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[LOGO OF THE AMERICAN FUNDS GROUP(R)]
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American Balanced Fund(R)
Prospectus
MARCH 1, 1998
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AMERICAN BALANCED FUND
One Market
Steuart Tower, Suite 1800
San Francisco, CA 94105
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TABLE OF CONTENTS
<TABLE>
<S> <C>
Expenses 3
................................................................................
Financial Highlights 4
................................................................................
Investment Policies and Risks 5
................................................................................
Securities and Investment Techniques 5
................................................................................
Multiple Portfolio Counselor System 10
................................................................................
Investment Results 11
................................................................................
Dividends, Distributions and Taxes 12
................................................................................
Fund Organization and Management 13
................................................................................
Shareholder Services 16
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</TABLE>
The investment objectives of the fund are: (1) conservation of capital,
(2) current income, and (3) long-term growth of capital and income. The fund
strives to accomplish these objectives by investing in a broadly diversified
portfolio of securities including stocks and bonds. The fund approaches the
management of its investments as if they constituted the complete investment
program of the prudent investor.
This prospectus presents information you should know before investing in the
fund. You should keep it on file for future reference.
YOU MAY LOSE MONEY BY INVESTING IN THE FUND. THE LIKELIHOOD OF LOSS IS GREATER
IF YOU INVEST FOR A SHORTER PERIOD OF TIME. YOUR INVESTMENT IN THE FUND IS NOT
A DEPOSIT OR OBLIGATION OF, OR INSURED OR GUARANTEED BY, ANY ENTITY OR PERSON
INCLUDING THE U.S. GOVERNMENT AND THE FEDERAL DEPOSIT INSURANCE CORPORATION.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
11-010-0398
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EXPENSES
The effect of the expenses described below is reflected in the fund's share
price and return.
You may pay certain shareholder transaction expenses when you buy or sell
shares of the fund. Operating expenses are paid by the fund.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Maximum sales charge on purchases
(as a percentage of offering price) 5.75%
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</TABLE>
SALES CHARGES ARE REDUCED OR ELIMINATED FOR LARGER PURCHASES. There is no sales
charge on reinvested dividends, and no deferred sales charge or redemption or
exchange fees. A contingent deferred sales charge of 1% applies on certain
redemptions made within 12 months following purchases without a sales charge.
FUND OPERATING EXPENSES
(as a percentage of average net assets)
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<TABLE>
<S> <C>
Management fees 0.30%
................................................................................
12b-1 expenses 0.25%/1/
................................................................................
Other expenses 0.10%
................................................................................
Total fund operating expenses 0.65%
</TABLE>
/1/ 12b-1 expenses may not exceed 0.25% of the fund's average net assets
annually.
EXAMPLES
Assuming a hypothetical annual return of 5% and shareholder transaction and
operating expenses as described above, for every $1,000 you invested, you would
pay the following total expenses over the following periods:
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<TABLE>
<S> <C>
One year $ 64
................................................................................
Three years $ 77
................................................................................
Five years $ 92
................................................................................
Ten years $134
</TABLE>
THESE EXAMPLES ARE NOT MEANT TO REPRESENT YOUR ACTUAL INVESTMENT RESULTS OR
EXPENSES, WHICH MAY VARY. YOUR EXPENSES WILL BE LESS IF YOU QUALIFY TO PURCHASE
SHARES AT A REDUCED OR NO SALES CHARGE.
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AMERICAN BALANCED FUND / PROSPECTUS 3
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FINANCIAL HIGHLIGHTS
The following information for the seven years ended December 31, 1997 has been
audited by Deloitte & Touche llp, independent auditors, and for the three years
ended December 31, 1990 by KPMG Peat Marwick, independent auditors. This table
should be read together with the financial statements which are included in the
statement of additional information and annual report.
SELECTED PER-SHARE DATA
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
.......................
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $14.55 $14.15 $12.00 $12.57 $12.28 $12.05 $10.32 $11.41 $10.46 $10.13
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INCOME FROM
INVESTMENT
OPERATIONS:
Net investment
income .58 .57 .57 .57 .59 .61 .62 .63 .66 .59
.........................................................................................................
Net realized gain and
change in unrealized
appreciation on
investments 2.41 1.24 2.61 (.53) .76 .49 1.86 (.82) 1.54 .68
.........................................................................................................
Total income (loss)
from investment
operations 2.99 1.81 3.18 .04 1.35 1.10 2.48 (.19) 2.20 1.27
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LESS DISTRIBUTIONS:
Distributions from
net investment income (.56) (.56) (.56) (.56) (.60) (.60) (.62) (.63) (.67) (.62)
.........................................................................................................
Distributions from
net realized gains (1.30) (.85) (.47) (.05) (.46) (.27) (.13) (.27) (.58) (.32)
.........................................................................................................
Total distributions (1.86) (1.41) (1.03) (.61) (1.06) (.87) (.75) (.90) (1.25) (.94)
.........................................................................................................
Net asset value,
end of year $15.68 $14.55 $14.15 $12.00 $12.57 $12.28 $12.05 $10.32 $11.41 $10.46
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Total return/1/ 21.04% 13.17% 27.13% .34% 11.27% 9.48% 24.69% (1.57)% 21.53% 12.87%
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RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
year (in millions) $5,036 $3,941 $3,048 $2,082 $1,710 $1,067 $642 $370 $275 $218
.........................................................................................................
Ratio of expenses
to average net assets .65% .67% .67% .68% .71% .74% .82% .84% .78% .76%
.........................................................................................................
Ratio of net
income to average net
assets 3.74% 4.01% 4.38% 4.76% 4.74% 5.19% 5.56% 5.95% 5.80% 5.54%
.........................................................................................................
Average
commissions
paid per share/2/ 4.57c 5.78c 6.16c 6.25c 6.82c 7.21c 7.45c 7.63c 7.75c 7.51c
.........................................................................................................
Portfolio turnover rate 44.01% 43.85% 39.03% 32.05% 27.81% 17.00% 24.65% 25.51% 37.31% 41.90%
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</TABLE>
/1/ Excludes maximum sales charge of 5.75%.
/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 most over-the-counter and
fixed-income transactions, are excluded. Generally, non-U.S. commissions are
lower than U.S. commissions when expressed as cents per share but higher
when expressed as a percentage of transactions because of the lower per-
share prices of many non-U.S. securities.
4 AMERICAN BALANCED FUND / PROSPECTUS
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INVESTMENT POLICIES AND RISKS
The fund strives to provide you with conservation of capital, current income
and long-term growth of both capital and income. It approaches the management
of its investments as if they constituted the complete investment program of
the prudent investor.
The fund invests in a broadly diversified portfolio of securities, including
common stocks, securities convertible into common stocks, preferred stocks,
corporate bonds, U.S. Government securities and real estate investment trusts.
The fund may also invest in notes and bonds issued by governments, their
agencies or instrumentalities, or corporations in which the principal value
and/or interest payments vary with the rate of inflation. Assets may be held in
cash or cash equivalents (such as certain short-term securities, including
commercial paper). Normally, the fund will maintain at least 50% of the value
of its assets in common stocks. Additionally, the fund will maintain at least
25% of the value of its assets in fixed-income securities. These securities
will be investment grade, which are rated in the top four quality categories by
Standard & Poor's Corporation or Moody's Investors Service, Inc. or unrated but
determined to be of equivalent quality by Capital Research and Management
Company, the fund's investment adviser. MORE INFORMATION ON THE FUND'S
INVESTMENT POLICIES IS CONTAINED IN ITS STATEMENT OF ADDITIONAL INFORMATION.
Investment limitations are considered at the time securities are purchased.
These limits are based on the fund's net assets unless otherwise indicated. The
fund's fundamental investment restrictions (described in the statement of
additional information) and objectives may not be changed without shareholder
approval.
THE FUND MAY NOT ACHIEVE ITS INVESTMENT OBJECTIVES DUE TO MARKET CONDITIONS AND
OTHER FACTORS. IN ADDITION, THE FUND MAY EXPERIENCE DIFFICULTY LIQUIDATING
CERTAIN PORTFOLIO SECURITIES DURING SIGNIFICANT MARKET DECLINES OR PERIODS OF
HEAVY REDEMPTIONS.
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SECURITIES AND INVESTMENT TECHNIQUES
EQUITY SECURITIES
Equity securities represent an ownership position in a company. The prices of
equity securities fluctuate based on changes in the financial condition of
their issuers and on market and economic conditions. The fund's results will be
related to the overall market for these securities.
AMERICAN BALANCED FUND / PROSPECTUS 5
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DEBT SECURITIES
Bonds and other debt securities are used by issuers to borrow money. Issuers
pay investors interest and generally must repay the amount borrowed at
maturity. Some debt securities, such as zero coupon bonds, do not pay current
interest, but are purchased at a discount from their face values. The prices of
debt securities fluctuate depending on such factors as interest rates, credit
quality and maturity. In general their prices decline when interest rates rise
and vice versa.
The fund may invest in debt securities rated Baa or BBB by Moody's Investors
Service, Inc. or Standard & Poor's Corporation or in unrated securities that
are determined to be of equivalent quality by Capital Research and Management
Company. These securities are considered "investment grade" but also have
speculative characteristics.
Capital Research and Management Company attempts to reduce the risks described
above through diversification of the portfolio and by credit analysis as well
as by monitoring broad economic trends and corporate and legislative
developments.
OTHER SECURITIES
The fund may also invest in securities that have a combination of equity and
debt characteristics such as non-convertible preferred stocks and convertible
securities. These securities may at times resemble equity more than debt and
vice versa. Non-convertible preferred stocks are similar to debt in that they
have a stated dividend rate akin to the coupon of a bond or note even though
they are often classified as equity securities. The prices and yields of non-
convertible preferred stocks generally move with changes in interest rates and
the issuer's credit quality, similar to the factors affecting debt securities.
Bonds, preferred stocks, and other securities may sometimes be converted into
shares of common stock or other securities at a stated exchange ratio. These
securities prior to conversion pay a fixed rate of interest or a dividend.
Because convertible securities have both debt and equity characteristics their
value varies in response to many factors, including the value of the underlying
equity, general market and economic conditions, convertible market valuations,
as well as changes in interest rates, credit spreads, and the credit quality of
the issuer.
U.S. GOVERNMENT SECURITIES
Securities guaranteed by the U.S. Government include: (1) direct obligations of
the U.S. Treasury (such as Treasury bills, notes and bonds) and (2) federal
agency obligations guaranteed as to principal and interest by the U.S.
Treasury.
6 AMERICAN BALANCED FUND / PROSPECTUS
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Certain securities issued by U.S. Government instrumentalities and certain
federal agencies are neither direct obligations of, nor guaranteed by, the
Treasury. However, they generally involve federal sponsorship in one way or
another; some are backed by specific types of collateral; some are supported by
the issuer's right to borrow from the Treasury; some are supported by the
discretionary authority of the Treasury to purchase certain obligations of the
issuer; and others are supported only by the credit of the issuing government
agency or instrumentality.
PASS-THROUGH SECURITIES
The fund may invest in various debt obligations backed by a pool of mortgages
or other assets including loans on single family residences, home equity loans,
mortgages on commercial buildings, credit card receivables, and leases on
airplanes or other equipment. Principal and interest payments made on the
underlying asset pools backing these obligations are typically passed through
to investors. Pass-through securities may have either fixed or adjustable
coupons. These securities include those discussed below.
"Mortgage-backed securities" are issued both by U.S. government agencies,
including the Government National Mortgage Association (GNMA), the Federal
National Mortgage Association (FNMA), and the Federal Home Loan Mortgage
Corporation (FHLMC), and by private entities. The payment of interest and
principal on securities issued by U.S. government agencies is guaranteed by the
full faith and credit of the U.S. government (in the case of GNMA securities)
or the issuer (in the case of FNMA and FHLMC securities). However, the
guarantees do not apply to the market prices and yields of these securities,
which vary with changes in interest rates.
Mortgage-backed securities issued by private entities are structured similarly
to mortgage-backed securities issued by GNMA, FNMA, and FHLMC. These securities
and the underlying mortgages are not guaranteed by government agencies. In
addition, these securities generally are structured with one or more types of
credit enhancement. Mortgage-backed securities generally permit borrowers to
prepay their underlying mortgages. Prepayments can alter the effective maturity
of these instruments.
"Collateralized mortgage obligations" (CMOs) are also backed by a pool of
mortgages, mortgage-backed securities or mortgage loans, which are divided into
two or more separate bond issues. CMOs issued by U.S. government agencies are
backed by agency mortgages, while privately issued CMOs may be backed by either
government agency mortgages or private mortgages. Payments of principal and
interest are passed-through to each bond at varying schedules resulting in
bonds with different coupons, effective maturities, and sensitivities
AMERICAN BALANCED FUND / PROSPECTUS 7
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to interest rates. In fact, some CMOs may be structured in a way that when
interest rates change the impact of changing prepayment rates on these
securities' effective maturities is magnified.
"Commercial mortgage-backed securities" are backed by commercial property, such
as hotels, office buildings, retail stores, hospitals, and other commercial
buildings. These securities may have a lower prepayment risk than other
mortgage-related securities because commercial mortgage loans generally
prohibit or impose penalties on prepayments of principal. In addition,
commercial mortgage-related securities often are structured with some form of
credit enhancement to protect against potential losses on the underlying
mortgage loans. Many of the risks of investing in commercial mortgage-backed
securities reflect the risks of investing in the real estate securing the
underlying mortgage loans, including the effects of local and other economic
conditions on real estate markets, the ability of tenants to make loan
payments, and the ability of a property to attract and retain tenants.
"Asset-backed securities" are backed by other assets such as credit card,
automobile or consumer loan receivables, retail installment loans, or
participations in pools of leases. Credit support for these securities may be
based on the underlying assets and/or provided through credit enhancements by a
third party. The values of these securities are sensitive to changes in the
credit quality of the underlying collateral, the credit strength of the credit
enhancement, changes in interest rates, and at times the financial condition of
the issuer. Some asset-backed securities also may receive prepayments which can
change the bonds' effective maturities.
INVESTING IN VARIOUS COUNTRIES
The fund may invest up to 10% of its assets in securities of issuers domiciled
outside the U.S. and not included in the Standard & Poor's 500 Composite Index.
Investing outside the U.S. involves special risks, particularly in certain
developing countries, caused by, among other things, fluctuating currency
values; different accounting, auditing, and financial reporting regulations and
practices in some countries; changing local and regional economic, political
and social conditions; expropriation or confiscatory taxation; greater market
volatility; differing securities market structures; and various administrative
difficulties such as delays in clearing and settling portfolio transactions or
in receiving payment of dividends. However, in the opinion of Capital Research
and Management Company, investing outside the U.S. also can reduce certain
portfolio risks due to greater diversification opportunities.
Additional costs could be incurred in connection with the fund's investment
activities outside the U.S. The fund can purchase and sell currencies to
facilitate
8 AMERICAN BALANCED FUND / PROSPECTUS
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transactions in securities denominated in currencies other than the U.S.
dollar. Brokerage commissions may be higher outside the U.S., and the fund may
bear certain expenses in connection with currency transactions. Furthermore,
increased custodian costs may be associated with the maintenance of assets in
certain jurisdictions.
FORWARD COMMITMENTS
The fund may enter into commitments to purchase or sell securities at a future
date. When the fund agrees to purchase such securities, it assumes the risk of
any decline in value of the securities beginning on the date of the agreement.
When the fund agrees to sell such securities, it does not participate in
further gains or losses with respect to the securities. 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.
The fund also may enter into "roll" transactions which are the sale of
mortgage-backed securities or other securities together with a commitment to
purchase similar, but not identical, securities at a later date. The fund
assumes the rights and risks of ownership, including the risk of price and
yield fluctuations as of the time of the agreement.
RESTRICTED SECURITIES AND LIQUIDITY
The fund may purchase securities subject to restrictions on resale. All such
securities whose principal trading market is in the U.S. will be considered
illiquid unless they have been specifically determined to be liquid under
procedures which have been adopted by the fund's board of directors, taking
into account factors such as the frequency and volume of trading, the
commitment of dealers to make markets and the availability of qualified
investors, all of which can change from time to time. The fund may incur
certain additional costs in disposing of illiquid securities.
AMERICAN BALANCED FUND / PROSPECTUS 9
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MULTIPLE PORTFOLIO COUNSELOR SYSTEM
The investment philosophy of Capital Research and Management Company is to seek
fundamental values at reasonable prices. Capital Research and Management
Company utilizes a system of multiple portfolio counselors in managing mutual
fund assets. Under this system the portfolio of a fund is divided into segments
which are managed by individual counselors. Counselors decide how their
respective segments will be invested (within the limits provided by a fund's
objective(s) and policies and by Capital Research and Management Company's
investment committee). The primary individual portfolio counselors for the fund
are listed below.
<TABLE>
<CAPTION>
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YEARS OF EXPERIENCE
AS
INVESTMENT
PROFESSIONAL
(APPROXIMATE)
.......................
YEARS OF
EXPERIENCE
AS PORTFOLIO
COUNSELOR
(AND RESEARCH WITH CAPITAL
PROFESSIONAL, IF RESEARCH AND
APPLICABLE) FOR MANAGEMENT
PORTFOLIO COUNSELORS AMERICAN COMPANY OR
FOR AMERICAN BALANCED FUND ITS TOTAL
BALANCED FUND PRIMARY TITLE(S) (APPROXIMATE) AFFILIATES YEARS
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<S> <C> <C> <C> <C>
ROBERT G. President and 12 years (in 23 years 26 years
O'DONNELL Director of the addition to 14
fund. Senior years as a
Vice President research
and Director, professional
Capital prior to
Research and becoming a
Management portfolio
Company counselor for
the fund)*
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ABNER D. Senior Vice 23 years 31 years 46 years
GOLDSTINE President of
the fund.
Senior Vice
President and
Director,
Capital
Research and
Management
Company
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J. DALE Vice President 2 years 7 years 9 years
HARVEY of the fund.
Vice President,
Capital
Research
Company+
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VICTOR M. Senior Vice 2 years** 23 years 36 years
PARACHINI President,
Capital
Research and
Management
Company
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JOHN H. SMET Vice President, less than 1 year 15 years 16 years
Capital
Research and
Management
Company
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Capital Research and Management Company has been the fund's investment
adviser since July 26, 1975.
+ Company affiliated with Capital Research and Management Company.
* Prior to July 26, 1975, Mr. O'Donnell was a research professional with
American Express Investment Management Company, the fund's previous
investment adviser.
** Prior to July 26, 1975, Mr. Parachini was a portfolio counselor with
American Express Investment Management Company, the fund's previous
investment adviser.
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</TABLE>
10 AMERICAN BALANCED FUND / PROSPECTUS
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INVESTMENT RESULTS
The fund may compare investment results to various indices or other mutual
funds. Fund results may be calculated on a total return, yield and/or
distribution rate basis. Results calculated without a sales charge will be
higher.
. TOTAL RETURN is the change in value of an investment in the fund over a given
period, assuming reinvestment of any dividends and capital gain
distributions.
. YIELD is computed by dividing the net investment income per share earned by
the fund over a given period of time by the maximum offering price per share
on the last day of the period, according to a formula mandated by the
Securities and Exchange Commission. A yield calculated using this formula may
be different than the income actually paid to shareholders.
. DISTRIBUTION RATE reflects dividends that were paid by the fund. The
distribution rate is calculated by dividing the dividends paid over the last
12 months by the sum of the month-end price and the capital gain
distributions paid over the last 12 months.
INVESTMENT RESULTS
(FOR PERIODS ENDED DECEMBER 31, 1997)
<TABLE>
<CAPTION>
AVERAGE
ANNUAL THE FUND
TOTAL AT NET THE FUND AT MAXIMUM LEHMAN
RETURNS: ASSET VALUE/1/ SALES CHARGE/1/,/2/ INDEX/3/ S&P 500/4/
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<S> <C> <C> <C> <C>
One year 21.04% 14.06% 9.65% 33.32%
................................................................................
Five years 14.22% 12.87% 7.48% 20.23%
................................................................................
Ten years 13.61% 12.94% 9.18% 18.01%
................................................................................
Lifetime/5/ 13.43% 13.13% 9.81%/6/ 15.57%
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</TABLE>
Yield/1/,/2/: 3.53%
Distribution Rate/2/: 3.12%
/1/ These fund results were calculated according to a standard formula that is
required for all stock and bond funds.
/2/ The maximum sales charge has been deducted.
/3/ Lehman Brothers Aggregate Bond Index represents investment grade debt. This
index is unmanaged and does not reflect sales charges, commissions or
expenses.
/4/ The Standard & Poor's 500 Composite Index represents stocks. This index is
unmanaged and does not reflect sales charges, commission or expenses.
/5/ For the period beginning July 26, 1975 (when Capital Research and Management
Company became the fund's investment adviser).
/6/ Lehman Brothers Aggregate Bond Index did not exist until December 31, 1975.
For the period between July 31, 1975 and December 31, 1975, Lehman Brothers
Government/Corporate Bond Index results were used. The Lehman Brothers
indexes are based on July 31, 1975 index value.
AMERICAN BALANCED FUND / PROSPECTUS 11
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AMERICAN BALANCED FUND / PROSPECTUS
[begin bar chart]
Here are the fund's annual total returns calculated without a sales charge.
This information is being supplied on a calendar year basis.
<TABLE>
<CAPTION>
AMERICAN
BALANCED
Measurement Period FUND
------------------- ----------
<S> <C>
FYE 1988 12.87
FYE 1989 21.53
FYE 1990 - 1.57
FYE 1991 24.69
FYE 1992 9.48
FYE 1993 11.27
FYE 1994 0.34
FYE 1995 27.13
FYE 1996 13.17
FYE 1997 21.04
</TABLE>
[end bar chart]
Past results are not an indication of future results.
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DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
The fund usually pays dividends, which may fluctuate, in February, May, August
and December. Capital gains, if any, are also usually distributed in December.
When a dividend or capital gain is distributed, the net asset value per share
is reduced by the amount of the payment.
If a shareholder has elected to receive dividends and/or capital gain
distributions in cash, and the postal or other delivery service is unable to
deliver checks to the shareholder's address of record, or the shareholder does
not respond to mailings from American Funds Service Company with regard to
uncashed distribution checks, the shareholder's distribution option will
automatically be converted to having all dividends and other distributions
reinvested in additional shares.
FEDERAL TAXES
In any fiscal year in which the fund qualifies as a regulated investment
company and distributes to shareholders all of its net investment income and
net capital gains, the fund itself is relieved of federal income tax.
12
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Generally, all dividends and capital gains are taxable whether they are
reinvested or received in cash -- unless you are exempt from taxation or
entitled to tax deferral. Early each year, you will be notified as to the
amount and federal tax status of all income distributions paid during the prior
year. Such distributions may also be subject to state or local taxes. The tax
treatment of redemptions from a retirement plan account may differ from
redemptions from an ordinary shareholder account.
YOU MUST PROVIDE THE FUND WITH A CERTIFIED CORRECT TAXPAYER IDENTIFICATION
NUMBER (GENERALLY YOUR SOCIAL SECURITY NUMBER) AND CERTIFY THAT YOU ARE NOT
SUBJECT TO BACKUP WITHHOLDING. IF YOU FAIL TO DO SO THE IRS CAN REQUIRE THE
FUND TO WITHHOLD 31% OF YOUR TAXABLE DISTRIBUTIONS AND REDEMPTIONS. Federal law
also requires the fund to withhold 30% or the applicable tax treaty rate from
dividends paid to certain nonresident alien, non-U.S. partnership and non-U.S.
corporation shareholder accounts.
This is a brief summary of some of the tax laws that affect your investment in
the fund. Please see the statement of additional information and your tax
adviser for further information.
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FUND ORGANIZATION AND MANAGEMENT
FUND ORGANIZATION AND VOTING RIGHTS
The fund, an open-end, diversified management investment company, was organized
as a Delaware corporation in 1932, and reorganized as a Maryland corporation in
1990. All fund operations are supervised by the fund's board of directors which
meets periodically and performs duties required by applicable state and federal
laws. Members of the board who are not employed by Capital Research and
Management Company or its affiliates are paid certain fees for services
rendered to the fund as described in the statement of additional information.
They may elect to defer all or a portion of these fees through a deferred
compensation plan in effect for the fund. The fund does not hold annual
meetings of shareholders. However, significant matters that require shareholder
approval, such as certain elections of board members or a change in a
fundamental investment policy, will be presented to shareholders at a meeting
called for such purpose. Shareholders have one vote per share owned. At the
request of the holders of at least 10% of the shares, the fund will hold a
meeting at which any member of the board could be removed by a majority vote.
THE INVESTMENT ADVISER
Capital Research and Management Company, a large and experienced investment
management organization founded in 1931, is the investment
AMERICAN BALANCED FUND / PROSPECTUS 13
<PAGE>
================================================================================
adviser to the fund and other funds, including those in The American Funds
Group. Capital Research and Management Company, a wholly owned subsidiary of
The Capital Group Companies, Inc., is headquartered at 333 South Hope Street,
Los Angeles, CA 90071. Capital Research and Management Company manages the
investment portfolio and business affairs of the fund. The management fee paid
by the fund to Capital Research and Management Company may not exceed 0.42% of
the fund's average net assets annually and declines at certain asset levels.
The total management fee paid by the fund, as a percentage of average net
assets, for the previous fiscal year is discussed earlier under "Expenses."
Capital Research and Management Company and its affiliated companies have
adopted a personal investing policy that is consistent with the recommendations
contained in the May 9, 1994 report issued by the Investment Company
Institute's Advisory Group on Personal Investing. This policy has also been
incorporated into the fund's code of ethics.
PLAN OF DISTRIBUTION
The fund has a Plan of Distribution or "12b-1 Plan" under which it may finance
activities primarily intended to sell shares, provided the categories of
expenses are approved in advance by the board. The 12b-1 fee paid by the fund,
as a percentage of average net assets, for the previous fiscal year is
discussed earlier under "Expenses." Since these fees are paid out of the fund's
assets on an ongoing basis, over time they will increase the cost of an
investment and may cost you more than paying higher sales loads in lieu of
these fees.
PORTFOLIO TRANSACTIONS
Orders for the fund's portfolio securities transactions are placed by Capital
Research and Management Company, which strives to obtain the best available
prices, taking into account the costs and quality of executions. Fixed-income
securities are generally traded on a "net" basis with a dealer acting as
principal for its own account without a stated commission, although the price
of the security usually includes a profit to the dealer. In underwritten
offerings, securities are usually purchased at a fixed price which includes an
amount of compensation to the dealer, generally referred to as a concession or
discount. On occasion, securities may be purchased directly from an issuer, in
which case no commissions or discounts are paid. In the over-the-counter
market, purchases and sales are transacted directly with principal market-
makers except in those circumstances where it appears better prices and
executions are available elsewhere.
14 AMERICAN BALANCED FUND / PROSPECTUS
<PAGE>
================================================================================
Subject to the above policy, when two or more brokers (either directly or
through their correspondent clearing agents) are in a position to offer
comparable prices and executions, preference may be given to brokers who have
sold shares of the fund or have provided investment research, statistical, and
other related services for the benefit of the fund and/or other funds served by
Capital Research and Management Company.
PRINCIPAL UNDERWRITER AND TRANSFER AGENT
American Funds Distributors, Inc. and American Funds Service Company serve as
the principal underwriter and transfer agent for the fund, respectively. They
are headquartered at 333 South Hope Street, Los Angeles, CA 90071 and 135 South
State College Boulevard, Brea, CA 92821, respectively.
AMERICAN FUNDS SERVICE COMPANY SERVICE AREAS
CALL TOLL-FREE FROM ANYWHERE IN THE U.S.
(8 A.M. TO 8 P.M. ET):
800/421-0180
[MAP APPEARS HERE]
<TABLE>
<S> <C> <C> <C>
WESTERN SERVICE WESTERN CENTRAL EASTERN CENTRAL EASTERN SERVICE
CENTER SERVICE CENTER SERVICE CENTER CENTER
American Funds American Funds American Funds American Funds
Service Company Service Company Service Company Service Company
P.O. Box 2205 P.O. Box 659522 P.O. Box 6007 P.O. Box 2280
Brea, California San Antonio, Texas Indianapolis, Indiana Norfolk, Virginia
92822-2205 78265-9522 46206-6007 23501-2280
Fax: 714/671-7080 Fax: 210/530-4050 Fax: 317/735-6620 Fax: 757/670-4773
</TABLE>
AMERICAN BALANCED FUND / PROSPECTUS 15
<PAGE>
================================================================================
SHAREHOLDER SERVICES
The fund offers you a valuable array of services you can use to alter your
investment program as your needs and circumstances change. These services,
which are summarized below, are available only in states where they may be
legally offered and may be terminated or modified at any time upon 60 days'
written notice. A COMPLETE DESCRIPTION OF SHAREHOLDER SERVICES AND ACCOUNT
POLICIES IS CONTAINED IN THE FUND'S STATEMENT OF ADDITIONAL INFORMATION. In
addition, an easy-to-read guide to owning a fund in The American Funds Group
titled "Welcome to the Family" is sent to new shareholders and is available by
writing or calling American Funds Service Company.
THE SERVICES DESCRIBED MAY NOT BE AVAILABLE THROUGH SOME RETIREMENT PLANS OR
ACCOUNTS HELD BY INVESTMENT DEALERS. IF YOU ARE INVESTING IN SUCH A MANNER, YOU
SHOULD CONTACT YOUR PLAN ADMINISTRATOR/TRUSTEE OR DEALER ABOUT WHAT SERVICES
ARE AVAILABLE AND WITH QUESTIONS ABOUT YOUR ACCOUNT.
- --------------------------------------------------------------------------------
PURCHASING SHARES
HOW TO PURCHASE SHARES
Generally, you may open an account by contacting any investment dealer
authorized to sell the fund's shares. You may add to your account through your
dealer or directly through American Funds Service Company by mail, computer,
wire, or bank debit. You may also establish or add to your account by
exchanging shares from any of your other accounts in The American Funds Group.
The fund and American Funds Distributors reserve the right to reject any
purchase order for any reason. This includes exchange purchase orders that may
place an unfair burden on other shareholders due to their frequency.
Various purchase options are available as described below subject to certain
investment minimums and limitations described in the statement of additional
information and "Welcome to the Family."
. Automatic Investment Plan
You may invest monthly or quarterly through automatic withdrawals from your
bank account.
. Automatic Reinvestment
You may reinvest your dividends and capital gain distributions into the fund
(with no sales charge). This will be done automatically unless you elect to
have the dividends and/or capital gain distributions paid to you in cash.
16 AMERICAN BALANCED FUND / PROSPECTUS
<PAGE>
================================================================================
. Cross-Reinvestment
You may invest your dividends and capital gain distributions into any other
fund in The American Funds Group.
. Exchange Privilege
You may exchange your shares into other funds in The American Funds Group
generally with no sales charge. Exchanges of shares from the money market
funds that were initially purchased with no sales charge will generally be
subject to the appropriate sales charge. You may also elect to automatically
exchange shares among any of the funds in The American Funds Group. Exchange
requests may be made in writing, by telephone including American
FundsLine(R), by computer using American FundsLine OnLineSM (see below) or
by fax. EXCHANGES HAVE THE SAME TAX CONSEQUENCES AS ORDINARY SALES AND
PURCHASES.
. Retirement Plans
You may invest in the fund through various retirement plans. For further
information contact your investment dealer or American Funds Distributors.
SHARE PRICE
The fund's share price, also called net asset value, is determined as of 4:00
p.m. Eastern time (the normal close of trading) every day the New York Stock
Exchange is open. The fund calculates its net asset value per share, generally
using market prices, by dividing the total value of its assets after
subtracting liabilities by the number of its shares outstanding. Shares are
purchased at the offering price next determined after your investment is
received and accepted by American Funds Service Company. The offering price is
the net asset value plus a sales charge, if applicable.
SHARE CERTIFICATES
Shares are credited to your account and certificates are not issued unless you
request them by writing to American Funds Service Company.
INVESTMENT MINIMUMS
<TABLE>
- --------------------------------------------------------------------------------
<S> <C>
To establish an account $500
For a retirement plan account $250
For a retirement plan account through payroll deduction $ 25
To add to an account $ 50
For a retirement plan account through payroll deduction $ 25
</TABLE>
AMERICAN BALANCED FUND / PROSPECTUS 17
<PAGE>
================================================================================
SALES CHARGES
A sales charge may apply, as described below, when purchasing shares. Sales
charges may be reduced for larger purchases as indicated below.
<TABLE>
<CAPTION>
SALES CHARGE AS A
PERCENTAGE OF
..................
DEALER
NET CONCESSION AS
OFFERING AMOUNT % OF OFFERING
INVESTMENT PRICE INVESTED PRICE
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000 5.75% 6.10% 5.00%
..............................................................................
$50,000 but less than $100,000 4.50% 4.71% 3.75%
..............................................................................
$100,000 but less than $250,000 3.50% 3.63% 2.75%
..............................................................................
$250,000 but less than $500,000 2.50% 2.56% 2.00%
..............................................................................
$500,000 but less than $1 million 2.00% 2.04% 1.60%
..............................................................................
$1 million or more and certain
other investments described below see below see below see below
</TABLE>
PURCHASES NOT SUBJECT TO SALES CHARGES
Investments of $1 million or more and investments made by employer-sponsored
defined contribution-type plans with 100 or more eligible employees are sold
with no initial sales charge. A 1% CONTINGENT DEFERRED SALES CHARGE MAY BE
IMPOSED ON CERTAIN REDEMPTIONS BY THESE ACCOUNTS MADE WITHIN ONE YEAR OF
PURCHASE. 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. A dealer concession of up to 1% may be
paid by the fund under its Plan of Distribution and/or by American Funds
Distributors on investments made with no initial sales charge. Investments by
certain individuals and entities including employees and other associated
persons of dealers authorized to sell shares of the fund and Capital Research
and Management Company and its affiliated companies are not subject to a sales
charge.
ADDITIONAL DEALER COMPENSATION
In addition to the concessions listed, up to 0.25% of average net assets is
paid annually to qualified dealers for providing certain services pursuant to
the fund's Plan of Distribution. American Funds Distributors currently provides
additional compensation to the top 100 dealers who have sold shares of funds in
The American Funds Group based on the pro rata share of a qualifying dealer's
sales.
18 AMERICAN BALANCED FUND / PROSPECTUS
<PAGE>
================================================================================
REDUCING YOUR SALES CHARGE
You and your immediate family may combine investments to reduce your costs. You
must let your investment dealer or American Funds Service Company know if you
qualify for a reduction in your sales charge using one or any combination of
the methods described below.
. Aggregation
Investments that may be aggregated include those made by you, your spouse
and your children under the age of 21, if all parties are purchasing shares
for their own account(s), including any business account solely "controlled
by," as well as any retirement plan or trust account solely for the benefit
of, these individuals. Investments made for multiple employee benefit plans
of a single employer or "affiliated" employers may be aggregated provided
they are not also aggregated with individual accounts. Finally, investments
made by a common trust fund or other diversified pooled account not
specifically formed for the purpose of accumulating fund shares may be
aggregated.
Purchases made for nominee or street name accounts will generally not be
aggregated with those made for other accounts unless qualified as described
above.
. Concurrent Purchases
You may combine concurrent purchases of two or more funds in The American
Funds Group, except direct purchases of the money market funds. Shares of
the money market funds purchased through an exchange, reinvestment or cross-
reinvestment from a fund having a sales charge do qualify.
. Right of Accumulation
You may take into account the current value of your existing holdings in The
American Funds Group, as well as your holdings in Endowments and Bond
Portfolio for Endowments (shares of which may be owned only by tax-exempt
organizations), to determine your sales charge on investments in accounts
eligible to be aggregated, or when making a gift to an individual or
charity. Direct purchases of the money market funds are excluded.
. Statement of Intention
You may enter into a non-binding commitment to invest a certain amount
(which, at your request, may include purchases made during the previous 90
days) in non-money market fund shares over a 13-month period. A portion of
your account may be held in escrow to cover additional sales charges which
may be due if your total investments over the statement period are
insufficient to qualify for the applicable sales charge reduction.
AMERICAN BALANCED FUND / PROSPECTUS 19
<PAGE>
================================================================================
SELLING SHARES
HOW TO SELL SHARES
You may sell (redeem) shares in your account by contacting your investment
dealer or American Funds Service Company. You may also use American
FundsLine(R) or American FundsLine OnLineSM (see below). In addition, you may
sell shares in amounts of $50 or more automatically. If you sell shares through
your investment dealer you may be charged for this service. Shares held for you
in your dealer's street name must be sold through the dealer.
Shares are sold at the net asset value next determined after your request is
received in good order by American Funds Service Company. Sale requests may be
made in writing, by telephone, including American FundsLine(R), by computer
using American FundsLine OnLineSM, or by fax. Sales by telephone, computer or
fax are limited to $50,000 in accounts registered to individual(s) (including
non-retirement trust accounts). In addition, checks must be made payable to the
registered shareholder(s) and mailed to an address of record that has been used
with the account for at least 10 days.
Proceeds will not be mailed until sufficient time has passed to provide
reasonable assurance that checks or drafts (including certified or cashier's
checks) for shares purchased have cleared (which may take up to 15 calendar
days from the purchase date). Except for delays relating to clearance of checks
for share purchases or in extraordinary circumstances (and as permissible under
the Investment Company Act of 1940), sale proceeds will be paid on or before
the seventh day following receipt and acceptance of an order. Interest will not
accrue or be paid on amounts that represent uncashed distribution or redemption
checks.
The fund may, with 60 days' written notice, close your account if due to a sale
of shares the account has a value of less than the minimum required initial
investment.
Generally, written requests to sell shares must be signed by you and must
include any shares you wish to sell that are in certificate form. Your
signature must be guaranteed by a member firm of a domestic stock exchange or
the National Association of Securities Dealers, Inc., bank, savings association
or credit union that is an eligible guarantor institution. A signature
guarantee is not currently required for any sale of $50,000 or less provided
the check is made payable to the registered shareholder(s) and is mailed to the
address of record on the account, and provided the address has been used with
the account for at least 10 days. Additional documentation may be required for
sales of shares held in corporate, partnership or fiduciary accounts.
20 AMERICAN BALANCED FUND / PROSPECTUS
<PAGE>
================================================================================
You may reinvest proceeds from a redemption or a dividend or capital gain
distribution without a sales charge (any contingent deferred sales charge paid
will be credited to your account) in any fund in The American Funds Group
within 90 days after the date of the redemption or distribution. Redemption
proceeds of shares representing direct purchases in the money market funds are
excluded. Reinvestment will be at the next calculated net asset value after
receipt and acceptance by American Funds Service Company.
- --------------------------------------------------------------------------------
OTHER IMPORTANT THINGS TO REMEMBER
AMERICAN FUNDSLINE(R) AND AMERICAN FUNDSLINE ONLINESM
You may check your share balance, the price of your shares, or your most recent
account transactions, sell shares (up to $50,000 per shareholder each day), or
exchange shares around the clock with American FundsLine(R) or American
FundsLine OnLineSM. To use these services, call 800/325-3590 from a
TouchTone(TM) telephone or access The American Funds Web site on the Internet
at www.americanfunds.com.
TELEPHONE AND COMPUTER PURCHASES, SALES AND EXCHANGES
Unless you opt out of the telephone or computer (including American
FundsLine(R) or American FundsLine OnLineSM) or fax purchase, sale and/or
exchange options (see below), 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 liabilities
(including attorney fees) which may be incurred in connection with the exercise
of these privileges provided American Funds Service Company employs reasonable
procedures to confirm that the instructions received from any person with
appropriate account information are genuine. If reasonable procedures are not
employed, the fund may be liable for losses due to unauthorized or fraudulent
instructions.
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 to
American Funds Service Company.)
ACCOUNT STATEMENTS
You will receive regular confirmation statements reflecting transactions in
your account. Dividend and capital gain reinvestments and purchases through
automatic investment plans and certain retirement plans will be confirmed at
least quarterly.
AMERICAN BALANCED FUND / PROSPECTUS 21
<PAGE>
================================================================================
NOTES
22 AMERICAN BALANCED FUND / PROSPECTUS
<PAGE>
NOTES
AMERICAN BALANCED FUND / PROSPECTUS 23
<PAGE>
================================================================================
FOR SHAREHOLDER FOR RETIREMENT PLAN FOR DEALER
SERVICES SERVICES SERVICES
American Funds Call your employer or American Funds
Service Company plan administrator Distributors
800/421-0180 ext. 1 800/421-9900 ext. 11
FOR 24-HOUR INFORMATION
American American Funds
FundsLine(R) Internet Web site
800/325-3590 http://www.americanfunds.com
Telephone conversations may be recorded or monitored for verification,
recordkeeping and quality assurance purposes.
================================================================================
MULTIPLE TRANSLATIONS
This prospectus may be translated into other languages. In the event of any
inconsistency or ambiguity as to the meaning of any word or phrase in a
translation, the English text will prevail.
================================================================================
OTHER FUND INFORMATION
ANNUAL/SEMI-ANNUAL REPORT TO SHAREHOLDERS
Includes financial statements, detailed performance information, portfolio
holdings, a statement from portfolio management and the independent
accountants' report (in the annual report).
STATEMENT OF ADDITIONAL INFORMATION (SAI)
Contains more detailed information on all aspects of the fund, including the
fund's financial statements.
A current SAI has been filed with the Securities and Exchange Commission
("SEC"). It is incorporated by reference into this prospectus and is available
along with other related materials on the SEC's Internet Web site at
http://www.sec.gov.
CODE OF ETHICS
Includes a description of the fund's personal investing policy.
To request a free copy of any of the documents above:
Call American Funds or Write to the Secretary
Service Company of the fund
800/421-0180 ext. 1 P.O. Box 7650
San Francisco, CA 94120
================================================================================
This prospectus has been printed on recycled paper.
[LOGO OF RECYCLED PAPER APPEARS HERE]
24 AMERICAN BALANCED FUND / PROSPECTUS
THE FUND PROVIDES SPANISH TRANSLATIONS IN CONNECTION WITH THE PUBLIC OFFERING
AND SALE OF ITS SHARES. THE FOLLOWING IS A FAIR AND ACCURATE ENGLISH
TRANSLATION OF A SPANISH LANGUAGE PROSPECTUS FOR THE FUND.
/s/ Patrick F. Quan
Patrick F. Quan
Secretary
<PAGE>
[LOGO OF THE AMERICAN FUNDS GROUP(R)]
- --------------------------------------------------------------------------------
American Balanced Fund(R)
Prospectus
MARCH 1, 1998
<PAGE>
AMERICAN BALANCED FUND
One Market
Steuart Tower, Suite 1800
San Francisco, CA 94105
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Expenses 3
................................................................................
Financial Highlights 4
................................................................................
Investment Policies and Risks 5
................................................................................
Securities and Investment Techniques 5
................................................................................
Multiple Portfolio Counselor System 10
................................................................................
Investment Results 11
................................................................................
Dividends, Distributions and Taxes 12
................................................................................
Fund Organization and Management 13
................................................................................
Shareholder Services 16
- --------------------------------------------------------------------------------
</TABLE>
The investment objectives of the fund are: (1) conservation of capital,
(2) current income, and (3) long-term growth of capital and income. The fund
strives to accomplish these objectives by investing in a broadly diversified
portfolio of securities including stocks and bonds. The fund approaches the
management of its investments as if they constituted the complete investment
program of the prudent investor.
This prospectus presents information you should know before investing in the
fund. You should keep it on file for future reference.
YOU MAY LOSE MONEY BY INVESTING IN THE FUND. THE LIKELIHOOD OF LOSS IS GREATER
IF YOU INVEST FOR A SHORTER PERIOD OF TIME. YOUR INVESTMENT IN THE FUND IS NOT
A DEPOSIT OR OBLIGATION OF, OR INSURED OR GUARANTEED BY, ANY ENTITY OR PERSON
INCLUDING THE U.S. GOVERNMENT AND THE FEDERAL DEPOSIT INSURANCE CORPORATION.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
11-010-0398
<PAGE>
================================================================================
EXPENSES
The effect of the expenses described below is reflected in the fund's share
price and return.
You may pay certain shareholder transaction expenses when you buy or sell
shares of the fund. Operating expenses are paid by the fund.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Maximum sales charge on purchases
(as a percentage of offering price) 5.75%
................................................................................
</TABLE>
SALES CHARGES ARE REDUCED OR ELIMINATED FOR LARGER PURCHASES. There is no sales
charge on reinvested dividends, and no deferred sales charge or redemption or
exchange fees. A contingent deferred sales charge of 1% applies on certain
redemptions made within 12 months following purchases without a sales charge.
FUND OPERATING EXPENSES
(as a percentage of average net assets)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Management fees 0.30%
................................................................................
12b-1 expenses 0.25%/1/
................................................................................
Other expenses 0.10%
................................................................................
Total fund operating expenses 0.65%
</TABLE>
/1/ 12b-1 expenses may not exceed 0.25% of the fund's average net assets
annually.
EXAMPLES
Assuming a hypothetical annual return of 5% and shareholder transaction and
operating expenses as described above, for every $1,000 you invested, you would
pay the following total expenses over the following periods:
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
One year $ 64
................................................................................
Three years $ 77
................................................................................
Five years $ 92
................................................................................
Ten years $134
</TABLE>
THESE EXAMPLES ARE NOT MEANT TO REPRESENT YOUR ACTUAL INVESTMENT RESULTS OR
EXPENSES, WHICH MAY VARY. YOUR EXPENSES WILL BE LESS IF YOU QUALIFY TO PURCHASE
SHARES AT A REDUCED OR NO SALES CHARGE.
- --------------------------------------------------------------------------------
AMERICAN BALANCED FUND / PROSPECTUS 3
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
FINANCIAL HIGHLIGHTS
The following information for the seven years ended December 31, 1997 has been
audited by Deloitte & Touche llp, independent auditors, and for the three years
ended December 31, 1990 by KPMG Peat Marwick, independent auditors. This table
should be read together with the financial statements which are included in the
statement of additional information and annual report.
SELECTED PER-SHARE DATA
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
.......................
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $14.55 $14.15 $12.00 $12.57 $12.28 $12.05 $10.32 $11.41 $10.46 $10.13
- ---------------------------------------------------------------------------------------------------------
INCOME FROM
INVESTMENT
OPERATIONS:
Net investment
income .58 .57 .57 .57 .59 .61 .62 .63 .66 .59
.........................................................................................................
Net realized gain and
change in unrealized
appreciation on
investments 2.41 1.24 2.61 (.53) .76 .49 1.86 (.82) 1.54 .68
.........................................................................................................
Total income (loss)
from investment
operations 2.99 1.81 3.18 .04 1.35 1.10 2.48 (.19) 2.20 1.27
- ---------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Distributions from
net investment income (.56) (.56) (.56) (.56) (.60) (.60) (.62) (.63) (.67) (.62)
.........................................................................................................
Distributions from
net realized gains (1.30) (.85) (.47) (.05) (.46) (.27) (.13) (.27) (.58) (.32)
.........................................................................................................
Total distributions (1.86) (1.41) (1.03) (.61) (1.06) (.87) (.75) (.90) (1.25) (.94)
.........................................................................................................
Net asset value,
end of year $15.68 $14.55 $14.15 $12.00 $12.57 $12.28 $12.05 $10.32 $11.41 $10.46
- ---------------------------------------------------------------------------------------------------------
Total return/1/ 21.04% 13.17% 27.13% .34% 11.27% 9.48% 24.69% (1.57)% 21.53% 12.87%
- ---------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
year (in millions) $5,036 $3,941 $3,048 $2,082 $1,710 $1,067 $642 $370 $275 $218
.........................................................................................................
Ratio of expenses
to average net assets .65% .67% .67% .68% .71% .74% .82% .84% .78% .76%
.........................................................................................................
Ratio of net
income to average net
assets 3.74% 4.01% 4.38% 4.76% 4.74% 5.19% 5.56% 5.95% 5.80% 5.54%
.........................................................................................................
Average
commissions
paid per share/2/ 4.57c 5.78c 6.16c 6.25c 6.82c 7.21c 7.45c 7.63c 7.75c 7.51c
.........................................................................................................
Portfolio turnover rate 44.01% 43.85% 39.03% 32.05% 27.81% 17.00% 24.65% 25.51% 37.31% 41.90%
- ---------------------------------------------------------------------------------------------------------
</TABLE>
/1/ Excludes maximum sales charge of 5.75%.
/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 most over-the-counter and
fixed-income transactions, are excluded. Generally, non-U.S. commissions are
lower than U.S. commissions when expressed as cents per share but higher
when expressed as a percentage of transactions because of the lower per-
share prices of many non-U.S. securities.
4 AMERICAN BALANCED FUND / PROSPECTUS
<PAGE>
================================================================================
INVESTMENT POLICIES AND RISKS
The fund strives to provide you with conservation of capital, current income
and long-term growth of both capital and income. It approaches the management
of its investments as if they constituted the complete investment program of
the prudent investor.
The fund invests in a broadly diversified portfolio of securities, including
common stocks, securities convertible into common stocks, preferred stocks,
corporate bonds, U.S. Government securities and real estate investment trusts.
The fund may also invest in notes and bonds issued by governments, their
agencies or instrumentalities, or corporations in which the principal value
and/or interest payments vary with the rate of inflation. Assets may be held in
cash or cash equivalents (such as certain short-term securities, including
commercial paper). Normally, the fund will maintain at least 50% of the value
of its assets in common stocks. Additionally, the fund will maintain at least
25% of the value of its assets in fixed-income securities. These securities
will be investment grade, which are rated in the top four quality categories by
Standard & Poor's Corporation or Moody's Investors Service, Inc. or unrated but
determined to be of equivalent quality by Capital Research and Management
Company, the fund's investment adviser. MORE INFORMATION ON THE FUND'S
INVESTMENT POLICIES IS CONTAINED IN ITS STATEMENT OF ADDITIONAL INFORMATION.
Investment limitations are considered at the time securities are purchased.
These limits are based on the fund's net assets unless otherwise indicated. The
fund's fundamental investment restrictions (described in the statement of
additional information) and objectives may not be changed without shareholder
approval.
THE FUND MAY NOT ACHIEVE ITS INVESTMENT OBJECTIVES DUE TO MARKET CONDITIONS AND
OTHER FACTORS. IN ADDITION, THE FUND MAY EXPERIENCE DIFFICULTY LIQUIDATING
CERTAIN PORTFOLIO SECURITIES DURING SIGNIFICANT MARKET DECLINES OR PERIODS OF
HEAVY REDEMPTIONS.
- --------------------------------------------------------------------------------
SECURITIES AND INVESTMENT TECHNIQUES
EQUITY SECURITIES
Equity securities represent an ownership position in a company. The prices of
equity securities fluctuate based on changes in the financial condition of
their issuers and on market and economic conditions. The fund's results will be
related to the overall market for these securities.
AMERICAN BALANCED FUND / PROSPECTUS 5
<PAGE>
================================================================================
DEBT SECURITIES
Bonds and other debt securities are used by issuers to borrow money. Issuers
pay investors interest and generally must repay the amount borrowed at
maturity. Some debt securities, such as zero coupon bonds, do not pay current
interest, but are purchased at a discount from their face values. The prices of
debt securities fluctuate depending on such factors as interest rates, credit
quality and maturity. In general their prices decline when interest rates rise
and vice versa.
The fund may invest in debt securities rated Baa or BBB by Moody's Investors
Service, Inc. or Standard & Poor's Corporation or in unrated securities that
are determined to be of equivalent quality by Capital Research and Management
Company. These securities are considered "investment grade" but also have
speculative characteristics.
Capital Research and Management Company attempts to reduce the risks described
above through diversification of the portfolio and by credit analysis as well
as by monitoring broad economic trends and corporate and legislative
developments.
OTHER SECURITIES
The fund may also invest in securities that have a combination of equity and
debt characteristics such as non-convertible preferred stocks and convertible
securities. These securities may at times resemble equity more than debt and
vice versa. Non-convertible preferred stocks are similar to debt in that they
have a stated dividend rate akin to the coupon of a bond or note even though
they are often classified as equity securities. The prices and yields of non-
convertible preferred stocks generally move with changes in interest rates and
the issuer's credit quality, similar to the factors affecting debt securities.
Bonds, preferred stocks, and other securities may sometimes be converted into
shares of common stock or other securities at a stated exchange ratio. These
securities prior to conversion pay a fixed rate of interest or a dividend.
Because convertible securities have both debt and equity characteristics their
value varies in response to many factors, including the value of the underlying
equity, general market and economic conditions, convertible market valuations,
as well as changes in interest rates, credit spreads, and the credit quality of
the issuer.
U.S. GOVERNMENT SECURITIES
Securities guaranteed by the U.S. Government include: (1) direct obligations of
the U.S. Treasury (such as Treasury bills, notes and bonds) and (2) federal
agency obligations guaranteed as to principal and interest by the U.S.
Treasury.
6 AMERICAN BALANCED FUND / PROSPECTUS
<PAGE>
================================================================================
Certain securities issued by U.S. Government instrumentalities and certain
federal agencies are neither direct obligations of, nor guaranteed by, the
Treasury. However, they generally involve federal sponsorship in one way or
another; some are backed by specific types of collateral; some are supported by
the issuer's right to borrow from the Treasury; some are supported by the
discretionary authority of the Treasury to purchase certain obligations of the
issuer; and others are supported only by the credit of the issuing government
agency or instrumentality.
PASS-THROUGH SECURITIES
The fund may invest in various debt obligations backed by a pool of mortgages
or other assets including loans on single family residences, home equity loans,
mortgages on commercial buildings, credit card receivables, and leases on
airplanes or other equipment. Principal and interest payments made on the
underlying asset pools backing these obligations are typically passed through
to investors. Pass-through securities may have either fixed or adjustable
coupons. These securities include those discussed below.
"Mortgage-backed securities" are issued both by U.S. government agencies,
including the Government National Mortgage Association (GNMA), the Federal
National Mortgage Association (FNMA), and the Federal Home Loan Mortgage
Corporation (FHLMC), and by private entities. The payment of interest and
principal on securities issued by U.S. government agencies is guaranteed by the
full faith and credit of the U.S. government (in the case of GNMA securities)
or the issuer (in the case of FNMA and FHLMC securities). However, the
guarantees do not apply to the market prices and yields of these securities,
which vary with changes in interest rates.
Mortgage-backed securities issued by private entities are structured similarly
to mortgage-backed securities issued by GNMA, FNMA, and FHLMC. These securities
and the underlying mortgages are not guaranteed by government agencies. In
addition, these securities generally are structured with one or more types of
credit enhancement. Mortgage-backed securities generally permit borrowers to
prepay their underlying mortgages. Prepayments can alter the effective maturity
of these instruments.
"Collateralized mortgage obligations" (CMOs) are also backed by a pool of
mortgages, mortgage-backed securities or mortgage loans, which are divided into
two or more separate bond issues. CMOs issued by U.S. government agencies are
backed by agency mortgages, while privately issued CMOs may be backed by either
government agency mortgages or private mortgages. Payments of principal and
interest are passed-through to each bond at varying schedules resulting in
bonds with different coupons, effective maturities, and sensitivities
AMERICAN BALANCED FUND / PROSPECTUS 7
<PAGE>
================================================================================
to interest rates. In fact, some CMOs may be structured in a way that when
interest rates change the impact of changing prepayment rates on these
securities' effective maturities is magnified.
"Commercial mortgage-backed securities" are backed by commercial property, such
as hotels, office buildings, retail stores, hospitals, and other commercial
buildings. These securities may have a lower prepayment risk than other
mortgage-related securities because commercial mortgage loans generally
prohibit or impose penalties on prepayments of principal. In addition,
commercial mortgage-related securities often are structured with some form of
credit enhancement to protect against potential losses on the underlying
mortgage loans. Many of the risks of investing in commercial mortgage-backed
securities reflect the risks of investing in the real estate securing the
underlying mortgage loans, including the effects of local and other economic
conditions on real estate markets, the ability of tenants to make loan
payments, and the ability of a property to attract and retain tenants.
"Asset-backed securities" are backed by other assets such as credit card,
automobile or consumer loan receivables, retail installment loans, or
participations in pools of leases. Credit support for these securities may be
based on the underlying assets and/or provided through credit enhancements by a
third party. The values of these securities are sensitive to changes in the
credit quality of the underlying collateral, the credit strength of the credit
enhancement, changes in interest rates, and at times the financial condition of
the issuer. Some asset-backed securities also may receive prepayments which can
change the bonds' effective maturities.
INVESTING IN VARIOUS COUNTRIES
The fund may invest up to 10% of its assets in securities of issuers domiciled
outside the U.S. and not included in the Standard & Poor's 500 Composite Index.
Investing outside the U.S. involves special risks, particularly in certain
developing countries, caused by, among other things, fluctuating currency
values; different accounting, auditing, and financial reporting regulations and
practices in some countries; changing local and regional economic, political
and social conditions; expropriation or confiscatory taxation; greater market
volatility; differing securities market structures; and various administrative
difficulties such as delays in clearing and settling portfolio transactions or
in receiving payment of dividends. However, in the opinion of Capital Research
and Management Company, investing outside the U.S. also can reduce certain
portfolio risks due to greater diversification opportunities.
Additional costs could be incurred in connection with the fund's investment
activities outside the U.S. The fund can purchase and sell currencies to
facilitate
8 AMERICAN BALANCED FUND / PROSPECTUS
<PAGE>
================================================================================
transactions in securities denominated in currencies other than the U.S.
dollar. Brokerage commissions may be higher outside the U.S., and the fund may
bear certain expenses in connection with currency transactions. Furthermore,
increased custodian costs may be associated with the maintenance of assets in
certain jurisdictions.
FORWARD COMMITMENTS
The fund may enter into commitments to purchase or sell securities at a future
date. When the fund agrees to purchase such securities, it assumes the risk of
any decline in value of the securities beginning on the date of the agreement.
When the fund agrees to sell such securities, it does not participate in
further gains or losses with respect to the securities. 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.
The fund also may enter into "roll" transactions which are the sale of
mortgage-backed securities or other securities together with a commitment to
purchase similar, but not identical, securities at a later date. The fund
assumes the rights and risks of ownership, including the risk of price and
yield fluctuations as of the time of the agreement.
RESTRICTED SECURITIES AND LIQUIDITY
The fund may purchase securities subject to restrictions on resale. All such
securities whose principal trading market is in the U.S. will be considered
illiquid unless they have been specifically determined to be liquid under
procedures which have been adopted by the fund's board of directors, taking
into account factors such as the frequency and volume of trading, the
commitment of dealers to make markets and the availability of qualified
investors, all of which can change from time to time. The fund may incur
certain additional costs in disposing of illiquid securities.
AMERICAN BALANCED FUND / PROSPECTUS 9
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
MULTIPLE PORTFOLIO COUNSELOR SYSTEM
The investment philosophy of Capital Research and Management Company is to seek
fundamental values at reasonable prices. Capital Research and Management
Company utilizes a system of multiple portfolio counselors in managing mutual
fund assets. Under this system the portfolio of a fund is divided into segments
which are managed by individual counselors. Counselors decide how their
respective segments will be invested (within the limits provided by a fund's
objective(s) and policies and by Capital Research and Management Company's
investment committee). The primary individual portfolio counselors for the fund
are listed below.
<TABLE>
<CAPTION>
================================================================================
YEARS OF EXPERIENCE
AS
INVESTMENT
PROFESSIONAL
(APPROXIMATE)
.......................
YEARS OF
EXPERIENCE
AS PORTFOLIO
COUNSELOR
(AND RESEARCH WITH CAPITAL
PROFESSIONAL, IF RESEARCH AND
APPLICABLE) FOR MANAGEMENT
PORTFOLIO COUNSELORS AMERICAN COMPANY OR
FOR AMERICAN BALANCED FUND ITS TOTAL
BALANCED FUND PRIMARY TITLE(S) (APPROXIMATE) AFFILIATES YEARS
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ROBERT G. President and 12 years (in 23 years 26 years
O'DONNELL Director of the addition to 14
fund. Senior years as a
Vice President research
and Director, professional
Capital prior to
Research and becoming a
Management portfolio
Company counselor for
the fund)*
- -------------------------------------------------------------------------------
ABNER D. Senior Vice 23 years 31 years 46 years
GOLDSTINE President of
the fund.
Senior Vice
President and
Director,
Capital
Research and
Management
Company
- -------------------------------------------------------------------------------
J. DALE Vice President 2 years 7 years 9 years
HARVEY of the fund.
Vice President,
Capital
Research
Company+
- -------------------------------------------------------------------------------
VICTOR M. Senior Vice 2 years** 23 years 36 years
PARACHINI President,
Capital
Research and
Management
Company
- -------------------------------------------------------------------------------
JOHN H. SMET Vice President, less than 1 year 15 years 16 years
Capital
Research and
Management
Company
- -------------------------------------------------------------------------------
Capital Research and Management Company has been the fund's investment
adviser since July 26, 1975.
+ Company affiliated with Capital Research and Management Company.
* Prior to July 26, 1975, Mr. O'Donnell was a research professional with
American Express Investment Management Company, the fund's previous
investment adviser.
** Prior to July 26, 1975, Mr. Parachini was a portfolio counselor with
American Express Investment Management Company, the fund's previous
investment adviser.
================================================================================
</TABLE>
10 AMERICAN BALANCED FUND / PROSPECTUS
<PAGE>
================================================================================
INVESTMENT RESULTS
The fund may compare investment results to various indices or other mutual
funds. Fund results may be calculated on a total return, yield and/or
distribution rate basis. Results calculated without a sales charge will be
higher.
. TOTAL RETURN is the change in value of an investment in the fund over a given
period, assuming reinvestment of any dividends and capital gain
distributions.
. YIELD is computed by dividing the net investment income per share earned by
the fund over a given period of time by the maximum offering price per share
on the last day of the period, according to a formula mandated by the
Securities and Exchange Commission. A yield calculated using this formula may
be different than the income actually paid to shareholders.
. DISTRIBUTION RATE reflects dividends that were paid by the fund. The
distribution rate is calculated by dividing the dividends paid over the last
12 months by the sum of the month-end price and the capital gain
distributions paid over the last 12 months.
INVESTMENT RESULTS
(FOR PERIODS ENDED DECEMBER 31, 1997)
<TABLE>
<CAPTION>
AVERAGE
ANNUAL THE FUND
TOTAL AT NET THE FUND AT MAXIMUM LEHMAN
RETURNS: ASSET VALUE/1/ SALES CHARGE/1/,/2/ INDEX/3/ S&P 500/4/
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
One year 21.04% 14.06% 9.65% 33.32%
................................................................................
Five years 14.22% 12.87% 7.48% 20.23%
................................................................................
Ten years 13.61% 12.94% 9.18% 18.01%
................................................................................
Lifetime/5/ 13.43% 13.13% 9.81%/6/ 15.57%
- --------------------------------------------------------------------------------
</TABLE>
Yield/1/,/2/: 3.53%
Distribution Rate/2/: 3.12%
/1/ These fund results were calculated according to a standard formula that is
required for all stock and bond funds.
/2/ The maximum sales charge has been deducted.
/3/ Lehman Brothers Aggregate Bond Index represents investment grade debt. This
index is unmanaged and does not reflect sales charges, commissions or
expenses.
/4/ The Standard & Poor's 500 Composite Index represents stocks. This index is
unmanaged and does not reflect sales charges, commission or expenses.
/5/ For the period beginning July 26, 1975 (when Capital Research and Management
Company became the fund's investment adviser).
/6/ Lehman Brothers Aggregate Bond Index did not exist until December 31, 1975.
For the period between July 31, 1975 and December 31, 1975, Lehman Brothers
Government/Corporate Bond Index results were used. The Lehman Brothers
indexes are based on July 31, 1975 index value.
AMERICAN BALANCED FUND / PROSPECTUS 11
<PAGE>
- --------------------------------------------------------------------------------
AMERICAN BALANCED FUND / PROSPECTUS
[begin bar chart]
Here are the fund's annual total returns calculated without a sales charge.
This information is being supplied on a calendar year basis.
<TABLE>
<CAPTION>
AMERICAN
BALANCED
Measurement Period FUND
------------------- ----------
<S> <C>
FYE 1988 12.87
FYE 1989 21.53
FYE 1990 - 1.57
FYE 1991 24.69
FYE 1992 9.48
FYE 1993 11.27
FYE 1994 0.34
FYE 1995 27.13
FYE 1996 13.17
FYE 1997 21.04
</TABLE>
[end bar chart]
Past results are not an indication of future results.
- --------------------------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
The fund usually pays dividends, which may fluctuate, in February, May, August
and December. Capital gains, if any, are also usually distributed in December.
When a dividend or capital gain is distributed, the net asset value per share
is reduced by the amount of the payment.
If a shareholder has elected to receive dividends and/or capital gain
distributions in cash, and the postal or other delivery service is unable to
deliver checks to the shareholder's address of record, or the shareholder does
not respond to mailings from American Funds Service Company with regard to
uncashed distribution checks, the shareholder's distribution option will
automatically be converted to having all dividends and other distributions
reinvested in additional shares.
FEDERAL TAXES
In any fiscal year in which the fund qualifies as a regulated investment
company and distributes to shareholders all of its net investment income and
net capital gains, the fund itself is relieved of federal income tax.
12
<PAGE>
================================================================================
Generally, all dividends and capital gains are taxable whether they are
reinvested or received in cash -- unless you are exempt from taxation or
entitled to tax deferral. Early each year, you will be notified as to the
amount and federal tax status of all income distributions paid during the prior
year. Such distributions may also be subject to state or local taxes. The tax
treatment of redemptions from a retirement plan account may differ from
redemptions from an ordinary shareholder account.
YOU MUST PROVIDE THE FUND WITH A CERTIFIED CORRECT TAXPAYER IDENTIFICATION
NUMBER (GENERALLY YOUR SOCIAL SECURITY NUMBER) AND CERTIFY THAT YOU ARE NOT
SUBJECT TO BACKUP WITHHOLDING. IF YOU FAIL TO DO SO THE IRS CAN REQUIRE THE
FUND TO WITHHOLD 31% OF YOUR TAXABLE DISTRIBUTIONS AND REDEMPTIONS. Federal law
also requires the fund to withhold 30% or the applicable tax treaty rate from
dividends paid to certain nonresident alien, non-U.S. partnership and non-U.S.
corporation shareholder accounts.
This is a brief summary of some of the tax laws that affect your investment in
the fund. Please see the statement of additional information and your tax
adviser for further information.
- --------------------------------------------------------------------------------
FUND ORGANIZATION AND MANAGEMENT
FUND ORGANIZATION AND VOTING RIGHTS
The fund, an open-end, diversified management investment company, was organized
as a Delaware corporation in 1932, and reorganized as a Maryland corporation in
1990. All fund operations are supervised by the fund's board of directors which
meets periodically and performs duties required by applicable state and federal
laws. Members of the board who are not employed by Capital Research and
Management Company or its affiliates are paid certain fees for services
rendered to the fund as described in the statement of additional information.
They may elect to defer all or a portion of these fees through a deferred
compensation plan in effect for the fund. The fund does not hold annual
meetings of shareholders. However, significant matters that require shareholder
approval, such as certain elections of board members or a change in a
fundamental investment policy, will be presented to shareholders at a meeting
called for such purpose. Shareholders have one vote per share owned. At the
request of the holders of at least 10% of the shares, the fund will hold a
meeting at which any member of the board could be removed by a majority vote.
THE INVESTMENT ADVISER
Capital Research and Management Company, a large and experienced investment
management organization founded in 1931, is the investment
AMERICAN BALANCED FUND / PROSPECTUS 13
<PAGE>
================================================================================
adviser to the fund and other funds, including those in The American Funds
Group. Capital Research and Management Company, a wholly owned subsidiary of
The Capital Group Companies, Inc., is headquartered at 333 South Hope Street,
Los Angeles, CA 90071. Capital Research and Management Company manages the
investment portfolio and business affairs of the fund. The management fee paid
by the fund to Capital Research and Management Company may not exceed 0.42% of
the fund's average net assets annually and declines at certain asset levels.
The total management fee paid by the fund, as a percentage of average net
assets, for the previous fiscal year is discussed earlier under "Expenses."
Capital Research and Management Company and its affiliated companies have
adopted a personal investing policy that is consistent with the recommendations
contained in the May 9, 1994 report issued by the Investment Company
Institute's Advisory Group on Personal Investing. This policy has also been
incorporated into the fund's code of ethics.
PLAN OF DISTRIBUTION
The fund has a Plan of Distribution or "12b-1 Plan" under which it may finance
activities primarily intended to sell shares, provided the categories of
expenses are approved in advance by the board. The 12b-1 fee paid by the fund,
as a percentage of average net assets, for the previous fiscal year is
discussed earlier under "Expenses." Since these fees are paid out of the fund's
assets on an ongoing basis, over time they will increase the cost of an
investment and may cost you more than paying higher sales loads in lieu of
these fees.
PORTFOLIO TRANSACTIONS
Orders for the fund's portfolio securities transactions are placed by Capital
Research and Management Company, which strives to obtain the best available
prices, taking into account the costs and quality of executions. Fixed-income
securities are generally traded on a "net" basis with a dealer acting as
principal for its own account without a stated commission, although the price
of the security usually includes a profit to the dealer. In underwritten
offerings, securities are usually purchased at a fixed price which includes an
amount of compensation to the dealer, generally referred to as a concession or
discount. On occasion, securities may be purchased directly from an issuer, in
which case no commissions or discounts are paid. In the over-the-counter
market, purchases and sales are transacted directly with principal market-
makers except in those circumstances where it appears better prices and
executions are available elsewhere.
14 AMERICAN BALANCED FUND / PROSPECTUS
<PAGE>
================================================================================
Subject to the above policy, when two or more brokers (either directly or
through their correspondent clearing agents) are in a position to offer
comparable prices and executions, preference may be given to brokers who have
sold shares of the fund or have provided investment research, statistical, and
other related services for the benefit of the fund and/or other funds served by
Capital Research and Management Company.
PRINCIPAL UNDERWRITER AND TRANSFER AGENT
American Funds Distributors, Inc. and American Funds Service Company serve as
the principal underwriter and transfer agent for the fund, respectively. They
are headquartered at 333 South Hope Street, Los Angeles, CA 90071 and 135 South
State College Boulevard, Brea, CA 92821, respectively.
AMERICAN FUNDS SERVICE COMPANY SERVICE AREAS
CALL TOLL-FREE FROM ANYWHERE IN THE U.S.
(8 A.M. TO 8 P.M. ET):
800/421-0180
[MAP APPEARS HERE]
<TABLE>
<S> <C> <C> <C>
WESTERN SERVICE WESTERN CENTRAL EASTERN CENTRAL EASTERN SERVICE
CENTER SERVICE CENTER SERVICE CENTER CENTER
American Funds American Funds American Funds American Funds
Service Company Service Company Service Company Service Company
P.O. Box 2205 P.O. Box 659522 P.O. Box 6007 P.O. Box 2280
Brea, California San Antonio, Texas Indianapolis, Indiana Norfolk, Virginia
92822-2205 78265-9522 46206-6007 23501-2280
Fax: 714/671-7080 Fax: 210/530-4050 Fax: 317/735-6620 Fax: 757/670-4773
</TABLE>
AMERICAN BALANCED FUND / PROSPECTUS 15
<PAGE>
================================================================================
SHAREHOLDER SERVICES
The fund offers you a valuable array of services you can use to alter your
investment program as your needs and circumstances change. These services,
which are summarized below, are available only in states where they may be
legally offered and may be terminated or modified at any time upon 60 days'
written notice. A COMPLETE DESCRIPTION OF SHAREHOLDER SERVICES AND ACCOUNT
POLICIES IS CONTAINED IN THE FUND'S STATEMENT OF ADDITIONAL INFORMATION. In
addition, an easy-to-read guide to owning a fund in The American Funds Group
titled "Welcome to the Family" is sent to new shareholders and is available by
writing or calling American Funds Service Company.
THE SERVICES DESCRIBED MAY NOT BE AVAILABLE THROUGH SOME RETIREMENT PLANS OR
ACCOUNTS HELD BY INVESTMENT DEALERS. IF YOU ARE INVESTING IN SUCH A MANNER, YOU
SHOULD CONTACT YOUR PLAN ADMINISTRATOR/TRUSTEE OR DEALER ABOUT WHAT SERVICES
ARE AVAILABLE AND WITH QUESTIONS ABOUT YOUR ACCOUNT.
- --------------------------------------------------------------------------------
PURCHASING SHARES
HOW TO PURCHASE SHARES
Generally, you may open an account by contacting any investment dealer
authorized to sell the fund's shares. You may add to your account through your
dealer or directly through American Funds Service Company by mail, computer,
wire, or bank debit. You may also establish or add to your account by
exchanging shares from any of your other accounts in The American Funds Group.
The fund and American Funds Distributors reserve the right to reject any
purchase order for any reason. This includes exchange purchase orders that may
place an unfair burden on other shareholders due to their frequency.
Various purchase options are available as described below subject to certain
investment minimums and limitations described in the statement of additional
information and "Welcome to the Family."
. Automatic Investment Plan
You may invest monthly or quarterly through automatic withdrawals from your
bank account.
. Automatic Reinvestment
You may reinvest your dividends and capital gain distributions into the fund
(with no sales charge). This will be done automatically unless you elect to
have the dividends and/or capital gain distributions paid to you in cash.
16 AMERICAN BALANCED FUND / PROSPECTUS
<PAGE>
================================================================================
. Cross-Reinvestment
You may invest your dividends and capital gain distributions into any other
fund in The American Funds Group.
. Exchange Privilege
You may exchange your shares into other funds in The American Funds Group
generally with no sales charge. Exchanges of shares from the money market
funds that were initially purchased with no sales charge will generally be
subject to the appropriate sales charge. You may also elect to automatically
exchange shares among any of the funds in The American Funds Group. Exchange
requests may be made in writing, by telephone including American
FundsLine(R), by computer using American FundsLine OnLineSM (see below) or
by fax. EXCHANGES HAVE THE SAME TAX CONSEQUENCES AS ORDINARY SALES AND
PURCHASES.
. Retirement Plans
You may invest in the fund through various retirement plans. For further
information contact your investment dealer or American Funds Distributors.
SHARE PRICE
The fund's share price, also called net asset value, is determined as of 4:00
p.m. Eastern time (the normal close of trading) every day the New York Stock
Exchange is open. The fund calculates its net asset value per share, generally
using market prices, by dividing the total value of its assets after
subtracting liabilities by the number of its shares outstanding. Shares are
purchased at the offering price next determined after your investment is
received and accepted by American Funds Service Company. The offering price is
the net asset value plus a sales charge, if applicable.
SHARE CERTIFICATES
Shares are credited to your account and certificates are not issued unless you
request them by writing to American Funds Service Company.
INVESTMENT MINIMUMS
<TABLE>
- --------------------------------------------------------------------------------
<S> <C>
To establish an account $500
For a retirement plan account $250
For a retirement plan account through payroll deduction $ 25
To add to an account $ 50
For a retirement plan account through payroll deduction $ 25
</TABLE>
AMERICAN BALANCED FUND / PROSPECTUS 17
<PAGE>
================================================================================
SALES CHARGES
A sales charge may apply, as described below, when purchasing shares. Sales
charges may be reduced for larger purchases as indicated below.
<TABLE>
<CAPTION>
SALES CHARGE AS A
PERCENTAGE OF
..................
DEALER
NET CONCESSION AS
OFFERING AMOUNT % OF OFFERING
INVESTMENT PRICE INVESTED PRICE
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000 5.75% 6.10% 5.00%
..............................................................................
$50,000 but less than $100,000 4.50% 4.71% 3.75%
..............................................................................
$100,000 but less than $250,000 3.50% 3.63% 2.75%
..............................................................................
$250,000 but less than $500,000 2.50% 2.56% 2.00%
..............................................................................
$500,000 but less than $1 million 2.00% 2.04% 1.60%
..............................................................................
$1 million or more and certain
other investments described below see below see below see below
</TABLE>
PURCHASES NOT SUBJECT TO SALES CHARGES
Investments of $1 million or more and investments made by employer-sponsored
defined contribution-type plans with 100 or more eligible employees are sold
with no initial sales charge. A 1% CONTINGENT DEFERRED SALES CHARGE MAY BE
IMPOSED ON CERTAIN REDEMPTIONS BY THESE ACCOUNTS MADE WITHIN ONE YEAR OF
PURCHASE. 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. A dealer concession of up to 1% may be
paid by the fund under its Plan of Distribution and/or by American Funds
Distributors on investments made with no initial sales charge. Investments by
certain individuals and entities including employees and other associated
persons of dealers authorized to sell shares of the fund and Capital Research
and Management Company and its affiliated companies are not subject to a sales
charge.
ADDITIONAL DEALER COMPENSATION
In addition to the concessions listed, up to 0.25% of average net assets is
paid annually to qualified dealers for providing certain services pursuant to
the fund's Plan of Distribution. American Funds Distributors currently provides
additional compensation to the top 100 dealers who have sold shares of funds in
The American Funds Group based on the pro rata share of a qualifying dealer's
sales.
18 AMERICAN BALANCED FUND / PROSPECTUS
<PAGE>
================================================================================
REDUCING YOUR SALES CHARGE
You and your immediate family may combine investments to reduce your costs. You
must let your investment dealer or American Funds Service Company know if you
qualify for a reduction in your sales charge using one or any combination of
the methods described below.
. Aggregation
Investments that may be aggregated include those made by you, your spouse
and your children under the age of 21, if all parties are purchasing shares
for their own account(s), including any business account solely "controlled
by," as well as any retirement plan or trust account solely for the benefit
of, these individuals. Investments made for multiple employee benefit plans
of a single employer or "affiliated" employers may be aggregated provided
they are not also aggregated with individual accounts. Finally, investments
made by a common trust fund or other diversified pooled account not
specifically formed for the purpose of accumulating fund shares may be
aggregated.
Purchases made for nominee or street name accounts will generally not be
aggregated with those made for other accounts unless qualified as described
above.
. Concurrent Purchases
You may combine concurrent purchases of two or more funds in The American
Funds Group, except direct purchases of the money market funds. Shares of
the money market funds purchased through an exchange, reinvestment or cross-
reinvestment from a fund having a sales charge do qualify.
. Right of Accumulation
You may take into account the current value of your existing holdings in The
American Funds Group, as well as your holdings in Endowments and Bond
Portfolio for Endowments (shares of which may be owned only by tax-exempt
organizations), to determine your sales charge on investments in accounts
eligible to be aggregated, or when making a gift to an individual or
charity. Direct purchases of the money market funds are excluded.
. Statement of Intention
You may enter into a non-binding commitment to invest a certain amount
(which, at your request, may include purchases made during the previous 90
days) in non-money market fund shares over a 13-month period. A portion of
your account may be held in escrow to cover additional sales charges which
may be due if your total investments over the statement period are
insufficient to qualify for the applicable sales charge reduction.
AMERICAN BALANCED FUND / PROSPECTUS 19
<PAGE>
================================================================================
SELLING SHARES
HOW TO SELL SHARES
You may sell (redeem) shares in your account by contacting your investment
dealer or American Funds Service Company. You may also use American
FundsLine(R) or American FundsLine OnLineSM (see below). In addition, you may
sell shares in amounts of $50 or more automatically. If you sell shares through
your investment dealer you may be charged for this service. Shares held for you
in your dealer's street name must be sold through the dealer.
Shares are sold at the net asset value next determined after your request is
received in good order by American Funds Service Company. Sale requests may be
made in writing, by telephone, including American FundsLine(R), by computer
using American FundsLine OnLineSM, or by fax. Sales by telephone, computer or
fax are limited to $50,000 in accounts registered to individual(s) (including
non-retirement trust accounts). In addition, checks must be made payable to the
registered shareholder(s) and mailed to an address of record that has been used
with the account for at least 10 days.
Proceeds will not be mailed until sufficient time has passed to provide
reasonable assurance that checks or drafts (including certified or cashier's
checks) for shares purchased have cleared (which may take up to 15 calendar
days from the purchase date). Except for delays relating to clearance of checks
for share purchases or in extraordinary circumstances (and as permissible under
the Investment Company Act of 1940), sale proceeds will be paid on or before
the seventh day following receipt and acceptance of an order. Interest will not
accrue or be paid on amounts that represent uncashed distribution or redemption
checks.
The fund may, with 60 days' written notice, close your account if due to a sale
of shares the account has a value of less than the minimum required initial
investment.
Generally, written requests to sell shares must be signed by you and must
include any shares you wish to sell that are in certificate form. Your
signature must be guaranteed by a member firm of a domestic stock exchange or
the National Association of Securities Dealers, Inc., bank, savings association
or credit union that is an eligible guarantor institution. A signature
guarantee is not currently required for any sale of $50,000 or less provided
the check is made payable to the registered shareholder(s) and is mailed to the
address of record on the account, and provided the address has been used with
the account for at least 10 days. Additional documentation may be required for
sales of shares held in corporate, partnership or fiduciary accounts.
20 AMERICAN BALANCED FUND / PROSPECTUS
<PAGE>
================================================================================
You may reinvest proceeds from a redemption or a dividend or capital gain
distribution without a sales charge (any contingent deferred sales charge paid
will be credited to your account) in any fund in The American Funds Group
within 90 days after the date of the redemption or distribution. Redemption
proceeds of shares representing direct purchases in the money market funds are
excluded. Reinvestment will be at the next calculated net asset value after
receipt and acceptance by American Funds Service Company.
- --------------------------------------------------------------------------------
OTHER IMPORTANT THINGS TO REMEMBER
AMERICAN FUNDSLINE(R) AND AMERICAN FUNDSLINE ONLINESM
You may check your share balance, the price of your shares, or your most recent
account transactions, sell shares (up to $50,000 per shareholder each day), or
exchange shares around the clock with American FundsLine(R) or American
FundsLine OnLineSM. To use these services, call 800/325-3590 from a
TouchTone(TM) telephone or access The American Funds Web site on the Internet
at www.americanfunds.com.
TELEPHONE AND COMPUTER PURCHASES, SALES AND EXCHANGES
Unless you opt out of the telephone or computer (including American
FundsLine(R) or American FundsLine OnLineSM) or fax purchase, sale and/or
exchange options (see below), 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 liabilities
(including attorney fees) which may be incurred in connection with the exercise
of these privileges provided American Funds Service Company employs reasonable
procedures to confirm that the instructions received from any person with
appropriate account information are genuine. If reasonable procedures are not
employed, the fund may be liable for losses due to unauthorized or fraudulent
instructions.
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 to
American Funds Service Company.)
ACCOUNT STATEMENTS
You will receive regular confirmation statements reflecting transactions in
your account. Dividend and capital gain reinvestments and purchases through
automatic investment plans and certain retirement plans will be confirmed at
least quarterly.
AMERICAN BALANCED FUND / PROSPECTUS 21
<PAGE>
================================================================================
NOTES
22 AMERICAN BALANCED FUND / PROSPECTUS
<PAGE>
NOTES
AMERICAN BALANCED FUND / PROSPECTUS 23
<PAGE>
================================================================================
FOR SHAREHOLDER FOR RETIREMENT PLAN FOR DEALER
SERVICES SERVICES SERVICES
American Funds Call your employer or American Funds
Service Company plan administrator Distributors
800/421-0180 ext. 1 800/421-9900 ext. 11
FOR 24-HOUR INFORMATION
American American Funds
FundsLine(R) Internet Web site
800/325-3590 http://www.americanfunds.com
Telephone conversations may be recorded or monitored for verification,
recordkeeping and quality assurance purposes.
================================================================================
MULTIPLE TRANSLATIONS
This prospectus may be translated into other languages. In the event of any
inconsistency or ambiguity as to the meaning of any word or phrase in a
translation, the English text will prevail.
================================================================================
OTHER FUND INFORMATION
ANNUAL/SEMI-ANNUAL REPORT TO SHAREHOLDERS
Includes financial statements, detailed performance information, portfolio
holdings, a statement from portfolio management and the independent
accountants' report (in the annual report).
STATEMENT OF ADDITIONAL INFORMATION (SAI)
Contains more detailed information on all aspects of the fund, including the
fund's financial statements.
A current SAI has been filed with the Securities and Exchange Commission
("SEC"). It is incorporated by reference into this prospectus and is available
along with other related materials on the SEC's Internet Web site at
http://www.sec.gov.
CODE OF ETHICS
Includes a description of the fund's personal investing policy.
To request a free copy of any of the documents above:
Call American Funds or Write to the Secretary
Service Company of the fund
800/421-0180 ext. 1 P.O. Box 7650
San Francisco, CA 94120
================================================================================
This prospectus has been printed on recycled paper.
[LOGO OF RECYCLED PAPER APPEARS HERE]
24 AMERICAN BALANCED FUND / PROSPECTUS
<PAGE>
AMERICAN BALANCED FUND, INC.
Part B
Statement of Additional Information
MARCH 1, 1998
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, 1998. 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 5
FUND OFFICERS AND DIRECTORS 7
MANAGEMENT 12
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES 14
PURCHASE OF SHARES 17
REDEEMING SHARES 23
SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES 24
EXECUTION OF PORTFOLIO TRANSACTIONS 26
GENERAL INFORMATION 27
INVESTMENT RESULTS 28
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 the fund agrees to sell such securities, it does not
participate in further gains or losses with respect to the securities. 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
mortgage-backed securities 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.
INFLATION-INDEXED BONDS - The fund may invest in inflation-indexed bonds
issued by governments, their agencies or instrumentalities, or corporations.
The principal value of this type of bond is periodically adjusted according to
changes in the rate of inflation. The interest rate is generally fixed at
issuance; however, interest payments are based on an inflation adjusted
principal value. For example, in a period of falling inflation, principal
value will be adjusted downward, reducing the interest payable.
Repayment of the original bond principal upon maturity (as adjusted for
inflation) is guaranteed in the case of U.S. Treasury inflation indexed bonds,
even during a period of deflation. However, the current market value of the
bonds is not guaranteed, and will fluctuate. The fund may also invest in other
bonds which may or may not provide a similar guarantee. If a guarantee of
principal is not provided, the adjusted principal value of the bond repaid at
maturity may be less than the original principal.
REAL ESTATE INVESTMENT TRUSTS - The fund may invest in securities issued by
real estate investment trusts (REITs), which are pooled investment vehicles
that primarily invest in real estate or real estate related loans. REITs are
not taxed on income distributed to shareholders provided they meet requirements
imposed by the Internal Revenue Code. The risks associated with REIT debt
investments are similar to the risks of investing in corporate-issued debt. In
addition, the return on REITs is dependent on such factors as the skill of
management and the real estate environment in general. Debt that is issued by
REITs is typically rated by the credit rating agencies as investment grade or
above.
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.) Investment limitations expressed in the following
restrictions are considered at the time securities are purchased and are based
on the fund's net assets unless otherwise indicated.
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, POSITION PRINCIPAL OCCUPATION(S) AGGREGATE TOTAL COMPENSATION TOTAL
ADDRESS WITH DURING PAST 5 YEARS (POSITIONS COMPENSATION (INCLUDING VOLUNTARILY NUMBER
AND AGE REGISTRANT WITHIN THE ORGANIZATIONS (INCLUDING DEFERRED COMPENSATION) OF FUND
LISTED MAY HAVE CHANGED DURING VOLUNTARILY DEFERRED FROM ALL FUNDS MANAGED BOARDS ON
THIS PERIOD) COMPENSATION/1/) BY CAPITAL RESEARCH AND WHICH
FROM THE MANAGEMENT DIRECTOR
FUND DURING FISCAL COMPANY/2/ FOR THE YEAR SERVES/3/
YEAR ENDED 12/31/97 ENDED 12/31/97
<S> <C> <C> <C> <C> <C>
Robert A. Fox Director President and Chief Executive $11,600/4/ $89,050/4/ 6
P.O. Box 457 Officer, Foster Farms
1000 Davis Street
Livingston, CA 95334
Age: 60
Roberta L. Hazard Director Consultant; Rear Admiral, United $11,566 $50,000 4
1419 Audmar Drive States Navy (Retired).
McLean, VA 22101
Age: 63
Leonade D. Jones Director Former Treasurer, The $11,300/4/ $82,000/4/ 6
1536 Los Montes Drive Washington Post Company.
Burlingame, CA 94010
Age: 50
John G. McDonald Director The IBJ Professor of Finance, $15,083/4/ $162,400/4/ 8
Graduate School of Business Graduate School of Business,
Stanford University Stanford University.
Stanford, CA 94305
Age: 60
+Robert G. O'Donnell President Senior Vice President and None/5/ None/5/ 1
P.O. Box 7650 and Director, Capital Research and
San Francisco, CA 94120 Director Management Company
Age: 53
+James W. Ratzlaff Director Senior Partner, The Capital Group None/5/ None/5/ 8
333 South Hope Street Partners L.P.
Los Angeles, CA 90071
Age: 61
Henry E. Riggs Director President, Keck Graduate Institute $14,883/4/ $90,350/4/ 4
1263 North Dartmouth of Applied Life Sciences; former,
Claremont, CA 91711 President and Professor of
Age: 63 Engineering, Harvey Mudd
College.
+Walter P. Stern Chairman Chairman, Capital Group None/5/ None/5/ 5
630 Fifth Avenue of the International, Inc.; Vice Chairman,
New York, NY 10111 Board Capital Research International;
Age: 69 Chairman, Capital International,
Inc.; Director, Temple-Inland Inc.
(forest products).
Patricia K. Woolf Director Private investor; Lecturer, $14,883 $91,450 6
506 Quaker Road Department of Molecular Biology,
Princeton, NJ 08540 Princeton University.
Age: 63
</TABLE>
+ Directors who are considered "interested persons" of the fund as defined in
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 deferred compensation plan's adoption, the total amounts of
deferred compensation accrued by the fund (plus earnings thereon) as of the
fiscal year ended December 31, 1997 for participating Directors are as follows:
Robert A. Fox ($104,294), Leonade D. Jones ($39,310), John G. McDonald
($51,763) and Henry E. Riggs ($62,409). Amounts deferred and accumulated
earnings thereon are not funded and are general unsecured liabilities of the
fund until paid to the Director.
/5/ Robert G. O'Donnell, James W. Ratzlaff and Walter P. Stern are affiliated
with the Investment Adviser and, accordingly, receive no compensation from the
fund.
OFFICERS
<TABLE>
<CAPTION>
NAME AND ADDRESS AGE POSITION(S) HELD PRINCIPAL OCCUPATION(S) DURING
WITH REGISTRANT PAST 5 YEARS (POSITIONS WITHIN THE
ORGANIZATIONS LISTED MAY HAVE
CHANGED DURING THIS PERIOD)
<S> <C> <C> <C>
Walter P. Stern
(see above)
Robert G. O'Donnell
(see above)
Abner D. Goldstine 68 Senior Vice Senior Vice President and Director, Capital
11100 Santa Monica Blvd. President Research and Management Company
Los Angeles, CA 90025
Paul G. Haaga, Jr. 49 Senior Vice Executive Vice President and Director,
333 South Hope Street President Capital Research and Management
Los Angeles, CA 90071 Company; Director, American Funds
Service Company; Director, American
Funds Distributors, Inc.
J. Dale Harvey 32 Vice President Vice President, Capital Research
333 South Hope Street Company
Los Angeles, CA 90071
Eric S. Richter 37 Vice President Vice President, Investment Management
3000 K Street, N.W., Suite 230 Group, Capital Research and Management
Washington, D.C. 20007 Company
Patrick F. Quan 39 Secretary Vice President, Fund Business
P.O. Box 7650 Management Group, Capital Research and
San Francisco, CA 94120 Management Company
Mary C. Hall 40 Treasurer Senior Vice President - Fund Business
135 South State College Blvd. Management Group, Capital Research and
Brea, CA 92821 Management Company
R. Marcia Gould 43 Assistant Vice President, Fund Business
135 South State College Blvd. Treasurer Management Group, Capital Research and
Brea, CA 92821 Management Company
</TABLE>
All of the directors and officers, except for Messrs. Harvey and 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. No pension or retirement benefits are
accrued as part of fund expenses. 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. As of December 31, 1997 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 135 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 $175 billion of
stocks, bonds and money market instruments and serves over eight 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
December 12, 1997. The Agreement shall be in effect until the close of
business on December 31, 1998 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.
The Investment Adviser 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, 1997, 1996 and 1995, the Investment
Adviser received from the fund advisory fees of $13,618,000, $10,835,000 and
$8,091,000, 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, 1997 amounted to $2,659,000 after allowance of $13,062,000
to dealers. During the years ended December 31, 1996 and 1995 the Principal
Underwriter retained $2,545,000 and $1,918,000, after allowance of $12,512,000
and $9,904,000 to dealers, respectively.
As required by rule 12b-1 and the 1940 Act, 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 100
or more eligible employees). During the year ended December 31, 1997, the fund
paid or accrued $11,437,000 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
may 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; and (b) 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 on assets held more than 18 months is 20%, and
on assets held more than one year and not more than 18 months 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 Individual Retirement Account ("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
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 Visit any investment dealer who Mail directly to your investment
your is registered in the state where dealer's address printed on your
investment the purchase is made and who account statement.
dealer has a sales agreement with
American Funds Distributors.
By mail Make your check payable to the Fill out the account additions form at the
fund and mail to the address bottom of a recent account statement, make
indicated on the account your check payable to the fund, write your
application. Please indicate an account number on your check, and mail
investment dealer on the account the check and form in the envelope
application. provided with your account statement.
By telephone Please contact your investment Complete the "Investments by Phone"
dealer to open account, then section on the account application or
follow the procedures for American FundsLink Authorization Form.
additional investments. 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 and Computer Purchases, Sales and
Exchanges" in the prospectus).
By computer Please contact your investment Complete the American FundsLink Authorization
dealer to open account, then Form. Once you establish the privilege, you,
follow the procedures for your financial advisor or any person with your
additional investments. account information may access American
FundsLine OnLine(SM) on the Internet and make
investments by computer (subject to conditions
noted in "Telephone and Computer Purchases,
Redemptions and Exchanges" below).
By wire Call 800/421-0180 to obtain Your bank should wire your additional
your account number(s), if investments in the same manner as
necessary. Please indicate an described under "Initial Investment."
investment dealer on the
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
STOCK AND STOCK/BOND FUNDS
AMCAP Fund(R) $1,000 02
American Balanced Fund(R) 500 11
American Mutual Fund(R) 250 03
Capital Income Builder(R) 1,000 12
Capital World Growth and Income Fund(SM) 1,000 33
EuroPacific Growth Fund(R) 250 16
Fundamental Investors(SM) 250 10
The Growth Fund of America(R) 1,000 05
The Income Fund of America(R) 1,000 06
The Investment Company of America(R) 250 04
The New Economy Fund(R) 1,000 14
New Perspective Fund(R) 250 07
SMALLCAP World Fund(R) 1,000 35
Washington Mutual Investors Fund(SM) 250 01
BOND FUNDS
American High-Income Municipal Bond Fund(R) 1,000 40
American High-Income Trust(SM) 1,000 21
The Bond Fund of America(SM) 1,000 08
Capital World Bond Fund(R) 1,000 31
Intermediate Bond Fund of America(SM) 1,000 23
Limited Term Tax-Exempt Bond Fund of America(SM) 1,000 43
The Tax-Exempt Bond Fund of America(R) 1,000 19
The Tax-Exempt Fund of California(R)* 1,000 20
The Tax-Exempt Fund of Maryland(R)* 1,000 24
The Tax-Exempt Fund of Virginia(R)* 1,000 25
U.S. Government Securities Fund(SM) 1,000 22
MONEY MARKET FUNDS
The Cash Management Trust of America(R) 2,500 09
The Tax-Exempt Money Fund of America(SM) 2,500 39
The U.S. Treasury Money Fund of America(SM) 2,500 49
___________
*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
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 100 or more eligible employees, and for purchases made at
net asset value by certain retirement plans of organizations with collective
retirement plan assets of $50 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), currently provides 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 100 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 the Investment
Adviser, 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, foundations, and endowments 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 American Funds
Service Company (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 the Transfer
Agent; 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 the Transfer Agent, 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 4:00 p.m., New York time each
day the New York Stock Exchange is open. For example, if the Exchange closes
at 1:00 p.m. on one day and 4:00 p.m. on the next, the fund's share price would
be determined as of 4:00 p.m. New York time on both days. The New York Stock
Exchange is currently closed on weekends and on the following holidays: New
Year's Day, Martin Luther King Jr. Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving and Christmas Day.
All portfolio securities of funds managed by the Investment Adviser (other
than money market funds) are valued, and the net asset value per share is
determined, as follows:
1. Equity securities, including depositary receipts, are valued at the last
reported sale price on the exchange or market on which such securities are
traded, as of the close of business on the day the securities are being valued
or, lacking any sales, at the last available bid price. In cases where equity
securities are traded on more than one exchange, the securities are valued on
the exchange or market determined by the Investment Adviser to be the broadest
and most representative market, which may be either a securities exchange or
the over-the-counter market. Fixed-income securities are valued at prices
obtained from a pricing service, 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 quoted bid and asked prices or at prices
for securities of comparable maturity, quality and type.
Securities with original maturities of one year or less having 60 days or less
to maturity are amortized to maturity based on their cost if acquired within 60
days of maturity or, if already held on the 60th day, based on the value
determined on the 61st day. Forward currency contracts are valued at the mean
of representative quoted bid and asked prices.
Assets or liabilities initially expressed in terms of foreign currencies are
translated prior to the next determination of the net asset value of the fund's
shares into U.S. dollars at the prevailing market rates.
Securities and assets for which representative market quotations are not
readily available are valued at fair value as determined in good faith under
policies approved by the fund's Board; The fair value of all other assets is
added to the value of securities at the total assets;
2. Liabilities, including accruals of taxes and other expense items, are
deducted from total assets; and
3. Net assets so obtained are 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
<TABLE>
<CAPTION>
<S> <C>
By writing to American Funds Send a letter of instruction specifying the name of the fund, the
Service Company (at the number of shares or dollar amount to be sold, your name and
appropriate address indicated account number. You should also enclose any share certificates
under "Principal Underwriter you wish to redeem. For redemptions over $50,000 and for
and Transfer Agent" in the certain redemptions of $50,000 or less (see below), your signature
prospectus) must be guaranteed by a member firm of a domestic stock exchange
or the National Association of Securities Dealers, Inc. that is an
eligible guarantor institution, bank, savings association, or credit
union. 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 If you redeem shares through your investment dealer, you may be
dealer 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 You may use this option, provided the account is registered in the
check sent to you by using name of an individual(s), a UGMA/UTMA custodian, or a non-retirement
American FundsLine(R) or plan trust. These redemptions may not exceed $50,000
American FundsLine per shareholder each day and the check must be made payable to
OnLine(SM) or by telephoning, the shareholder(s) of record and be sent to the address of record
faxing, or telegraphing provided the address has been used with the account for at least 10
American Funds Service days. See "Principal Underwriter and Transfer Agent" in the
Company (subject to prospectus and "Exchange Privilege" below for
the conditions noted in this the appropriate telephone or fax number.
section and in "Telephone
and Computer Purchases,
Sales and Exchanges" in the
prospectus)
In the case of the money Upon request (use the account application for the money market
market funds, you may have funds) you may establish telephone redemption privileges (which
redemptions wired to your will enable you to have a redemption sent to your bank account)
bank by telephoning American and/or check writing privileges. If you request check writing
Funds Service Company privileges, you will be provided with checks that you may use to
($1,000 or more) or by writing draw against your account. These checks may be made payable to
a check ($250 or more) 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 10 DAYS.
CONTINGENT DEFERRED SALES CHARGE - A contingent deferred sales charge of 1%
applies to certain redemptions from funds other than the money market funds
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 100 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.
REDEMPTION OF SHARES - The fund's Articles of Incorporation permits the fund
to direct the Transfer Agent to redeem the shares of any shareholder for their
then current net asset value per share if at such time the shareholder owns of
record shares having an aggregate net asset value of less than the minimum
initial investment amount required of new shareholders as set forth in the
fund's current registration statement under the 1940 Act, and subject to such
further terms and conditions as the Board of Directors of the fund may from
time to time adopt.
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, the
Transfer Agent 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 the Transfer Agent (see "Redeeming
Shares"), by contacting your investment dealer, by using American FundsLine(R)
or American FundsLine OnLine(SM) (see "American FundsLine(R) and American
FundsLine OnLine(SM)" 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 the Transfer Agent. (See "Telephone
and Computer Purchases, 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, computer, 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 will be reflected on regular confirmation statements from the
Transfer Agent. Dividend and capital gain reinvestments and purchases through
automatic investment plans and certain retirement plans will be confirmed at
least quarterly.
AMERICAN FUNDSLINE(R) AND AMERICAN FUNDSLINE ONLINE(SM) - 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) or American
FundsLine OnLine(SM). To use this service, call 800/325-3590 from a
TouchTone(TM) telephone or access the American Funds Web site on the Internet
at www.americanfunds.com. Redemptions and exchanges through American
FundsLine(R) and American FundsLine OnLine(SM) are subject to the conditions
noted above and in "Shareholder Account Services and Privileges -- Telephone
and Computer Purchases, 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 AND COMPUTER PURCHASES, REDEMPTIONS AND EXCHANGES -- By using the
telephone (including American FundsLine(R)) or computer (including American
FundsLine OnLine(SM)), fax or telegraph purchase, redemption and/or exchange
options, you agree to hold the fund, the Transfer Agent, 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 the Transfer Agent (you may also reinstate them
at any time by writing the Transfer Agent). If the Transfer Agent 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.
The fund is required to disclose information regarding investments in the
securities of broker-dealers which have certain relationships with the fund.
During the last fiscal year, J.P. Morgan Securities Inc. was among the top 10
dealers that acted as principals in portfolio transactions. The fund held
equity securities of J.P. Morgan Securities Inc. in the amount of $9,030,000 as
of the close of its most recent fiscal year.
Brokerage commissions paid on portfolio transactions, including dealer
concessions on underwritings, during the years ended December 31, 1997, 1996
and 1995 amounted to $2,239,000, $3,205,000 and $2,653,000, 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. Non-U.S. securities may be held by the
Custodian pursuant to sub-custodial arrangements in non-U.S. banks or foreign
branches of U.S. banks.
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 $2,842,000 for the fiscal year ended December 31, 1997.
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.
In an effort to reduce the volume of mail shareholders receive from the fund
when a household owns more than one account, the Transfer Agent has taken steps
to eliminate duplicate mailings of shareholder reports. To receive additional
copies of a report shareholders should contact the Transfer Agent.
PERSONAL INVESTING POLICY - The Investment Adviser 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; 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, 1997
<S> <C>
Net asset value and redemption price per share $15.68
(Net assets divided by shares outstanding)
Maximum offering price per share $16.64
(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 3.53% based on a 30-day (or one month) period ended
December 31, 1997, 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, 1997 were +14.06%, +12.87% and +12.94%,
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
Services, 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- Savings
1/1 - 12/31 Corporate/3/ Aggregate/4/ Grade/5/ Account/6/
<S> <C> <C> <C> <C> <C> <C> <C>
1988 - 1997 +238% +452% +424% +158% +141% +180% +55%
1987 - 1996 +190 +366 +314 +140 +125 +147 +57
1986 - 1995 +200 +360 +299 +171 +151 +192 +62
1985 - 1994 +205 +349 +282 +175 +158 +199 +69
1984 - 1993 +232 +333 +301 +233 +207 +271 +81
1983 - 1992 +246 +367 +346 +225 +203 +248 +92
1982 - 1991 +309 +452 +404 +316 +274 +353 +105
1981 - 1990 +243 +328 +267 +261 +242 +274 +116
1980 - 1989 +298 +426 +402 +236 +223 +240 +121
1979 - 1988 +252 +340 +352 +189 +187 +180 +122
1978 - 1987 +232 +289 +313 +165 +170 +153 +124
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
(1/1/93-12/31/97) (1/1/88-12/31/97)
$15,104 $41,777
SEE THE DIFFERENCE TIME CAN MAKE IN AN INVESTMENT PROGRAM
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
If you had . . . and had taken
invested $10,000 all dividends and
in AMBAL this many capital gain
years ago distributions
in shares, your
investment would
have been worth
this much at
12/31/97
| |
Number Periods Value
of Years 1/1 - 12/31
1 1997
$11,406
2 1996-1997
12,912
3 1995-1997
16,414
4 1994-1997
16,463
5 1993-1997
18,322
6 1992-1997
20,053
7 1991-1997
25,013
8 1990-1997
24,613
9 1989-1997
29,918
10 1988-1997
33,769
11 1987-1997
35,135
12 1986-1997
41,062
13 1985-1997
53,032
14 1984-1997
57,956
15 1983-1997
67,347
16 1982-1997
87,126
17 1981-1997
90,936
18 1980-1997
103,951
19 1979-1997
111,900
20 1978-1997
118,805
21 1977-1997
119,681
22 1976-1997
150,701
23 1975#-1997
159,131
</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, 1997)
<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
1997 5,167 56,702 66,702 21,568 59,333 78,230 159,131
</TABLE>
The dollar amount of capital gain distributions during the period was $47,432.
# Since July 26, 1975, the period in which Capital Research and Management
Company has been the Fund's adviser.
EXPERIENCE OF INVESTMENT ADVISER - The Investment Adviser manages nine growth
and growth-income funds that are at least 10 years old. In the rolling 10-year
periods since January 1, 1968 (133 in all), those funds have had better total
returns than their comparable Lipper indexes in 124 of 133 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 the Investment Adviser.
<TABLE>
American Balanced Fund
Investment Portfolio December 31,1997
- ---------------------------------------------- ----------- ----------- --------
Percent
Of
TEN LARGEST EQUITY HOLDINGS Net Assets
<S> <C> <C> <C>
Ameritech 1.44%
General Re 1.41
Aluminum Co. of America 1.36
Warner-Lambert 1.23
Georgia-Pacific 1.20
Atlantic Richfield 1.19
Amoco 1.18
Electronic Data Systems 1.18
Genuine Parts 1.17
Ford Motor 1.09
INVESTMENT MIX BY SECURITY TYPE
- ----------------------------------------------
Common Stocks 57.00%
Goverment Bonds 18.00%
Corporate Bonds 12.00%
Convertible Debentures and Preferred Stock 1.00%
Cash and Equivalents 12.00%
Market Percent
Number of Value of Net
COMMON STOCKS Shares (000) Assets
- ---------------------------------------------- ----------- ----------- --------
ENERGY
Energy Sources- 6.68%
Amoco Corp. 700,000 $59,588 1.18%
Atlantic Richfield Co. 750,000 60,094 1.19
Kerr-McGee Corp. 500,000 31,656 .62
Murphy Oil Corp. 889,700 48,211 .96
Pennzoil Co. 410,500 27,426 .54
Phillips Petroleum Co. 1,000,000 48,625 .97
Royal Dutch Petroleum Co. (New York Registered Shares) 560,000 30,345 .60
Texaco Inc. 700,000 38,063 .76
Ultramar Diamond Shamrock Corp. 1,650,000 52,594 1.04
Utilities: Electric & Gas - 3.83%
Baltimore Gas and Electric Co. 1,000,000 34,062 .68
Consolidated Edison, Inc. 500,000 20,500 .41
Duke Energy Corp. 600,000 33,225 .66
Florida Progress Corp. 238,000 9,341 .19
FPL Group, Inc. 500,000 29,594 .59
Long Island Lighting Co. 825,000 24,853 .49
PP & L Resources, Inc. 800,000 19,150 .38
Southern Electric PLC 750,000 6,308
Southern Electric PLC (American Depositary Receipts) 1,750,000 14,939 .43
----------------------
588,574 11.69
----------- --------
MATERIALS
Chemicals - 3.51%
Air Products and Chemicals, Inc. 275,000 22,619 .45
Dow Chemical Co. 500,000 50,750 1.01
E.I. du Pont de Nemours and Co. 600,000 36,038 .72
Lyondell Petrochemical Co. 176,500 4,677 .09
Millennium Chemicals Inc. 1,500,000 35,344 .70
Praxair, Inc. 600,000 27,000 .54
Forest Products & Paper - 3.76%
Bowater Inc. 400,000 17,775 .35
Georgia-Pacific Corp., Georgia-Pacific Group 750,000 45,562
Georgia-Pacific Corp., Timber Group 650,000 14,747 1.20
International Paper Co. 650,000 28,031 .56
Louisiana-Pacific Corp. 1,086,000 20,634 .41
Sonoco Products Co. 800,000 27,750 .55
Union Camp Corp. 650,000 34,897 .69
Metals: Nonferrous - 1.36%
Aluminum Co. of America 975,000 68,616 1.36
----------- --------
434,440 8.63
----------- --------
CAPITAL EQUIPMENT
Aerospace & Military Technology - 0.83%
Boeing Co. 850,000 41,597 .83
Data Processing & Reproduction - 0.89%
Computer Associates International, Inc. 262,500 13,880 .27
International Business Machines Corp. 300,000 31,369 .62
Electrical & Electronic - 1.60%
Nokia Corp., Class A (American Depositary Receipts) 330,000 23,100 .46
Telefonaktiebolaget LM Ericsson, Class B
(American Depositary Receipts) 500,000 18,656 .37
York International Corp. 975,000 38,573 .77
Electronic Components - 0.50%
AMP Inc. 600,000 25,200 .50
Industrial Components - 1.55%
Dana Corp. 400,000 19,000 .38
Genuine Parts Co. 1,730,000 58,712 1.17
Machinery & Engineering- 1.08%
Caterpillar Inc. 700,000 33,994 .67
Parker Hannifin Corp. 450,000 20,644 .41
----------- --------
324,725 6.45
----------- --------
CONSUMER GOODS
Automobiles - 1.09%
Ford Motor Co. 1,128,700 54,954 1.09
Beverages & Tobacco - 3.64%
Anheuser-Busch Companies, Inc. 400,000 17,600 .35
Imperial Tobacco Ltd. 4,000,000 25,313 .50
Philip Morris Companies Inc. 1,200,000 54,375 1.08
RJR Nabisco Holdings Corp. 1,050,000 39,375 .78
UST Inc. 1,275,000 47,095 .93
Food & Household Products - 0.84%
General Mills, Inc. 350,000 25,069 .50
Sara Lee Corp. 300,000 16,894 .34
Health & Personal Care - 3.37%
AB Astra, Class A (American Depositary Receipts) 1,800,000 30,937 .61
Eli Lilly and Co. 400,000 27,850 .55
Pfizer Inc 200,000 14,912 .30
Schering-Plough Corp. 550,000 34,169 .68
Warner-Lambert Co. 500,000 62,000 1.23
----------- --------
450,543 8.94
----------- --------
SERVICES
Broadcasting & Publishing - 1.28%
Gannett Co., Inc. 700,000 43,269 .86
Time Warner Inc. 340,000 21,080 .42
Business & Public Services - 3.73%
Browning-Ferris Industries, Inc. 1,375,000 50,875 1.01
Cognizant Corp. 650,000 28,966 .57
Columbia/HCA Healthcare Corp. 600,000 17,775 .35
Electronic Data Systems Corp. 1,350,000 59,316 1.18
Thorn PLC 2,500,000 6,258
Thorn PLC (American Depositary Receipts) 1,749,997 17,500 .46
Waste Management, Inc. 296,803 8,162 .16
Merchandising - 1.52%
Circuit City Stores, Inc. - Circuit City Group 590,000 20,982 .42
May Department Stores Co. 600,000 31,613 .63
Wal-Mart Stores, Inc. 600,000 23,662 .47
Telecommunications - 2.50%
Ameritech Corp. 900,000 72,450 1.44
AT&T Corp. 500,000 30,625 .61
U S WEST Communications Group 500,000 22,563 .45
Transportation: Rail & Road - 1.40%
CSX Corp. 500,000 27,000 .54
Norfolk Southern Corp. 800,000 24,650 .49
Union Pacific Corp. 300,000 18,731 .37
----------- --------
525,477 10.43
----------- --------
FINANCE
Banking - 3.79%
Bank of Tokyo-Mitsubishi, Ltd. (American Depositary Receipts) 850,000 11,953 .24
BankAmerica Corp. 635,000 46,355 .92
First Chicago NBD Corp. 300,000 25,050 .50
First Virginia Banks, Inc. 480,450 24,833 .49
Fleet Financial Group, Inc. 410,000 30,724 .61
J.P. Morgan & Co. Inc. 80,000 9,030 .18
National City Corp. 350,000 23,012 .46
Sakura Bank, Ltd. (American Depositary Receipts) 300,000 8,400
Sakura Bank, Ltd. 4,000,000 11,431 .39
Financial Services - 0.82%
Beneficial Corp. 225,000 18,703 .37
Fannie Mae (formerly Federal National Mortgage Assn.) 400,000 22,825 .45
Insurance - 4.29%
Allstate Corp. 350,000 31,806 .63
American General Corp. 610,690 33,015 .66
General Re Corp. 335,000 71,020 1.41
Lincoln National Corp. 300,000 23,438 .47
Royal & Sun Alliance Insurance Group PLC 1,450,000 14,686 .29
St. Paul Companies, Inc. 510,000 41,852 .83
----------- --------
448,133 8.90
----------- --------
MISCELLANEOUS
Miscellaneous - 1.45%
Other common stocks in initial period of acquisition 72,913 1.45
----------- --------
72,913 1.45
----------- --------
TOTAL COMMON STOCKS 2,844,805 56.49
----------- --------
- ---------------------------------------------- --------- --------- ---------
Shares or
Principal
CONVERTIBLE SECURITIES AND PREFERRED STOCK Amount
- ---------------------------------------------- --------- --------- ---------
Banking - 0.10%
NB Capital Corp., Series A, 8.35% noncumulative
exchangeable preferred (1) 5,000 5,252 .10
Broadcasting & Publishing - 0.25%
Time Warner Inc. 0% 2013 $25,000,000 12,562 .25
Insurance - 0.22%
U S WEST, Inc., DECS convertible preferred shares
(convertible into Enhance Financial Services Group
common stock) 216,700 11,160 .22
Multi-Industry - 0.19%
Swire Pacific Capital Ltd. 8.84% (1) 290,000 7,375
Swire Pacific Offshore Financing Ltd. 9.33% (1) 80,000 2,010 .19
----------- --------
TOTAL CONVERTIBLE SECURITIES AND PREFERRED STOCK 38,359 .76
----------- --------
TOTAL EQUITY SECURITIES 2,883,164 57.25
----------- --------
BONDS AND NOTES
- ---------------------------------------------- --------- ---------
Industrials - 4.14%
Comcast Cable Communications, Inc. 8.375% 2007 $5,250 5,842 .12
Deere & Co. 8.95% 2019 7,330 8,651 .17
Fort James Corp. 6.625% 2004 8,000 8,026 .16
Freeport McMoRan Copper & Gold Inc. 7.50% 2006 5,000 4,303
Freeport McMoRan Copper & Gold Inc. 7.20% 2026 12,500 12,317 .33
Hutchison Whampoa Finance Ltd., Series D, 6.988% 2037 (1) 10,000 9,531 .19
Hyundai Semiconductor America, Inc. 8.625% 2007 (1) 12,025 8,757 .17
Inco Ltd. 9.875% 2019 4,200 4,498
Inco Ltd. 9.60% 2022 5,000 5,723 .20
May Department Stores Co. 9.875% 2021 6,500 7,358 .15
News America Holdings Inc. 10.125% 2012 2,000 2,322
News America Holdings Inc. 7.43% 2026 10,000 10,657 .26
Occidental Petroleum Corp. 8.50% 2004 2,500 2,577 .05
OXYMAR 7.50% 2016 (1) 6,000 6,157 .12
Pan Pacific Industrial Investments PLC 0% 2007 (1) 25,000 7,653 .15
Philips Electronics NV 7.20% 2026 7,500 7,988 .16
Reliance Industries Ltd. 10.25% 2097 5,000 5,067 .10
Royal Caribbean Cruises Ltd. 7.00% 2007 17,000 17,125 .34
Samsung Electronics Co., Ltd. 7.45% 2002 (1) 3,000 2,520 .05
Tele-Communications, Inc. 9.80% 2012 10,000 12,432
Tele-Communications, Inc. 8.75% 2015 4,000 4,636
Tele-Communications, Inc. 8.75% 2023 3,000 3,182
Tele-Communications, Inc. 9.25% 2023 3,000 3,324 .47
Time Warner Inc., Pass-Through Asset Trust 1997-1, 10,000 9,798
6.10% 2001 (1,2)
Time Warner Inc. 9.125% 2013 5,000 5,954
Time Warner Inc. 7.25% 2017 7,500 7,636
Time Warner Inc. 6.85% 2026 4,825 4,938 .56
TKR Cable I, Inc. 10.50% 2007 4,000 4,509 .09
Waste Management, Inc. 7.10% 2026 5,000 5,171 .10
Wharf International Finance Ltd., Series A, 7.625% 2007 11,500 9,883 .20
----------- --------
208,535 4.14
----------- --------
Electric Utilities - 0.34%
Big Rivers Electric Corp. 10.70% 2017 4,000 4,223 .08
Commonwealth Edison Co. 9.875% 2020 11,000 12,999 .26
----------- --------
17,222 .34
----------- --------
Transportation - 1.31%
Airplanes Pass Through Trust, pass-through
certificates, Series 1, Class B, 7.08% 2019 (2,3) 4,636 4,646
Airplanes Pass Through Trust, pass-through
certificates, Series 1, Class C, 8.15% 2019 (2) 7,500 7,901 .25
Continental Airlines, Inc., pass-through certificates,
Series 1997-4C, 6.80% 2007 (2) 5,000 5,034
Continental Airlines, Inc., pass-through certificates,
Series 1996-2B, 8.56% 2014 (2) 1,944 2,174
Continental Airlines, Inc., pass-through certificates,
Series 1996-A, 6.94% 2015 (2) 9,804 10,085
Continental Airlines, Inc., pass-through certificates,
Series 1997-4A, 6.90% 2018 (2) 2,500 2,562 .39
Delta Air Lines, Inc., pass-through certificates,
Series 1992-A2, 9.20% 2014 (2) 1,500 1,779
Delta Air Lines, Inc., pass-through certificates,
Series 1993-A2, 10.50% 2016 (2) 5,000 6,514 .16
United Air Lines, Inc. 10.67% 2004 5,000 5,993
United Air Lines, Inc., pass-through certificates,
Series 1995-A1, 9.02% 2012 (2) 6,106 6,970
United Air Lines, Inc., pass-through certificates,
Series 1995-A2, 9.56% 2018 (2) 4,000 4,988 .36
USAir, Inc., Class A, 6.76% 2008 7,127 7,321 .15
----------------------
65,967 1.31
----------- --------
Financial - 2.81%
Advanta National Bank 6.45% 2000 2,000 1,994 .04
Aetna Services, Inc. 6.97% 2036 2,000 2,064 .04
Bank of Nova Scotia Eurodollar Note 6.00% (undated) (3) 4,000 3,500 .07
BankAmerica Capital III, BankAmerica Corp.,
Series 3, 6.328% 2027 (3) 12,500 12,169
BankAmerica Corp. 8.95% 2004 1,900 1,984 .28
Barnett Capital I 8.06% 2026 4,000 4,260 .08
Beneficial Corp. 12.875% 2013 1,500 1,630 .03
BNP U.S. Funding LLC, Series A, 7.738% 2049 (1) 12,500 12,623 .25
BTC Capital Trust I 6.656% 2026 (3) 12,500 12,294 .24
Canadian Imperial Bank of Commerce
Eurodollar Note 5.688% (undated) (3) 1,600 1,412 .03
Capital One Bank 7.35% 2000 10,000 10,239
Capital One Bank 8.125% 2000 4,000 4,146
Capital One Bank 7.15% 2006 5,000 5,071 .39
Central Fidelity Capital Trust I, Central Fidelity Banks,
Inc. 6.758% 2027 (3) 7,500 7,611 .15
Chase Capital II, Global Floating Rate Capital Securities,
Series B, 6.25% 2027 (3) 7,950 7,612 .15
Den Norske CreditBank 6.125% (3) 3,000 2,490 .05
First Union Corp. 6.82%/7.57% 2026 (4) 4,500 4,671 .09
Fuji International Finance (Bermuda) Trust, The Fuji Bank,
Ltd. 7.30% (undated) 8,000 7,393 .15
General Motors Acceptance Corp. 9.625% 2001 7,000 7,782 .16
MBNA Capital B 8.278% 2026 5,000 5,230 .10
Midland Bank Eurodollar Note 6.188% (undated) (3) 4,000 3,417 .07
National Westminster Bank PLC 7.75% (undated) 5,000 5,385 .11
Terra Nova Insurance (UK) Holdings PLC 10.75% 2005 5,000 5,570 .11
Zurich Capital Trust 8.376% 2037 (1) 10,000 10,897 .22
----------- --------
141,444 2.81
----------- --------
Real Estate - 0.49%
ERP Operating LP 7.95% 2002 1,500 1,573 .03
Irvine Apartment Communities, LP 7.00% 2007 5,000 5,001 .10
Irvine Co. 7.46% 2006 (1,5) 2,500 2,532 .05
Security Capital Industrial Trust 7.875% 2009 5,000 5,365 .11
Shopping Center Associates 6.75% 2004 (1) 5,000 5,046 .10
SocGen Real Estate Co. LLC, Series A, 7.64% 2049 (1) 5,000 5,124 .10
----------- --------
24,641 .49
----------- --------
Collateralized Mortgage/Asset-Backed
Obligations (2) - 2.87%
Asset-Backed Securities Investment Trust, Series 1997-D,
6.79% 2003 12,000 12,038 .24
Asset Securitization Corp., Series 1997-D5, Class A-1A,
6.50% 2043 4,904 4,937 .09
California Infrastructure and Economic Development Bank
Special Purpose Trust PG&E-1,Series 1997-1, Class A-5,
6.28% 2005 8,931 8,979
California Infrastructure and Economic Development Bank
Special Purpose Trust PG&E-1, Series 1997-1, Class A-8,
6.48% 2009 3,500 3,536 .25
Case Equipment Loan Trust, Series 1995-A, 7.30% 2002 2,475 2,490 .05
Chase Manhattan Credit Card Master Trust,
Series 1996-4, Class A, 6.73% 2003 7,000 7,070 .14
Collateralized Mortgage Obligation Trust, Series 28,
Class Z, 8.45% 2017 15,867 16,090 .32
DLJ Mortgage Acceptance Corp., Series 1997-CF1, Class A-1A,
7.40% 2006 (1) 2,899 3,022
DLJ Mortgage Acceptance Corp., Series 1995-CF2, Class A-1A,
6.85% 2027 (1) 6,000 6,110 .18
FIRSTPLUS Home Loan Owner Trust, Series 1996-4,
Class A-3, 6.28% 2009 5,000 4,990
FIRSTPLUS Home Loan Owner Trust, Series 1997-1,
Class A-6, 6.95% 2015 12,500 12,681 .35
GMAC Commercial Mortgage Securities Inc., Series 1997-C1,
Class A1, 6.83% 2003 4,899 4,990 .10
Green Tree Financial Corp., Series 1995-A, Class NIM,
7.25% 2005 5,586 5,418
Green Tree Financial Corp., Series 1995-9, Class A-5,
6.80% 2027 10,000 10,119 .31
Grupo Financiero Banamex Accival, SA de CV
0% 2002 (1) 4,551 3,826 .08
IMC Home Equity Loan Trust, Series 1996-4,
Class A-1, 6.59% 2011 812 809
IMC Home Equity Loan Trust, Series 1996-2,
Class A-2, 6.78% 2011 6,400 6,389 .15
Jet Equipment Trust, Series 1995-B, Class B,
7.83% 2015 (1) 7,591 7,975
Jet Equipment Trust, Series 1995-A, Class B,
8.64% 2015 (1) 4,744 5,325 .25
Merrill Lynch Mortgage Investors, Inc., Series 1995-C2,
Class A-1, 7.344% 2021 (3) 4,319 4,404 .09
J.P. Morgan Commercial Mortgage Finance Corp.,
pass-through certificates, Series 1996-C3,
Class A-1, 7.33% 2028 4,766 4,955 .10
Structured Asset Securities Corp., pass-through certificates,
Series 1996-CFL, Class A-1C, 5.944% 2028 8,364 8,318 .17
----------- --------
144,471 2.87
----------- --------
Governments (excluding U.S. Government) and
Governmental Authorities - 0.15%
Canadian Government 4.25% 2026 (6) 8,191 5,485 .11
Poland (Republic of) Past Due Interest Bond Bearer 4.00%
2014 (3) 2,250 1,949 .04
----------- --------
7,434 .15
----------- --------
Federal Agency Obligations - Mortgage Pass-Throughs (2) - 2.40%
Fannie Mae (formerly Federal National Mortgage Assn.):
7.00% 2008 3,812 3,883
8.50% 2024 8,470 8,843 .26
Freddie Mac (formerly Federal Home Loan Mortgage Corp.):
8.50% 2008 211 223
10.00% 2018 7,118 7,778
8.50% 2020 6,938 7,318
7.50% 2022 761 783
7.50% 2024 2,515 2,578 .37
Government National Mortgage Assn.:
11.00% 2015 78 90
9.50% 2018 122 132
10.50% 2019 67 76
6.875% 2022 (3) 2,866 2,951
7.00% 2023 (3) 9,269 9,476
8.00% 2023 4,425 4,648
8.00% 2024 4,081 4,230
7.50% 2026 14,565 14,920
8.00% 2026 34,713 35,983
8.00% 2027 16,192 16,783 1.77
----------- --------
120,695 2.40
----------- --------
Federal Agency Obligations - Other - 0.78%
Fannie Mae 8.71% 2005 22,000 22,103 .44
FNSM Callable Principal STRIPS:
0%/8.20% 2022 (4) 10,000 9,439
0%/8.25% 2022 (4) 1,500 1,422 .21
Freddie Mac 6.945% 2005 6,500 6,497 .13
----------- --------
39,461 .78
----------- --------
U.S. Treasury Obligations - 15.14%
5.625% January 1998 30,000 29,991 .60
6.125% March 1998 50,000 50,078 .99
6.25% July 1998 50,000 50,179 1.00
6.875% July 1999 25,000 25,445 .51
7.75% November 1999 25,000 25,926 .51
7.125% February 2000 80,000 82,313 1.63
8.875% May 2000 8,000 8,562 .17
8.75% August 2000 7,500 8,048 .16
14.25% February 2002 2,000 2,618 .05
6.50% May 2002 40,000 41,169 .82
3.625% July 2002 (6) 40,358 40,168 .80
10.75% February 2003 7,300 8,895 .18
10.75% May 2003 5,000 6,137 .12
11.125% August 2003 8,500 10,662 .21
11.875% November 2003 15,000 19,512 .39
7.25% May 2004 62,000 66,912 1.33
7.25% August 2004 25,000 27,019 .54
6.50% May 2005 30,000 31,275 .61
7.00% July 2006 50,000 53,969 1.07
8.75% November 2008 10,000 11,395 .23
10.375% November 2009 15,000 18,755 .36
10.375% November 2012 42,000 55,807 1.11
7.25% May 2016 10,000 11,391 .23
7.50% November 2016 30,000 35,016 .70
8.875% August 2017 31,000 41,147 .82
----------- --------
762,389 15.14
- ---------------------------------------------- ----------- --------
TOTAL BONDS & NOTES 1,532,259 30.43
----------- --------
- ---------------------------------------------- --------- --------- ---------
SHORT-TERM SECURITIES
- ---------------------------------------------- --------- --------- ---------
Corporate Short-Term Notes - 8.19%
A.I. Credit Corp. 5.51%-5.60% due 1/5-1/21/98 47,200 47,094 .94
Ameritech Corp. 5.54%-5.68% due 1/22-1/27/98 35,000 34,865 .69
Commercial Credit Co. 5.65%-5.85% due 1/23-2/2/98 40,900 40,715 .81
Walt Disney Co. 5.48%-5.70% due 1/6-1/12/98 20,800 20,766 .41
Gannett Co., Inc. 5.65% due 1/15-1/20/98 (1) 58,500 58,322 1.16
General Electric Capital Corp. 5.60%-6.75%
due 1/2-1/28/98 19,600 19,527 .39
IBM Credit Corp. 5.50% due 1/26/98 22,500 22,407 .44
International Lease Finance Corp. 5.55%-5.65%
due 1/20-1/27/98 49,000 48,819 .97
Lucent Technologies Inc. 5.54%-5.82%
due 1/6-2/17/98 36,600 36,465 .72
Pitney Bowes Credit Corp. 5.60%-5.78% due 1/12-1/15/98 35,000 34,928 .69
Procter & Gamble Co. 5.53%-5.75%
due 1/16-2/6/98 48,900 48,687 .97
----------- --------
412,595 8.19
----------- --------
Federal Agency Short-Term Obligations - 4.88%
Fannie Mae 5.42%-5.62% due 1/13-3/4/98 73,100 72,859 1.45
Federal Home Loan Banks 5.40%-5.66%
due 1/7-2/10/98 65,000 64,804 1.29
Freddie Mac 5.35%-5.76% due 1/30-3/13/98 108,600 107,842 2.14
----------- --------
245,505 4.88
----------- --------
U.S. Treasury Short-Term Securities - 0.41%
U.S. Treasury bills 5.12% due 3/5/98 21,000 20,813 .41
----------- --------
TOTAL SHORT-TERM SECURITIES 678,913 13.48
----------- --------
TOTAL INVESTMENT SECURITIES
(cost: $4,299,726,000) 5,094,336 101.16
Excess of payables over cash and receivables 58,487 1.16
----------- --------
NET ASSETS $5,035,849 100.00%
=========== ========
(1) Purchased in a private placement transaction;
resale may be limited to qualified institutional
buyers; resale to the public may require registration.
(2) 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.
(3) Coupon rate changes periodically.
(4) Step bond; coupon rate will increase at a later date.
(5) Valued under procedures established by the
Board of Directors.
(6) Index-linked bond whose principal amount moves with
a government retail price index.
See Notes to Financial Statements
- ----------------------------------------------
Equity securities appearing in the
portfolio since June 30, 1997
- ----------------------------------------------
Anheuser-Busch Companies
Astra
Boeing
Dana
Florida Progress
Imperial Tobacco
May Department Stores
Millennium Chemicals
Murphy Oil
NB Capital
Norfolk Southern
Praxair
RJR Nabisco Holdings
Royal & Sun Alliance Insurance Group
Thorn
- ----------------------------------------------
Equity securities eliminated from the
portfolio since June 30, 1997
- ----------------------------------------------
American Home Products
CoreStates Financial
Echlin
Hewlett-Packard
Merck
Philips Electronics
SAFECO
Southwestern Public Service
</TABLE>
<TABLE>
American Balanced Fund
Financial Statements
- -------------------------------------------- ---------- ----------
Statement of Assets and Liabilities (dollars in
at December 31, 1997 thousands)
- -------------------------------------------- ---------- ----------
<S> <C> <C>
Assets:
Investment securities at market
(cost: $4,299,726) $5,094,336
Cash 658
Receivables for -
Sales of investments $17,701
Sales of fund's shares 9,683
Dividends and accrued interest 29,617 57,001
---------- ----------
5,151,995
Liabilities:
Payables for -
Purchases of investments 61,990
Repurchases of fund's shares 51,891
Management services 1,256
Accrued expenses 1,009 116,146
---------- ----------
Net Assets at December 31, 1997 -
Equivalent to $15.68 per share on
321,188,162 shares of $1 par value
capital stock outstanding (authorized
capital stock--500,000,000 shares) $5,035,849
==============
Statement of Operations
for the year ended December 31, 1997 (dollars in
thousands)
- -------------------------------------------- ---------- ----------
Investment Income:
Income:
Dividends $ 68,203
Interest 131,627 $ 199,830
----------
Expenses:
Management services fee 13,618
Distribution expenses 11,437
Transfer agent fee 2,842
Reports to shareholders 241
Registration statement and prospectus 489
Postage, stationery and supplies 440
Directors' fees 83
Auditing and legal fees 45
Custodian fee 129
Taxes other than federal
income tax 2
Other expenses 83 29,409
---------- ----------
Net investment income 170,421
----------
Realized Gain and Unrealized
Appreciation on Investments:
Net realized gain 371,017
Net increase in unrealized appreciation on
investments:
Beginning of year 479,439
End of year 794,613 315,174
---------- ----------
Net realized gain and increase in unrealized
appreciation on investments 686,191
----------
Net Increase in Net Assets Resulting
from Operations $856,612
==========
- ----------------------------------------------------------------------------
Statement of Changes in Net Assets
(dollars in thousands)
Year ended December 31,
1997 1996
- -------------------------------------------- ---------- ----------
Operations:
Net investment income $ 170,421 $ 141,171
Net realized gain on investments 371,017 240,061
Net increase in unrealized appreciation
on investments 315,174 63,299
---------- ----------
Net increase in net assets
resulting from operations 856,612 444,531
---------- ----------
Dividends and Distributions Paid to
Shareholders:
Dividends from net investment income (161,568) (135,064)
Distributions from net realized gain on
investments (386,924) (214,394)
---------- ----------
Total dividends and distributions (548,492) (349,458)
---------- ----------
Capital Share Transactions:
Proceeds from shares sold: 78,721,605
and 78,359,035 shares, respectively 1,234,939 1,133,395
Proceeds from shares issued in reinvestment
of net investment income dividends and
distributions of net realized gain on
investments: 33,541,362 and 22,959,812 shares,
respectively 521,713 330,564
Cost of shares repurchased: 61,953,439
and 45,858,362 shares, respectively (970,176) (665,292)
---------- ----------
Net increase in net assets resulting from
capital share transactions 786,476 798,667
---------- ----------
Total Increase in Net Assets 1,094,596 893,740
Net Assets:
Beginning of year 3,941,253 3,047,513
---------- ----------
End of year (including undistributed
net investment income: $25,214
and $16,361, respectively) $5,035,849 $3,941,253
========== ==========
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 securities, including depositary receipts, are valued at the last
reported sale price on the exchange or market on which such securities are
traded, as of the close of business on the day the securities are being valued
or, lacking any sales, at the last available bid price. In cases where equity
securities are traded on more than one exchange, the securities are valued on
the exchange or market determined by the investment adviser to be the broadest
and most representative market, which may be either a securities exchange or
the over-the-counter market.
Fixed-income securities are valued at prices obtained from a pricing service,
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 quoted bid and asked prices or at prices for securities of comparable
maturity, quality and type. Securities with original maturities of one year or
less having 60 days or less to maturity are amortized to maturity based on
their cost if acquired within 60 days of maturity or, if already held on the
60th day, based on the value determined on the 61st day. Assets or liabilities
initially expressed in terms of foreign currencies are translated into U.S.
dollars at the prevailing market rates at the end of the reporting period.
Purchases and sales of securities and income and expenses are translated into
U.S. dollars at the prevailing market rates on the dates of such transactions.
The effects of changes in foreign currency exchange rates on investment
securities are included with the net realized and unrealized gain or loss on
investment securities. Securities and assets for which representative market
quotations are not readily available are valued at fair value as determined in
good faith by a committee appointed by the Board of Directors.
As is customary in the mutual fund industry, securities transactions are
accounted for on the date the securities are purchased or sold. Realized gains
and losses from securities transactions are reported on an identified cost
basis. Dividend and interest income is reported on the accrual basis. Discounts
and premiums on securities purchased are amortized. Dividends and distributions
paid to shareholders are recorded on the ex-dividend date.
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, 1997, net unrealized appreciation on investments for book
and federal income tax purposes aggregated $794,610,000, of which $853,598,000
related to appreciated securities and $58,988,000 related to depreciated
securities. During the year ended December 31, 1997, the fund realized, on a
tax basis, a net capital gain of $371,011,000 on securities transactions. Net
losses related to non-U.S. currency transactions of $6,000 were treated as an
adjustment to ordinary income for federal income tax purposes. The cost of
portfolio securities for book and federal income tax purposes was
$4,299,726,000 at December 31, 1997.
3. The fee of $13,618,000 for management services was incurred 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, in effect through October 31, 1997, provided
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. The Board of Directors approved an amended agreement effective
November 1, 1997 reducing the fee to 0.262% of such assets in excess of $4
billion but not exceeding $6.5 billion; 0.255% of such assets in excess of $6.5
billion but not exceeding $10.5 billion; and 0.25% of such assets in excess of
$10.5 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, 1997,
distribution expenses under the Plan were $11,437,000. As of December 31, 1997,
accrued and unpaid distribution expenses were $735,000.
American Funds Service Company (AFS), the transfer agent for the fund, was
paid a fee of $2,842,000. American Funds Distributors, Inc. (AFD), the
principal underwriter of the fund's shares, received $2,659,000 (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,
1997, aggregate amounts deferred and earnings thereon were $258,000.
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, 1997, accumulated undistributed net realized gain on
investments was $25,751,000 and additional paid-in capital was $3,869,089,000.
The fund reclassified $12,000 from undistributed net realized gains to
additional paid-in capital for the year ended December 31, 1997.
The fund made purchases and sales of investment securities, excluding
short-term securities, of $1,971,793,000 and $1,705,932,000, respectively,
during the year ended December 31, 1997.
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 $129,000 includes $63,000 that was paid by these credits
rather than in cash.
Net realized currency losses on dividends, interest and withholding taxes
reclaimable, on a book basis, were $6,000 for the year ended December 31, 1997.
<TABLE>
Per-Share Data and Ratios
Year ended December 31
------- ------- -------------- -------
1997 1996 1995 1994 1993
----------- ------- -------------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year 14.55 14.15 12.00 12.57 12.28
--------- - ------- -------------- -------
Income from Investment Operations:
Net investment income 0.58 0.57 0.57 0.57 0.59
Net realized gain and change in unrealized
appreciation on investments 2.41 1.24 2.61 (0.53) 0.76
--------- ------- -------------- -------
Total income from
investment operations 2.99 1.81 3.18 .04 1.35
--------- ------- -------------- -------
Less Distributions:
Dividends from net investment
income (.56) (.56) (.56) (.56) (.60)
Distributions from net realized
gains (1.30) (.85) (.47) (.05) (.46)
--------- ------- -------------- -------
Total Distributions (1.86) (1.41) (1.03) (.61) (1.06)
--------- ------- -------------- -------
Net Asset Value, End of Year $15.68 $14.55 $14.15 $12.00 $12.57
========= ======= ============== =======
Total Return (1) 21.04% 13.17% 27.13% .34% 11.27%
Ratios/Supplemental Data:
Net assets, end of year
(in millions) $5,036 $3,941 $3,048 $2,082 $1,710
Ratio of expenses to average
net assets .65% .67% .67% .68% .71%
Ratio of net income to average
net assets 3.74% 4.01% 4.38% 4.76% 4.74%
Average commissions paid per share (2) 4.57c 5.78c 6.16c 6.25c 6.82c
Portfolio turnover rate 44.01% 43.85% 39.03% 32.05% 27.81%
(1) Excludes maximum sales charge of 5.75%.
(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 most
over-the-counter and fixed-income transactions,
are excluded. Generally, non-U.S. commissions
are lower than U.S. commissions when expressed
as cents per share but higher when expressed
as a percentage of transactions because of the
lower per-share prices of many non-U.S. securities.
</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 investment portfolio,
as of December 31, 1997, 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 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, 1997 by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other auditing procedures.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and per-share data and ratios
referred to above present fairly, in all material respects, the financial
position of American Balanced Fund, Inc. at December 31, 1997, 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, 1998
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:
<TABLE>
<CAPTION>
Dividends and Distributions per Share
To Shareholders Payment Date From Net From Net From Net Realized
of Record Investment Realized Short-term Gains Long-term Gains
Income
<S> <C> <C> <C> <C>
February 14, 1997 February 18, 1997 $0.14 $0.069 $ 0.081
May 23, 1997 May 27, 1997 0.14 - -
August 15, 1997 August 18, 1997 0.14 - -
December 17, 1997 December 18, 1997 0.14 0.104 1.046*
</TABLE>
* Includes $0.333 long-term capital gains taxed at a maximum rate of 28%.
Corporate shareholders may exclude up to 70% of qualifying dividends received
during the year. For purposes of computing this exclusion, 31% of the dividends
paid by the fund from net investment income represents 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, 17% 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.
SHAREHOLDERS SHOULD CONSULT THEIR TAX ADVISERS.
