[THE AMERICAN FUNDS GROUP(R)]
AMERICAN BALANCED FUND
1997 ANNUAL REPORT
For the year ended December 31
[cover: autumn leaves]
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.
On our cover:
Nature provides a balance of color in beautiful fall leaves.
Results Over the Past 22 Years*
<TABLE>
<CAPTION>
Value of Income Total
Principal Return Return/+/
<S> <C> <C> <C>
1976 +20.0% +6.0% 26.0%
1977 -4.5 +5.2 +0.7
1978 +0.6 +5.6 +6.2
1979 +1.6 +6.0 +7.6
1980 +7.1 +7.3 +14.4
1981 -3.5 +7.9 +4.4
1982 +20.8 +8.6 +29.4
1983 +8.4 +7.7 +16.1
1984 +2.2 +7.2 +9.4
1985 +22.3 +6.8 +29.1
1986 +10.9 +6.0 +16.9
1987 -2.4 +6.4 +4.0
1988 +6.6 +6.3 +12.9
1989 +15.0 +6.5 +21.5
1990 -7.3 +5.7 -1.6
1991 +18.6 +6.1 +24.7
1992 +4.4 +5.1 +9.5
1993 +6.3 +5.0 +11.3
1994 -4.2 +4.5 +0.3
1995 +22.4 +4.7 +27.1
1996 +9.2 +4.0 +13.2
1997 +17.1 +3.9 +21.0
</TABLE>
Average annual compound return: +13.4%
*All full calendar years since Capital Research and Management Company became
the fund's investment adviser on July 26, 1975.
/+/Total return measures both value of principal (the changes in the fund's net
asset value) and income return (from dividends), assuming reinvestment of all
dividends and capital gain distributions.
Fund results in this report were computed without a sales charge unless
otherwise indicated. The fund's 30-day yield as of January 31, 1998, calculated
in accordance with the Securities and Exchange Commission formula, was 3.28%.
THE FIGURES IN THIS REPORT REFLECT PAST RESULTS. SHARE PRICE AND RETURN WILL
VARY, SO YOU MAY LOSE MONEY BY INVESTING IN THE FUND. THE SHORTER THE TIME
PERIOD OF YOUR INVESTMENT, THE GREATER THE POSSIBILITY OF LOSS. FUND SHARES ARE
NOT DEPOSITS OR OBLIGATIONS OF, OR INSURED OR GUARANTEED BY, THE U.S.
GOVERNMENT, ANY FINANCIAL INSTITUTION, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, OR ANY OTHER AGENCY, ENTITY OR PERSON.
FELLOW SHAREHOLDERS:
[Begin sidebar]
HOW AMERICAN BALANCED FUND HAS FARED WITH CAPITAL RESEARCH AND MANAGEMENT
COMPANY AS INVESTMENT ADVISER.
Since the fund invests in both stocks and bonds, its results should be weighed
against a combination of stock and bond indexes.
Cumulative Average Annual
For the period 7/26/75-12/31/97 Total Return Compound Return
AMERICAN BALANCED FUND +1,588.9% +13.4%
Standard & Poor's 500 Stock
Composite Index +2,469.1 +15.6
Lehman Brothers Aggregate
Bond Index* +716.6 +9.8
Consumer Price Index +197.6 +5.0
Figures are based on the assumption that all distributions were reinvested.
*Lehman Brothers Aggregate Bond Index did not exist until December 31, 1975.
For the period between July 31, 1975 and December 31, 1975, Lehman Brothers
Government/Corporate Bond Index results were used. The Lehman Brothers indexes
are based on July 31, 1975 index value. All indexes are unmanaged.
[End sidebar]
American Balanced Fund enjoyed a good year in 1997, with both stocks and bonds
contributing to a solid return. Stock prices, which had been strong the two
previous years, continued their upward run through most of 1997. The bond
market declined early in the year, then rebounded during the second half,
finishing strongly as interest rates fell.
American Balanced Fund earned a total return of 21.0% in 1997. That surpassed
the Lipper Balanced Funds Index, which had a total return of 20.0%. This was
the fourth consecutive year that American Balanced Fund has outpaced the Lipper
index. The fund's results assume reinvestment of dividends totaling $0.56 a
share and capital gain distributions totaling $1.30 a share.
Stocks, as measured by Standard & Poor's 500 Composite Index, gained 33.3% with
dividends reinvested. The U.S. investment-grade bond market produced a return
of 9.7% on a reinvested basis, as measured by the Lehman Brothers Aggregate
Bond Index. Both indexes are unmanaged.
The past three years have been unusually strong. American Balanced Fund earned
an average annual compound return of 20.3% over this period, well ahead of its
22-year average of 13.4%. We caution our shareholders that these high recent
returns are not sustainable over any meaningful period of time.
The past year was the 21st year of positive total returns in the 22 full
calendar years since Capital Research and Management Company (CRMC) became the
fund's investment adviser in July 1975. In 1997, two industries were
significant contributors to the fund's total return: pharmaceuticals and
banking. In pharmaceuticals, Schering-Plough, which has been one of the fund's
strongest stocks, was up 92%, Eli Lilly rose 91% and Warner-Lambert, one of the
fund's largest holdings, gained 65%. In the banking industry, National City
rose 47% and BankAmerica was up 46%.
Not every industry in the portfolio participated fully in the market's rally.
Oil stocks rose but trailed the broader market. During the year, we increased
our energy holdings, the largest industry in the fund, to 7.9% of the
portfolio. The fund currently has 3.8% of its assets in forest products and
paper. These stocks have been a disappointment for some time, as earnings have
come under substantial pressure. However, we continue to find valuations in
this area compelling and believe our patience will be rewarded.
We increased our holdings of non-U.S. stocks slightly, to 4.5% of the portfolio
from 3.5% at the end of 1996. While this is well below the fund's 10% limit, we
believe that CRMC's thorough global research can uncover attractive investment
opportunities outside the United States and the ability to invest overseas
gives the fund important flexibility.
The bond market gained strength during most of 1997 after a weak start. As the
year began, widespread concern about the possibility of renewed inflation drove
bond prices lower. But many factors combined to keep inflation, as measured by
the rise in the Consumer Price Index, at its lowest level in 10 years. The
price of employee benefits rose only modestly, helping keep the overall cost of
labor in line.
Global economic factors also contributed to the strong bond market. The dollar
gained strength during the year. The turmoil in Asia, which made imports
cheaper and prompted some non-U.S. investors to move assets to the United
States, added to the dollar's strength. This "flight to quality" increased
demand for U.S. government bonds, pushing prices up.
In the equity markets, valuations are at historic highs. Last year marked the
first time since 1925, when most modern market records begin, that stocks, as
measured by the S&P 500, rose more than 20% each year for three consecutive
years.
American Balanced Fund will always have between 50% and 75% of its assets
invested in equities. Within these limits we base our investment decisions on
our judgment of the relative attractiveness of common stocks and bonds. At
present, we are near the lower end of the equity range with about 57% in
equities, 31% in bonds and 12% in cash and equivalents.
The number of shareholder accounts grew by 17% in 1997. We welcome all our new
shareholders, many of whom are investing through retirement plans at work, 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
February 13, 1998
FOLLOWING THE COURSE OF AN INVESTMENT IN AMERICAN BALANCED FUND
This chart shows how a $10,000 investment in the fund grew between July 26,
1975 - when Capital Research and Management Company became American Balanced
Fund's investment adviser - and December 31, 1997.
As you can see, the $10,000 grew to $159,131 with all distributions reinvested.
Since the fund invests in both stocks and bonds, it should not be surprising
that its return lies between the two major unmanaged stock and bond indexes
tracked on the chart.
The fund's year-by-year results appear under the chart. You can use this table
to estimate how the value of your own holdings has grown. Let's say, for
example, that you have been reinvesting all your distributions and want to know
how your investment has done since December 31, 1987. At that time, according
to the table, the value of the investment illustrated here was $44,406. Since
then it has increased to $159,131, more than three times the original amount.
HOW A $10,000 INVESTMENT HAS GROWN
Average Annual Compound Returns* (for periods ended December 31, 1997)
Ten Years: +12.94%
Five Years: +12.87%
One Year: +14.06%
*Assumes reinvestment of all distributions and payment of the current 5.75%
maximum sales charge at the beginning of the stated periods.
$256,906
S&P 500 with dividends reinvested
$159,131/1,2/
AMERICAN BALANCED FUND with dividends reinvested
$81,663/3/
Lehman Brothers Aggregate Bond Index
$10,000/1/
original investment
[chart]
<TABLE>
<CAPTION>
Year Ended Dec. 31 1975# 1976 1977 1978 1979 1980 1981 1982
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TOTAL VALUE
Dividends Reinvested $305 594 656 709 801 1,050 1,303 1,474
Value at Year-End/1/ $9,948 12,533 12,620 13,404 14,427 16,498 17,224 22,280
AMBAL Total Return (0.5)% 26.0 0.7 6.2 7.6 14.4 4.4 29.4
Year Ended Dec. 31 1983 1984 1985 1986 1987 1988 1989 1990
TOTAL VALUE
Dividends Reinvested 1,724 1,852 1,912 2,202 2,710 2,780 3,284 3,457
Value at Year-End/1/ 25,869 28,291 36,527 42,690 44,406 50,123 60,915 59,959
AMBAL Total Return 16.1 9.4 29.1 16.9 4.0 12.9 21.5 (1.6)
Year Ended Dec. 31 1991 1992 1993 1994 1995 1996 1997
TOTAL VALUE
Dividends Reinvested 3,684 3,816 4,072 4,131 4,335 4,684 5,167
Value at Year-End/1/ 74,765 81,853 91,080 91,386 116,179 131,475 159,131
AMBAL Total Return 24.7 9.5 11.3 0.3 27.1 13.2 21.0
</TABLE>
- -----
<TABLE>
<CAPTION>
Year Ended 7/26/75 1975 1976 1977 1978 1979 1980
<S> <C> <C> <C> <C> <C> <C> <C>
December 31
S&P 500 with
dividends reinvested 10,000 10,312 12,785 11,871 12,648 15,003 19,848
Lehman Brothers
Aggregate Bond Index/3/ 10,000 10,614 12,270 12,642 12,818 13,066 13,419
Year Ended 1981 1982 1983 1984 1985 1986 1987
December 31
S&P 500 with
dividends reinvested 18,862 22,914 28,081 29,845 39,295 46,590 49,053
Lehman Brothers
Aggregate Bond Index/3/ 14,258 18,909 20,489 23,593 28,807 33,206 34,119
Year Ended 1988 1989 1990 1991 1992 1993 1994
December 31
S&P 500 with
dividends reinvested 57,179 75,259 72,904 95,058 102,274 112,551 114,007
Lehman Brothers
Aggregate Bond Index/3/ 36,810 42,159 45,936 53,287 57,231 62,811 60,979
Year Ended 1995 1996 1997
December 31
S&P 500 with
dividends reinvested 156,799 192,706 256,906
Lehman Brothers
Aggregate Bond Index/3/ 72,244 74,867 81,663
</TABLE>
[end chart]
Average annual compound return for 22 1/2 years: 13.1%/1/
/1/These figures, unlike those shown elsewhere in this report, reflect payment
of the maximum sales charge of 5.75% on the $10,000 investment. Thus, the net
amount invested was $9,425. As outlined in the prospectus, the sales charge is
reduced for larger investments. There is no sales charge on dividends or
capital gain distributions that are reinvested in additional shares. The
maximum initial sales charge was 8.5% prior to July 1, 1988. Results shown do
not take into account income or capital gain taxes.
/2/Includes reinvested dividends of $56,702 and reinvested capital gain
distributions of $47,432.
/3/Lehman Brothers Aggregate Bond Index did not exist until December 31, 1975.
For the period between July 31, 1975 and December 31, 1975, Lehman Brothers
Government/Corporate Bond Index results were used. The Lehman Brothers indexes
are based on July 31, 1975 index value.
#For the period July 26, 1975 (when Capital Research and Management Company
became investment adviser) through December 31, 1975.
The indexes are unmanaged and do not reflect sales charges, commissions or
expenses.
Past results are not predictive of future results.
RESEARCH
THE KEY TO FINDING VALUE
[photo: autumn leaf]
If you have ever invested in individual stocks or bonds, you've faced the tough
question of which ones to choose. With more than 10,000 stocks listed on the
three major exchanges in the United States - and even more bond issues in the
U.S. marketplace <UNDEF> selecting successful investments is challenging, to
say the least. [photo: autumn leaf] The investment professionals at Capital
Research and Management Company (CRMC), investment adviser to American Balanced
Fund, face the same challenge every day: Which securities among the thousands
of stocks and bonds in the market offer the best opportunities? In the next few
pages, we'll explore how an equities analyst and a fixed-income analyst rely on
intensive research to help them decide which stocks and bonds to recommend for
the fund.
[watermark: the word "research"]
RESEARCHING AN INDUSTRY
CRMC's analysts typically focus on specific industries. They learn their
industries' history and watch for new trends and innovations. They attend
conferences, read trade publications and examine the annual reports of
companies. They talk with industry leaders, economists and government
officials. They examine the links between the industry and the global economy.
They study regulations and how they affect the industry.
It is common for CRMC's analysts to spend years, even decades, following the
same industries. When evaluating a potential investment, we believe there is no
substitute for firsthand knowledge and the expertise that comes with time.
Frequently, analysts and portfolio counselors extend their research beyond the
United States. While American Balanced Fund can invest up to 10% of its assets
in companies based outside the U.S., almost every industry in its portfolio is
affected by international trade. Companies may face competition from abroad,
have alliances with non-U.S. firms or depend on imported parts. They may also
sell significant amounts of their products overseas. Firsthand insights about
competitors, suppliers and partners outside the United States can be crucial to
understanding an industry's prospects.
For American Balanced Fund's analysts, gathering information about an industry
in Asia, Europe, South America or other places often is as easy as a phone
call. CRMC and its affiliates have five research offices outside the United
States. Investment ideas are also shared by fixed-income and equities analysts
throughout the company.
FOCUSING ON COMPANIES
After getting the lay of the land, the analysts study individual companies.
They visit the headquarters and interview executives. They talk to competitors
and suppliers and visit stores, warehouses and distribution centers. They
examine financial statements and business plans. They look for answers to
hundreds of questions: Does a company have a history of strong earnings, or is
it in a turnaround situation? Is it efficient? Is it cutting costs? Has it
changed its focus? Does it have a new product or service that could increase
market share?
In their search, the analysts look beyond the easy answers. They interview
managers, salesclerks and others responsible for carrying out the business
plan. They interview customers. They ask $What's working? What isn't? What
could go wrong?'
Analysts can spend years following the stocks or bonds of an individual firm
before they invest. Sometimes, they will make a small initial investment in a
company and add to it as they get to know the company better. Frequently, their
research leads them to a decision not to invest - avoiding mistakes is as
important to the fund's long-term success as spotting the next big winner.
MEETING THE MANAGEMENT
The fortunes of a company are often decided by a few key managers. Knowing
their skills and motivations can spell the difference between a successful
investment and a disappointing one.
CRMC's analysts get to know company managers well to see how they respond in a
variety of situations. It can be easy for managers to look good during boom
times. But how they respond to adversity may be a more important lesson.
Knowing how managers react to different stages of a business cycle, for
example, can be critical for long-term investors. American Balanced Fund's
analysts seldom ask $Where will this stock be in three to six months?' Rather,
they ask $Where will this company be in five to 10 years?' Finding good
companies with top-flight management is a key element to success in the long
run.
From a wide view of an industry to a concentration on companies to an emphasis
on personal relationships with top management, the investment professionals'
endless research has one goal: finding good companies at attractive prices to
buy and hold for the long term.
[photo: autumn leaves]
[photo: Kent Lucas and Bart Glicking]
[Begin photo caption]
Equities analyst Kent Lucas, right, talks with Bart Glicking, manager of a NAPA
Auto Parts store in San Bernardino, California.
[End photo caption]
FINDING NEW OPPORTUNITY IN AN OLD BUSINESS
When Kent Lucas talks about learning to be an equities analyst, he mentions an
unlikely source of inspiration: Harvard University's football field.
Although it's been years since Kent played tight end, he still credits his time
on the gridiron for teaching him about hard work, discipline and teamwork. "I
learned that in every situation those who work the hardest gain the advantage,"
says Kent. "That's why I wake up every morning with a competitive mindset and
think, let's go out and come up with something new that will give us an edge."
Kent takes that approach in following the auto parts industry. "I really like
uncovering an attractive investment idea or finding a good value," he says
about his research.
"When I started following auto parts, the first thing I did was dissect the
industry," Kent says. "It's a fascinating business that is always going through
dramatic changes. It's a global industry that's consolidating, changing the
dynamics of the industry and creating opportunities. Recently, I concluded that
we were in the last stages of a strong business cycle, which could mean lower
new-car sales in the near future. I wanted to reduce my exposure to the
original-equipment suppliers and focus more on the replacement market."
TAKING A CLOSER LOOK
Kent began studying companies in the replacement market, searching for those
with a long history of steady earnings and dividends. One such company was
Genuine Parts, which sells under the NAPA brand.
"First I visited the company; I wanted to get to know the management and
establish a rapport, and I wanted to see if there was something new that would
get the stock going," Kent says.
"Then I visited several stores. I'd go in and talk with the manager about
business conditions and the impact of changes the company was making. It's a
good check, a good way to confirm what I was hearing from the senior
management," Kent says.
Kent spends about one-third of his time on the road, meeting company managers,
visiting stores and manufacturing plants, talking with customers and suppliers
and attending industry conferences.
The pace is just as hectic when he's working in his Los Angeles office. "Before
I leave home in the morning, I check my voice mail and make calls on the way to
the office from my car phone. At work, I scan the newspapers for stories about
my companies or industry. Then I usually spend a few hours talking to
companies. But the majority of my time is spent doing financial analysis and
writing research reports. Toward the end of the day, I try to catch up on my
reading," Kent says.
A DECISION TO INVEST
One of the most important steps, Kent says, is discussing his investment ideas
with other CRMC investment professionals. "I might have the key information but
there will always be something else I can learn from other analysts or
portfolio counselors who follow companies in related fields. Our team approach
is a key element of our success," he says.
After the research, the travel and the discussions with his colleagues, Kent
recommended Genuine Parts for American Balanced Fund's portfolio. It now
accounts for 1.2% of the fund's assets.
[photo: autumn leaves]
OPPORTUNITY FOR GOOD REWARDS WITH PRUDENT RISK
For CRMC fixed-income analyst David Daigle, the search for good investments
begins anew each day.
"The exciting thing about my job is that I come in every day and the world has
changed; I have to react to it and figure out what the new information means
and how we can put it to use. The ever-changing nature of business and the
world in general is what keeps it interesting," says David.
Change has become a way of life for the once-staid airline industry, which
David follows. "How the industry is run has changed dramatically since
deregulation in 1978,"
he says. "You have to understand everything from that point forward. The
strategies airlines are using today are a direct result of their accumulated
experiences since deregulation."
TURBULENCE FOLLOWS DEREGULATION
After several turbulent years in the wake of deregulation, when the government
allowed airlines to set fares, the airline business began to improve and David
recommended investing in bonds backed by United Air Lines. "The fundamentals of
the industry were improving fairly dramatically. We could see that investing in
these bonds was a very prudent risk," David says. The bonds typically are
secured by airplanes which are in strong demand in the industry and have a high
resale value, indicating they would hold their value over time.
David gains a lot of firsthand knowledge about airlines and other
transportation companies. He spends almost half of his time traveling to
companies and meeting managers. "I get to know a lot of people at a company.
That part of it is invaluable. You can't invest in a company without
understanding the people behind it," he says.
A COMPLEX ISSUE
In many cases, another important step is examining the bond issue itself.
United's "enhanced equipment trust certificates," as the bonds are known, are
complex securities that many other investors didn't fully appreciate when they
were first issued.
"When we see a new, complicated bond structure, we view it as a possible
opportunity. A lot of other investment managers, though, don't have the
research capabilities we have. We have a great research staff that has the time
to study these complex offerings," David says.
With a solid understanding of the bonds' structure and confidence in the
company's future and the value of the bonds' collateral, David recommended
these securities for American Balanced Fund, and they have been one of its
strongest fixed-income investments.
[photo: autumn leaf]
[photo: David Daigle and Jeff McIntosh]
[Begin photo caption]
Fixed-income analyst David Daigle, left, talks about the United Air Lines fleet
with Jeff McIntosh, a maintenance instructor.
[End photo caption]
photo: autumn leaf]
<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
[begin pie chart]
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%
[end pie chart]
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.
[THE AMERICAN FUNDS GROUP(R)]
BOARD OF DIRECTORS
ROBERT A. FOX, Livingston, California
President and Chief Executive Officer, Foster Farms
ROBERTA L. HAZARD, McLean, Virginia
Consultant; Rear Admiral, U.S. Navy (Retired)
LEONADE D. JONES, Burlingame, California
Former Treasurer, The Washington Post Company
JOHN G. MCDONALD, Stanford, California
The IBJ Professor of Finance,
Graduate School of Business, Stanford University
ROBERT G. O'DONNELL, San Francisco, California
President of the fund
Senior Vice President and Director,
Capital Research and Management Company
JAMES W. RATZLAFF, Los Angeles, California
Senior Partner, The Capital Group Partners L.P.
HENRY E. RIGGS, Claremont, California
President, Keck Graduate Institute of
Applied Life Sciences
WALTER P. STERN, New York, New York
Chairman of the Board of the fund
Chairman of the Board, Capital Group International, Inc.
PATRICIA K. WOOLF, Princeton, New Jersey
Private investor; Lecturer, Department of Molecular
Biology, Princeton University
THEODORE D. NIERENBERG retired from the Board of Directors effective May 30,
1997. He had been a Director of the fund since October 1991.
OTHER OFFICERS
ABNER D. GOLDSTINE, Los Angeles, California
Senior Vice President of the fund
Senior Vice President and Director,
Capital Research and Management Company
PAUL G. HAAGA, JR., Los Angeles, California
Senior Vice President of the fund
Executive Vice President and Director,
Capital Research and Management Company
ERIC S. RICHTER, Washington, D.C.
Vice President of the fund
Executive Vice President and Director,
Capital Research Company
J. DALE HARVEY, Los Angeles, California
Vice President of the fund
Vice President, Capital Research Company
PATRICK F. QUAN, San Francisco, California
Secretary of the fund
Vice President - Fund Business Management Group,
Capital Research and Management Company
MARY C. HALL, Brea, California
Treasurer of the fund
Senior Vice President - Fund Business Management Group,
Capital Research and Management Company
R. MARCIA GOULD, Brea, California
Assistant Treasurer of the fund
Vice President - Fund Business Management Group,
Capital Research and Management Company
OFFICE OF THE FUND
One Market
Steuart Tower, Suite 1800
Mailing Address: P.O. Box 7650
San Francisco, California 94120-7650
INVESTMENT ADVISER
Capital Research and Management Company
333 South Hope Street
Los Angeles, California 90071-1443
135 South State College Boulevard
Brea, California 92821-5804
TRANSFER AGENT FOR SHAREHOLDER ACCOUNTS
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
INDEPENDENT AUDITORS
Deloitte & Touche LLP
1000 Wilshire Boulevard
Los Angeles, California 90017-2472
PRINCIPAL UNDERWRITER
American Funds Distributors, Inc.
333 South Hope Street
Los Angeles, California 90071-1462
This report is for the information of shareholders of American Balanced Fund,
but it may also be used as sales literature when preceded or accompanied by the
current prospectus, which gives details about charges, expenses, investment
objectives and operating policies of the fund. If used as sales material after
March 31, 1998, this report must be accompanied by an American Funds Group
Statistical Update for the most recently completed calendar quarter.
FOR INFORMATION ABOUT YOUR ACCOUNT OR ANY OF THE FUND'S SERVICES, PLEASE
CONTACT YOUR FINANCIAL ADVISER. YOU MAY ALSO CALL AMERICAN FUNDS SERVICE
COMPANY, TOLL-FREE, AT 800/421-0180, OR VISIT WWW.AMERICANFUNDS.COM ON THE
WORLD WIDE WEB.
[photo: autumn leaf]
Printed on recycled paper
Litho in USA WG/FS/3200
Lit. No. AMBAL-011-0298
