AMERICAN BALANCED FUND, INC.
Part B
Statement of Additional Information
MARCH 1, 1997
(as amended November 1, 1997)
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, 1997 (as amended July 15, 1997). 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
One Market, Steuart Tower
P.O. Box 7650
San Francisco, CA 94120
Telephone: (415) 421-9360
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 Page No.
DESCRIPTION OF CERTAIN SECURITIES 1
FUNDAMENTAL POLICIES AND INVESTMENT RESTRICTIONS 4
FUND OFFICERS AND DIRECTORS 7
MANAGEMENT 10
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES 13
PURCHASE OF SHARES 16
REDEEMING SHARES 22
SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES 23
EXECUTION OF PORTFOLIO TRANSACTIONS 25
GENERAL INFORMATION 25
INVESTMENT RESULTS 27
FINANCIAL STATEMENTS ATTACHED
DESCRIPTION OF CERTAIN SECURITIES
The descriptions below are intended to supplement the material in the
prospectus under "Investment Policies and Risks."
BOND RATINGS - The fund may invest in debt securities which are rated in the
top four quality categories by any national rating service (or unrated but
determined to be of equivalent quality 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."
Standard & Poor's applies indicators "+", no character and "-" to its rating
categories. The indicators show relative standing within the major rating
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."
Moody's also supplies numerical indicators 1, 2 and 3 to rating categories.
The modifier 1 indicates that the obligation ranks in the higher end of its
generic rating category; the modifier 2 indicates a mid-range ranking; and 3
indicates a ranking toward the lower end of that generic rating category.
CASH AND CASH EQUIVALENTS - These securities include (1) commercial paper
(short-term notes issued by corporations or governmental bodies), (2)
commercial bank obligations (E.G., certificates of deposit (interest bearing
time deposits), and bankers' acceptances (time drafts on a commercial bank
where the bank accepts an irrevocable obligation 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, at the time of
purchase, or may be redeemed, in one year or less, and (5) corporate bonds and
notes that mature, at the time of purchase, or that may be redeemed, in one
year or less.
FORWARD COMMITMENTS - The fund may enter into commitments to purchase or sell
securities at a future date. When a fund purchases such securities it assumes
the risk of any decline in value of the security beginning on the date of the
agreement. When a fund sells such securities it does not participate in
further gains or losses with respect to such securities beginning on the date
of the agreement. If the other party to such a transaction fails to deliver
or pay for the securities, the fund could miss a favorable price or yield
opportunity or could experience a loss.
As the fund's aggregate commitments under these transactions increase, the
opportunity for leverage similarly may increase. The fund will not use these
transactions for the purpose of leveraging and will segregate liquid assets
which will be marked to market daily 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 segregated assets , the fund
temporarily could 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 would 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
GNMA certificates or other securities together with a commitment to purchase
similar, but not identical, securities at a future 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.
WARRANTS AND RIGHTS - The fund may acquire warrants, which are issued as a
unit together with a bond or preferred stock. Warrants generally entitle the
holder to buy common stock at a specified price, usually higher than the
current market price. Warrants may be issued with an expiration date or in
perpetuity. The fund may also acquire rights, which are similar to warrants
except that they normally entitle the holder to purchase common stock at a
lower price than the current market price. Rights generally expire in less
than four weeks.
PORTFOLIO TURNOVER - Portfolio changes will be made without regard to the
length of time particular investments may have been held. Short-term trading
profits are not the fund's objective and changes in its investments are
generally accomplished gradually, though short-term transactions may
occasionally be made. High portfolio turnover (100% or more) involves
correspondingly greater transaction costs in the form of dealer spreads or
brokerage commissions, and may result in the realization of net capital gains,
which are taxable when distributed to shareholders. Fixed-income securities
are generally traded on a net basis and usually neither brokerage commissions
nor transfer taxes are involved. The fund's portfolio turnover rate would
equal 100% if each security in the fund's portfolio were replaced once per
year. Under normal circumstances, it is anticipated that portfolio turnover
for common stocks in the fund's portfolio will not exceed 100% on an annual
basis, and that portfolio turnover for other securities will not exceed 100% on
an annual basis.
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.
FUND OFFICERS AND DIRECTORS
Directors and Director Compensation
<TABLE>
<CAPTION>
NAME, ADDRESS POSITION PRINCIPAL AGGREGATE TOTAL TOTAL
AND AGE WITH OCCUPATION(S) COMPENSATION COMPENSATION NUMBER
REGISTRANT DURING PAST 5 (INCLUDING (INCLUDING OF FUND
YEARS VOLUNTARILY VOLUNTARILY BOARDS ON
(POSITIONS DEFERRED DEFERRED WHICH
WITHIN THE COMPENSATION/1/) COMPENSATION) DIRECTOR
ORGANIZATIONS FROM THE FROM ALL SERVES/3/
LISTED MAY FUND DURING FUNDS MANAGED
HAVE CHANGED FISCAL BY CAPITAL
DURING THIS YEAR ENDED RESEARCH AND
PERIOD) 12/31/96 MANAGEMENT
COMPANY/2/
FOR THE YEAR
ENDED
12/31/96
<S> <C> <C> <C> <C> <C>
Robert A. Fox Director President and $10,650/4/ $81,750/4/ 5
P.O. Box 457 Chief
1000 Davis Executive
Street Officer,
Livingston, CA Foster Farms
95334 Inc. Former
Age: 59 President,
Revlon
International.
Roberta L. Director Consultant; $10,350 $43,650 3
Hazard Rear Admiral,
1419 Audmar United
Drive States Navy (Retired).
McLean, VA 22101
Age: 62
Leonade D. Director Former $10,650/4/ $74,600/4/ 5
Jones Treasurer, The
1536 Los Washington
Montes Drive Post Company.
Burlingame, CA
94010
Age: 49
John G. Director The IBJ $14,200/4/ $153,800/4/ 7
McDonald Professor of
Graduate Finance,
School of Graduate
Business School of
Stanford Business,
University Stanford
Stanford, CA University.
94305
Age: 59
+James W. Director Senior None/5/ None/5/ 8
Ratzlaff Partner, The
P.O. Box 7650 Capital Group
San Francisco, Partners L.P.
CA 94120
Age: 60
Henry E. Riggs Director President, $13,300/4/ $79,500/4/ 5
Graduate Graduate
Institute of Institute of
Applied Applied Life
Life Sciences Sciences at
at Claremont Claremont;
1263 North former,
Dartmouth President and
Claremont, CA Professor of
91711 Engineering,
Age: 62 Harvey Mudd
College.
+Walter P. Chairman of Chairman, None/5/ None/5/ 8
Stern the Board Capital Group
630 Fifth International,
Avenue Inc.; Vice
New York, NY Chairman,
10111 Capital
Age: 68 Research
International;
Chairman,
Capital
International,
Inc.;
Director,
Temple-Inland
Inc.
(forest
products).
Patricia K. Director Private $13,600 $82,050 5
Woolf investor;
506 Quaker Lecturer,
Road Department of
Princeton, NJ Molecular
08540 Biology,
Age: 62 Princeton
University.
</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 or the parent of the
Investment Adviser, The Capital Group Companies, Inc..
/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/ Includes funds managed by Capital Research and Management Company and
affiliates.
/4/ 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 ($77,517), Leonade D. Jones ($23,892), John G.
McDonald ($34,507) and Henry E. Riggs ($38,205). Amounts deferred and
accumulated earnings thereon are not funded and are general unsecured
liabilities of the fund until paid to the Director.
/5/ 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)#
<TABLE>
<CAPTION>
NAME AND ADDRESS AGE POSITION(S) HELD WITH PRINCIPAL OCCUPATION(S) DURING
REGISTRANT PAST 5 YEARS
<S> <C> <C> <C>
Robert G. O'Donnell 52 President Senior Vice President and
P.O. Box 7650 Director, Capital Research and
San Francisco, CA 94120 Management Company
Abner D. Goldstine 67 Senior Vice President Senior Vice President and
11100 Santa Monica Blvd. Director, Capital Research and
Los Angeles, CA 90025 Management Company
Paul G. Haaga, Jr. 48 Senior Vice President Executive Vice President and
333 South Hope Street Director, Capital Research and
Los Angeles, CA 90071 Management Company; Director,
American Funds Service Company
Eric S. Richter 36 Vice President Vice President, Investment
3000 K Street, N.W., Suite Management Group, Capital
230 Research and Management Company
Washington, D.C. 20007
Patrick F. Quan 38 Secretary Vice President, Fund Business
P.O. Box 7650 Management Group, Capital
San Francisco, CA 94120 Research and Management Company
Mary C. Hall 39 Treasurer Senior Vice President - Fund
135 South State College Business Management Group,
Blvd. Capital Research and Management
Brea, CA 92821 Company
R. Marcia Gould 42 Assistant Treasurer Vice President, Fund Business
135 South State College Management Group, Capital
Blvd. Research and Management Company
Brea, CA 92821
</TABLE>
All of the directors and officers, except for Mr. Richter, 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 $5,500 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. 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 who are not
affiliated with the Investment Adviser. As of December 31, 1996 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 (Los Angeles, San Francisco, New
York, Washington D.C., London, Geneva, Singapore, Hong Kong and Tokyo), with a
staff of professionals, many of whom have a number of years of investment
experience. The Investment Adviser is located at 333 South Hope Street, Los
Angeles, CA 90071, and at 1135 South College Boulevard, Brea, CA 92821. 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 managing 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, and approved by the shareholders on June 22, 1993, was amended
by the Board of Directors effective on November 1, 1997. Its renewal
was approved by the unanimous vote of the Board of Directors of the fund on
October 22, 1997. The Agreement shall be in effect until the close of
business on December 31, 1997 and may be renewed from year to year thereafter,
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. 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, 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.
Capital Research and Management Company receives a management fee at the annual
rate of 0.42% on the first $500 million of the fund's average net assets,
0.324% of such assets over $500 million to $1 billion, 0.30% of such assets
over $1 billion to $1.5 billion, 0.282% of such assets over $1.5 billion to
$2.5 billion, 0.27% of such assets over $2.5 billion to $4 billion, 0.262%
of such assets over $4 billion to $6.5 billion, 0.255% of such assets over
$6.5 billion to $10.5 billion, and 0.25% of such assets over $10.5
billion.
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, 1996, 1995 and 1994, the Investment Adviser
received from the fund advisory fees of $10,835,000, $8,091,000 and $6,234,000,
respectively.
PRINCIPAL UNDERWRITER - American Funds Distributors, Inc. (the Principal
Underwriter) is the principal underwriter of the fund's shares. The Principal
Underwriter is located at 333 South Hope Street, Los Angeles, CA 90071, 135
South State College Boulevard, Brea, CA 92821, 8000 IH-10 West, San Antonio, TX
78230, 8332 Woodfield Crossing Boulevard, Indianapolis, IN 46240, and 5300
Robin Hood Road, Norfolk, VA 23513. The fund has adopted a Plan of
Distribution (the Plan), pursuant to rule 12b-1 under the 1940 Act. 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, 1996 amounted to $2,545,000 after allowance of $12,512,000
to dealers. During the years ended December 31, 1995 and 1994, the Principal
Underwriter retained $1,918,000 and $1,598,000, after allowance of $9,904,000
and $8,038,000 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, 1996, the fund paid or accrued $8,808,000 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
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, as amended, (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 gain distributions) 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 will 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 shares of such taxes in
computing their taxable income and will not be able to take their shares 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
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METHOD INITIAL INVESTMENT ADDITIONAL INVESTMENTS
<S> <C> <C>
See "Investment Minimums and $50 minimum (except where a lower
Fund Numbers" for initial minimum is noted under "Investment
investment minimums. Minimums and Fund Numbers").
By contacting your Visit any investment dealer who Mail directly to your investment
investment dealer is registered in the state dealer's address printed on your
where the purchase is made and account statement.
who has a sales agreement with
American Funds Distributors.
By mail Make your check payable to the Fill out the account additions
fund and mail to the address form at the bottom of a recent
indicated on the account account statement, make
application. Please indicate your check payable to the fund,
an investment dealer on the write your account number on your
account application. check, and mail the check and form
in the envelope provided with your
account statement.
By telephone Please contact your investment Complete the "Investments by
dealer to open account, then Phone" section on the account
follow the procedures for application or American FundsLink
additional investments. Authorization Form. Once you
establish the privilege, you, your
financial advisor or any person
with your account information can
call American FundsLine(r) and make
investments by telephone (subject
to conditions noted in "Telephone
Purchases, Sales and Exchanges"
in the prospectus).
By wire Call 800/421-0180 to obtain Your bank should wire your
your account number(s), if additional investments in the same
necessary. Please indicate an manner as described under "Initial
investment dealer on the Investment."
account. Instruct your bank to
wire funds to:
Wells Fargo Bank
155 Fifth Street
Sixth Floor
San Francisco, CA 94106
(ABA #121000248)
For credit to the account of:
American Funds Service
Company
a/c #4600-076178
(fund name)
(your fund acct. no.)
THE FUNDS AND AMERICAN FUNDS DISTRIBUTORS RESERVE THE RIGHT TO REJECT ANY PURCHASE ORDER.
</TABLE>
INVESTMENT MINIMUMS AND FUND NUMBERS - Here are the minimum initial investments
required by the funds in The American Funds Group along with fund numbers for
use with our automated phone line, American FundsLine(r) (see description
below):
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FUND MINIMUM FUND
INITIAL NUMBER
INVESTMENT
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STOCK AND STOCK/BOND FUNDS
AMCAP Fund(r) 02
$1,000
American Balanced Fund(r) 11
500
American Mutual Fund(r) 03
250
Capital Income Builder(r) 12
1,000
Capital World Growth and Income Fund(sm) 33
1,000
EuroPacific Growth Fund(r) 16
250
Fundamental Investors(sm) 10
250
The Growth Fund of America(r) 05
1,000
The Income Fund of America(r) 06
1,000
The Investment Company of America(r) 04
250
The New Economy Fund(r) 14
1,000
New Perspective Fund(r) 07
250
SMALLCAP World Fund(r) 35
1,000
Washington Mutual Investors Fund(sm) 01
250
BOND FUNDS
American High-Income Municipal Bond Fund(r) 40
1,000
American High-Income Trust(sm) 21
1,000
The Bond Fund of America(sm) 08
1,000
Capital World Bond Fund(r) 31
1,000
Intermediate Bond Fund of America(sm) 23
1,000
Limited Term Tax-Exempt Bond Fund of America(sm) 43
1,000
The Tax-Exempt Bond Fund of America(r) 19
1,000
The Tax-Exempt Fund of California(r)* 20
1,000
The Tax-Exempt Fund of Maryland(r)* 24
1,000
The Tax-Exempt Fund of Virginia(r)* 25
1,000
U.S. Government Securities Fund(sm) 22
1,000
MONEY MARKET FUNDS
The Cash Management Trust of America(r) 09
2,500
The Tax-Exempt Money Fund of America(sm) 39
2,500
The U.S. Treasury Money Fund of America(sm) 49
2,500
___________
*Available only in certain states.
</TABLE>
For retirement plan investments, the minimum is $250, except that the money
market funds have a minimum of $1,000 for individual retirement accounts
(IRAs). Minimums are reduced to $50 for purchases through "Automatic
Investment Plans" (except for the money market funds) or to $25 for purchases
by retirement plans through payroll deductions and may be reduced or waived for
shareholders of other funds in The American Funds Group. TAX-EXEMPT FUNDS
SHOULD NOT SERVE AS RETIREMENT PLAN INVESTMENTS. The minimum is $50 for
additional investments (except as noted above).
DEALER COMMISSIONS - The sales charges you pay when purchasing the stock,
stock/bond, and bond funds of The American Funds Group are set forth below.
The money market funds of The American Funds Group are offered at net asset
value. (See "Investment Minimums and Fund Numbers" for a listing of the
funds.)
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AMOUNT OF PURCHASE SALES CHARGE AS DEALER
AT THE OFFERING PRICE PERCENTAGE OF THE: CONCESSION
AS PERCENTAGE
OF THE
OFFERING
PRICE
NET AMOUNT OFFERING
INVESTED PRICE
<S> <C> <C> <C>
STOCK AND STOCK/BOND FUNDS
Less than $50,000 6.10%
5.75% 5.00%
$50,000 but less than $100,000 4.71
4.50 3.75
BOND FUNDS
Less than $25,000 4.99
4.75 4.00
$25,000 but less than $50,000 4.71
4.50 3.75
$50,000 but less than $100,000 4.17
4.00 3.25
STOCK, STOCK/BOND, AND BOND FUNDS
$100,000 but less than $250,000 3.63
3.50 2.75
$250,000 but less than $500,000 2.56
2.50 2.00
$500,000 but less than $1,000,000 2.04
2.00 1.60
$1,000,000 or more none none (see below)
</TABLE>
Commissions of up to 1% 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 of $1 million 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.
American Funds Distributors, at its expense (from a designated percentage of
its income), will, during calendar year 1997, provide additional compensation
to dealers. Currently these payments are limited to the top one hundred dealers
who have sold shares of the fund or other funds in The American Funds Group.
These payments will be based on a pro rata share of a qualifying dealer's
sales. American Funds Distributors will, on an annual basis, determine the
advisability of continuing these payments.
Any employer-sponsored 403(b) plan or defined contribution plan qualified under
Section 401(a) of the Internal Revenue Code including a "401(k)" plan with 200
or more eligible employees or any other purchaser investing at least $1 million
in shares of the fund (or in combination with shares of other funds in The
American Funds Group other than the money market funds) may purchase shares at
net asset value; however, a contingent deferred sales charge of 1% is imposed
on certain redemptions made within twelve months of the purchase. (See
"Redeeming Shares--Contingent Deferred Sales Charge.") Investments by
retirement plans, foundations or endowments with $50 million or more in assets
may be made with no sales charge and are not subject to a contingent deferred
sales charge.
Qualified dealers currently are paid a continuing service fee not to exceed
0.25% of average net assets (0.15% in the case of the money market funds)
annually in order to promote selling efforts and to compensate them for
providing certain services. These services include processing purchase and
redemption transactions, establishing shareholder accounts and providing
certain information and assistance with respect to the fund.
NET ASSET VALUE PURCHASES - The stock, stock/bond and bond funds may sell
shares at net asset value to: (1) current or retired directors, trustees,
officers and advisory board members of the funds managed by Capital Research
and Management Company, employees of Washington Management Corporation,
employees and partners of The Capital Group Companies, Inc. and its affiliated
companies, certain family members of the above persons, and trusts or plans
primarily for such persons; (2) current registered representatives, retired
registered representatives with respect to accounts established while active,
or full-time employees (and their spouses, parents, and children) of dealers
who have sales agreements with American Funds Distributors (or who clear
transactions through such dealers) and plans for such persons or the dealers;
(3) companies exchanging securities with the fund through a merger, acquisition
or exchange offer; (4) trustees or other fiduciaries purchasing shares for
certain retirement plans of organizations with retirement plan assets of $50
million or more; (5) insurance company separate accounts; (6) accounts managed
by subsidiaries of The Capital Group Companies, Inc.; and (7) The Capital Group
Companies, Inc., its affiliated companies and Washington Management
Corporation. Shares are offered at net asset value to these persons and
organizations due to anticipated economies in sales effort and expense.
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.
AGGREGATION - Sales charge discounts are available for certain aggregated
investments. Qualifying investments include those by you, your spouse and your
children under the age of 21, if all parties are purchasing shares for their
own account(s), which may include purchases through employee benefit plan(s)
such as an IRA, individual-type 403(b) plan or single-participant Keogh-type
plan or by a business solely controlled by these individuals (for example, the
individuals own the entire business) or by a trust (or other fiduciary
arrangement) solely for the benefit of these individuals. Individual purchases
by a trustee(s) or other fiduciary(ies) may also be aggregated if the
investments are (1) for a single trust estate or fiduciary account, including
an employee benefit plan other than those described above or (2) made for two
or more employee benefit plans of a single employer or of affiliated employers
as defined in the Investment Company Act of 1940, again excluding employee
benefit plans described above, or (3) for a diversified common trust fund or
other diversified pooled account not specifically formed for the purpose of
accumulating fund shares. Purchases made for nominee or street name accounts
(securities held in the name of an investment dealer or another nominee such as
a bank trust department instead of the customer) may not be aggregated with
those made for other accounts and may not be aggregated with other nominee or
street name accounts unless otherwise qualified as described above.
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. In case of orders sent directly to the fund or American Funds
Service Company, an investment dealer must be indicated. 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, 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 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 valued at
amortized cost, which approximates market value. 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 Board of Directors or a committee thereof. 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.
REDEEMING SHARES
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<CAPTION>
<S> <C>
By writing to American Funds Service Send a letter of instruction specifying the name
Company (at the appropriate address of the fund, the number of shares or dollar amount
indicated under "Principal Underwriter to be sold, your name and account number. You
and Transfer Agent" in the prospectus) should also enclose any share certificates
you wish to redeem. For redemptions over $50,000
and for certain redemptions of $50,000 or less
(see below), your signature must be guaranteed by
a bank, savings association, credit union, or
member firm of a domestic stock exchange or the
National Association of Securities Dealers, Inc.
that is an eligible guarantor institution. You
should verify with the institution that it is an
eligible guarantor prior to signing. Additional
documentation may be required for redemption of
shares held in corporate, partnership or fiduciary
accounts. Notarization by a Notary Public is not
an acceptable signature guarantee.
By contacting your investment dealer If you redeem shares through your investment
dealer, you may be charged for this service.
SHARES HELD FOR YOU IN YOUR INVESTMENT DEALER'S
STREET NAME MUST BE REDEEMED THROUGH THE DEALER.
You may have a redemption check sent to You may use this option, provided the account is
you by using American FundsLine(r) or by registered in the name of an individual(s), a
telephoning, faxing, or telegraphing UGMA/UTMA custodian, or a non-retirement plan
American Funds Service Company (subject trust. These redemptions may not exceed $10,000
to the conditions noted in this section per day, per fund account and the check must be
and in "Telephone Purchases, Sales and made payable to the shareholder(s) of record and
Exchanges" in the prospectus) be sent to the address of record provided the
address has been used with the account for at
least 10 days. See "Principal Underwriter and
Transfer Agent" in the prospectus and "Exchange
Privilege" below for the appropriate telephone or
fax number.
In the case of the money market funds, Upon request (use the account application for the
you may have redemptions wired to your money market funds) you may establish telephone
bank by telephoning American Funds redemption privileges (which will enable you to
Service Company ($1,000 or more) or by have a redemption sent to your bank account)
writing a check ($250 or more) and/or check writing privileges. If you request
check writing privileges, you will be provided
with checks that you may use to draw against your
account. These checks may be made payable to
anyone you designate and must be signed by the
authorized number of registered shareholders
exactly as indicated on your checking account
signature card.
</TABLE>
A SIGNATURE GUARANTEE IS NOT CURRENTLY REQUIRED FOR ANY REDEMPTION OF $50,000
OR LESS PROVIDED THE REDEMPTION CHECK IS MADE PAYABLE TO THE REGISTERED
SHAREHOLDER(S) AND IS MAILED TO THE ADDRESS OF RECORD, PROVIDED THE ADDRESS HAS
BEEN USED WITH THE ACCOUNT FOR AT LEAST 15 DAYS.
CONTINGENT DEFERRED SALES CHARGE - A contingent deferred sales charge of 1%
applies to certain redemptions made within twelve months of purchase on
investments of $1 million or more and on any investment made with no initial
sales charge by any employer-sponsored 403(b) plan or defined contribution plan
qualified under Section 401(a) of the Internal Revenue Code including a
"401(k)" plan with 200 or more eligible employees. The charge is 1% of the
lesser of the value of the shares redeemed (exclusive of reinvested dividends
and capital gain distributions) or the total cost of such shares. Shares held
for the longest period are assumed to be redeemed first for purposes of
calculating this charge. The charge is waived for exchanges (except if shares
acquired by exchange were then redeemed within 12 months of the initial
purchase); for distributions from qualified retirement plans and other employee
benefit plans; for redemptions resulting from participant-directed switches
among investment options within a participant-directed employer-sponsored
retirement plan; for distributions from 403(b) plans or IRAs due to death,
disability or attainment of age 591/2; for tax-free returns of excess
contributions to IRAs; for redemptions through certain automatic withdrawals
not exceeding 10% of the amount that would otherwise be subject to the charge;
and for redemptions in connection with loans made by qualified retirement
plans.
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 dates you select. 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 REINVESTMENT - Dividends and capital gain distributions are
reinvested in additional shares at no sales charge unless you indicate
otherwise on the account application. You also may elect to have dividends
and/or capital gain distributions paid in cash by informing the fund, American
Funds Service Company or your investment dealer.
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).
EXCHANGE PRIVILEGE - You may exchange shares into other funds in The American
Funds Group. Exchange purchases are subject to the minimum investment
requirements of the fund purchased and no sales charge generally applies.
However, exchanges of shares from the money market funds are subject to
applicable sales charges on the fund being purchased, unless the money market
fund shares were acquired by an exchange from a fund having a sales charge, or
by reinvestment or cross-reinvestment of dividends or capital gain
distributions.
You may exchange shares by writing to American Funds Service Company (see
"Redeeming Shares"), by contacting your investment dealer, by using American
FundsLine(r) (see "American FundsLine(r)" below), or by telephoning
800/421-0180 toll-free, faxing (see "Principal Underwriter and Transfer Agent"
in the prospectus for the appropriate fax numbers) or telegraphing American
Funds Service Company. (See "Telephone Redemptions and Exchanges" below.)
Shares held in corporate-type retirement plans for which Capital Guardian Trust
Company serves as trustee may not be exchanged by telephone, fax or telegraph.
Exchange redemptions and purchases are processed simultaneously at the share
prices next determined after the exchange order is received. (See "Purchase of
Shares--Price of Shares.") THESE TRANSACTIONS HAVE THE SAME TAX CONSEQUENCES AS
ORDINARY SALES AND PURCHASES.
AUTOMATIC EXCHANGES - You may automatically exchange shares (in amounts of $50
or more) among any of the funds in The American Funds Group on any day (or
preceding business day if the day falls on a non-business day) of each month
you designate. You must either meet the minimum initial investment requirement
for the receiving fund OR the originating fund's balance must be at least
$5,000 and the receiving fund's minimum must be met within one year.
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.
ACCOUNT STATEMENTS - Your account is opened in accordance with your
registration instructions. Transactions in the account, such as additional
investments and dividend reinvestments, will be reflected on regular
confirmation statements from American Funds Service Company. Purchases through
automatic investment plans and certain retirement plans will be confirmed at
least quarterly.
AMERICAN FUNDSLINE(R) - You may check your share balance, the price of your
shares, or your most recent account transaction, redeem shares (up to $50,000
per shareholder each day), or exchange shares around the clock with American
FundsLine(r). To use this service, call 800/325-3590 from a TouchTonet
telephone. Redemptions and exchanges through American FundsLine(r) are subject
to the conditions noted above and in "Redeeming Shares--Telephone Redemptions
and Exchanges" below. You will need your fund number (see the list of funds in
The American Funds Group under "Purchase of Shares--Investment Minimums and
Fund Numbers"), personal identification number (the last four digits of your
Social Security number or other tax identification number associated with your
account) and account number.
TELEPHONE REDEMPTIONS AND EXCHANGES - By using the telephone (including
American FundsLine(r)), fax or telegraph redemption and/or exchange options,
you agree to hold the fund, American Funds Service Company, any of its
affiliates or mutual funds managed by such affiliates, and each of their
respective directors, trustees, officers, employees and agents harmless from
any losses, expenses, costs or liability (including attorney fees) which may be
incurred in connection with the exercise of these privileges. Generally, all
shareholders are automatically eligible to use these options. However, you may
elect to opt out of these options by writing American Funds Service Company
(you may also reinstate them at any time by writing American Funds Service
Company). If American Funds Service Company does not employ reasonable
procedures to confirm that the instructions received from any person with
appropriate account information are genuine, the fund may be liable for losses
due to unauthorized or fraudulent instructions. In the event that shareholders
are unable to reach the fund by telephone because of technical difficulties,
market conditions, or a natural disaster, redemption and exchange requests may
be made in writing only.
EXECUTION OF PORTFOLIO TRANSACTIONS
Orders for the fund's portfolio securities transactions are placed by the
Investment Adviser. The Investment Adviser strives to obtain the best
available prices in its portfolio transactions taking into account the costs
and promptness of executions. When circumstances relating to a proposed
transaction indicate that a particular broker (either directly or through its
correspondent clearing agent) is in a position to obtain the best price and
execution, the order is placed with that broker. This may or may not be a
broker who has provided investment research, statistical, or other related
services to the Investment Adviser or has sold shares of the fund or other
funds served by the Investment Adviser. The fund does not consider that it has
an obligation to obtain the lowest available commission rate to the exclusion
of price, service and qualitative considerations.
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.
Brokerage commissions paid on portfolio transactions, including dealer
concessions on underwritings, during the years ended December 31, 1996, 1995
and 1994 amounted to $3,205,000, $2,653,000 and $1,050,000, 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, 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. American Funds Service Company was paid a fee
of $2,582,000 for the fiscal year ended December 31, 1996.
INDEPENDENT AUDITORS - Deloitte & Touche LLP located at 1000 Wilshire
Boulevard, Los Angeles, CA 90017, serves as the fund's independent auditors
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 will 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 by the fund's independent auditors, 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, 1996
<S> <C>
Net asset value and redemption price per share $14.55
(Net assets divided by shares outstanding)
Maximum offering price per share $15.44
(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 3.64% based on a 30-day (or one month) period ended
December 31, 1996, 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, 1996 were +6.68%, +10.63% and +11.25%, 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 & 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>
1987 - 1996 +190% +366% +314% +140% +125% +147% +67%
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 & 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 & 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 & 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
(1/1/92-12/31/96) (1/1/87-12/31/96)
$13,907 $38,437
</TABLE>
SEE THE DIFFERENCE TIME CAN MAKE IN AN INVESTMENT PROGRAM
<TABLE>
<CAPTION>
If you had invested $10,000 in AMBAL . . . and had taken
this many years ago all dividends and
capital gain
distributions
in shares, your
investment would
have been worth
this much at
12/31/96
<S> <C> <C>
| |
Number Periods Value
of Years 1/1 - 12/31
1 1996 $10,668
2 1995-1996 13,562
3 1994-1996 13,602
4 1993-1996 15,138
5 1992-1996 16,568
6 1991-1996 20,666
7 1990-1996 20,336
8 1989-1996 24,718
9 1988-1996 27,900
10 1987-1996 29,028
11 1986-1996 33,926
12 1985-1996 43,815
13 1984-1996 47,884
14 1983-1996 55,643
15 1982-1996 71,984
16 1981-1996 75,131
17 1980-1996 85,884
18 1979-1996 92,452
19 1978-1996 98,157
20 1977-1996 98,881
21 1976-1996 124,510
22 1975#-1996 131,475
</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, 1996)
<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
1996 4,684 51,535 61,535 20,014 43,703 67,758 131,475
</TABLE>
The dollar amount of capital gain distributions during the period was $35,296.
# 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, 1967 (127 in all), those funds have had better
total returns than the Standard & Poor's 500 Composite Stock Index in 91 of the
127 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.
<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.
