[THE AMERICAN FUNDS GROUP(R)]
AMERICAN BALANCED FUND
[cover: one red leaf and one yellow leaf flank the cover at opposite ends.]
SEMI-ANNUAL REPORT
For the six months ended
June 30, 1998
AMERICAN BALANCED FUND(R) SEEKS CONSERVATION OF CAPITAL, CURRENT INCOME, AND
LONG-TERM GROWTH OF BOTH CAPITAL AND INCOME BY INVESTING IN STOCKS AND
FIXED-INCOME SECURITIES. IT IS MANAGED AS THOUGH IT CONSTITUTES THE COMPLETE
INVESTMENT PROGRAM OF THE PRUDENT INVESTOR.
AMERICAN BALANCED FUND IS ONE OF THE 28 MUTUAL FUNDS IN THE AMERICAN FUNDS
GROUP,(R) MANAGED BY CAPITAL RESEARCH AND MANAGEMENT COMPANY. SINCE 1931,
CAPITAL HAS INVESTED WITH A LONG-TERM FOCUS BASED ON THOROUGH RESEARCH AND
ATTENTION TO RISK.
Fund results in this report were computed without a sales charge unless
otherwise indicated. Here are the total returns and average annual compound
returns with all distributions reinvested for periods ended June 30, 1998,
assuming payment of the 5.75% maximum sales charge at the beginning of the
stated periods - 10 years: +255.06%, or +12.51% a year; 5 years: +82.49%, or
+12.78% a year; 12 months: +7.43%. Sales charges are lower for accounts of
$50,000 or more. The fund's 30-day yield as of July 31, 1998, calculated in
accordance with the Securities and Exchange Commission formula, was 3.30%.
THE FIGURES IN THIS REPORT REFLECT PAST RESULTS AND ARE NOT PREDICTIVE OF
FUTURE RESULTS. SHARE PRICE AND RETURN WILL VARY, SO YOU MAY LOSE MONEY BY
INVESTING IN THE FUND. THE SHORTER THE TIME PERIOD OF YOUR INVESTMENT, THE
GREATER THE POSSIBILITY OF LOSS. FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS
OF, OR INSURED OR GUARANTEED BY, THE U.S. GOVERNMENT, ANY FINANCIAL
INSTITUTION, THE FEDERAL DEPOSIT INSURANCE CORPORATION, OR ANY OTHER AGENCY,
ENTITY OR PERSON.
Fellow shareholders:
The U.S. stock market continued its long upward run during the first six months
of this year. The bond market also gained strength as long-term interest rates
moved lower.
Your investment in American Balanced Fund earned a total return of 6.2% for the
half year ended June 30. That trailed the Lipper Balanced Funds Index, which
posted a 9.6% return. These results assume you reinvested your income dividends
of 28 cents a share and the capital gain distribution of 8 cents a share paid
during the period.
The U.S. stock market, as measured by the unmanaged Standard & Poor's 500
Composite Index, produced a total return of 17.7% for the six months. We find
this remarkable considering that it comes on top of the unprecedented 125%
total return produced by the market during the previous three years. During the
first six months of the year, bonds produced a 3.9% return on a reinvested
basis, as measured by the unmanaged Lehman Brothers Aggregate Bond Index.
While the fund continues to hold a broadly diversified portfolio of stocks and
bonds, the stock market's strength has become increasingly concentrated in a
few large, highly valued firms. Of the 500 stocks in the S&P 500, only 175
outperformed the index during the first six months of this year. Further, the
50 largest companies in the S&P 500 at the period end, which accounted for more
than half of its value because the index is weighted by size, rose more than
28% in the period, far outpacing the gain registered by the index as a whole.
These "top 50" stocks are selling at an average price of 32 times our 1998
earnings estimates, while the other 450 stocks in the index sell at an average
of 16 times our estimated earnings.
During the half year, some of the fund's largest industry holdings trailed the
broader market. Cyclical companies that rely on commodities such as oil, metals
and paper products were hurt by Asia's economic troubles, which reduced demand
for raw materials. Oil stocks accounted for about 7% of American Balanced
Fund's holdings throughout the period, making it the largest single industry in
the portfolio. We believe that valuations in this group are still attractive,
barring a long-term collapse in the price of oil. The fund also had 3% of its
holdings in forest products and paper, which continue to disappoint. Higher
yielding stocks, such as electric utilities, also lagged the S&P 500.
On the other hand, several of the fund's holdings registered strong price
gains. Pharmaceutical company Warner-Lambert, our second-largest holding at the
end of the period, rose 68% during the six months. Beneficial, also one of the
fund's top ten holdings at the period's end, rose 84%, Nokia increased 107%,
and Chrysler, which was added to the portfolio during the period, rose 38%
after the fund made its investment.
The recent wave of mergers and acquisitions put several of your fund's holdings
in the spotlight. General Re, the fund's largest holding, Wells Fargo and
Chrysler are all slated to be acquired. Ameritech, our fourth-largest holding,
received a buyout offer from SBC Communications, and BankAmerica is involved in
a proposed merger with NationsBank. The stocks of some of these companies -
most notably Chrysler - rose sharply after the mergers were announced but
others reacted only slightly.
In the current market, where gains have been highly concentrated in a few
companies and price/earnings ratios are at record levels, finding attractively
valued stocks has become increasingly difficult. As a result, our stock
holdings remain near the low end of the fund's range of between 50% and 75%. At
the end of the period, 56% of the fund's assets was invested in common stocks,
essentially unchanged from the end of 1997.
The first half of this year was a good period in the bond market. Although the
economy remained healthy and consumer spending was strong, several factors
including a reduction of inventories helped dampen inflation. The Federal
Reserve Board also chose to leave short-term interest rates unchanged during
the period. The combination of low inflation and a hands-off stance by the Fed
helped push bond prices higher. During the period, the fixed-income portion of
the portfolio remained largely unchanged.
Financial troubles in Asia and Russia and concerns surrounding India and
Pakistan caused overseas investors to move money to the U.S. in a "flight to
quality." This increased the demand for U.S. Treasury bonds, boosting prices,
and had a favorable impact on stock prices as well. As the price of bonds rose,
the value of your fund's fixed-income holdings also increased and contributed
to the fund's return for the six months.
During the first half of this year, the number of shareholder accounts grew by
more than 13%. We welcome all our new shareholders and look forward to
reporting to you again in six months.
Cordially,
/S/ Walter P. Stern /S/ Robert G. O'Donnell
Walter P. Stern Robert G. O'Donnell
Chairman of the Board President
July 31, 1998
<TABLE>
<S> <C> <C> <C>
American Balanced Fund
Investment Portfolio June 30,1998 (unaudited)
- ---------------------------------------------- --------- --------- ---------
Percent
of
TEN LARGEST EQUITY HOLDINGS Net Assets
General Re 1.59%
Warner-Lambert 1.47
Hewlett-Packard 1.45
Ameritech 1.23
St. Paul 1.11
Genuine Parts 1.10
York International 1.08
Amoco 1.03
Wells Fargo .98
Beneficial .95
INVESTMENT MIX BY SECURITY TYPE
- ----------------------------------------------
[pie chart]
Common Stocks 56.00%
Goverment Bonds 16.00%
Corporate Bonds 12.00%
Convertible Securities and Preferred Stock 2.00%
Cash and Equivalents 14.00%
Market Percent
Number of Value of Net
COMMON STOCKS Shares (000) Assets
- ---------------------------------------------- --------- --------- ---------
ENERGY
Energy Sources- 5.91%
Amoco Corp. 1,400,000 58,275 1.03%
Ashland Inc. 500,000 25,813 .45
Atlantic Richfield Co. 520,000 40,625 .72
Kerr-McGee Corp. 500,000 28,938 .51
Murphy Oil Corp. 917,400 46,501 .82
Pennzoil Co. 750,000 37,969 .67
Phillips Petroleum Co. 1,000,000 48,187 .85
Royal Dutch Petroleum Co. (New York Registered Shares) 560,000 30,695 .54
Texaco Inc. 400,000 23,875 .42
Ultramar Diamond Shamrock Corp. 1,650,000 52,078 .92
Utilities: Electric & Gas - 2.35%
Baltimore Gas and Electric Co. 1,000,000 31,063 .55
Duke Energy Corp. 600,000 35,550 .63
FPL Group, Inc. 400,000 25,200 .44
PP & L Resources, Inc. 800,000 18,150 .32
Southern Electric PLC 750,000 6,875
Southern Electric PLC (ADR) 1,750,000 16,283 .41
--------- ---------
526,077 9.28
--------- ---------
MATERIALS
Chemicals - 2.45%
Air Products and Chemicals, Inc. 700,000 28,000 .49
Dow Chemical Co. 250,000 24,172 .43
E.I. du Pont de Nemours and Co. 400,000 29,850 .53
Millennium Chemicals Inc. 844,400 28,604 .50
Praxair, Inc. 600,000 28,087 .50
Forest Products & Paper - 3.03%
Georgia-Pacific Corp., Georgia-Pacific Group 600,000 35,362
Georgia-Pacific Corp., Timber Group 490,000 11,301 .82
International Paper Co. 650,000 27,950 .49
Louisiana-Pacific Corp. 1,086,000 19,819 .35
Sonoco Products Co. 880,000 26,620 .47
Union Camp Corp. 650,000 32,256 .57
Weyerhaeuser Co. 400,000 18,475 .33
Metals: Nonferrous - 0.84%
Aluminum Co. of America 725,000 47,805 .84
--------- ---------
358,301 6.32
--------- ---------
CAPITAL EQUIPMENT
Aerospace & Military Technology - 0.67%
Boeing Co. 850,000 37,878 .67
Data Processing & Reproduction - 2.06%
Hewlett-Packard Co. 1,375,000 82,328 1.45
International Business Machines Corp. 300,000 34,444 .61
Electrical & Electronic - 2.02%
Nokia Corp., Class A (ADR) 400,000 29,025 .51
Telefonaktiebolaget LM Ericsson, Class B (ADR) 850,000 24,331 .43
York International Corp. 1,400,000 60,987 1.08
Electronic Components - 0.42%
AMP Inc. 700,000 24,062 .42
Industrial Components - 2.14%
Dana Corp. 450,000 24,075 .42
Eaton Corp. 450,000 34,988 .62
Genuine Parts Co. 1,800,000 62,213 1.10
Machinery & Engineering- 0.65%
Caterpillar Inc. 700,000 37,013 .65
--------- ---------
451,344 7.96
--------- ---------
CONSUMER GOODS
Automobiles - 1.21%
Chrysler Corp. 900,000 50,738 .90
Suzuki Motor Corp. 1,900,000 17,335 .31
Beverages & Tobacco - 3.16%
Anheuser-Busch Companies, Inc. 400,000 18,875 .33
Imperial Tobacco Ltd. 4,000,000 29,522 .52
Philip Morris Companies Inc. 1,100,000 43,313 .76
RJR Nabisco Holdings Corp. 1,675,000 39,781 .70
UST Inc. 1,775,000 47,925 .85
Food & Household Products - 0.72%
General Mills, Inc. 350,000 23,931 .42
Sara Lee Corp. 300,000 16,781 .30
Health & Personal Care - 2.97%
AB Astra, Class A (ADR) 1,800,000 36,900 .65
Eli Lilly and Co. 400,000 26,425 .47
Pfizer Inc 200,000 21,738 .38
Warner-Lambert Co. 1,200,000 83,250 1.47
--------- ---------
456,514 8.06
--------- ---------
SERVICES
Broadcasting & Publishing - 0.88%
Gannett Co., Inc. 700,000 49,744 .88
Business & Public Services - 2.71%
Browning-Ferris Industries, Inc. 1,375,000 47,781 .84
Columbia/HCA Healthcare Corp. 825,000 24,028 .42
Electronic Data Systems Corp. 850,000 34,000 .60
Waste Management, Inc. 1,375,000 48,125 .85
Merchandising - 2.55%
Circuit City Stores, Inc. - Circuit City Group 590,000 27,656 .49
May Department Stores Co. 650,000 42,575 .75
Thorn PLC 2,424,400 10,121
Thorn PLC (ADR) 1,749,997 28,000 .67
Wal-Mart Stores, Inc. 600,000 36,450 .64
Telecommunications - 2.04%
Ameritech Corp. 1,550,000 69,556 1.23
AT&T Corp. 400,000 22,850 .40
U S WEST, Inc. 500,000 23,500 .41
Transportation: Rail & Road - 0.77%
Norfolk Southern Corp. 1,000,000 29,813 .53
Union Pacific Corp. 301,400 13,299 .24
--------- ---------
507,498 8.95
--------- ---------
FINANCE
Banking - 3.33%
BankAmerica Corp. 500,000 43,219 .76
Bank of Tokyo-Mitsubishi, Ltd. (ADR) 1,300,000 14,300 .25
First Virginia Banks, Inc. 480,450 24,563 .43
Fleet Financial Group, Inc. 410,000 34,235 .60
J.P. Morgan & Co. Inc. 80,000 9,370 .17
Sakura Bank, Ltd. 3,000,000 7,820 .14
Wells Fargo & Co. 150,000 55,350 .98
Financial Services - 1.38%
Beneficial Corp. 350,000 53,616 .95
Fannie Mae 400,000 24,300 .43
Insurance - 5.28%
Aetna Inc. 300,000 22,837 .40
Allstate Corp. 350,000 32,047 .57
American General Corp. 610,690 43,473 .77
General Re Corp. 355,000 89,992 1.59
Lincoln National Corp. 300,000 27,413 .48
Royal & Sun Alliance Insurance Group PLC 2,000,000 20,689 .36
St. Paul Companies, Inc. 1,500,000 63,094 1.11
Real Estate - 1.00%
Equity Residential Properties Trust 500,000 23,719 .42
Spieker Properties, Inc. 850,000 32,938 .58
--------- ---------
622,975 10.99
--------- ---------
MISCELLANEOUS
Miscellaneous - 4.09%
Other common stocks in initial period of acquisition 231,781 4.09
--------- ---------
TOTAL COMMON STOCKS 3,154,490 55.65
--------- ---------
Shares or
Principal
CONVERTIBLE SECURITIES AND PREFERRED STOCK Amount
- ---------------------------------------------- --------- --------- ---------
Transportation: Rail & Road - 0.02%
Union Pacific Capital Trust TIDES 6.25% convertible
preferred (1) 30,000 1,402 .02
Banking - 0.14%
NB Capital Corp. 8.35% noncumulative exchangeable
preferred, Series A 7,500 7,758 .14
Financial Services - 0.66%
Bell Atlantic Financial Services, Inc. 5.75% 2003 (1) $6,410,000 6,538 .12
Fuji JGB Investment LLC 9.87% noncumulative preferred,
Series A (1) $6,500,000 5,785 .10
IBJ Preferred Capital Co. LLC 8.79% noncumulative
preferred, Series A (1) $3,150,000 2,876 .05
SB Treasury Co. LLC 9.40% noncumulative preferred,
Series A (1) $8,000,000 7,951 .14
Tokai Preferred Capital Co. LLC 9.98% noncumulative
preferred, Series A (1) $15,000,000 13,875 .25
Insurance - 0.22%
Mediaone 7.625% DECS exchangeable notes 1998 (convertible into
Enhance Financial Services Group common stock) (formerly US
WEST, Inc.) 216,700 12,542 .22
Multi-Industry - 0.12%
Swire Pacific Capital Ltd. 8.84% cumulative guaranteed
perpetual capital securities (1) 370,000 6,886 .12
Real Estate - 0.22%
Security Capital Industrial Trust, Series D, 7.92% 2009 500,000 12,281 .22
MISCELLANEOUS
Miscellaneous - 0.49%
Other convertible securities and preferred stock in initial
period of acquisition 27,937 .49
--------- ---------
TOTAL CONVERTIBLE SECURITIES AND PREFERRED STOCK 105,831 1.87
--------- ---------
TOTAL EQUITY SECURITIES 3,260,321 57.52
--------- ---------
Principal
Amount
BONDS AND NOTES (000)
- ---------------------------------------------- --------- --------- ---------
Industrials - 3.76%
Columbia/HCA Healthcare Corp. 7.15% 2004 $4,000 3,919 .07
Comcast Cable Communications, Inc. 8.375% 2007 5,250 5,871 .10
Deere & Co. 8.95% 2019 7,330 8,757 .15
Fort James Corp. 6.625% 2004 8,000 8,120 .14
Freeport-McMoRan Copper & Gold Inc. 7.50% 2006 5,000 3,700
Freeport-McMoRan Copper & Gold Inc. 7.20% 2026 12,500 9,750 .24
Hearst-Argyle Television, Inc. 7.00% 2018 7,500 7,601 .13
Hutchison Whampoa Finance (CI) Ltd., Series D, 6.988% 2037 (1) 10,000 8,275 .15
Hyundai Semiconductor America, Inc. 8.625% 2007 (1) 12,025 9,560 .17
Inco Ltd. 9.875% 2019 4,200 4,438
Inco Ltd. 9.60% 2022 5,000 5,531 .18
May Department Stores Co. 9.875% 2021 6,500 7,302 .13
News America Holdings Inc. 10.125% 2012 2,000 2,333
News America Holdings Inc. 7.43% 2026 10,000 10,654 .23
OXYMAR 7.50% 2016 (1) 6,000 6,053 .11
Pan Pacific Industrial Investments PLC 0% 2007 (1) 25,000 9,618 .17
PDVSA Finance Ltd. 7.40% 2016 (1) 12,000 11,795 .21
Philips Electronics NV 7.20% 2026 7,500 7,762 .14
Pioneer Natural Resources Co. 7.20% 2028 5,000 4,864 .08
Reliance Industries Ltd. 10.50% 2046 1,500 1,356 .10
Reliance Industries Ltd., Series B, 10.25% 2097 5,000 4,399
Royal Caribbean Cruises Ltd. 7.00% 2007 17,000 17,409 .31
Samsung Electronics Co., Ltd. 7.45% 2002 (1) 2,500 2,125 .04
TCI Communications, Inc. 8.75% 2015 4,000 4,816
Tele-Communications, Inc. 8.75% 2023 3,000 3,182
Tele-Communications, Inc. 9.25% 2023 3,000 3,499 .20
Time Warner Inc., Pass-Through Asset Trust 1997-1,
6.10% 2001 (1) (2) 10,000 9,951
Time Warner Inc. 9.125% 2013 3,000 3,651
Time Warner Inc. 7.25% 2017 5,000 5,215
Time Warner Inc. 6.85% 2026 4,825 4,960 .42
TKR Cable I, Inc. 10.50% 2007 4,000 4,401 .08
Waste Management, Inc. 7.00% 2006 3,000 3,105 .05
Wharf International Finance Ltd., Series A, 7.625% 2007 11,500 9,200 .16
--------- ---------
213,172 3.76
--------- ---------
Electric Utilities - 0.47%
Commonwealth Edison Co. 9.875% 2020 11,000 13,109 .23
Israel Electric Corp. Ltd. 7.75% 2027 (1) 6,000 5,989 .11
Transener SA 9.25% 2008 (1) 7,500 7,219 .13
--------- ---------
26,317 .47
--------- ---------
Gas Utilities - 0.04%
Energen Corp., Series B, 7.125% 2028 2,500 2,534 .04
--------- ---------
Telephone - 0.13%
Cable & Wireless Communications PLC, 6.625% 2005 5,000 5,039 .09
U S WEST Capital Funding 6.25% 2005 2,500 2,495 .04
--------- ---------
7,534 .13
--------- ---------
Transportation - 0.99%
Airplanes Pass Through Trust, pass-through certificates,
Series I, Class C, 8.15% 2019 (2) 7,464 7,864 .14
Continental Airlines, Inc., pass-through certificates,
Series 1996-2B, 8.56% 2014 (2) 1,898 2,132
Continental Airlines, Inc., pass-through certificates,
Series 1996-A, 6.94% 2015 (2) 9,611 9,997
Continental Airlines, Inc., pass-through certificates,
Series 1997-4A, 6.90% 2018 (2) 2,500 2,594 .26
Delta Air Lines, Inc., pass-through certificates,
Series 1992-A2, 9.20% 2014 (2) 1,500 1,801
Delta Air Lines, Inc., pass-through certificates,
Series 1993-A2, 10.50% 2016 (2) 5,000 6,411 .14
United Air Lines, Inc. 10.67% 2004 5,000 5,974
United Air Lines, Inc., pass-through certificates,
Series 1995-A1, 9.02% 2012 (2) 6,106 6,918
United Air Lines, Inc., pass-through certificates,
Series 1995-A2, 9.56% 2018 (2) 4,000 4,983 .32
USAir, Inc., Class A, 6.76% 2008 7,047 7,277 .13
--------- ---------
55,951 .99
--------- ---------
Financial - 3.07%
Ahmanson Capital Trust I Capital Securities, Series A, 8.36% 202 4,000 4,496 .08
AT&T Capital Corp. 6.60% 2005 10,000 10,071 .18
BankAmerica Capital III, BankAmerica Corp., Series 3,
6.226% 2027 (3) 12,500 12,244 .22
Bankers Trust NY 6.70% 2007 6,000 6,129 .11
Bank of Nova Scotia 5.812% Eurodollar Note (undated) (3) 4,000 3,480 .06
Barnett Capital I 8.06% 2026 4,000 4,372 .08
Beneficial Corp. 12.875% 2013 1,500 1,584 .03
BNP U.S. Funding LLC, Series A, 7.738% 2049 (1) 14,000 13,970 .25
BT Capital Trust I 6.438% 2026 (3) 12,500 12,450 .22
Canadian Imperial Bank of Commerce 5.813% Eurodollar Note (undat 1,600 1,392 .02
Capital One Bank 7.35% 2000 10,000 10,207
Capital One Bank 8.125% 2000 4,000 4,117
Capital One Bank 6.375% 2003 6,000 6,005
Capital One Bank 7.15% 2006 5,000 5,065 .45
Central Fidelity Capital Trust I, Central Fidelity
Banks Inc. 6.656% 2027 (3) 2,250 2,321 .04
Chase Capital II, Global Floating Rate Capital
Securities, Series B, 6.219% 2027 (3) 7,950 7,696 .14
Den Norske CreditBank 5.938% (undated) (3) 3,000 2,505 .04
Executive Risk 7.125% 2007 2,500 2,560 .04
First Union Corp. 6.82%/7.57% 2026 (4) 4,500 4,676 .08
Fuji International Finance (Bermuda) Trust, Fuji Bank, Ltd. 7.30%
Eurodollar Note (undated) (3) 8,000 6,880 .12
Household Finance Corp. 6.40% 2008 7,000 6,990 .12
HSBC America Capital 7.808% 2026 (1) 2,500 2,555 .04
Lindsey Morden 7.00% 2008 (1) 8,000 5,412 .10
MBNA Corp., MBNA Capital A, Series A, 8.278% 2026 7,000 7,385 .13
Midland Bank 6.188% Eurodollar Note (undated) (3) 4,000 3,399 .06
National Westminster Bank PLC 7.75% (undated) 7,500 8,050 .14
Riggs National Corp. 8.875% 2027 (1) 2,000 2,226 .04
Washington Mutual Capital I Subordinated Capital Income
Securities 8.375% 2027 4,050 4,569 .08
Zurich Capital Trust I Capital Securities 8.376% 2037 (1) 10,000 11,066 .20
--------- ---------
173,872 3.07
--------- ---------
Real Estate - 0.85%
CarrAmerica Realty Corp. 6.875% 2008 (1) 5,000 4,957 .09
EOP Operating LP 6.625% 2005 (1) 4,500 4,499
EOP Operating LP 7.25% 2018 (1) 2,000 2,001 .12
ERP Operating LP 7.95% 2002 1,500 1,579 .03
Irvine Apartment Communities, LP 7.00% 2007 5,000 5,001 .09
Irvine Co., Series A, 7.46% 2006 (1) (5) 2,500 2,571 .04
Security Capital Industrial Trust 7.875% 2009 5,000 5,338 .09
Shopping Center Associates 6.75% 2004 (1) 5,000 5,060 .09
SocGen Real Estate Co. LLC, Series A, 7.64% 2049 (1) 17,000 17,104 .30
--------- ---------
48,110 .85
--------- ---------
Collateralized Mortgage/Asset-Backed
Obligations (2) - 2.84%
Asset-Backed Securities Investment Trust, Series 1997-D,
6.79% 2003 (1) 12,000 12,034 .21
Case Equipment Loan Trust, Series 1995-A, 7.30% 2002 1,205 1,212 .02
Chase Manhattan Credit Card Master Trust, Series 1996-4,
Class A, 6.73% 2003 7,000 7,063 .12
Collateralized Mortgage Obligation Trust, Series 28, Class Z,
8.45% 2017 13,431 13,629 .24
Deutsche Mortgage & Asset Receiving Corp.,
Series 1998-C1, Class A-1, 6.22% 2031 9,875 9,900 .18
DLJ Mortgage Acceptance Corp., Series 1997-CF1,
Class A1A, 7.40% 2006 (1) 2,809 2,947
DLJ Mortgage Acceptance Corp., Series 1996-CF2,
Class A1B, 7.29% 2021 (1) 6,000 6,360
DLJ Mortgage Acceptance Corp., Series 1995-CF2,
Class A1B, 6.85% 2027 (1) 6,000 6,176 .27
FIRSTPLUS Home Loan Owner Trust, Series 1996-4,
Class A-3, 6.28% 2009 5,000 5,003 .32
FIRSTPLUS Home Loan Owner Trust, Series 1997-1,
Class A-6, 6.95% 2015 12,500 12,738
GMAC Commercial Mortgage Securities, Inc.,
Series 1997-C1, Class A1, 6.83% 2003 4,464 4,526 .08
Green Tree Financial Corp., pass-through certificates,
Series 1995-9, Class A-5, 6.80% 2027 10,000 10,138 .18
Grupo Financiero Banamex Accival, SA de CV 0% 2002 (1) 4,072 3,500 .06
IMC Home Equity Loan Trust, Series 1996-2, Class A2,
6.78% 2011 784 782 .01
Jet Equipment Trust, Series 1995-B, Class B, 7.83% 2015 (1) 7,475 7,999
Jet Equipment Trust, Series 1995-A, Class B, 8.64% 2015 (1) 4,692 5,292 .23
J.P. Morgan Commercial Mortgage Finance Corp., pass-through
certificates, Series 1996-C3, Class A-1, 7.33% 2028 4,681 4,873 .09
Merrill Lynch Mortgage Investors, Inc., Seller
Manufactured Housing Contract, Series 1995-C2,
Class A-1, 7.325% 2021 (3) 3,672 3,733 .07
Morgan Stanley Capital I Inc., Series 1998-WF1, Class A-1, 6.25% 22,753 22,831 .40
Nomura Asset Securities Corp., Series 1998-D6, Class A-A1,
6.28% 2030 14,766 14,863 .26
Structured Asset Securities Corp., pass-through
certificates, Series 1996-CFL, Class A1C, 5.944% 2028 5,591 5,563 .10
--------- ---------
161,162 2.84
--------- ---------
Governments (excluding U.S. Government) and
Governmental Authorities - 0.10%
Canadian Government 4.25% 2026 (6) 7,766 5,629 .10
--------- ---------
Federal Agency Obligations - Mortgage Pass-Throughs (2) - 2.38%
Fannie Mae:
7.00% 2008 3,438 3,506 .06
6.00% 2013 34,518 34,141 .60
6.50% 2013 39,600 39,969 .71
8.50% 2024 6,417 6,698 .12
8.50% 2027 5,651 5,896 .10
12.00% 2028 5,138 5,976 .11
Freddie Mac:
8.50% 2008 178 188 .00
10.00% 2018 6,165 6,700 .12
8.50% 2020 5,922 6,229 .11
7.50% 2022 755 775 .01
7.50% 2024 2,223 2,278 .04
Government National Mortgage Assn.:
11.00% 2015 66 75 .00
9.50% 2018 94 101 .00
10.50% 2019 44 49 .00
7.00% 2022 (3) 2,507 2,567 .05
6.875% 2023 (3) 7,908 8,082 .14
8.00% 2023 4,003 4,184 .08
8.00% 2024 3,472 3,598 .06
7.50% 2026 3,940 4,050 .07
--------- ---------
135,062 2.38
--------- ---------
Federal Agency Obligations - Other - 0.32%
FNSM Callable Principal STRIPS:
0%/8.20% 2022 (4) 10,000 9,780 .17
0%/8.25% 2022 (4) 1,500 1,473 .03
Freddie Mac 6.945% 2005 6,500 6,510 .12
--------- ---------
17,763 .32
--------- ---------
U.S. Treasury Obligations - 13.42%
6.25% July 1998 50,000 50,047 .88
6.875% July 1999 10,000 10,139 .18
7.125% February 2000 80,000 82,000 1.45
8.75% August 2000 7,500 7,978 .14
14.25% February 2002 2,000 2,564 .05
6.50% May 2002 70,000 72,330 1.27
3.625% July 2002 (6) 40,583 40,158 .71
10.75% February 2003 7,300 8,825 .16
10.75% May 2003 5,000 6,093 .11
11.125% August 2003 8,500 10,584 .19
11.875% November 2003 15,000 19,331 .34
7.25% May 2004 138,000 149,730 2.64
7.25% August 2004 25,000 27,199 .48
6.50% May 2005 60,000 63,328 1.12
7.00% July 2006 50,000 54,601 .96
10.375% November 2009 15,000 18,743 .33
10.00% May 2010 2,000 2,492 .04
10.375% November 2012 42,000 56,241 .99
7.25% May 2016 10,000 11,716 .21
7.50% November 2016 3,000 3,601 .06
8.875% August 2017 46,250 63,052 1.11
--------- ---------
760,752 13.42
--------- ---------
TOTAL BONDS & NOTES 1,607,858 28.37
--------- ---------
SHORT-TERM SECURITIES
- ----------------------------------------------
Corporate Short-Term Notes - 11.38%
BellSouth Telecommunications, Inc. 5.47%-5.49% due 7/29-8/11/98 65,240 64,875 1.15
Campbell Soup Co. 5.45% due 7/13/98 15,000 14,970 .26
Ciesco LP 5.50%-5.52% due 7/6-7/27/98 43,700 43,600 .77
Coca-Cola Co. 5.49%-5.50% due 7/20-8/27/98 77,100 76,563 1.35
Ford Motor Credit Co. 5.50%-5.51% due 7/21-7/24/98 45,400 45,241 .80
General Electric Capital Corp. 5.53%-6.25% due 7/1-8/13/98 45,700 45,483 .80
General Motors Acceptance Corp. 5.49%-5.52% due 7/10-7/28/98 82,300 82,072 1.45
International Business Machines Corp. 5.51% due 7/7-7/8/98 48,100 48,044 .85
Lucent Technologies Inc. 5.46%-5.50% due 7/7-8/25/98 86,100 85,739 1.51
Minnesota Mining & Manufacturing Co. 5.44%-5.46% due 8/20/98 27,000 26,790 .47
Motorola Inc. 5.49%-5.50% due 7/14-8/11/98 53,270 53,080 .94
National Rural Utilities Cooperative Finance Corp. 5.48%-5.50%
due 8/6-9/3/98 58,900 58,497 1.03
--------- ---------
644,954 11.38
--------- ---------
Federal Agency Short-Term Obligations - 2.61%
Freddie Mac 5.40%-5.45% due 7/1-8/31/98 148,806 147,972 2.61
--------- ---------
TOTAL SHORT-TERM SECURITIES 792,926 13.99
--------- ---------
TOTAL INVESTMENT SECURITIES (cost: $4,892,328,000) 5,661,105 99.88
Excess of cash and receivables over payables 6,808 .12
--------- ---------
NET ASSETS $5,667,913 100%
========= =========
(1) Purchased in a private placement transaction; resale may
be limited to qualified institutional buyers; resale to the
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 maturities are shorter than
the stated maturities.
(3) Coupon rates may change 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
- ----------------------------------------------
Common stocks appearing in the
portfolio since December 31, 1997
- ----------------------------------------------
Aetna
Ashland
Chrysler
Eaton
Equity Residential Properties
Hewlett-Packard
Spieker Properties
Suzuki Motor
Wells Fargo
Weyerhaeuser
- ----------------------------------------------
Common stocks eliminated from the
portfolio since December 31, 1997
- ----------------------------------------------
Bowater
Cognizant
Computer Associates International
Consolidated Edison
CSX
First Chicago NBD
Florida Progress
Ford Motor
Long Island Lighting
Lyondell Petrochemical
National City
Parker Hannifin
Schering-Plough
Time Warner
</TABLE>
<TABLE>
<S> <C> <C>
American Balanced Fund (unaudited)
Financial Statements
- ---------------------------------------------- --------- ---------
Statement of Assets and Liabilities (dollars in
at June 30, 1998 thousands)
- ---------------------------------------------- --------- ---------
Assets:
Investment securities at market
(cost: $4,892,328) $5,661,104
Cash 5,086
Receivables for -
Sales of investments $ 8,009
Sales of fund's shares 11,962
Dividends and accrued interest 31,306 51,277
--------- ---------
5,717,467
Liabilities:
Payables for -
Purchases of investments 41,024
Repurchases of fund's shares 5,985
Management services 1,344
Accrued expenses 1,201 49,554
--------- ---------
Net Assets at June 30, 1998 -
Equivalent to $16.28 per share on
348,165,255 shares of $1 par value
capital stock outstanding (authorized
capital stock--500,000,000 shares) $5,667,913
=========
Statement of Operations (unaudited)
for the six months ended June 30, 1998 (dollars in
thousands)
- ---------------------------------------------- --------- ---------
Investment Income:
Income:
Dividends $ 36,774
Interest 75,243 $ 112,017
---------
Expenses:
Management services fee 7,887
Distribution expenses 6,756
Transfer agent fee 1,636
Reports to shareholders 111
Registration statement and prospectus 329
Postage, stationery and supplies 334
Directors' fees 25
Auditing and legal fees 44
Custodian fee 34
Taxes other than federal
income tax 2
Other expenses 54 17,212
--------- ---------
Net investment income 94,805
---------
Realized Gain and Unrealized
Appreciation on Investments:
Net realized gain 249,444
Change in unrealized appreciation on
investments:
Beginning of period 794,613
End of period 768,780 (25,833)
--------- ---------
Net realized gain and change in unrealized
appreciation on investments 223,611
---------
Net Increase in Net Assets Resulting
from Operations $318,416
========
See Notes to Financial Statements
- ---------------------------------------------- --------- ---------
Statement of Changes in Net Assets
(dollars in thousands)
Six months Year ended
ended 6/30/1998* 12/31/1997
- ---------------------------------------------- ---------------- ------------
Operations:
Net investment income $ 94,805 $ 170,421
Net realized gain on investments 249,444 371,017
Net change in unrealized appreciation
on investments (25,833) 315,174
--------- ---------
Net increase in net assets
resulting from operations 318,416 856,612
--------- ---------
Dividends and Distributions Paid to
Shareholders:
Dividends from net investment income (94,020) (161,568)
Distributions from net realized gain on
investments (26,328) (386,924)
--------- ---------
Total dividends and distributions (120,348) (548,492)
--------- ---------
Capital Share Transactions:
Proceeds from shares sold: 49,363,013
and 78,721,605 shares, respectively 798,037 1,234,939
Proceeds from shares issued in reinvestment
of net investment income dividends and
distributions of net realized gain on
investments: 7,063,615 and 33,541,362 shares,
respectively 113,434 521,713
Cost of shares repurchased: 29,449,535
and 61,953,439 shares, respectively (477,475) (970,176)
--------- ---------
Net increase in net assets resulting from
capital share transactions 433,996 786,476
--------- ---------
Total Increase in Net Assets 632,064 1,094,596
Net Assets:
Beginning of period 5,035,849 3,941,253
--------- ---------
End of period (including undistributed net
investment income: $25,999 and $25,214, $5,667,913 $5,035,849
respectively) ========= =========
*Unaudited
See Notes to Financial Statements
</TABLE>
Notes to Financial Statements (unaudited)
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 June 30, 1998, net unrealized appreciation on investments for book and
federal income tax purposes aggregated $768,776,000, of which $874,540,000
related to appreciated securities and $105,764,000 related to depreciated
securities. There was no difference between book and tax realized gains on
securities transactions for the six months ended June 30, 1998. Net losses
related to non-U.S. currency transactions of $9,000 are 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
$4,892,328,000 at June 30, 1998.
3. The fee of $7,887,000 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 provides for monthly fees, accrued daily, based
on an annual rate of 0.42% of the first $500 million of average net assets;
0.324% of such assets in excess of $500 million but not exceeding $1 billion;
0.30% of such assets in excess of $1 billion but not exceeding $1.5 billion;
0.282% of such assets in excess of $1.5 billion but not exceeding $2.5 billion;
0.27% of such assets in excess of $2.5 billion but not exceeding $4 billion;
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 six months ended June 30, 1998,
distribution expenses under the Plan were limited to $6,756,000. Had no
limitation been in effect, the fund would have paid $7,351,000 in distribution
expenses under the Plan. As of June 30, 1998, accrued and unpaid distribution
expenses were $880,000.
American Funds Service Company (AFS), the transfer agent for the fund, was
paid a fee of $1,636,000. American Funds Distributors, Inc. (AFD), the
principal underwriter of the fund's shares, received $1,890,000 (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 June 30, 1998,
aggregate amounts deferred and earnings thereon were $300,000.
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 June 30, 1998, accumulated undistributed net realized gain on
investments was $248,876,000 and additional paid-in capital was $4,276,108,000.
The fund made purchases and sales of investment securities, excluding
short-term securities, of $1,541,611,000 and $1,311,070,000, respectively,
during the six months ended June 30, 1998.
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 $34,000 includes $22,000 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 $9,000 for the six months ended June 30,
1998.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Per-Share Data and Ratios
Six months
ended Year ended December 31
----- ----- ------- ----- -----
6/30/98 (1) 1997 1996 1995 1994 1993
----------- ----- ----- ------- ----- -----
Net Asset Value, Beginning of Period $ 15.68 $14.55 $14.15 $ 12.00 $12.57 $12.28
------- ----- ----- ------- ----- -----
Income from Investment Operations:
Net investment income .28 .58 .57 .57 .57 .59
Net realized gain and change in unrealized
appreciation on investments .68 2.41 1.24 2.61 (.53) .76
------- ----- ----- ------- ----- -----
Total income from
investment operations .96 2.99 1.81 3.18 .04 1.35
------- ----- ----- ------- ----- -----
Less Distributions:
Dividends from net investment
income (.28) (.56) (.56) (.56) (.56) (.60)
Distributions from net realized
gains (.08) (1.30) (.85) (.47) (.05) (.46)
------- ----- ----- ------- ----- -----
Total Distributions (.36) (1.86) (1.41) (1.03) (.61) (1.06)
------- ----- ----- ------- ----- -----
Net Asset Value, End of Period $ 16.28 $15.68 $14.55 $14.15 $12.00 $12.57
======= ====== ===== ======= ===== ======
Total Return (2) 6.17% (3) 21.04% 13.17% 27.13% .34% 11.27%
Ratios/Supplemental Data:
Net assets, end of period
(in millions) $5,668 $5,036 $3,941 $3,048 $2,082 $1,710
Ratio of expenses to average
net assets .32% (3) .65% .67% .67% .68% .71%
Ratio of net income to average
net assets 1.74% (3) 3.74% 4.01% 4.38% 4.76% 4.74%
Average commissions paid per share (4) 3.97c 4.57c 5.78c 6.16c 6.25c 6.82c
Portfolio turnover rate 28.42% (3) 44.01% 43.85% 39.03% 32.05% 27.81%
1 Unaudited
2 Excludes maximum sales charge of 5.75%.
3 Based on operations for the period shown
and, accordingly, not representative of a full
year.
4 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 transaction amount because of the lower per-share prices of
many non-U.S. securities.
</TABLE>
SERVICES TO MATCH YOUR LIFESTYLE
THE AMERICAN FUNDS GROUP(R) SHAREHOLDER SERVICES
AMERICAN FUNDSLINE(R) AND FUNDSLINE ONLINE(SM)
Use our 24-hour phone line or visit our Web site to get fund information and
handle a variety of transactions - all on your timetable.
AMERICAN FUNDSLINK(SM)
Link your American Funds accounts with your bank account. You can have fund
dividends or automatic fund withdrawals deposited directly into your bank
account. Or you can invest money directly from your bank account into your fund
account on either a systematic or on-demand basis.
OTHER AUTOMATIC TRANSACTIONS
You can reinvest dividends into the same fund or another fund, make withdrawals
and exchange shares between funds - quarterly, monthly or during the months you
specify.
DIVIDEND AND CAPITAL GAIN OPTIONS
Use your dividend and capital gain distributions to meet your changing needs.
You may:
D Automatically reinvest distributions back into the fund at no sales charge.
D Cross-reinvest dividends into another fund at no sales charge. (Certain
restrictions apply.)
D Have dividends mailed or sent electronically to you or to someone else.
EXCHANGE PRIVILEGES
When it's time to adjust your portfolio to meet your changing investment goals,
you can easily exchange shares from one American Fund to another - usually
without paying a sales charge. Certain restrictions apply and there generally
are tax consequences. Please consult your financial adviser and read the
prospectus before you exchange shares.
QUESTIONS?
For more information about these services or any of the American Funds, please
read a current prospectus, which you may obtain from your financial adviser or
our Web site.
TO CONTACT AMERICAN FUNDS:
D Shareholder Services Representative, toll-free, 8 a.m. to 8 p.m. ET -
800/421-0180
American FundsLine, toll-free 24-hour voice response unit - 800/325-3590
FundsLine OnLine, Web site - www.americanfunds.com
By mail - Write to the service center nearest you.
(If you live outside the U.S., please write to the Western Service Center.)
[graphic: divided map of the United States; four sections depicting Western,
Wesr Central, East Central, and Eastern service regions.]
WESTERN
SERVICE CENTER
American Funds
Service Company
P.O. Box 2205
Brea, California
92822-2205
WEST CENTRAL
SERVICE CENTER
American Funds
Service Company
P.O. Box 659522
San Antonio, Texas
78265-9522
EAST CENTRAL
SERVICE CENTER
American Funds
Service Company
P.O. Box 6007
Indianapolis, Indiana
46206-6007
EASTERN
SERVICE CENTER
American Funds
Service Company
P.O. Box 2280
Norfolk, Virginia
23501-2280
These services are subject to change or termination.
AMERICAN BALANCED FUND
OFFICE OF THE FUND
One Market
Steuart Tower, Suite 1800
Mailing Address: P.O. Box 7650
San Francisco, California 94120-7650
INVESTMENT ADVISER
Capital Research and
Management Company
333 South Hope Street
Los Angeles, California 90071-1443
135 South State College Boulevard
Brea, California 92821-5804
TRANSFER AGENT FOR SHAREHOLDER ACCOUNTS
American Funds Service Company
(Please write to the address nearest you.)
P.O. Box 2205
Brea, California 92822-2205
P.O. Box 659522
San Antonio, Texas 78265-9522
P.O. Box 6007
Indianapolis, Indiana 46206-6007
P.O. Box 2280
Norfolk, Virginia 23501-2280
CUSTODIAN OF ASSETS
The Chase Manhattan Bank
One Chase Manhattan Plaza
New York, New York 10081-0001
COUNSEL
Paul, Hastings, Janofsky & Walker LLP
555 South Flower Street
Los Angeles, California 90071-2371
PRINCIPAL UNDERWRITER
American Funds Distributors, Inc.
333 South Hope Street
Los Angeles, California 90071-1462
For information about your account or any of the fund's services, please
contact your financial adviser. You may also call American Funds Service
Company, toll-free, at 800/421-0180, or visit www.americanfunds.com on the
World Wide Web.
This report is for the information of shareholders of American Balanced Fund,
but it may also be used as sales literature when preceded or accompanied by the
current prospectus, which gives details about charges, expenses, investment
objectives and operating policies of the fund. If used as sales material after
September 30, 1998, this report must be accompanied by an American Funds Group
Statistical Update for the most recently completed calendar quarter.
[The American Funds Group(R)]
Printed on recycled paper
Litho in USA WG/FS/3978
(C)1998 American Funds Distributors, Inc.
Lit. No. AMBAL-013-0898
45047/15045
[back cover: picture of green leaf at near bottom left hand corner.]
