the
fund's statement of operations. Shares traded on a principal basis (without commissions), such
as fixed-income transactions, are excluded.
</TABLE>
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. (the "Fund"), including the schedule of portfolio
investments, as of December 31, 1996, 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 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, 1996 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. as of December 31, 1996, 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 each of the five years in the period then ended, in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Los Angeles, California
January 29, 1997
1996 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>
To Shareholders Payment Date From Net From Net From Net
of Record Investment Realized Realized
Income Short-Term Long-Term
Gains Gains
<S> <C> <C> <C> <C>
February 9, 1996 February 12, 1996 $0.14 - $0.08
May 17, 1996 May 20, 1996 0.14 - -
August 16, 1996 August 19, 1996 0.14 - -
December 13, 1996 December 16, 1996 0.14 - 0.77
</TABLE>
Corporate shareholders may exclude up to 70% of qualifying dividends received
during the year. For purposes of computing this exclusion, 34% 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, 22% of the dividends
paid by the fund from net investment income was derived from interest on direct
U.S. Treasury obligations.
Dividends and distributions received by retirement plans such as IRAs,
Keogh-type plans, and 403(b) plans need not be reported as taxable income.
However, many plan retirement trusts may need this information for their annual
information reporting.
BOARD OF DIRECTORS
ROBERT A. FOX, Livingston, California
President and Chief Executive Officer,
Foster Farms Inc.
ROBERTA L. HAZARD, McLean, Virginia
Consultant; Rear Admiral, U.S. Navy (Retired)
LEONADE D. JONES, Burlingame, California
Former Treasurer, The Washington Post Company
JOHN G. McDONALD, Stanford, California
The IBJ Professor of Finance,
Graduate School of Business, Stanford University
THEODORE D. NIERENBERG, Armonk, New York
Private investor; former President,
Dansk International Designs, Ltd.
JAMES W. RATZLAFF, San Francisco, California
Senior Partner, The Capital Group Partners L.P.
HENRY E. RIGGS, Claremont, California
President and Professor of Engineering,
Harvey Mudd College
WALTER P. STERN, New York, New York
Chairman of the Board of the fund
Chairman of the Board, Capital Group International, Inc.
PATRICIA K. WOOLF, Princeton, New Jersey
Private investor; lecturer, Department of Molecular
Biology, Princeton University
RICHARD H.M. HOLMES retired from the board effective December 31, 1996. He had
been a member of the Board of Directors since May 1979. He was also an officer
of the fund from 1966 to 1985, including President from 1974 to 1985. The
Directors thank him for his many contributions to the fund.
OTHER OFFICERS
ROBERT G. O'DONNELL, San Francisco, California
President of the fund
Senior Vice President and Director,
Capital Research and Management Company
ABNER D. GOLDSTINE, Los Angeles, California
Senior Vice President of the fund
Senior Vice President and Director,
Capital Research and Management Company
PAUL G. HAAGA, JR., Los Angeles, California
Senior Vice President of the fund
Executive Vice President and Director,
Capital Research and Management Company
STEVEN N. KEARSLEY, Brea, California
Vice President of the fund
Vice President and Treasurer,
Capital Research and Management Company
ERIC S. RICHTER, Washington, D.C.
Vice President of the fund
Vice President, Capital Research Company
PATRICK F. QUAN, San Francisco, California
Secretary of the fund
Vice President - Fund Business Management Group,
Capital Research and Management Company
MARY C. HALL, Brea, California
Treasurer of the fund
Senior Vice President - Fund Business Management Group, Capital Research and
Management Company
R. MARCIA GOULD, Brea, California
Assistant Treasurer of the fund
Vice President - Fund Business Management Group,
Capital Research and Management Company
OFFICE OF THE FUND
One Market
Steuart Tower, Suite 1800
Mailing Address: P.O. Box 7650
San Francisco, California 94120-7650
INVESTMENT ADVISER
Capital Research and Management Company
333 South Hope Street
Los Angeles, California 90071-1443
135 South State College Boulevard
Brea, California 92821-5804
TRANSFER AGENT FOR SHAREHOLDER ACCOUNTS
(Please write to the address nearest you.)
American Funds Service Company
P.O. Box 2205
Brea, California 92822-2205
P.O. Box 659522
San Antonio, Texas 78265-9522
P.O. Box 6007
Indianapolis, Indiana 46206-6007
P.O. Box 2280
Norfolk, Virginia 23501-2280
CUSTODIAN OF ASSETS
The Chase Manhattan Bank
One Chase Manhattan Plaza
New York, New York 10081-0001
COUNSEL
Paul, Hastings, Janofsky & Walker LLP
555 South Flower Street
Los Angeles, California 90071-2371
INDEPENDENT AUDITORS
Deloitte & Touche LLP
1000 Wilshire Boulevard
Los Angeles, California 90017-2472
PRINCIPAL UNDERWRITER
American Funds Distributors, Inc.
333 South Hope Street
Los Angeles, California 90071-1462
This report is for the information of shareholders of American Balanced Fund,
but it may also be used as sales literature when preceded or accompanied by the
current prospectus, which gives details about charges, expenses, investment
objectives and operating policies of the fund. If used as sales material after
March 31, 1997, this report must be accompanied by an American Funds Group
Statistical Update for the most recently completed calendar quarter.
FOR INFORMATION ABOUT YOUR ACCOUNT OR ANY OF THE FUND'S SERVICES, PLEASE
CONTACT YOUR FINANCIAL ADVISER OR CALL AMERICAN FUNDS SERVICE COMPANY,
TOLL-FREE, AT 800/421-0180.
Litho in USA MNC/FS/3195
Lit. No. AMBAL-011-0297
Printed on recycled paper
[The American Funds Group(r)]
