SEC File Nos.
811-66
2-10758
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 87 (X)
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 26 (X)
AMERICAN BALANCED FUND, INC.
(Exact name of registrant as specified in charter)
P.O. Box 7650, One Market, Steuart Tower, San Francisco, California 94120
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (415) 421-9360
Patrick F. Quan
Secretary
American Balanced Fund, Inc.
P.O. Box 7650, One Market, Steuart Tower
San Francisco, California 94120
(Name and address of agent for service)
Copy to:
Robert E. Carlson, Esq.
Paul, Hastings, Janofsky & Walker, LLP
555 South Flower Street
Los Angeles, California 90071
The Registrant has filed a declaration
pursuant to Rule 24f-2. On
February 23, 1999, it filed its 24f-2
Notice for fiscal 1998.
Approximate date of proposed public offering:
[X] It is proposed that this filing will
become effective on March 1, 1999
pursuant to paragraph (b) of Rule 485.
<PAGE>
[The American Funds Group(R)]
- --------------------------------------------------------------------------------
American Balanced
Fund (R)
Prospectus
MARCH 1, 1999
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR
DISAPPROVED OF THESE SECURITIES. FURTHER, IT HAS NOT
DETERMINED THAT THIS PROSPECTUS IS TRUTHFUL OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
================================================================================
American Balanced Fund, Inc.
One Market
Steuart Tower, Suite 1800
San Francisco, CA 94105
TICKER SYMBOL: ABALX NEWSPAPER ABBREV.: A Bal FUND NO.: 11
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TABLE OF CONTENTS
<TABLE>
<S> <C>
Risk/Return Summary 2
................................................
Fees and Expenses of the Fund 5
................................................
Investment Objectives, Strategies and Risks 6
................................................
Year 2000 9
................................................
Management and Organization 10
................................................
Shareholder Information 12
................................................
Purchase and Exchange of Shares 13
................................................
Distribution Arrangements 16
................................................
Financial Highlights 18
................................................
Appendix 19
- ------------------------------------------------
</TABLE>
11-010-0399/RRD
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American Balanced Fund / Prospectus 1
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<PAGE>
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RISK/RETURN SUMMARY
The fund strives to provide you with conservation of capital, current income,
and long-term growth of both capital and income. The fund invests primarily in
a broad range of securities, including stocks and bonds.
The fund is designed for investors seeking current income and capital apprecia-
tion through a mix of investments that provide above-average price stability.
An investment in the fund is subject to risks, including the possibility that
the fund may decline in value in response to global economic, social or politi-
cal events. The prices of equity securities will be affected by events specifi-
cally involving the securities owned in the fund. The values of debt securities
will be affected by changing interest rates and credit ratings.
You may lose money by investing in the fund. The likelihood of loss is greater
if you invest for a shorter period of time.
Your investment in the fund is not a bank deposit and is not insured or guaran-
teed by the Federal Deposit Insurance Corporation or any other government agen-
cy, entity or person.
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2 American Balanced Fund / Prospectus
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<PAGE>
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Investment Results
The following information illustrates how the fund's results may fluctuate.
Past results are not an indication of future results.
Here are the fund's results calculated without a sales charge on a calendar year
basis. (If a slaes charge were included, results would be lower.)
[begin bar chart]
<TABLE>
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
21.53 (1.57) 24.69 9.48 11.27 0.34 27.13 13.17 21.04 11.13
</TABLE>
[end bar chart]
The fund's highest/lowest quarterly results during this time period were:
. Highest 10.01% (quarter ended June 30, 1997)
. Lowest -9.62% (quarter ended September 30, 1990)
The fund's highest/lowest quarterly results during this time period were:
. Highest 10.01% (quarter ended June 30, 1997)
. Lowest -9.62% (quarter ended September 30, 1990)
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American Balanced Fund / Prospectus 3
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<PAGE>
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For periods ended December 31, 1998:
<TABLE>
<CAPTION>
Average The fund with
Annual maximum Lehman Brothers
Total sales charge Aggregate Bond
Return deducted/1/ S&P 500/2/ Index/3/
- -----------------------------------------------------
<S> <C> <C> <C>
One Year 4.72% 28.52% 8.69%
.....................................................
Five Years 12.84% 24.02% 7.27%
.....................................................
Ten Years 12.77% 19.16% 9.26%
.....................................................
Lifetime/4/ 13.04% 16.07% 9.76%/5/
</TABLE>
Yield/1/: 3.32%
(For current yield information call American FundsLine(R) at 1-800-325-3590)
/1/ These fund results were calculated according to a formula which requires
that the maximum sales charge of 5.75% be deducted and reflect the
reinvestment of dividends and capital gain distributions. Results would be
higher if they were calculated at net asset value.
/2/ The Standard & Poor's 500 Composite Index represents primarily U.S. stocks.
This index is unmanaged and does not reflect sales charges, commissions or
expenses.
/3/ The Lehman Brothers Aggregate Bond Index represents investment grade debt.
This index is unmanaged and does not reflect sales charges, commissions or
expenses.
/4/ For the period beginning July 26, 1975 (when Capital Research and Management
Company became the fund's investment adviser).
/5/ The Lehman Brothers Aggregate Bond Index did not exist until December 31,
1975. For the period between July 31, 1975 and December 31, 1975, the Lehman
Brothers Government/Corporate Bond Index results were used. The Lehman
Brothers indexes are based on July 31, 1975 index values.
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4 American Balanced Fund / Prospectus
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<PAGE>
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FEES AND EXPENSES OF THE FUND
The following describes the fees and expenses that you may pay if you buy and
hold shares of the fund.
Shareholder Fees
(fees paid directly from your investment)
<TABLE>
- --------------------------------------------------------------------------------
<S> <C>
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.75%/1/
................................................................................
Maximum sales charge imposed on reinvested dividends 0%
................................................................................
Maximum deferred sales charge 0%/2/
................................................................................
Redemption or exchange fees 0%
</TABLE>
/1/ Sales charges are reduced or eliminated for larger purchases.
/2/ A contingent deferred sales charge of 1% applies on certain redemptions made
within 12 months following any purchases you made without a sales charge.
Annual Fund Operating Expenses
(expenses that are deducted from fund assets)
<TABLE>
- --------------------------------------------------------------------------------
<S> <C>
Management Fees 0.29%
................................................................................
Service (12b-1) Fees 0.25%*
................................................................................
Other Expenses 0.09%
................................................................................
Total Annual Fund Operating Expenses 0.63%
</TABLE>
* 12b-1 expenses may not exceed 0.25% of the fund's average net assets annually.
Example
This Example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that
the fund's operating expenses remain the same. Although your actual costs may
be higher or lower, based on these assumptions your costs would be:
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
One Year $ 636
................................................................................
Three Years $ 765
................................................................................
Five Years $ 906
................................................................................
Ten Years $1,316
</TABLE>
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American Balanced Fund / Prospectus 5
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INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
The investment objectives of the fund are: (1) conservation of capital,
(2) current income, and (3) long-term growth of capital and income. The fund
approaches the management of its investments as if they constituted the
complete investment program of the prudent investor. The fund invests primarily
in a broad range of securities, including stocks and bonds (rated Baa or BBB or
better by Moody's Investors Service, Inc. or Standard & Poor's Corporation).
The fund also invests in securities issued and guaranteed by the U.S.
government. Normally, the fund will maintain at least 50% of the value of its
assets in common stocks and at least 25% of the value of its assets in debt
securities.
The prices of equity securities will decline in response to certain events, in-
cluding those directly involving securities owned in the fund, adverse condi-
tions affecting the general economy, or overall market declines. The values of
debt securities held by the fund will be affected by factors such as changing
interest rates, credit ratings and effective maturities. For example, the value
of bonds in the fund's portfolio generally will decline when interest rates
rise and vice versa. In addition, a security backed by the U.S. Treasury or the
full faith and credit of the United States is guaranteed only as to the timely
payment of interest and principal when held to maturity. The current market
prices for such securities are not guaranteed and will fluctuate.
The fund may also invest in cash or cash equivalents of any issuer to any ex-
tent deemed appropriate. The extent of the fund's cash position will depend on
market conditions, fund purchases and redemptions, and other factors.
The fund relies on the professional judgment of its investment adviser, Capital
Research and Management Company, to make decisions about the fund's portfolio
securities. The basic investment philosophy of Capital Research and Management
Company is to seek undervalued securities that represent good long-term
investment opportunities. Securities may be sold when they are judged to no
longer represent good long-term value.
OTHER IMPORTANT INVESTMENT PRACTICES
In addition to the principal investment strategies described above, the fund
has other investment practices that are described here and in the Statement of
Additional Information.
The fund may invest up to 10% of its assets in securities of issuers domiciled
outside the U.S. and not included in the Standard & Poor's 500 Composite
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6 American Balanced Fund / Prospectus
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<PAGE>
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Index. The value of non-U.S. securities can decline in response to various fac-
tors including currency fluctuations, political, social and economic instabili-
ty, differing securities regulations and administrative difficulties such as
delays in clearing and settling portfolio transactions.
Additional Investment Results
For periods ended December 31, 1998:
<TABLE>
<CAPTION>
Average
Annual Lehman Brothers
Total The fund with Aggregate Bond
Return no sales charge/1/ S&P 500/2/ Index/3/
- ----------------------------------------------------------
<S> <C> <C> <C>
One Year 11.13% 28.52% 8.69%
..........................................................
Five Years 14.19% 24.02% 7.27%
..........................................................
Ten Years 13.44% 19.16% 9.26%
..........................................................
Lifetime/4/ 13.33% 16.07% 9.76%/5/
</TABLE>
/1/ These fund results were calculated according to a formula that is required
for all stock and bond funds and reflect the reinvestment of dividends and
capital gain distributions.
/2/ The Standard & Poor's 500 Composite Index represents primarily U.S. stocks.
This index is unmanaged and does not reflect sales charges, commissions or
expenses.
/3/ The Lehman Brothers Aggregate Bond Index represents investment grade debt.
This index is unmanaged and does not reflect sales charges, commissions or
expenses.
/4/ For the period beginning July 26, 1975 (when Capital Research and Management
Company became the fund's investment adviser).
/5/ The Lehman Brothers Aggregate Bond Index did not exist until December 31,
1975. For the period between July 31, 1975 and December 31, 1975, the Lehman
Brothers Government/Corporate Bond Index results were used. The Lehman
Brothers indexes are based on July 31, 1975 index values.
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American Balanced Fund / Prospectus 7
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<PAGE>
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The following chart illustrates the asset mix of the fund's
investment portfolio as of the end of the fund's fiscal
year, December 31, 1998.
[begin pie chart]
<TABLE>
<S> <C>
Common Stocks 58%
..................................................
Government Bonds 18%
..................................................
Corporate Bonds 13%
..................................................
Convertible Debentures and Preferred Stock 1%
..................................................
Short-Term Securities & Cash Equivalents 10%
..................................................
</TABLE>
[end pie chart]
<TABLE>
<CAPTION>
Five Largest Industries in Equity Holdings
------------------------------------------------------------
<S> <C>
Energy Sources 5.05%
............................................................
Chemicals 4.37
............................................................
Beverages & Tobacco 3.82
............................................................
Forest Products & Paper 3.80
............................................................
Insurance 3.61
<CAPTION>
Ten Largest Equity Holdings
------------------------------------------------------------
<S> <C>
Hewlett-Packard 1.92%
............................................................
American Stores 1.26
............................................................
York International 1.18
............................................................
Ameritech 1.13
............................................................
Phillips Petroleum 1.05
............................................................
Genuine Parts 1.02
............................................................
Eaton 1.02
............................................................
Philip Morris 1.00
............................................................
Amoco .98
............................................................
IBM .94
<CAPTION>
Bond Holdings by Quality Category*
See the Appendix for a description of quality categories.
------------------------------------------------------------
<S> <C>
US Treasury and Agency 17.24%
............................................................
AAA 3.63
............................................................
AA 1.10
............................................................
A 3.23
............................................................
BBB 4.48
</TABLE>
* Less than 1% of the fund's assets are held in bonds whose
quality ratings were downgraded. The fund may hold a
limited portion of its assets in downgraded bonds.
Because the fund is actively managed, its holdings will
change from time to time.
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8 American Balanced Fund / Prospectus
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<PAGE>
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YEAR 2000
The date-related computer issue known as the "Year 2000 problem" could have an
adverse impact on the quality of services provided to the fund and its
shareholders. However, the fund understands that its key service providers --
including the investment adviser and its affiliates -- are taking steps to
address the issue. In addition, the Year 2000 problem may adversely affect the
issuers in which the fund invests. For example, issuers may incur substantial
costs to address the problem. They may also suffer losses caused by corporate
and governmental data processing errors. The fund and its investment adviser
will continue to monitor developments relating to this issue.
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American Balanced Fund / Prospectus 9
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<PAGE>
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MANAGEMENT AND ORGANIZATION
Investment Adviser
Capital Research and Management Company, an experienced investment management
organization founded in 1931, serves as investment adviser to the fund and
other funds, including those in The American Funds Group. Capital Research and
Management Company, a wholly owned subsidiary of The Capital Group Companies,
Inc., is headquartered at 333 South Hope Street, Los Angeles, CA 90071. Capital
Research and Management Company manages the investment portfolio and business
affairs of the fund. The total management fee paid by the fund, as a percentage
of average net assets, for the previous fiscal year is discussed earlier under
"Fees and Expenses of the Fund."
Capital Research and Management Company and its affiliated companies have
adopted a personal investing policy that is consistent with the recommendations
contained in the May 9, 1994 report issued by the Investment Company
Institute's Advisory Group on Personal Investing. This policy has also been
incorporated into the fund's code of ethics.
Multiple Portfolio Counselor System
Capital Research and Management Company uses a system of multiple portfolio
counselors in managing mutual fund assets. Under this approach the portfolio of
a fund is divided into segments which are managed by individual counselors.
Counselors decide how their respective segments will be invested, within the
limits provided by a fund's objective(s) and policies and by Capital Research
and Management Company's investment committee. In addition, Capital Research
and Management Company's research professionals may make investment decisions
with respect to a portion of a fund's portfolio. The primary individual
portfolio counselors for American Balanced Fund are listed on the
following page.
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10 American Balanced Fund / Prospectus
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<PAGE>
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<TABLE>
<CAPTION>
Approximate Years
of Experience as an
Investment Professional
(including
the last
five years)
..........................
Years of
Experience
as Portfolio
Counselor
Portfolio (and Research With Capital
Counselors Professional, Research and
for if applicable) for Management
American American Balanced Company or
Balanced Fund Primary Title(s) Fund (approximate) Affiliates Total Years
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Robert G. President and 13 years (plus 14 24 years 27 years
O'Donnell Director years
of the fund. as a research
Senior Vice professional prior
President and to becoming a
Director, Capital portfolio
Research and counselor for
Management Company the fund)*
------------------------------------------------------------------------------
Abner D. Senior Vice 24 years 32 years 47 years
Goldstine President of
the fund. Senior
Vice President and
Director, Capital
Research and
Management Company
------------------------------------------------------------------------------
J. Dale Vice President of 3 years 8 years 10 years
Harvey the
fund. Vice
President and
Director, Capital
Research Company +
------------------------------------------------------------------------------
Victor M. Senior Vice 3 years** 24 years 37 years
Parachini President, Capital
Research and
Management Company
------------------------------------------------------------------------------
John H. Smet Vice President, 2 years 16 years 17 years
Capital Research
and
Management Company
------------------------------------------------------------------------------
</TABLE>
Capital Research and Management Company has been the fund's
investment adviser since July 26, 1975.
+ Company affiliated with Capital Research and Management
Company.
* Prior to July 26, 1975, Mr. O'Donnell was a research
professional with American Express Investment Management
Company, the fund's previous investment adviser.
** Prior to July 26, 1975, Mr. Parachini was a portfolio
counselor with American Express Investment Management
Company, the fund's previous investment adviser.
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American Balanced Fund / Prospectus 11
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<PAGE>
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SHAREHOLDER INFORMATION
Shareholder Services
American Funds Service Company, the fund's transfer agent, offers you a wide
range of services you can use to alter your investment program should your
needs and circumstances change. These services are available only in states
where they may be legally offered and may be terminated or modified at any time
upon 60 days' written notice. For your convenience, American Funds Service
Company has four service centers across the country.
American Funds Service Company Service Areas
Call toll-free from anywhere in the U.S.
(8 a.m. to 8 p.m. ET):
800/421-0180
[MAP OF UNITED STATES]
<TABLE>
<S> <C> <C> <C>
WESTERN SERVICE WESTERN CENTRAL EASTERN CENTRAL EASTERN SERVICE
CENTER SERVICE CENTER SERVICE CENTER CENTER
American Funds American Funds American Funds American Funds
Service Company Service Company Service Company Service Company
P.O. Box 2205 P.O. Box 659522 P.O. Box 6007 P.O. Box 2280
Brea, California San Antonio, Texas Indianapolis, Norfolk, Virginia
92822-2205 78265-9522 Indiana 23501-2280
Fax: 714/671-7080 Fax: 210/474-4050 46206-6007 Fax: 757/670-4773
Fax: 317/735-6620
</TABLE>
A complete description of the services we offer is described in the fund's
statement of additional information. In addition, an easy-to-read guide to
owning a fund in The American Funds Group titled "Welcome to the Family" is
sent to new shareholders and is available by writing or calling American Funds
Service Company.
You may invest in the fund through various retirement plans. However, some re-
tirement plans or accounts held by investment dealers may not offer certain
services. If you have any questions, please contact your plan administrator/
trustee or dealer.
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12 American Balanced Fund / Prospectus
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<PAGE>
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PURCHASE AND EXCHANGE OF SHARES
Purchase
Generally, you may open an account by contacting any investment dealer autho-
rized to sell the fund's shares. You may purchase additional shares using vari-
ous options described in the statement of additional information and "Welcome
to the Family."
Exchange
You may exchange your shares into other funds in The American Funds Group gen-
erally without a sales charge. Exchange of shares from the money market funds
initially purchased without a sales charge generally will be subject to the ap-
propriate sales charge. Exchanges have the same tax consequences as ordinary
sales and purchases. See "Transactions by Telephone...'' for information regard-
ing electronic exchanges.
The fund and American Funds Distributors, the fund's principal underwriter, re-
serve the right to reject any purchase order for any reason. Although there is
currently no specific limit on the number of exchanges you can make in a period
of time, the fund and American Funds Distributors reserve the right to reject
any purchase order and may terminate the exchange privilege of any investor
whose pattern of exchange activity they have determined involves actual or po-
tential harm to the fund.
Investment Minimums
<TABLE>
- -------------------------------------------------------------
<S> <C>
To establish an account $500
For a retirement plan account $250
For a retirement plan account through payroll deduction $ 25
To add to an account $ 50
For a retirement plan account through payroll deduction $ 25
</TABLE>
Share Price
The fund calculates its share price, also called net asset value, as of 4:00
p.m. New York time which is the normal close of trading on the New York Stock
Exchange, every day the Exchange is open. In calculating net asset value,
market prices are used when available. If a market price for a particular
security is not available, the fund will determine the appropriate price for the
security.
Your shares will be purchased at the offering price, or sold at the net asset
value, next determined after American Funds Service Company receives and
accepts your request. The offering price is the net asset value plus a sales
charge, if applicable.
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American Balanced Fund / Prospectus 13
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<PAGE>
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Sales Charge
A sales charge may apply to your purchase. Your sales charge may be reduced for
larger purchases as indicated below.
<TABLE>
<CAPTION>
Sales Charge as a Percentage of
...............................
Net Dealer Concession
Offering Amount as % of
Investment Price Invested Offering Price
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000 5.75% 6.10% 5.00%
..................................................................................
$50,000 but less than
$100,000 4.50% 4.71% 3.75%
..................................................................................
$100,000 but less than
$250,000 3.50% 3.63% 2.75%
..................................................................................
$250,000 but less than
$500,000 2.50% 2.56% 2.00%
..................................................................................
$500,000 but less $1 million 2.00% 2.04% 1.60%
..................................................................................
$1 million or more and certain
other investments described below see below see below see below
</TABLE>
Purchases Not Subject to Sales Charge
Investments of $1 million or more and investments made by employer-sponsored
defined contribution-type plans with 100 or more eligible employees are sold
with no initial sales charge. A 1% contingent deferred sales charge may be
imposed on certain redemptions by accounts that invest with no initial sales
charge (other than employer-sponsored plans), if redemptions are made within
one year of purchase. A dealer concession of up to 1% may be paid by the fund
under its Plan of Distribution and/or by American Funds Distributors on
investments made with no initial sales charge.
Reducing Your Sales Charge
You and your immediate family may combine investments to reduce your sales
charge. You must let your investment dealer or American Funds Service Company
know if you qualify for a reduction in your sales charge using one or any
combination of the methods described in the statement of additional information
and "Welcome to the Family."
Plan of Distribution
The fund has a Plan of Distribution or "12b-1 Plan" under which it may finance
activities primarily intended to sell shares, provided the categories of
expenses
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14 American Balanced Fund / Prospectus
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<PAGE>
================================================================================
are approved in advance by the fund's board of directors. Up to 0.25% of aver-
age net assets is paid annually to qualified dealers for providing certain
services pursuant to the fund's Plan of Distribution. The 12b-1 fee paid by the
fund, as a percentage of average net assets, for the previous fiscal year is
indicated earlier under "Fees and Expenses of the Fund." Since these fees are
paid out of the fund's assets on an ongoing basis, over time they will increase
the cost of an investment and may cost you more than paying higher initial
sales charges.
Other Compensation to Dealers
American Funds Distributors may provide additional compensation to, or sponsor
informational meetings for dealers as described in the statement of additional
information.
How to Sell Shares
Once a sufficient period of time has passed to reasonably assure that checks or
drafts (including certified or cashiers' checks) for shares purchased have
cleared (normally 15 calendar days), you may sell (redeem) those shares in any
of the following ways:
Through Your Dealer (certain charges may apply)
. Shares held for you in your dealer's name must be sold through the dealer.
Writing to American Funds Service Company
. Requests must be signed by the registered shareholder(s)
. A signature guarantee is required if the redemption is:
-- Over $50,000;
-- Made payable to someone other than the registered shareholder(s); or
-- Sent to an address other than the address of record, or an address of
record which has been changed within the last 10 days.
. Additional documentation may be required for sales of shares held in cor-
porate, partnership or fiduciary accounts.
Telephoning or Faxing American Funds Service Company, or by using American
FundsLine(R) or American FundsLine OnLine(R):
. Redemptions by telephone or fax (including American FundsLine and American
FundsLine OnLine) are limited to $50,000 per shareholder each day
- --------------------------------------------------------------------------------
American Balanced Fund / Prospectus 15
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<PAGE>
================================================================================
. Checks must be made payable to the registered shareholder
. Checks must be mailed to an address of record that has been used with the
account for at least 10 days
Transactions by Telephone, Fax, American FundsLine, or American FundsLine
OnLine
Generally, you are automatically eligible to use these services for redemptions
and exchanges unless you notify us in writing that you do not want any or all
of these services. You may reinstate these services at any time.
Unless you decide not to have telephone, fax, or computer services on your ac-
count(s), you agree to hold the fund, American Funds Service Company, any of
its affiliates or mutual funds managed by such affiliates, and each of their
respective directors, trustees, officers, employees and agents harmless from
any losses, expenses, costs or liabilities (including attorney fees) which may
be incurred in connection with the exercise of these privileges, provided Amer-
ican Funds Service Company employs reasonable procedures to confirm that the
instructions received from any person with appropriate account information are
genuine. If reasonable procedures are not employed, the fund may be liable for
losses due to unauthorized or fraudulent instructions.
- --------------------------------------------------------------------------------
DISTRIBUTION ARRANGEMENTS
Dividends and Distributions
The fund intends to pay dividends to you, usually in February, May, August and
December. Capital gains, if any, are usually distributed in December.
You may elect to reinvest dividends and/or capital gain distributions to pur-
chase additional shares of this fund or any other fund in The American Funds
Group or you may elect to receive them in cash.
Tax Consequences
Dividends and capital gains are generally taxable whether they are reinvested
or received in cash -- unless you are exempt from taxation or entitled to tax
deferral. Capital gains may be taxed at different rates depending on the length
of time the fund holds its assets.
The tax treatment of redemptions from a retirement plan account may differ from
redemptions from an ordinary shareholder account.
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16 American Balanced Fund / Prospectus
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<PAGE>
================================================================================
You must provide the fund with a certified correct taxpayer identification num-
ber (generally your Social Security Number) and certify that you are not sub-
ject to backup withholding. If you fail to do so, the IRS can require the fund
to withhold 31% of your taxable distributions and redemptions. Federal law also
requires the fund to withhold 30% or the applicable tax treaty rate from divi-
dends paid to certain nonresident alien, non-U.S. partnership and non-U.S. cor-
poration shareholder accounts.
Please see the statement of additional information, "Welcome to the Family,"
and your tax adviser for further information.
- --------------------------------------------------------------------------------
American Balanced Fund / Prospectus 17
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<PAGE>
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- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the fund's
results for the past five years. Certain information reflects financial results
for a single fund share. The total returns in the table represent the rate that
an investor would have earned or lost on an investment in the fund (assuming
reinvestment of all dividends and distributions). This information has been
audited by Deloitte & Touche llp, whose report, along with the fund's financial
statements, are included in the statement of additional information, which is
available upon request.
<TABLE>
<CAPTION>
Years ended
December 31
....................
1998 1997 1996 1995 1994
-------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Year $15.68 $14.55 $14.15 $12.00 $12.57
- -------------------------------------------------------------------------
Income from Investment
Operations:
Net Investment
Income .56 .58 .57 .57 .57
.........................................................................
Net Gains or Losses on Securities
(both realized and unrealized) 1.13 2.41 1.24 2.61 (0.53)
- -------------------------------------------------------------------------
Total From Investment Operations 1.69 2.99 1.81 3.18 .04
- -------------------------------------------------------------------------
Less Distributions:
Dividends (from net
investment income) (.56) (.56) (.56) (.56) (.56)
.........................................................................
Dividends (from capital gains) (1.05) (1.30) (.85) (.47) (.05)
- -------------------------------------------------------------------------
Total Distributions (1.61) (1.86) (1.41) (1.03) (.61)
- -------------------------------------------------------------------------
Net Asset Value,
End of Year $15.76 $15.68 $14.55 $14.15 $12.00
- -------------------------------------------------------------------------
Total Return/1/ 11.13% 21.04% 13.17% 27.13% .34%
- -------------------------------------------------------------------------
Ratios/Supplemental Data:
Net Assets, End of Period
(in millions) $5,881 $5,036 $3,941 $3,048 $2,082
.........................................................................
Ratio of Expenses to
Average Net Assets .63% .65% .67% .67% .68%
.........................................................................
Ratio of Net Income to
Average Net Assets 3.57% 3.74% 4.01% 4.38% 4.76%
.........................................................................
Portfolio Turnover Rate 54.05% 44.01% 43.85% 39.03% 32.05%
</TABLE>
/1/ Excludes maximum sales charge of 5.75%.
- --------------------------------------------------------------------------------
18 American Balanced Fund / Prospectus
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
APPENDIX
Moody's Investors Service, Inc. rates the long-term debt securities issued by
various entities in categories ranging from "Aaa" to "C," according to quality
as described below. The fund generally invests in debt securities rated Baa or
better by Moody's.
"Aaa -- Best quality. These securities carry the smallest degree of investment
risk and are generally referred to as "gilt edge." Interest payments are pro-
tected by a large, or by an exceptionally stable margin and principal is se-
cure. While the various protective elements are likely to change, such changes
as can be visualized are most unlikely to impair the fundamentally strong posi-
tion of such shares."
"Aa -- High quality by all standards. They are rated lower than the best bond
because margins of protection may not be as large as in Aaa securities, fluctu-
ation of protective elements may be of greater amplitude, or there may be other
elements present which make the long-term risks appear somewhat greater."
"A -- Upper medium grade obligations. These bonds possess many favorable in-
vestment attributes. Factors giving security to principal and interest are con-
sidered adequate, but elements may be present which suggest a susceptibility to
impairment sometime in the future."
"Baa -- Medium grade obligations. Interest payments and principal security ap-
pear adequate for the present but certain protective elements may be lacking or
may be characteristically unreliable over any great length of time. Such bonds
lack outstanding investment characteristics and, in fact, have speculative
characteristics as well."
Standard & Poor's rates the long-term debt securities issued by various enti-
ties in categories ranging from "AAA" to "D," according to quality as described
below. The fund generally invests in debt securities rated BBB or better by
Standard & Poor's.
"AAA -- Highest rating. Capacity to pay interest and repay principal is ex-
tremely strong."
"AA -- High grade. Very strong capacity to pay interest and repay principal.
Generally, these bonds differ from AAA issues only in a small degree."
- --------------------------------------------------------------------------------
American Balanced Fund / Prospectus 19
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
"A -- Have a strong capacity to pay interest and repay principal, although they
are somewhat more susceptible to the adverse effects of change in circumstances
and economic conditions, than debt in higher rated categories."
"BBB -- Regarded as having adequate capacity to pay interest and repay princi-
pal. These bonds normally exhibit adequate protection parameters, but adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal than for debt in higher
rated categories."
- --------------------------------------------------------------------------------
20 American Balanced Fund / Prospectus
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
NOTES
- --------------------------------------------------------------------------------
American Balanced Fund / Prospectus 21
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<S> <C> <C>
For Shareholder For Retirement Plan For Dealer
Services Services Services
American Funds Call your employer or American Funds
Service Company plan administrator Distributors
800/421-0180 800/421-9900 ext. 11
</TABLE>
For 24-hour Information
American FundsLine(R) American Funds
800/325-3590 Internet Web site
http://www.americanfunds.com
Telephone conversations may be recorded or monitored for
verification, recordkeeping and quality assurance purposes.
------------------------------------------------------------
Multiple Translations
This prospectus may be translated into other languages. In
the event of any inconsistencies or ambiguity as to the
meaning of any word or phrase in a translation, the English
text will prevail.
------------------------------------------------------------
OTHER FUND INFORMATION
Annual/Semi-Annual Report to Shareholders
Contains additional information about the fund including
financial statements, investments results, portfolio
holdings, a statement from portfolio management discussing
market conditions and the fund's investment strategies, and
the independent auditors' report (in the annual report).
Statement of Additional Information (SAI)
Contains more detailed information on all aspects of the
fund, including the fund's financial statements.
A current SAI has been filed with the Securities and
Exchange Commission ("SEC") and is incorporated by
reference into this prospectus. The SAI and other related
materials about the fund are available for review or to be
copied at the SEC's Public Reference Room in Washington,
D.C. (1-800-SEC-0330) or on the SEC's Internet Web site at
http://www.sec.gov.
Code of Ethics
Includes a description of the fund's personal investing
policy.
To request a free copy of any of the documents above:
Call American Funds or Write to the Secretary of
Service Company the fund
800/421-0180 ext. 1 P.O. Box 7650
San Francisco, CA 94120
[Logo of recyled paper]
Investment Company File No. 811-66 Printed on recycled paper
THE FUND PROVIDES SPANISH TRANSLATIONS IN CONNECTION WITH THE PUBLIC OFFERING
AND SALE OF ITS SHARES. THE FOLLOWING IS A FAIR AND ACCURATE ENGLISH
TRANSLATION OF A SPANISH LANGUAGE PROSPECTUS FOR THE FUND.
/s/ Patrick F. Quan
Patrick F. Quan
Secretary
<PAGE>
[The American Funds Group(R)]
- --------------------------------------------------------------------------------
American Balanced
Fund (R)
Prospectus
MARCH 1, 1999
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR
DISAPPROVED OF THESE SECURITIES. FURTHER, IT HAS NOT
DETERMINED THAT THIS PROSPECTUS IS TRUTHFUL OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
================================================================================
American Balanced Fund, Inc.
One Market
Steuart Tower, Suite 1800
San Francisco, CA 94105
TICKER SYMBOL: ABALX NEWSPAPER ABBREV.: A Bal FUND NO.: 11
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Risk/Return Summary 2
................................................
Fees and Expenses of the Fund 5
................................................
Investment Objectives, Strategies and Risks 6
................................................
Year 2000 9
................................................
Management and Organization 10
................................................
Shareholder Information 12
................................................
Purchase and Exchange of Shares 13
................................................
Distribution Arrangements 16
................................................
Financial Highlights 18
................................................
Appendix 19
- ------------------------------------------------
</TABLE>
11-010-0399/RRD
- --------------------------------------------------------------------------------
American Balanced Fund / Prospectus 1
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
RISK/RETURN SUMMARY
The fund strives to provide you with conservation of capital, current income,
and long-term growth of both capital and income. The fund invests primarily in
a broad range of securities, including stocks and bonds.
The fund is designed for investors seeking current income and capital apprecia-
tion through a mix of investments that provide above-average price stability.
An investment in the fund is subject to risks, including the possibility that
the fund may decline in value in response to global economic, social or politi-
cal events. The prices of equity securities will be affected by events specifi-
cally involving the securities owned in the fund. The values of debt securities
will be affected by changing interest rates and credit ratings.
You may lose money by investing in the fund. The likelihood of loss is greater
if you invest for a shorter period of time.
Your investment in the fund is not a bank deposit and is not insured or guaran-
teed by the Federal Deposit Insurance Corporation or any other government agen-
cy, entity or person.
- --------------------------------------------------------------------------------
2 American Balanced Fund / Prospectus
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
Investment Results
The following information illustrates how the fund's results may fluctuate.
Past results are not an indication of future results.
Here are the fund's results calculated without a sales charge on a calendar year
basis. (If a slaes charge were included, results would be lower.)
<TABLE>
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
21.53 (1.57) 24.69 9.48 11.27 0.34 27.13 13.17 21.04 11.13
</TABLE>
The fund's highest/lowest quarterly results during this time period were:
. Highest 10.01% (quarter ended June 30, 1997)
. Lowest -9.62% (quarter ended September 30, 1990)
The fund's highest/lowest quarterly results during this time period were:
. Highest 10.01% (quarter ended June 30, 1997)
. Lowest -9.62% (quarter ended September 30, 1990)
- --------------------------------------------------------------------------------
American Balanced Fund / Prospectus 3
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
For periods ended December 31, 1998:
<TABLE>
<CAPTION>
Average The fund with
Annual maximum Lehman Brothers
Total sales charge Aggregate Bond
Return deducted/1/ S&P 500/2/ Index/3/
- -----------------------------------------------------
<S> <C> <C> <C>
One Year 4.72% 28.52% 8.69%
.....................................................
Five Years 12.84% 24.02% 7.27%
.....................................................
Ten Years 12.77% 19.16% 9.26%
.....................................................
Lifetime/4/ 13.04% 16.07% 9.76%/5/
</TABLE>
Yield/1/: 3.32%
(For current yield information call American FundsLine(R) at 1-800-325-3590)
/1/ These fund results were calculated according to a formula which requires
that the maximum sales charge of 5.75% be deducted and reflect the
reinvestment of dividends and capital gain distributions. Results would be
higher if they were calculated at net asset value.
/2/ The Standard & Poor's 500 Composite Index represents primarily U.S. stocks.
This index is unmanaged and does not reflect sales charges, commissions or
expenses.
/3/ The Lehman Brothers Aggregate Bond Index represents investment grade debt.
This index is unmanaged and does not reflect sales charges, commissions or
expenses.
/4/ For the period beginning July 26, 1975 (when Capital Research and Management
Company became the fund's investment adviser).
/5/ The Lehman Brothers Aggregate Bond Index did not exist until December 31,
1975. For the period between July 31, 1975 and December 31, 1975, the Lehman
Brothers Government/Corporate Bond Index results were used. The Lehman
Brothers indexes are based on July 31, 1975 index values.
- --------------------------------------------------------------------------------
4 American Balanced Fund / Prospectus
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
FEES AND EXPENSES OF THE FUND
The following describes the fees and expenses that you may pay if you buy and
hold shares of the fund.
Shareholder Fees
(fees paid directly from your investment)
<TABLE>
- --------------------------------------------------------------------------------
<S> <C>
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.75%/1/
................................................................................
Maximum sales charge imposed on reinvested dividends 0%
................................................................................
Maximum deferred sales charge 0%/2/
................................................................................
Redemption or exchange fees 0%
</TABLE>
/1/ Sales charges are reduced or eliminated for larger purchases.
/2/ A contingent deferred sales charge of 1% applies on certain redemptions made
within 12 months following any purchases you made without a sales charge.
Annual Fund Operating Expenses
(expenses that are deducted from fund assets)
<TABLE>
- --------------------------------------------------------------------------------
<S> <C>
Management Fees 0.29%
................................................................................
Service (12b-1) Fees 0.25%*
................................................................................
Other Expenses 0.09%
................................................................................
Total Annual Fund Operating Expenses 0.63%
</TABLE>
* 12b-1 expenses may not exceed 0.25% of the fund's average net assets annually.
Example
This Example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that
the fund's operating expenses remain the same. Although your actual costs may
be higher or lower, based on these assumptions your costs would be:
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
One Year $ 636
................................................................................
Three Years $ 765
................................................................................
Five Years $ 906
................................................................................
Ten Years $1,316
</TABLE>
- --------------------------------------------------------------------------------
American Balanced Fund / Prospectus 5
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
The investment objectives of the fund are: (1) conservation of capital,
(2) current income, and (3) long-term growth of capital and income. The fund
approaches the management of its investments as if they constituted the
complete investment program of the prudent investor. The fund invests primarily
in a broad range of securities, including stocks and bonds (rated Baa or BBB or
better by Moody's Investors Service, Inc. or Standard & Poor's Corporation).
The fund also invests in securities issued and guaranteed by the U.S.
government. Normally, the fund will maintain at least 50% of the value of its
assets in common stocks and at least 25% of the value of its assets in debt
securities.
The prices of equity securities will decline in response to certain events, in-
cluding those directly involving securities owned in the fund, adverse condi-
tions affecting the general economy, or overall market declines. The values of
debt securities held by the fund will be affected by factors such as changing
interest rates, credit ratings and effective maturities. For example, the value
of bonds in the fund's portfolio generally will decline when interest rates
rise and vice versa. In addition, a security backed by the U.S. Treasury or the
full faith and credit of the United States is guaranteed only as to the timely
payment of interest and principal when held to maturity. The current market
prices for such securities are not guaranteed and will fluctuate.
The fund may also invest in cash or cash equivalents of any issuer to any ex-
tent deemed appropriate. The extent of the fund's cash position will depend on
market conditions, fund purchases and redemptions, and other factors.
The fund relies on the professional judgment of its investment adviser, Capital
Research and Management Company, to make decisions about the fund's portfolio
securities. The basic investment philosophy of Capital Research and Management
Company is to seek undervalued securities that represent good long-term
investment opportunities. Securities may be sold when they are judged to no
longer represent good long-term value.
OTHER IMPORTANT INVESTMENT PRACTICES
In addition to the principal investment strategies described above, the fund
has other investment practices that are described here and in the Statement of
Additional Information.
The fund may invest up to 10% of its assets in securities of issuers domiciled
outside the U.S. and not included in the Standard & Poor's 500 Composite
- --------------------------------------------------------------------------------
6 American Balanced Fund / Prospectus
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
Index. The value of non-U.S. securities can decline in response to various fac-
tors including currency fluctuations, political, social and economic instabili-
ty, differing securities regulations and administrative difficulties such as
delays in clearing and settling portfolio transactions.
Additional Investment Results
For periods ended December 31, 1998:
<TABLE>
<CAPTION>
Average
Annual Lehman Brothers
Total The fund with Aggregate Bond
Return no sales charge/1/ S&P 500/2/ Index/3/
- ----------------------------------------------------------
<S> <C> <C> <C>
One Year 11.13% 28.52% 8.69%
..........................................................
Five Years 14.19% 24.02% 7.27%
..........................................................
Ten Years 13.44% 19.16% 9.26%
..........................................................
Lifetime/4/ 13.33% 16.07% 9.76%/5/
</TABLE>
/1/ These fund results were calculated according to a formula that is required
for all stock and bond funds and reflect the reinvestment of dividends and
capital gain distributions.
/2/ The Standard & Poor's 500 Composite Index represents primarily U.S. stocks.
This index is unmanaged and does not reflect sales charges, commissions or
expenses.
/3/ The Lehman Brothers Aggregate Bond Index represents investment grade debt.
This index is unmanaged and does not reflect sales charges, commissions or
expenses.
/4/ For the period beginning July 26, 1975 (when Capital Research and Management
Company became the fund's investment adviser).
/5/ The Lehman Brothers Aggregate Bond Index did not exist until December 31,
1975. For the period between July 31, 1975 and December 31, 1975, the Lehman
Brothers Government/Corporate Bond Index results were used. The Lehman
Brothers indexes are based on July 31, 1975 index values.
- --------------------------------------------------------------------------------
American Balanced Fund / Prospectus 7
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
The following chart illustrates the asset mix of the fund's
investment portfolio as of the end of the fund's fiscal
year, December 31, 1998.
[begin pie chart]
<TABLE>
<S> <C>
Common Stocks 58%
..................................................
Government Bonds 18%
..................................................
Corporate Bonds 13%
..................................................
Convertible Debentures and Preferred Stock 1%
..................................................
Short-Term Securities & Cash Equivalents 10%
..................................................
</TABLE>
[end pie chart]
<TABLE>
<CAPTION>
Five Largest Industries in Equity Holdings
------------------------------------------------------------
<S> <C>
Energy Sources 5.05%
............................................................
Chemicals 4.37
............................................................
Beverages & Tobacco 3.82
............................................................
Forest Products & Paper 3.80
............................................................
Insurance 3.61
<CAPTION>
Ten Largest Equity Holdings
------------------------------------------------------------
<S> <C>
Hewlett-Packard 1.92%
............................................................
American Stores 1.26
............................................................
York International 1.18
............................................................
Ameritech 1.13
............................................................
Phillips Petroleum 1.05
............................................................
Genuine Parts 1.02
............................................................
Eaton 1.02
............................................................
Philip Morris 1.00
............................................................
Amoco .98
............................................................
IBM .94
<CAPTION>
Bond Holdings by Quality Category*
See the Appendix for a description of quality categories.
------------------------------------------------------------
<S> <C>
US Treasury and Agency 17.24%
............................................................
AAA 3.63
............................................................
AA 1.10
............................................................
A 3.23
............................................................
BBB 4.48
</TABLE>
* Less than 1% of the fund's assets are held in bonds whose
quality ratings were downgraded. The fund may hold a
limited portion of its assets in downgraded bonds.
Because the fund is actively managed, its holdings will
change from time to time.
- --------------------------------------------------------------------------------
8 American Balanced Fund / Prospectus
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
YEAR 2000
The date-related computer issue known as the "Year 2000 problem" could have an
adverse impact on the quality of services provided to the fund and its
shareholders. However, the fund understands that its key service providers --
including the investment adviser and its affiliates -- are taking steps to
address the issue. In addition, the Year 2000 problem may adversely affect the
issuers in which the fund invests. For example, issuers may incur substantial
costs to address the problem. They may also suffer losses caused by corporate
and governmental data processing errors. The fund and its investment adviser
will continue to monitor developments relating to this issue.
- --------------------------------------------------------------------------------
American Balanced Fund / Prospectus 9
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
MANAGEMENT AND ORGANIZATION
Investment Adviser
Capital Research and Management Company, an experienced investment management
organization founded in 1931, serves as investment adviser to the fund and
other funds, including those in The American Funds Group. Capital Research and
Management Company, a wholly owned subsidiary of The Capital Group Companies,
Inc., is headquartered at 333 South Hope Street, Los Angeles, CA 90071. Capital
Research and Management Company manages the investment portfolio and business
affairs of the fund. The total management fee paid by the fund, as a percentage
of average net assets, for the previous fiscal year is discussed earlier under
"Fees and Expenses of the Fund."
Capital Research and Management Company and its affiliated companies have
adopted a personal investing policy that is consistent with the recommendations
contained in the May 9, 1994 report issued by the Investment Company
Institute's Advisory Group on Personal Investing. This policy has also been
incorporated into the fund's code of ethics.
Multiple Portfolio Counselor System
Capital Research and Management Company uses a system of multiple portfolio
counselors in managing mutual fund assets. Under this approach the portfolio of
a fund is divided into segments which are managed by individual counselors.
Counselors decide how their respective segments will be invested, within the
limits provided by a fund's objective(s) and policies and by Capital Research
and Management Company's investment committee. In addition, Capital Research
and Management Company's research professionals may make investment decisions
with respect to a portion of a fund's portfolio. The primary individual
portfolio counselors for American Balanced Fund are listed on the
following page.
- --------------------------------------------------------------------------------
10 American Balanced Fund / Prospectus
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
<TABLE>
<CAPTION>
Approximate Years
of Experience as an
Investment Professional
(including
the last
five years)
..........................
Years of
Experience
as Portfolio
Counselor
Portfolio (and Research With Capital
Counselors Professional, Research and
for if applicable) for Management
American American Balanced Company or
Balanced Fund Primary Title(s) Fund (approximate) Affiliates Total Years
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Robert G. President and 13 years (plus 14 24 years 27 years
O'Donnell Director years
of the fund. as a research
Senior Vice professional prior
President and to becoming a
Director, Capital portfolio
Research and counselor for
Management Company the fund)*
------------------------------------------------------------------------------
Abner D. Senior Vice 24 years 32 years 47 years
Goldstine President of
the fund. Senior
Vice President and
Director, Capital
Research and
Management Company
------------------------------------------------------------------------------
J. Dale Vice President of 3 years 8 years 10 years
Harvey the
fund. Vice
President and
Director, Capital
Research Company +
------------------------------------------------------------------------------
Victor M. Senior Vice 3 years** 24 years 37 years
Parachini President, Capital
Research and
Management Company
------------------------------------------------------------------------------
John H. Smet Vice President, 2 years 16 years 17 years
Capital Research
and
Management Company
------------------------------------------------------------------------------
</TABLE>
Capital Research and Management Company has been the fund's
investment adviser since July 26, 1975.
+ Company affiliated with Capital Research and Management
Company.
* Prior to July 26, 1975, Mr. O'Donnell was a research
professional with American Express Investment Management
Company, the fund's previous investment adviser.
** Prior to July 26, 1975, Mr. Parachini was a portfolio
counselor with American Express Investment Management
Company, the fund's previous investment adviser.
- --------------------------------------------------------------------------------
American Balanced Fund / Prospectus 11
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
SHAREHOLDER INFORMATION
Shareholder Services
American Funds Service Company, the fund's transfer agent, offers you a wide
range of services you can use to alter your investment program should your
needs and circumstances change. These services are available only in states
where they may be legally offered and may be terminated or modified at any time
upon 60 days' written notice. For your convenience, American Funds Service
Company has four service centers across the country.
American Funds Service Company Service Areas
Call toll-free from anywhere in the U.S.
(8 a.m. to 8 p.m. ET):
800/421-0180
[MAP OF UNITED STATES]
<TABLE>
<S> <C> <C> <C>
WESTERN SERVICE WESTERN CENTRAL EASTERN CENTRAL EASTERN SERVICE
CENTER SERVICE CENTER SERVICE CENTER CENTER
American Funds American Funds American Funds American Funds
Service Company Service Company Service Company Service Company
P.O. Box 2205 P.O. Box 659522 P.O. Box 6007 P.O. Box 2280
Brea, California San Antonio, Texas Indianapolis, Norfolk, Virginia
92822-2205 78265-9522 Indiana 23501-2280
Fax: 714/671-7080 Fax: 210/474-4050 46206-6007 Fax: 757/670-4773
Fax: 317/735-6620
</TABLE>
A complete description of the services we offer is described in the fund's
statement of additional information. In addition, an easy-to-read guide to
owning a fund in The American Funds Group titled "Welcome to the Family" is
sent to new shareholders and is available by writing or calling American Funds
Service Company.
You may invest in the fund through various retirement plans. However, some re-
tirement plans or accounts held by investment dealers may not offer certain
services. If you have any questions, please contact your plan administrator/
trustee or dealer.
- --------------------------------------------------------------------------------
12 American Balanced Fund / Prospectus
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
PURCHASE AND EXCHANGE OF SHARES
Purchase
Generally, you may open an account by contacting any investment dealer autho-
rized to sell the fund's shares. You may purchase additional shares using vari-
ous options described in the statement of additional information and "Welcome
to the Family."
Exchange
You may exchange your shares into other funds in The American Funds Group gen-
erally without a sales charge. Exchange of shares from the money market funds
initially purchased without a sales charge generally will be subject to the ap-
propriate sales charge. Exchanges have the same tax consequences as ordinary
sales and purchases. See "Transactions by Telephone...'' for information regard-
ing electronic exchanges.
The fund and American Funds Distributors, the fund's principal underwriter, re-
serve the right to reject any purchase order for any reason. Although there is
currently no specific limit on the number of exchanges you can make in a period
of time, the fund and American Funds Distributors reserve the right to reject
any purchase order and may terminate the exchange privilege of any investor
whose pattern of exchange activity they have determined involves actual or po-
tential harm to the fund.
Investment Minimums
<TABLE>
- -------------------------------------------------------------
<S> <C>
To establish an account $500
For a retirement plan account $250
For a retirement plan account through payroll deduction $ 25
To add to an account $ 50
For a retirement plan account through payroll deduction $ 25
</TABLE>
Share Price
The fund calculates its share price, also called net asset value, as of 4:00
p.m. New York time which is the normal close of trading on the New York Stock
Exchange, every day the Exchange is open. In calculating net asset value,
market prices are used when available. If a market price for a particular
security is not available, the fund will determine the appropriate price for the
security.
Your shares will be purchased at the offering price, or sold at the net asset
value, next determined after American Funds Service Company receives and
accepts your request. The offering price is the net asset value plus a sales
charge, if applicable.
- --------------------------------------------------------------------------------
American Balanced Fund / Prospectus 13
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
Sales Charge
A sales charge may apply to your purchase. Your sales charge may be reduced for
larger purchases as indicated below.
<TABLE>
<CAPTION>
Sales Charge as a Percentage of
...............................
Net Dealer Concession
Offering Amount as % of
Investment Price Invested Offering Price
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000 5.75% 6.10% 5.00%
..................................................................................
$50,000 but less than
$100,000 4.50% 4.71% 3.75%
..................................................................................
$100,000 but less than
$250,000 3.50% 3.63% 2.75%
..................................................................................
$250,000 but less than
$500,000 2.50% 2.56% 2.00%
..................................................................................
$500,000 but less $1 million 2.00% 2.04% 1.60%
..................................................................................
$1 million or more and certain
other investments described below see below see below see below
</TABLE>
Purchases Not Subject to Sales Charge
Investments of $1 million or more and investments made by employer-sponsored
defined contribution-type plans with 100 or more eligible employees are sold
with no initial sales charge. A 1% contingent deferred sales charge may be
imposed on certain redemptions by accounts that invest with no initial sales
charge (other than employer-sponsored plans), if redemptions are made within
one year of purchase. A dealer concession of up to 1% may be paid by the fund
under its Plan of Distribution and/or by American Funds Distributors on
investments made with no initial sales charge.
Reducing Your Sales Charge
You and your immediate family may combine investments to reduce your sales
charge. You must let your investment dealer or American Funds Service Company
know if you qualify for a reduction in your sales charge using one or any
combination of the methods described in the statement of additional information
and "Welcome to the Family."
Plan of Distribution
The fund has a Plan of Distribution or "12b-1 Plan" under which it may finance
activities primarily intended to sell shares, provided the categories of
expenses
- --------------------------------------------------------------------------------
14 American Balanced Fund / Prospectus
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
are approved in advance by the fund's board of directors. Up to 0.25% of aver-
age net assets is paid annually to qualified dealers for providing certain
services pursuant to the fund's Plan of Distribution. The 12b-1 fee paid by the
fund, as a percentage of average net assets, for the previous fiscal year is
indicated earlier under "Fees and Expenses of the Fund." Since these fees are
paid out of the fund's assets on an ongoing basis, over time they will increase
the cost of an investment and may cost you more than paying higher initial
sales charges.
Other Compensation to Dealers
American Funds Distributors may provide additional compensation to, or sponsor
informational meetings for dealers as described in the statement of additional
information.
How to Sell Shares
Once a sufficient period of time has passed to reasonably assure that checks or
drafts (including certified or cashiers' checks) for shares purchased have
cleared (normally 15 calendar days), you may sell (redeem) those shares in any
of the following ways:
Through Your Dealer (certain charges may apply)
. Shares held for you in your dealer's name must be sold through the dealer.
Writing to American Funds Service Company
. Requests must be signed by the registered shareholder(s)
. A signature guarantee is required if the redemption is:
-- Over $50,000;
-- Made payable to someone other than the registered shareholder(s); or
-- Sent to an address other than the address of record, or an address of
record which has been changed within the last 10 days.
. Additional documentation may be required for sales of shares held in cor-
porate, partnership or fiduciary accounts.
Telephoning or Faxing American Funds Service Company, or by using American
FundsLine(R) or American FundsLine OnLine(R):
. Redemptions by telephone or fax (including American FundsLine and American
FundsLine OnLine) are limited to $50,000 per shareholder each day
- --------------------------------------------------------------------------------
American Balanced Fund / Prospectus 15
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
. Checks must be made payable to the registered shareholder
. Checks must be mailed to an address of record that has been used with the
account for at least 10 days
Transactions by Telephone, Fax, American FundsLine, or American FundsLine
OnLine
Generally, you are automatically eligible to use these services for redemptions
and exchanges unless you notify us in writing that you do not want any or all
of these services. You may reinstate these services at any time.
Unless you decide not to have telephone, fax, or computer services on your ac-
count(s), you agree to hold the fund, American Funds Service Company, any of
its affiliates or mutual funds managed by such affiliates, and each of their
respective directors, trustees, officers, employees and agents harmless from
any losses, expenses, costs or liabilities (including attorney fees) which may
be incurred in connection with the exercise of these privileges, provided Amer-
ican Funds Service Company employs reasonable procedures to confirm that the
instructions received from any person with appropriate account information are
genuine. If reasonable procedures are not employed, the fund may be liable for
losses due to unauthorized or fraudulent instructions.
- --------------------------------------------------------------------------------
DISTRIBUTION ARRANGEMENTS
Dividends and Distributions
The fund intends to pay dividends to you, usually in February, May, August and
December. Capital gains, if any, are usually distributed in December.
You may elect to reinvest dividends and/or capital gain distributions to pur-
chase additional shares of this fund or any other fund in The American Funds
Group or you may elect to receive them in cash.
Tax Consequences
Dividends and capital gains are generally taxable whether they are reinvested
or received in cash -- unless you are exempt from taxation or entitled to tax
deferral. Capital gains may be taxed at different rates depending on the length
of time the fund holds its assets.
The tax treatment of redemptions from a retirement plan account may differ from
redemptions from an ordinary shareholder account.
- --------------------------------------------------------------------------------
16 American Balanced Fund / Prospectus
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
You must provide the fund with a certified correct taxpayer identification num-
ber (generally your Social Security Number) and certify that you are not sub-
ject to backup withholding. If you fail to do so, the IRS can require the fund
to withhold 31% of your taxable distributions and redemptions. Federal law also
requires the fund to withhold 30% or the applicable tax treaty rate from divi-
dends paid to certain nonresident alien, non-U.S. partnership and non-U.S. cor-
poration shareholder accounts.
Please see the statement of additional information, "Welcome to the Family,"
and your tax adviser for further information.
- --------------------------------------------------------------------------------
American Balanced Fund / Prospectus 17
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the fund's
results for the past five years. Certain information reflects financial results
for a single fund share. The total returns in the table represent the rate that
an investor would have earned or lost on an investment in the fund (assuming
reinvestment of all dividends and distributions). This information has been
audited by Deloitte & Touche llp, whose report, along with the fund's financial
statements, are included in the statement of additional information, which is
available upon request.
<TABLE>
<CAPTION>
Years ended
December 31
....................
1998 1997 1996 1995 1994
-------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Year $15.68 $14.55 $14.15 $12.00 $12.57
- -------------------------------------------------------------------------
Income from Investment
Operations:
Net Investment
Income .56 .58 .57 .57 .57
.........................................................................
Net Gains or Losses on Securities
(both realized and unrealized) 1.13 2.41 1.24 2.61 (0.53)
- -------------------------------------------------------------------------
Total From Investment Operations 1.69 2.99 1.81 3.18 .04
- -------------------------------------------------------------------------
Less Distributions:
Dividends (from net
investment income) (.56) (.56) (.56) (.56) (.56)
.........................................................................
Dividends (from capital gains) (1.05) (1.30) (.85) (.47) (.05)
- -------------------------------------------------------------------------
Total Distributions (1.61) (1.86) (1.41) (1.03) (.61)
- -------------------------------------------------------------------------
Net Asset Value,
End of Year $15.76 $15.68 $14.55 $14.15 $12.00
- -------------------------------------------------------------------------
Total Return/1/ 11.13% 21.04% 13.17% 27.13% .34%
- -------------------------------------------------------------------------
Ratios/Supplemental Data:
Net Assets, End of Period
(in millions) $5,881 $5,036 $3,941 $3,048 $2,082
.........................................................................
Ratio of Expenses to
Average Net Assets .63% .65% .67% .67% .68%
.........................................................................
Ratio of Net Income to
Average Net Assets 3.57% 3.74% 4.01% 4.38% 4.76%
.........................................................................
Portfolio Turnover Rate 54.05% 44.01% 43.85% 39.03% 32.05%
</TABLE>
/1/ Excludes maximum sales charge of 5.75%.
- --------------------------------------------------------------------------------
18 American Balanced Fund / Prospectus
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
APPENDIX
Moody's Investors Service, Inc. rates the long-term debt securities issued by
various entities in categories ranging from "Aaa" to "C," according to quality
as described below. The fund generally invests in debt securities rated Baa or
better by Moody's.
"Aaa -- Best quality. These securities carry the smallest degree of investment
risk and are generally referred to as "gilt edge." Interest payments are pro-
tected by a large, or by an exceptionally stable margin and principal is se-
cure. While the various protective elements are likely to change, such changes
as can be visualized are most unlikely to impair the fundamentally strong posi-
tion of such shares."
"Aa -- High quality by all standards. They are rated lower than the best bond
because margins of protection may not be as large as in Aaa securities, fluctu-
ation of protective elements may be of greater amplitude, or there may be other
elements present which make the long-term risks appear somewhat greater."
"A -- Upper medium grade obligations. These bonds possess many favorable in-
vestment attributes. Factors giving security to principal and interest are con-
sidered adequate, but elements may be present which suggest a susceptibility to
impairment sometime in the future."
"Baa -- Medium grade obligations. Interest payments and principal security ap-
pear adequate for the present but certain protective elements may be lacking or
may be characteristically unreliable over any great length of time. Such bonds
lack outstanding investment characteristics and, in fact, have speculative
characteristics as well."
Standard & Poor's rates the long-term debt securities issued by various enti-
ties in categories ranging from "AAA" to "D," according to quality as described
below. The fund generally invests in debt securities rated BBB or better by
Standard & Poor's.
"AAA -- Highest rating. Capacity to pay interest and repay principal is ex-
tremely strong."
"AA -- High grade. Very strong capacity to pay interest and repay principal.
Generally, these bonds differ from AAA issues only in a small degree."
- --------------------------------------------------------------------------------
American Balanced Fund / Prospectus 19
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
"A -- Have a strong capacity to pay interest and repay principal, although they
are somewhat more susceptible to the adverse effects of change in circumstances
and economic conditions, than debt in higher rated categories."
"BBB -- Regarded as having adequate capacity to pay interest and repay princi-
pal. These bonds normally exhibit adequate protection parameters, but adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal than for debt in higher
rated categories."
- --------------------------------------------------------------------------------
20 American Balanced Fund / Prospectus
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
NOTES
- --------------------------------------------------------------------------------
American Balanced Fund / Prospectus 21
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<S> <C> <C>
For Shareholder For Retirement Plan For Dealer
Services Services Services
American Funds Call your employer or American Funds
Service Company plan administrator Distributors
800/421-0180 800/421-9900 ext. 11
</TABLE>
For 24-hour Information
American FundsLine(R) American Funds
800/325-3590 Internet Web site
http://www.americanfunds.com
Telephone conversations may be recorded or monitored for
verification, recordkeeping and quality assurance purposes.
------------------------------------------------------------
Multiple Translations
This prospectus may be translated into other languages. In
the event of any inconsistencies or ambiguity as to the
meaning of any word or phrase in a translation, the English
text will prevail.
------------------------------------------------------------
OTHER FUND INFORMATION
Annual/Semi-Annual Report to Shareholders
Contains additional information about the fund including
financial statements, investments results, portfolio
holdings, a statement from portfolio management discussing
market conditions and the fund's investment strategies, and
the independent auditors' report (in the annual report).
Statement of Additional Information (SAI)
Contains more detailed information on all aspects of the
fund, including the fund's financial statements.
A current SAI has been filed with the Securities and
Exchange Commission ("SEC") and is incorporated by
reference into this prospectus. The SAI and other related
materials about the fund are available for review or to be
copied at the SEC's Public Reference Room in Washington,
D.C. (1-800-SEC-0330) or on the SEC's Internet Web site at
http://www.sec.gov.
Code of Ethics
Includes a description of the fund's personal investing
policy.
To request a free copy of any of the documents above:
Call American Funds or Write to the Secretary of
Service Company the fund
800/421-0180 ext. 1 P.O. Box 7650
San Francisco, CA 94120
[Logo of recyled paper]
Investment Company File No. 811-66 Printed on recycled paper
AMERICAN BALANCED FUND, INC.
Part B
Statement of Additional Information
MARCH 1, 1999
This document is not a prospectus but should be read in conjunction with the
current Prospectus of American Balanced Fund, Inc. (the fund or AMBAL) dated
March 1, 1999. The Prospectus may be obtained from your investment dealer or
financial planner or by writing to the fund at the following address:
American Balanced Fund, Inc.
Attention: Secretary
One Market, Steuart Tower
P.O. Box 7650
San Francisco, CA 94120
Shareholders who purchase shares at net asset value through eligible retirement
plans should note that not all of the services or features described below may
be available to them, and they should contact their employer for details.
TABLE OF CONTENTS
Item Page No.
CERTAIN INVESTMENT LIMITATIONS AND GUIDELINES 2
DESCRIPTION OF CERTAIN SECURITIES AND INVESTMENT TECHNIQUES 2
FUNDAMENTAL POLICIES AND INVESTMENT RESTRICTIONS 6
FUND ORGANIZATION AND VOTING RIGHTS 8
FUND OFFICERS AND DIRECTORS 9
MANAGEMENT 14
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES 16
PURCHASE OF SHARES 19
SELLING SHARES 25
SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES 27
EXECUTION OF PORTFOLIO TRANSACTIONS 29
GENERAL INFORMATION 29
INVESTMENT RESULTS AND RELATED STATISTICS 31
FINANCIAL STATEMENTS ATTACHED
CERTAIN INVESTMENT LIMITATIONS AND GUIDELINES
The following limitations and guidelines are considered at the time of
purchase, under normal market conditions, and are based on a percentage of the
fund's net assets unless otherwise noted. This summary is not intended to
reflect all of the fund's investment limitations.
EQUITY SECURITIES
- - The fund will invest at least 50% of the value of its assets in common
stocks.
DEBT SECURITIES
- - The fund will invest at least 25% of the value of its assets in debt
securities generally rated Baa or better by Moody's Investors Services, Inc. or
BBB or better by Standard & Poor's Corporation, or in unrated securities
determined to be of equivalent quality.
SECURITIES OUTSIDE THE U.S.
- - The fund may invest up to 10% of its assets in securities of issuers
domiciled outside the U.S. and not included in the Standard & Poor's 500
Composite Index.
DESCRIPTION OF CERTAIN SECURITIES AND INVESTMENT TECHNIQUES
The fund may experience difficulty liquidating certain portfolio securities
during significant market declines or periods of heavy redemptions. The
descriptions below are intended to supplement the material in the prospectus
under "Investment Objectives, Strategies and Risks."
EQUITY SECURITIES -- The fund will invest in equity securities. Equity
securities represent an ownership position in a company. The prices of equity
securities fluctuate based on changes in the financial condition of their
issuers and on market and economic conditions. The fund's results will be
related to the overall market for these securities.
DEBT SECURITIES -- The fund will invest in debt securities. Bonds and other
debt securities are used by issuers to borrow money. Issuers pay investors
interest and generally must repay the amount borrowed at maturity. Some debt
securities, such as zero coupon bonds, do not pay current interest but are
purchased at a discount from their face values. The prices of debt securities
fluctuate depending on such factors as interest rates, credit quality and
maturity. In general their prices decline when interest rates rise and vice
versa.
The fund may invest in debt securities which are rated in the top four quality
categories by any national rating service (or unrated but determined to be of
equivalent quality by Capital Research and Management Company) including bonds
rated at least BBB by Standard & Poor's Corporation or Baa by Moody's Investors
Service, Inc. Although the fund is not normally required to dispose of a
security in the event that its rating is reduced below the current minimum
rating required for its purchase (or it is not rated and its quality becomes
equivalent to such a security), if, as a result of a downgrade or otherwise,
the fund holds more than 5% of its net assets in these securities (also known
as "high-yield, high-risk securities"), the fund will dispose of the excess as
expeditiously as possible.
OTHER SECURITIES -- The fund may also invest in securities that have a
combination of equity and debt characteristics such as non-convertible
preferred stocks and convertible securities. These securities may at times
resemble equity more than debt and vice versa. Non-convertible preferred stocks
are similar to debt in that they have a stated dividend rate akin to the coupon
of a bond or note even though they are often classified as equity securities.
The prices and yields of non- convertible preferred stocks generally move with
changes in interest rates and the issuer's credit quality, similar to the
factors affecting debt securities.
Bonds, preferred stocks, and other securities may sometimes be converted into
shares of common stock or other securities at a stated exchange ratio. These
securities prior to conversion pay a fixed rate of interest or a dividend.
Because convertible securities have both debt and equity characteristics their
value varies in response to many factors, including the value of the underlying
equity, general market and economic conditions, convertible market valuations,
as well as changes in interest rates, credit spreads, and the credit quality of
the issuer.
U.S. GOVERNMENT SECURITIES -- Securities guaranteed by the U.S. Government
include: (1) direct obligations of the U.S. Treasury (such as Treasury bills,
notes and bonds) and (2) federal agency obligations guaranteed as to principal
and interest by the U.S. Treasury.
Certain securities issued by U.S. Government instrumentalities and certain
federal agencies are neither direct obligations of, nor guaranteed by, the
Treasury. However, they generally involve federal sponsorship in one way or
another; some are backed by specific types of collateral; some are supported by
the issuer's right to borrow from the Treasury; some are supported by the
discretionary authority of the Treasury to purchase certain obligations of the
issuer; and others are supported only by the credit of the issuing government
agency or instrumentality.
PASS-THROUGH SECURITIES -- The fund may invest in various debt obligations
backed by a pool of mortgages or other assets including loans on single family
residences, home equity loans, mortgages on commercial buildings, credit card
receivables, and leases on airplanes or other equipment. Principal and interest
payments made on the underlying asset pools backing these obligations are
typically passed through to investors. Pass-through securities may have either
fixed or adjustable coupons. These securities include those discussed below.
"Mortgage-backed securities" are issued both by U.S. government agencies,
including the Government National Mortgage Association (GNMA), the Federal
National Mortgage Association (FNMA), and the Federal Home Loan Mortgage
Corporation (FHLMC), and by private entities. The payment of interest and
principal on securities issued by U.S. government agencies is guaranteed by the
full faith and credit of the U.S. government (in the case of GNMA securities)
or the issuer (in the case of FNMA and FHLMC securities). However, the
guarantees do not apply to the market prices and yields of these securities,
which vary with changes in interest rates.
Mortgage-backed securities issued by private entities are structured similarly
to mortgage-backed securities issued by GNMA, FNMA, and FHLMC. These securities
and the underlying mortgages are not guaranteed by government agencies. In
addition, these securities generally are structured with one or more types of
credit enhancement. Mortgage-backed securities generally permit borrowers to
prepay their underlying mortgages. Prepayments can alter the effective maturity
of these instruments.
"Collateralized mortgage obligations" (CMOs) are also backed by a pool of
mortgages, mortgage-backed securities or mortgage loans, which are divided into
two or more separate bond issues. CMOs issued by U.S. government agencies are
backed by agency mortgages, while privately issued CMOs may be backed by either
government agency mortgages or private mortgages. Payments of principal and
interest are passed-through to each bond at varying schedules resulting in
bonds with different coupons, effective maturities, and sensitivities to
interest rates. In fact, some CMOs may be structured in a way that when
interest rates change the impact of changing prepayment rates on these
securities' effective maturities is magnified.
"Commercial mortgage-backed securities" are backed by commercial property, such
as hotels, office buildings, retail stores, hospitals, and other commercial
buildings. These securities may have a lower prepayment risk than other
mortgage-related securities because commercial mortgage loans generally
prohibit or impose penalties on prepayments of principal. In addition,
commercial mortgage-related securities often are structured with some form of
credit enhancement to protect against potential losses on the underlying
mortgage loans. Many of the risks of investing in commercial mortgage-backed
securities reflect the risks of investing in the real estate securing the
underlying mortgage loans, including the effects of local and other economic
conditions on real estate markets, the ability of tenants to make loan
payments, and the ability of a property to attract and retain tenants.
"Asset-backed securities" are backed by other assets such as credit card,
automobile or consumer loan receivables, retail installment loans, or
participations in pools of leases. Credit support for these securities may be
based on the underlying assets and/or provided through credit enhancements by a
third party. The values of these securities are sensitive to changes in the
credit quality of the underlying collateral, the credit strength of the credit
enhancement, changes in interest rates, and at times the financial condition of
the issuer. Some asset-backed securities also may receive prepayments which can
change the bonds' effective maturities.
CASH EQUIVALENTS -- The fund invests in various high-quality money market
instruments that mature, or may be redeemed or resold, generally in 13 months
or less (25 months in the case of U.S. government securities). These include:
(1) commercial paper (notes issued by corporations or governmental bodies); (2)
certificates of deposit and bankers' acceptances (time drafts on a commercial
bank where the bank accepts an irrevocable obligation to pay at maturity); (3)
savings association and bank obligations; (4) securities of the U.S.
Government, its agencies or instrumentalities; and (5) corporate bonds and
notes.
FORWARD COMMITMENTS -- The fund may enter into commitments to purchase or sell
securities at a future date. When a fund purchases such securities it assumes
the risk of any decline in value of the security beginning on the date of the
agreement. When the fund agrees to sell such securities, it does not
participate in further gains or losses with respect to the securities. If the
other party to such a transaction fails to deliver or pay for the securities,
the fund could miss a favorable price or yield opportunity, or could experience
a loss.
As the fund's aggregate commitments under these transactions increase, the
opportunity for leverage similarly may increase. The fund will not use these
transactions for the purpose of leveraging and will segregate liquid assets
which will be marked to market daily in an amount sufficient to meet its
payment obligations in these transactions. Although these transactions will
not be entered into for leveraging purposes, to the extent the fund's aggregate
commitments under these transactions exceed its segregated assets, the fund
temporarily could be in a leveraged position (because it will have an amount
greater than its net assets subject to market risk). Should market values of
the fund's portfolio securities decline while the fund is in a leveraged
position, greater depreciation of its net assets would likely occur than were
it not in such a position. The fund will not borrow money to settle these
transactions and, therefore, will liquidate other portfolio securities in
advance of settlement if necessary to generate additional cash to meet its
obligations thereunder.
The fund also may enter into "roll" transactions, which consist of the sale of
mortgage-backed securities or other securities together with a commitment to
purchase similar, but not identical, securities at a future date. The fund
intends to treat roll transactions as two separate transactions: one involving
the purchase of a security and a separate transaction involving the sale of a
security. Since the fund does not intend to enter into roll transactions for
financing purposes, it may treat these transactions as not falling within the
definition of "borrowing" set forth in Section 2(a)(23) of the Investment
Company Act of 1940.
WARRANTS AND RIGHTS -- The fund may acquire warrants, which are issued as a
unit together with a bond or preferred stock. Warrants generally entitle the
holder to buy common stock at a specified price, usually higher than the
current market price. Warrants may be issued with an expiration date or in
perpetuity. The fund may also acquire rights, which are similar to warrants
except that they normally entitle the holder to purchase common stock at a
lower price than the current market price. Rights generally expire in less
than four weeks.
INFLATION-INDEXED BONDS -- The fund may invest in inflation-indexed bonds
issued by governments, their agencies or instrumentalities, or corporations.
The principal value of this type of bond is periodically adjusted according to
changes in the rate of inflation. The interest rate is generally fixed at
issuance; however, interest payments are based on an inflation adjusted
principal value. For example, in a period of falling inflation, principal
value will be adjusted downward, reducing the interest payable.
Repayment of the original bond principal upon maturity (as adjusted for
inflation) is guaranteed in the case of U.S. Treasury inflation indexed bonds,
even during a period of deflation. However, the current market value of the
bonds is not guaranteed, and will fluctuate. The fund may also invest in other
bonds which may or may not provide a similar guarantee. If a guarantee of
principal is not provided, the adjusted principal value of the bond repaid at
maturity may be less than the original principal.
REAL ESTATE INVESTMENT TRUSTS -- The fund may invest in securities issued by
real estate investment trusts (REITs), which are pooled investment vehicles
that primarily invest in real estate or real estate related loans. REITs are
not taxed on income distributed to shareholders provided they meet requirements
imposed by the Internal Revenue Code. The risks associated with REIT debt
investments are similar to the risks of investing in corporate-issued debt. In
addition, the return on REITs is dependent on such factors as the skill of
management and the real estate environment in general. Debt that is issued by
REITs is typically rated by the credit rating agencies as investment grade or
above.
INVESTING IN VARIOUS COUNTRIES -- The fund may invest up to 10% of its
assets in securities of issuers domiciled outside the U.S. and not included in
the Standard & Poor's 500 Composite Index. Investing outside the U.S. involves
special risks, caused by, among other things: fluctuating currency values;
different accounting, auditing, and financial reporting regulations and
practices in some countries; changing local and regional economic, political,
and social conditions; expropriation or confiscatory taxation; greater market
volatility; differing securities market structures; and various administrative
difficulties such as delays in clearing and settling portfolio transactions or
in receiving payment of dividends. However, in the opinion of Capital Research
and Management Company, investing outside the U.S. also can reduce certain
portfolio risks due to greater diversification opportunities.
The risks described above are potentially heightened in connection with
investments in developing countries. Although there is no universally accepted
definition, a developing country is generally considered to be a country which
is in the initial stages of its industrialization cycle with a low per capita
gross national product. For example, political and/or economic structures in
these countries may be in their infancy and developing rapidly. Historically,
the markets of developing countries have been more volatile than the markets of
developed countries. The fund may only invest in securities of issuers in
developing countries to a limited extent.
Additional costs could be incurred in connection with the fund's investment
activities outside the U.S. Brokerage commissions may be higher outside the
U.S., and the fund will bear certain expenses in connection with its currency
transactions. Furthermore, increased custodian costs may be associated with the
maintenance of assets in certain jurisdictions.
RESTRICTED SECURITIES AND LIQUIDITY -- The fund may purchase securities subject
to restrictions on resale. All such securities not actively traded outside the
U.S. will be considered illiquid unless they have been specifically determined
to be liquid under procedures adopted by the fund's board of directors taking
into account factors such as frequency and volume of trading, the commitment of
dealers to make markets and the availability of qualified investors, all of
which can change from time to time. The fund may incur certain additional costs
in disposing of illiquid securities.
- ------------------
PORTFOLIO TURNOVER -- Portfolio changes will be made without regard to the
length of time particular investments may have been held. Short-term trading
profits are not the fund's objective and changes in its investments are
generally accomplished gradually, though short-term transactions may
occasionally be made. High portfolio turnover (100% or more) involves
correspondingly greater transaction costs in the form of dealer spreads or
brokerage commissions, and may result in the realization of net capital gains,
which are taxable when distributed to shareholders. Fixed-income securities
are generally traded on a net basis and usually neither brokerage commissions
nor transfer taxes are involved. The fund's portfolio turnover rate would
equal 100% if each security in the fund's portfolio were replaced once per
year. Under normal circumstances, it is anticipated that portfolio turnover
for common stocks in the fund's portfolio will not exceed 100% on an annual
basis, and that portfolio turnover for other securities will not exceed 100% on
an annual basis.
FUNDAMENTAL POLICIES AND INVESTMENT RESTRICTIONS
The fund has adopted certain fundamental policies and investment restrictions
which cannot be changed without shareholder approval. (Approval requires the
affirmative vote of 67% or more of the voting securities present at a meeting
of shareholders, provided more than 50% of such securities are represented at
the meeting or the vote of more than 50% of the outstanding voting securities,
whichever is less.) Investment limitations expressed in the following
restrictions are considered at the time securities are purchased and are based
on the fund's net assets unless otherwise indicated.
1. To invest in a diversified list of securities, including common stocks,
preferred stocks, and bonds, to the extent considered advisable by management.
2. To allocate its investments among different industries as well as among
individual companies. The amount invested in an industry will vary from time
to time in accordance with the judgment of management, but 25% or more of the
value of the fund's total assets shall not be invested in securities of issuers
in any one industry (other than securities issued or guaranteed by the U.S.
government or its agencies or instrumentalities).
3. Not to invest in companies for the purpose of exercising control or
management.
4. Not to invest more than 5% of the value of its total assets in the
securities of any one issuer (except the U.S. Government).
5. Not to acquire more than 10% of the outstanding voting securities, or 10% of
all of the securities, of any one issuer.
6. Not to borrow more than 5% of the gross assets of the fund taken at cost or
at value, whichever is lower, and to borrow only from banks and as a temporary
measure for extraordinary or emergency purposes. The fund shall not mortgage,
pledge, hypothecate, or in any other manner transfer as security for any
indebtedness, any of its assets.
7. Not to underwrite the sale, or participate in any underwriting or selling
group in connection with the public distribution, of any security. The fund
may invest not more than 10% of its net assets in, and subsequently distribute,
as permitted by law, securities and other assets for which there is no ready
market.
8. Not to purchase securities on margin (except that it may obtain such
short-term credits as may be necessary for the clearance of purchases or sales
of securities).
9. Not to engage in the purchase or sale of real estate. Investments in real
estate investment trusts which may invest only in mortgages or other security
interests are not deemed purchases of real estate.
10. Not to purchase or sell commodities or commodity contracts.
11. Not to participate on a joint or a joint and several basis in any trading
account in securities. (The "bunching" of orders for the sale or purchase of
marketable portfolio securities with other accounts under the management of the
Investment Adviser to save brokerage costs or average prices among them is not
deemed to result in a securities trading account.)
12. Not to make loans of money or securities to any person or firm; provided,
however, that the acquisition for investment of bonds, debentures, notes or
other evidences of indebtedness of any corporation or government shall not be
construed to be the making of a loan.
13. Not to effect short sales of securities.
14. Not to purchase from or sell securities to the Investment Adviser or the
Principal Underwriter or their officers or directors, the fund's officers or
directors, and any companies of which they are affiliates, except in connection
with (i) an exercise of rights concerning securities owned by the fund, (ii)
the reorganization, recapitalization, consolidation or merger of a company
whose securities are owned by the fund, (iii) a transaction in fund shares, or
(iv) a permitted transaction with other investment companies advised by the
Investment Adviser.
15. Not to knowingly invest in securities of other managed investment
companies, or, in any event, invest in securities of managed registered
investment companies, except in connection with a merger, consolidation,
acquisition of assets or other reorganization approved by the fund's
shareholders.
16. Not to invest more than 75% of the value of the fund's net assets in common
stocks, such percentage including the value of that portion of convertible
securities attributable to the conversion feature.
17. Not to purchase or retain the securities issued by a corporation any of
whose officers, directors or shareholders is an officer or director of the fund
or the Investment Adviser if, after such purchase, one or more of such officers
and directors owning beneficially more than 1/2 of 1% of the securities of such
corporation together own beneficially more than 5% of such securities.
18. Not to write, purchase or sell options.
For purposes of Investment Restriction #7, restricted securities are treated as
not readily marketable by the fund, with the exception of those securities that
have been determined to be liquid pursuant to procedures adopted by the fund's
Board of Directors. Notwithstanding Investment Restriction #15, the fund may
invest in securities of other investment companies if deemed advisable by its
officers in connection with the administration of a deferred compensation plan
adopted by Directors pursuant to an exemptive order granted by the Securities
and Exchange Commission.
FUND ORGANIZATION AND VOTING RIGHTS
The fund is an open-end, diversified management investment company. It was
organized as a Delaware corporation on September 6, 1932, and reincorporated in
Maryland on February 2, 1990.
All fund operations are supervised by the fund's board of directors. The board
meets periodically and performs duties required by applicable state and federal
laws. Members of the board who are not employed by Capital Research and
Management Company or its affiliates are paid certain fees for services
rendered to the fund as described in "Fund Directors and Officers" below.
They may elect to defer all or a portion of these fees through a deferred
compensation plan in effect for the fund.
The fund does not hold annual meetings of shareholders. However, significant
matters which require shareholder approval, such as certain elections of board
members or a change in a fundamental investment policy, will be presented to
shareholders at a meeting called for such purpose. Shareholders have one vote
per share owned. At the request of the holders of at least 10% of the shares,
the fund will hold a meeting at which any member of the board could be removed
by a majority vote.
FUND OFFICERS AND DIRECTORS
Directors and Director Compensation
<TABLE>
<CAPTION>
NAME, ADDRESS POSITION PRINCIPAL AGGREGATE TOTAL TOTAL
AND AGE WITH OCCUPATION(S) COMPENSATION COMPENSATION NUMBER
REGISTRANT DURING PAST (INCLUDING (INCLUDING OF FUND
5 YEARS VOLUNTARILY VOLUNTARILY BOARDS ON
DEFERRED DEFERRED WHICH
COMPENSATION/1/) COMPENSATION) DIRECTOR
FROM THE FROM ALL SERVES/3/
FUND DURING FUNDS MANAGED
FISCAL YEAR BY CAPITAL
ENDED 12/31/98 RESEARCH AND
MANAGEMENT
COMPANY OR
ITS
AFFILIATES/2/
FOR THE YEAR
ENDED
12/31/98
<S> <C> <C> <C> <C> <C>
Robert A. Fox Director President and $12,950/4/ $106,817/4/ 6
P.O. Box 457 Chief
1000 Davis Executive
Street Officer,
Livingston,CA95334 Foster Farms
Age: 61
Roberta L. Director Consultant; $12,950 $66,317 4
Hazard Rear Admiral,
1419 Audmar United
Drive States Navy
McLean, VA (Retired)
22101
Age: 64
Leonade D. Director Former $16,533/4/ $107,967/4/ 6
Jones Treasurer, The
1536 Los Washington
Montes Drive Post Company
Burlingame,
CA 94010
Age: 51
John G. Director The IBJ $16,950/4/ $201,867/4/ 7
McDonald Professor of
Graduate Finance,
School of Graduate
Business School of
Stanford Business,
University Stanford
Stanford, CA University
94305
Age: 61
+Robert G. President Senior Vice None/5/ None/5/ 2
O'Donnell and President and
P.O. Box 7650 Director Director,
San Capital
Francisco, CA Research and
94120 Management
Age: 54 Company
+James W. Director Senior None/5/ None/5/ 7
Ratzlaff Partner, The
333 South Capital Group
Hope Street Partners L.P.
Los Angeles,
CA 90071
Age: 62
Henry E. Director President, $15,150/4/ $81,900/4/ 4
Riggs Keck Graduate
1263 North Institute of
Dartmouth Applied Life
Claremont, CA Sciences;
91711 former,
Age: 64 President and
Professor of
Engineering,
Harvey Mudd
College
+Walter P. Chairman Vice Chairman, None/5/ None/5/ 4
Stern of the Capital Group
630 Fifth Avenue Board International,
New York, NY Inc.;
10111 Chairman,
Age: 70 Capital
International,
Inc.;
Director,
Temple-Inland
Inc.
(forest
products).
Patricia K. Director Private $16,150 $109,217 6
Woolf investor;
506 Quaker Lecturer,
Road Department of
Princeton, NJ Molecular
08540 Biology,
Age: 64 Princeton
University
</TABLE>
+ Directors who are considered "interested persons" of the fund as defined in
the 1940 Act on the basis of their affiliation with the fund's Investment
Adviser, Capital Research and Management Company or the parent of the
Investment Adviser, The Capital Group Companies, Inc..
/1/ Amounts may be deferred by eligible directors under a non-qualified
deferred compensation plan adopted by the Fund in 1993. Deferred amounts
accumulate at an earnings rate determined by the total return of one or more
funds in The American Funds Group as designated by the Director.
/2/ Capital Research and Management Company manages The American Funds Group
consisting of 28 funds: AMCAP Fund, Inc, American Balanced Fund, Inc.,
American High-Income Municipal Bond Fund, Inc., American High-Income Trust,
American Mutual Fund, Inc., The Bond Fund of America, Inc., The Cash Management
Trust of America, Capital Income Builder, Inc., Capital World Growth and Income
Fund, Inc., Capital World Bond Fund, Inc., EuroPacific Growth Fund, Fundamental
Investors, Inc., The Growth Fund of America, Inc., The Income Fund of America,
Inc., Intermediate Bond Fund of America, The Investment Company of America,
Limited Term Tax-Exempt Bond Fund of America, The New Economy Fund, New
Perspective Fund, Inc., SMALLCAP World Fund, Inc., The Tax-Exempt Bond Fund of
America, Inc., The Tax-Exempt Fund of California, The Tax-Exempt Fund of
Maryland, The Tax-Exempt Fund of Virginia, The Tax-Exempt Money Fund of
America, The U. S. Treasury Money Fund of America, U.S. Government Securities
Fund and Washington Mutual Investors Fund, Inc. Capital Research and
Management Company also manages American Variable Insurance Series and Anchor
Pathway Fund which serve as the underlying investment vehicle for certain
variable insurance contracts; and Endowments whose shareholders are limited to
(i) any entity exempt from taxation under Section 501(c)(3) of the Internal
Revenue Code of 1986, as amended ("501(c)(3) organization"); (ii) any trust,
the present or future beneficiary of which is a 501(c)(3) organization, and
(iii) any other entity formed for the primary purpose of benefiting a 501(c)(3)
organization. An affiliate of Capital Research and Management Company, Capital
International, Inc., manages Emerging Markets Growth Fund, Inc.
/3/ Includes funds managed by Capital Research and Management Company and
affiliates.
/4/ Since the deferred compensation plan's adoption, the total amounts of
deferred compensation accrued by the fund (plus earnings thereon) as of the
fiscal year ended December 31, 1998 for participating Directors are as follows:
Robert A. Fox ($141,230), Leonade D. Jones ($50,498), John G. McDonald
($75,799) and Henry E. Riggs ($85,286). Amounts deferred and accumulated
earnings thereon are not funded and are general unsecured liabilities of the
fund until paid to the Director.
/5/ Robert G. O'Donnell, James W. Ratzlaff and Walter P. Stern are affiliated
with the Investment Adviser and, accordingly, receive no compensation from the
fund.
OFFICERS
<TABLE>
<CAPTION>
NAME AND ADDRESS AGE POSITION(S) PRINCIPAL
HELD WITH OCCUPATION(S) DURING
REGISTRANT PAST 5 YEARS
(POSITIONS WITHIN THE
ORGANIZATIONS LISTED
MAY HAVE CHANGED
DURING THIS PERIOD)
<S> <C> <C> <C>
Walter P. Stern
(see above)
Robert G. O'Donnell
(see above)
Abner D. Goldstine 69 Senior Vice Senior Vice President
11100 Santa Monica President and Director, Capital
Blvd. Research and
Los Angeles, CA Management Company
90025
Paul G. Haaga, Jr. 50 Senior Vice Executive Vice
333 South Hope President President and
Street Director, Capital
Los Angeles, CA Research and
90071 Management Company;
Director, American
Funds Service Company;
Director, American
Funds Distributors,
Inc.
J. Dale Harvey 33 Vice Vice President,
333 South Hope President Capital Research
Street Company
Los Angeles, CA
90071
Eric S. Richter 38 Vice Senior Vice President
3000 K Street, N.W., President and Director, Capital
Suite 230 Research Company
Washington, D.C.
20007
Patrick F. Quan 40 Secretary Vice President, Fund
P.O. Box 7650 Business Management
San Francisco, CA Group, Capital
94120 Research and
Management Company
Anthony W. Hynes, 36 Treasurer Vice President - Fund
Jr. Business Management
135 South State Group, Capital
College Blvd. Research and
Brea, CA 92821 Management Company
R. Marcia Gould 44 Assistant Vice President, Fund
135 South State Treasurer Business Management
College Blvd. Group, Capital
Brea, CA 92821 Research and
Management Company
</TABLE>
All of the directors and officers, except for Messrs. Harvey and Richter,
are also officers and/or directors and/or trustees of one or more of the other
funds for which Capital Research and Management Company serves as Investment
Adviser. No compensation is paid by the fund to any officer or director who is
a director, officer or employee of the Investment Adviser or affiliated
companies. The fund pays fees of $10,000 per annum to directors who are not
affiliated with the Investment Adviser, plus $1,000 for each Board of Directors
meeting attended, plus $500 for each meeting attended as a member of a
committee of the Board of Directors. In lieu of meeting attendance fees,
members of the Proxy Committee receive an annual retainer fee of $4,000 per
annum from the fund if they serve as a member of four proxy committees, or
$5,500 if they serve as a member of two proxy committees, meeting jointly. No
pension or retirement benefits are accrued as part of fund expenses. The
directors may elect, on a voluntary basis, to defer all or a portion of their
fees through a deferred compensation plan in effect for the fund. As of
December 31, 1998 the officers and directors of the fund and their families, as
a group, owned beneficially or of record less than 1% of the outstanding
shares.
MANAGEMENT
INVESTMENT ADVISER - The Investment Adviser, founded in 1931, maintains
research facilities in the U.S. and abroad (Los Angeles, San Francisco, New
York, Washington D.C., London, Geneva, Singapore, Hong Kong and Tokyo), with a
staff of professionals, many of whom have a number of years of investment
experience. The Investment Adviser is located at 333 South Hope Street, Los
Angeles, CA 90071, and at 135 South College Boulevard, Brea, CA 92821. The
Investment Adviser's research professionals travel several million miles a
year, making more than 5,000 research visits in more than 50 countries around
the world. The Investment Adviser believes that it is able to attract and
retain quality personnel.
An affiliate of the Investment Adviser compiles indices for major stock markets
around the world and compiles and edits the Morgan Stanley Capital
International Perspective, providing financial and market information about
more than 2,400 companies around the world.
The Investment Adviser is responsible for managing more than $200 billion of
stocks, bonds and money market instruments and serves over eight million
investors of all types. These investors include privately owned businesses and
large corporations as well as schools, colleges, foundations and other
non-profit and tax-exempt organizations.
INVESTMENT ADVISORY AND SERVICE AGREEMENT - The Investment Advisory and Service
Agreement (the Agreement) between the fund and the Investment Adviser, dated
July 1, 1993, and approved by the shareholders on June 22, 1993, was amended by
the Board of Directors effective on November 1, 1997. Its renewal was approved
by the unanimous vote of the Board of Directors of the fund on December 9,
1998. The Agreement will be in effect until the close of business on December
31, 1999 and may be renewed from year to year thereafter, provided that any
such renewal has been specifically approved at least annually by (i) the Board
of Directors of the fund, or by the vote of a majority (as defined in the 1940
Act) of the outstanding voting securities of the fund, and (ii) the vote of a
majority of directors who are not parties to the Agreement or interested
persons (as defined in said Act) of any such party, cast in person, at a
meeting called for the purpose of voting on such approval. The Agreement also
provides that either party has the right to terminate it without penalty, upon
60 days' written notice to the other party, and that the Advisory Agreement
automatically terminates in the event of its assignment (as defined in said
Act).
The Investment Adviser, in addition to providing investment advisory services,
furnishes the services and pays the compensation and travel expenses of persons
to perform the executive, administrative, clerical and bookkeeping functions of
the fund, and provides suitable office space, necessary small office equipment
and utilities, general purpose accounting forms, supplies, and postage used at
the offices of the fund relating to the services furnished by the Investment
Adviser. The fund pays all expenses not specifically assumed by the Investment
Adviser, including, but not limited to, custodian, stock transfer and dividend
disbursing fees and expenses; costs of the designing, printing and mailing of
reports, prospectuses, proxy statements, and notices to its shareholders;
taxes; expenses of the issuance and redemption of shares of the fund (including
stock certificates, registration and qualification fees and expenses); expenses
pursuant to the fund's Plan of Distribution (described below); legal and
auditing expenses; compensation, fees, and expenses paid to directors
unaffiliated with the Investment Adviser; association dues; and costs of
stationery and forms prepared exclusively for the fund.
The Investment Adviser receives a management fee at the annual rate of 0.42% on
the first $500 million of the fund's average net assets, 0.324% of such assets
over $500 million to $1 billion, 0.30% of such assets over $1 billion to $1.5
billion, 0.282% of such assets over $1.5 billion to $2.5 billion, 0.27% of such
assets over $2.5 billion to $4 billion, 0.262% of such assets over $4 billion
to $6.5 billion, 0.255% of such assets over $6.5 billion to $10.5 billion, and
0.25% of such assets over $10.5 billion.
The Agreement provides for an advisory fee reduction to the extent that the
fund's annual ordinary operating expenses exceed 1-1/2% of the first $30
million of the average net assets of the fund and 1% of the average net assets
in excess thereof. Expenses which are not subject to this limitation are
interest, taxes, and extraordinary expenses. Expenditures, including costs
incurred in connection with the purchase or sale of portfolio securities, which
are capitalized in accordance with generally accepted accounting principles
applicable to investment companies, are accounted for as capital items and not
as expenses.
During the years ended December 31, 1998, 1997 and 1996, the Investment Adviser
received from the fund advisory fees of $16,104,000, $13,618,000 and
$10,835,000, respectively.
PRINCIPAL UNDERWRITER - American Funds Distributors, Inc. (the Principal
Underwriter) is the principal underwriter of the fund's shares. The Principal
Underwriter is located at 333 South Hope Street, Los Angeles, CA 90071, 135
South State College Boulevard, Brea, CA 92821, 3500 Wiseman Boulevard, San
Antonio, TX 78251, 8332 Woodfield Crossing Boulevard, Indianapolis, IN 46240,
and 5300 Robin Hood Road, Norfolk, VA 23513. The fund has adopted a Plan of
Distribution (the Plan), pursuant to rule 12b-1 under the 1940 Act. The
Principal Underwriter receives amounts payable pursuant to the Plan (described
below) and commissions consisting of that portion of the sales charge remaining
after the discounts which it allows to investment dealers. Commissions
retained by the Principal Underwriter on sales of fund shares during the year
ended December 31, 1998 amounted to $3,369,000 after allowance of $16,308,000
to dealers. During the years ended December 31, 1997 and 1996 the Principal
Underwriter retained $2,659,000 and $2,545,000, after allowance of $13,062,000
and $12,512,000 to dealers, respectively.
As required by rule 12b-1 and the 1940 Act, the Plan (together with the
Principal Underwriting Agreement) has been approved by the Board of Directors,
and separately by a majority of the directors who are not interested persons of
the fund and who have no direct or indirect financial interest in the operation
of the Plan or the Principal Underwriting Agreement, and the Plan has been
approved by the vote of a majority of the outstanding voting securities of the
fund. The officers and directors who are "interested" persons of the fund may
be considered to have a direct or indirect financial interest in the operation
of the Plan due to present or past affiliations with the Investment Adviser and
related companies. Potential benefits of the plan to the fund include improved
shareholder services, savings to the fund in transfer agency costs, savings to
the fund in advisory fees and other expenses, benefits to the investment
process from growth or stability of assets and maintenance of a financially
healthy management organization. The selection and nomination of directors who
are not "interested persons" of the fund are committed to the discretion of the
directors who are not interested persons during the existence of the Plan. The
Plan is reviewed quarterly and must be renewed annually by the Board of
Directors.
Under the Plan the fund may expend up to 0.25% of its net assets annually to
finance any activity which is primarily intended to result in the sale of fund
shares, provided the fund's Board of Directors has approved the category of
expenses for which payment is being made. These include service fees for
qualified dealers and dealer commissions and wholesaler compensation on sales
of shares exceeding $1 million (including purchases by any employer-sponsored
403(b) plan, any defined contribution plan qualified under Section 401(a) of
the Internal Revenue Code including a "401(k)" plan with 100 or more eligible
employees, or a community foundation).
Commissions on sales of shares exceeding $1 million (including purchases by any
employer-sponsored 403(b) plan or purchases by any defined contribution plan
qualified under Section 401(a) of the Internal Revenue Code, including any
"401(k)" plan with 100 or more eligible employees) in excess of the Plan
limitation not reimbursed during the most recent fiscal quarter are recoverable
for five quarters, provided that such commissions do not exceed the annual
expense limit. After five quarters, commissions are not recoverable. During
the fiscal year ended December 31, 1998, the fund paid or accrued $13,816,000
for compensation to dealers under the Plan.
The Glass-Steagall Act and other applicable laws, among other things, generally
prohibit commercial banks from engaging in the business of underwriting,
selling or distributing securities, but permit banks to make shares of mutual
funds available to their customers and to perform administrative and
shareholder servicing functions. However, judicial or administrative decisions
or interpretations of such laws, as well as changes in either federal or state
statutes or regulations relating to the permissible activities of banks or
their subsidiaries of affiliates, could prevent a bank from continuing to
perform all or a part of its servicing activities. If a bank were prohibited
from so acting, shareholder clients of such bank would be permitted to remain
shareholders of the fund and alternate means for continuing the servicing of
such shareholders would be sought. In such event, changes in the operation of
the fund might occur and shareholders serviced by such bank may no longer be
able to avail themselves of any automatic investment or other services then
being provided by such bank. It is not expected that shareholders would suffer
adverse financial consequences as a result of any of these occurrences.
In addition, state securities laws on this issue may differ from the
interpretations of federal law expressed herein and certain banks and financial
institutions may be required to be registered as dealers pursuant to state law.
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES
The fund intends to meet all the requirements, and has elected the tax status,
of a "regulated investment company" under the provisions of Subchapter M of the
Internal Revenue Code of 1986, as amended, (the Code). Under Subchapter M, if
the fund distributes within specified times at least 90% of its investment
company taxable income, it will be taxed only on that portion of such
investment company taxable income that it retains.
To qualify, the fund must (a) derive at least 90% of its gross income from
dividends, interest, certain payments with respect to securities loans, and
gains from the sale or other disposition of stock, securities, currencies or
other income derived with respect to its business of investing in such stock,
securities or currencies; and (b) diversify its holdings so that, at the end of
each fiscal quarter, (i) at least 50% of the market value of the fund's assets
is represented by cash, cash items, U.S. Government securities, securities of
other regulated investment companies, and other securities (but such other
securities must be limited, in respect of any one issuer, to an amount not
greater than 5% of the fund's assets and 10% of the outstanding voting
securities of such issuer), and (ii) not more than 25% of the value of its
assets is invested in the securities of any one issuer (other than U.S.
Government securities or the securities of other regulated investment
companies), or in two or more issuers which the fund controls and which are
engaged in the same or similar trades or businesses or related trades or
businesses.
Under the Code, a nondeductible excise tax of 4% is imposed on the excess of a
regulated investment company's "required distribution" for the calendar year
ending within the regulated investment company's taxable year over the
"distributed amount" for such calendar year. The term "required distribution"
means the sum of (i) 98% of ordinary income (generally net investment income)
for the calendar year, (ii) 98% of capital gains (both long-term and
short-term) for the one-year period ending on October 31 (as though the
one-year period ending on October 31 were the regulated investment company's
taxable year), and (iii) the sum of any untaxed, undistributed net investment
income and net capital gains of the regulated investment company for prior
periods. The term "distributed amount" generally means the sum of (i) amounts
actually distributed by the fund from its current year's ordinary income and
capital gain net income and (ii) any amount on which the fund pays income tax
for the year. The fund intends to distribute net investment income and net
capital gains so as to minimize or avoid the excise tax liability.
The fund also intends to continue distributing to shareholders all of the
excess of net long-term capital gain over net short-term capital loss on sales
of securities. If the net asset value of shares of the fund should, by reason
of a distribution of realized capital gains, be reduced below a shareholder's
cost, such distribution would to that extent be a return of capital to that
shareholder even though taxable to the shareholder, and a sale of shares by a
shareholder at net asset value at that time would establish a capital loss for
federal tax purposes.
Dividends generally are taxable to shareholders at the time they are paid.
However, dividends declared in October, November and December and made payable
to shareholders of record in such a month are treated as paid and are thereby
taxable as of December 31, provided that the fund pays the dividend no later
than the end of January of the following year.
Corporate shareholders of the fund may be eligible for the dividends-received
deduction on the dividends (excluding the net capital gain distributions) paid
by the fund to the extent that the fund's income is derived from dividends
(which, if received directly, would qualify for such deduction) received from
domestic corporations. In order to qualify for the dividends-received
deduction, a corporate shareholder must hold the fund shares paying the
dividends upon which the deduction is based for at least 46 days.
If a shareholder exchanges or otherwise disposes of shares of the fund within
90 days of having acquired such shares, and if, as a result of having acquired
those shares, the shareholder subsequently pays a reduced sales charge for
shares of the fund, or of a different fund, the sales charge previously
incurred in acquiring the fund's shares will not be taken into account (to the
extent such previous sales charges do not exceed the reduction in sales
charges) for the purpose of determining the amount of gain or loss on the
exchange, but will be treated as having been incurred in the acquisition of
such other shares. Also, any loss realized on a redemption or exchange of
shares of a fund will be disallowed to the extent substantially identical
shares are re-acquired within the 61-day period beginning 30 days before and
ending 30 days after the shares are disposed of.
The fund may be required to pay withholding and other taxes imposed by foreign
countries generally at rates from 10% to 40% which would reduce the fund's
investment income. Tax conventions between certain countries and the United
States may reduce or eliminate such taxes. Not more than 50% of the total
assets of the fund is expected to consist of securities of foreign issuers.
Therefore, the fund will not be eligible to elect to "pass through" foreign tax
credits to shareholders and, to the extent the fund does pay foreign
withholding or other foreign taxes on investments in foreign securities,
shareholders will not be able to deduct their pro rata shares of such taxes in
computing their taxable income and will not be able to take their shares of
such taxes as a credit against their U.S. income taxes.
Under the Code, distributions of net investment income by the fund to a
shareholder who, as to the U.S., is a nonresident alien individual, nonresident
alien fiduciary of a trust or estate, foreign corporation or foreign
partnership (a foreign shareholder) will be subject to U.S. withholding tax (at
a rate of 30% or lower treaty rate). Withholding will not apply if a dividend
paid by the fund to a foreign shareholder is "effectively connected" with a
U.S. trade or business, in which case the reporting and withholding
requirements applicable to U.S. citizens, U.S. residents, or domestic
corporations will apply. Distributions of net long-term capital gains not
effectively connected with a U.S. trade or business are not subject to tax
withholding, but in the case of a foreign shareholder who is a nonresident
alien individual, such distributions ordinarily will be subject to U.S. income
tax at a rate of 30% if the individual is physically present in the U.S. for
more than 182 days during the taxable year.
As of the date of this statement of additional information, the maximum federal
individual stated tax rate applicable to ordinary income is 39.6% (effective
tax rates may be higher for some individuals due to phase out of exemptions and
elimination of deductions); the maximum individual tax rate generally
applicable to net capital gains on assets held more than one year is 20%, and
the maximum corporate tax applicable to ordinary income and net capital gains
is 35%. However, to eliminate the benefit of lower marginal corporate income
tax rates, corporations which have taxable income in excess of $100,000 for a
taxable year will be required to pay an additional amount of tax of up to
$11,750 and corporations which have taxable income in excess of $15,000,000 for
a taxable year will be required to pay an additional amount of tax of up to
$100,000. Naturally, the amount of tax payable by a shareholder with respect
to either distributions from the fund or disposition of fund shares will be
affected by a combination of tax law rules covering, E.G., deductions, credits,
deferrals, exemptions, sources of income and other matters. Under the Code, an
individual is entitled to establish an Individual Retirement Account ("IRA")
each year (prior to the tax return filing deadline for the year) whereby
earnings on investments are tax-deferred. In addition, in some cases, the IRA
contribution itself may be deductible.
The foregoing is limited to a summary of federal taxation and should not be
viewed as a comprehensive discussion of all provisions of the Code relevant to
investors. Dividends and capital gain distributions may also be subject to
state or local taxes. Investors are urged to consult their tax advisers with
specific reference to their own tax situations.
PURCHASE OF SHARES
<TABLE>
<CAPTION>
METHOD INITIAL INVESTMENT ADDITIONAL INVESTMENTS
<S> <C> <C>
See "Investment $50 minimum (except where a
Minimums and lower minimum is noted
Fund Numbers" for under "Investment
initial investment Minimums and Fund
minimums. Numbers").
By Visit any investment Mail directly to your
contacting dealer who is investment dealer's address
your registered in the printed on your account
investment state where the statement.
dealer purchase is made and
who has a sales
agreement with
American Funds
Distributors.
By mail Make your check Fill out the account
payable to the fund additions form at the
and mail to the bottom of a recent account
address indicated on statement, make your check
the account payable to the fund, write
application. Please your account number on your
indicate an check, and mail the check
investment dealer on and form in the envelope
the account provided with your account
application. statement.
By Please contact your Complete the "Investments
telephone investment dealer to by Phone" section on the
open account, then account application or
follow the American FundsLink
procedures for Authorization Form.
additional Once you establish the
investments. privilege, you, your
financial advisor or any
person with your
account information can
call American
FundsLine(r) and make
investments by
telephone (subject to
conditions noted in
"Telephone and Computer
Purchases, Sales and
Exchanges" in the
prospectus).
By computer Please contact your Complete the American
investment dealer to FundsLink Authorization
open account, then Form. Once you establish
follow the the privilege, you, your
procedures for financial advisor or any
additional person with your account
investments. information may access
American FundsLine
OnLine(r) on the Internet
and make investments by
computer (subject to
conditions noted in
"Telephone and Computer
Purchases, Redemptions and
Exchanges" below).
By wire Call 800/421-0180 to Your bank should wire your
obtain your account additional investments in
number(s), if the same manner as
necessary. Please described under "Initial
indicate an Investment."
investment dealer on
the account.
Instruct your bank
to wire funds to:
Wells Fargo Bank
155 Fifth Street
Sixth Floor
San Francisco, CA
94106
(ABA #121000248)
For credit to the
account of:
American Funds
Service Company
a/c #4600-076178
(fund name)
(your fund acct.
no.)
THE FUNDS AND AMERICAN FUNDS DISTRIBUTORS RESERVE THE RIGHT TO
REJECT ANY PURCHASE ORDER.
</TABLE>
INVESTMENT MINIMUMS AND FUND NUMBERS - Here are the minimum initial investments
required by the funds in The American Funds Group along with fund numbers for
use with our automated phone line, American FundsLine(r) (see description
below):
<TABLE>
<CAPTION>
FUND MINIMUM FUND
INITIAL NUMBER
INVESTMENT
<S> <C> <C>
STOCK AND STOCK/BOND FUNDS
AMCAP Fund(r) $1,000 02
American Balanced Fund(r) 500 11
American Mutual Fund(r) 250 03
Capital Income Builder(r) 1,000 12
Capital World Growth and Income 1,000 33
Fund(sm)
EuroPacific Growth Fund(r) 250 16
Fundamental Investors(sm) 250 10
The Growth Fund of America(r) 1,000 05
The Income Fund of America(r) 1,000 06
The Investment Company of America(r) 250 04
The New Economy Fund(r) 1,000 14
New Perspective Fund(r) 250 07
SMALLCAP World Fund(r) 1,000 35
Washington Mutual Investors Fund(sm) 250 01
BOND FUNDS
American High-Income Municipal Bond 1,000 40
Fund(r)
American High-Income Trust(sm) 1,000 21
The Bond Fund of America(sm) 1,000 08
Capital World Bond Fund(r) 1,000 31
Intermediate Bond Fund of 1,000 23
America(sm)
Limited Term Tax-Exempt Bond Fund of 1,000 43
America(sm)
The Tax-Exempt Bond Fund of 1,000 19
America(r)
The Tax-Exempt Fund of 1,000 20
California(r)*
The Tax-Exempt Fund of Maryland(r)* 1,000 24
The Tax-Exempt Fund of Virginia(r)* 1,000 25
U.S. Government Securities Fund(sm) 1,000 22
MONEY MARKET FUNDS
The Cash Management Trust of 2,500 09
America(r)
The Tax-Exempt Money Fund of 2,500 39
America(sm)
The U.S. Treasury Money Fund of 2,500 49
America(sm)
___________
*Available only in certain states.
</TABLE>
For retirement plan investments, the minimum is $250, except that the money
market funds have a minimum of $1,000 for individual retirement accounts
(IRAs). Minimums are reduced to $50 for purchases through "Automatic
Investment Plans" (except for the money market funds) or to $25 for purchases
by retirement plans through payroll deductions and may be reduced or waived for
shareholders of other funds in The American Funds Group. TAX-EXEMPT FUNDS
SHOULD NOT SERVE AS RETIREMENT PLAN INVESTMENTS. The minimum is $50 for
additional investments (except as noted above).
DEALER COMMISSIONS - The sales charges you pay when purchasing the stock,
stock/bond, and bond funds of The American Funds Group are set forth below.
The money market funds of The American Funds Group are offered at net asset
value. (See "Investment Minimums and Fund Numbers" for a listing of the
funds.)
<TABLE>
<CAPTION>
AMOUNT OF PURCHASE SALES CHARGE AS DEALER
AT THE OFFERING PRICE PERCENTAGE OF THE: CONCESSION
AS PERCENTAGE
OF THE
OFFERING
PRICE
NET AMOUNT OFFERING
INVESTED PRICE
<S> <C> <C> <C>
STOCK AND STOCK/BOND
FUNDS
Less than $50,000 6.10% 5.75% 5.00%
$50,000 but less than 4.71 4.50 3.75
$100,000
BOND FUNDS
Less than $25,000 4.99 4.75 4.00
$25,000 but less than 4.71 4.50 3.75
$50,000
$50,000 but less than 4.17 4.00 3.25
$100,000
STOCK, STOCK/BOND, AND
BOND FUNDS
$100,000 but less than 3.63 3.50 2.75
$250,000
$250,000 but less than 2.56 2.50 2.00
$500,000
$500,000 but less than 2.04 2.00 1.60
$1,000,000
$1,000,000 or more none none (see below)
</TABLE>
PURCHASES NOT SUBJECT TO SALES CHARGES - Investments of $1 million or more and
investments made by employer-sponsored defined contribution-type plans with 100
or more eligible employees are sold with no initial sales charge. A contingent
deferred sales charge may be imposed on certain redemptions by these accounts
made within one year of purchase. Investments by retirement plans, foundations
or endowments with $50 million or more in assets may be made with no sales
charge and are not subject to a contingent deferred sales charge.
In addition, the stock, stock/bond and bond funds may sell shares at net asset
value to:
(1) current or retired directors, trustees, officers and advisory board members
of the funds managed by Capital Research and Management Company, employees of
Washington Management Corporation, employees and partners of The Capital Group
Companies, Inc. and its affiliated companies, certain family members of the
above persons, and trusts or plans primarily for such persons;
(2) current registered representatives, retired registered representatives with
respect to accounts established while active, or full-time employees (and their
spouses, parents, and children) of dealers who have sales agreements with
American Funds Distributors (or who clear transactions through such dealers)
and plans for such persons or the dealers;
(3) companies exchanging securities with the fund through a merger, acquisition
or exchange offer;
(4) trustees or other fiduciaries purchasing shares for certain retirement
plans of organizations with retirement plan assets of $50 million or more;
(5) insurance company separate accounts;
(6) accounts managed by subsidiaries of The Capital Group Companies, Inc.; and
(7) The Capital Group Companies, Inc., its affiliated companies and Washington
Management Corporation. Shares are offered at net asset value to these persons
and organizations due to anticipated economies in sales effort and expense.
DEALER COMMISSIONS - Commissions of up to 1% will be paid to dealers who
initiate and are responsible for purchases of $1 million or more, for purchases
by any employer-sponsored 403(b) plan or purchases by any defined contribution
plan qualified under Section 401(a) of the Internal Revenue Code including a
"401(k)" plan with 100 or more eligible employees, and for purchases made at
net asset value by certain retirement plans of organizations with collective
retirement plan assets of $50 million or more: 1.00% on amounts of $1 million
to $2 million, 0.80% on amounts over $2 million to $3 million, 0.50% on amounts
over $3 million to $50 million, 0.25% on amounts over $50 million to $100
million, and 0.15% on amounts over $100 million. The level of dealer
commissions will be determined based on sales made over a 12-month period
commencing from the date of the first sale at net asset value.
OTHER COMPENSATION TO DEALERS - American Funds Distributors, at its expense
(from a designated percentage of its income), currently provides additional
compensation to dealers. Currently these payments are limited to the top one
hundred dealers who have sold shares of the fund or other funds in The American
Funds Group. These payments will be based on a pro rata share of a qualifying
dealer's sales. American Funds Distributors will, on an annual basis, determine
the advisability of continuing these payments.
Qualified dealers currently are paid a continuing service fee not to exceed
0.25% of average net assets (0.15% in the case of the money market funds)
annually in order to promote selling efforts and to compensate them for
providing certain services. These services include processing purchase and
redemption transactions, establishing shareholder accounts and providing
certain information and assistance with respect to the fund.
REDUCING YOUR SALES CHARGE - You and your immediate family may combine
investments to reduce your costs. You must let your investment dealer or
American Funds Service Company know if you qualify for a reduction in your
sales charge using one or any combination of the methods described below.
STATEMENT OF INTENTION - You may enter into a non-binding commitment to
purchase shares of a fund(s) over a 13-month period and receive the same sales
charge as if all shares had been purchased at once. This includes purchases
made during the previous 90 days, but does not include appreciation of your
investment or reinvested distributions. The reduced sales charges and offering
prices set forth in the Prospectus apply to purchases of $50,000 or more made
within a 13-month period subject to the following statement of intention (the
Statement) terms. The Statement is not a binding obligation to purchase the
indicated amount. When a shareholder elects to use the Statement in order to
qualify for a reduced sales charge, shares equal to 5% of the dollar amount
specified in the Statement will be held in escrow in the shareholder's account
out of the initial purchase (or subsequent purchases, if necessary) by American
Funds Service Company (the "Transfer Agent"). All dividends and any capital
gain distributions on shares held in escrow will be credited to the
shareholder's account in shares (or paid in cash, if requested). If the
intended investment is not completed within the specified 13-month period, the
purchaser will remit to the Principal Underwriter the difference between the
sales charge actually paid and the sales charge which would have been paid if
the total of such purchases had been made at a single time. If the difference
is not paid within 45 days after written request by the Principal Underwriter
or the securities dealer, the appropriate number of shares held in escrow will
be redeemed to pay such difference. If the proceeds from this redemption are
inadequate, the purchaser will be liable to the Principal Underwriter for the
balance still outstanding. The Statement may be revised upward at any time
during the 13-month period, and such a revision will be treated as a new
Statement, except that the 13-month period during which the purchase must be
made will remain unchanged and there will be no retroactive reduction of the
sales charges paid on prior purchases. Existing holdings eligible for rights
of accumulation (see the prospectus and account application) may be credited
toward satisfying the Statement. During the Statement period reinvested
dividends and capital gain distributions, investments in money market funds,
and investments made under a right of reinstatement will not be credited toward
satisfying the Statement.
When the trustees of certain retirement plans purchase shares by payroll
deduction, the sales charge for the investments made during the 13-month period
will be handled as follows: The regular monthly payroll deduction investment
will be multiplied by 13 and then multiplied by 1.5. The current value of
existing American Funds investments (other than money market fund investments)
and any rollovers or transfers reasonably anticipated to be invested in
non-money market American Funds during the 13-month period are added to the
figure determined above. The sum is the Statement amount and applicable
breakpoint level. On the first investment and all other investments made
pursuant to the Statement, a sales charge will be assessed according to the
sales charge breakpoint thus determined. There will be no retroactive
adjustments in sales charges on investments previously made during the 13-month
period.
Shareholders purchasing shares at a reduced sales charge under a Statement
indicate their acceptance of these terms with their first purchase.
AGGREGATION - Sales charge discounts are available for certain aggregated
investments. Qualifying investments include those by you, your spouse and your
children under the age of 21, if all parties are purchasing shares for their
own account(s), which may include purchases through employee benefit plan(s)
such as an IRA, individual-type 403(b) plan or single-participant Keogh-type
plan or by a business solely controlled by these individuals (for example, the
individuals own the entire business) or by a trust (or other fiduciary
arrangement) solely for the benefit of these individuals. Individual purchases
by a trustee(s) or other fiduciary(ies) may also be aggregated if the
investments are (1) for a single trust estate or fiduciary account, including
an employee benefit plan other than those described above or (2) made for two
or more employee benefit plans of a single employer or of affiliated employers
as defined in the Investment Company Act of 1940, again excluding employee
benefit plans described above, or (3) for a diversified common trust fund or
other diversified pooled account not specifically formed for the purpose of
accumulating fund shares. Purchases made for nominee or street name accounts
(securities held in the name of an investment dealer or another nominee such as
a bank trust department instead of the customer) may not be aggregated with
those made for other accounts and may not be aggregated with other nominee or
street name accounts unless otherwise qualified as described above.
CONCURRENT PURCHASES - You may combine purchases of two or more funds in The
American Funds Group, except direct purchases of the money market funds.
Shares of money market funds purchased through an exchange, reinvestment or
cross-reinvestment from a fund having a sales charge do qualify.
RIGHT OF ACCUMULATION - You may take into account the current value of your
existing holdings in The American Funds Group, as well as your holdings in
Endowments (shares of which may be owned only by tax-exempt organizations), to
determine your sales charge on investments in accounts eligible to be
aggregated, or when making a gift to an individual or charity. Direct
purchases of the money market funds are excluded.
PRICE OF SHARES - Shares are purchased at the offering price next determined
after the purchase order is received by the fund or the Transfer Agent; this
offering price is effective for orders received prior to the time of
determination of the net asset value and, in the case of orders placed with
dealers, accepted by the Principal Underwriter prior to its close of business.
In case of orders sent directly to the fund or the Transfer Agent, an
investment dealer MUST be indicated. The dealer is responsible for promptly
transmitting purchase orders to the Principal Underwriter. Orders received by
the investment dealer, the Transfer Agent, or the fund after the time of
determination of the net asset value will be entered at the next calculated
offering price. Prices which appear in the newspaper do not always indicate
the prices at which you will be purchasing and redeeming shares of the fund,
since such prices generally reflect the previous day's closing price whereas
purchases and redemptions are made at the next calculated price.
The price you pay for shares, the offering price, is based on the net asset
value per share which is calculated once daily at 4:00 p.m., New York time each
day the New York Stock Exchange is open. For example, if the Exchange closes
at 1:00 p.m. on one day and 4:00 p.m. on the next, the fund's share price would
be determined as of 4:00 p.m. New York time on both days. The New York Stock
Exchange is currently closed on weekends and on the following holidays: New
Year's Day, Martin Luther King Jr. Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving and Christmas Day.
All portfolio securities of funds managed by the Investment Adviser (other than
money market funds) are valued, and the net asset value per share is
determined, as follows:
1. Equity securities, including depositary receipts, are valued at the last
reported sale price on the exchange or market on which such securities are
traded, as of the close of business on the day the securities are being valued
or, lacking any sales, at the last available bid price. In cases where equity
securities are traded on more than one exchange, the securities are valued on
the exchange or market determined by the Investment Adviser to be the broadest
and most representative market, which may be either a securities exchange or
the over-the-counter market. Fixed-income securities are valued at prices
obtained from a pricing service, when such prices are available; however, in
circumstances where the Investment Adviser deems it appropriate to do so, such
securities will be valued at the mean quoted bid and asked prices or at prices
for securities of comparable maturity, quality and type.
Securities with original maturities of one year or less having 60 days or less
to maturity are amortized to maturity based on their cost if acquired within 60
days of maturity or, if already held on the 60th day, based on the value
determined on the 61st day. Forward currency contracts are valued at the mean
of representative quoted bid and asked prices.
Assets or liabilities initially expressed in terms of non-U.S. currencies
are translated prior to the next determination of the net asset value of the
fund's shares into U.S. dollars at the prevailing market rates.
Securities and assets for which representative market quotations are not
readily available are valued at fair value as determined in good faith under
policies approved by the fund's Board; the fair value of all other assets is
added to the value of securities at the total assets;
2. Liabilities, including accruals of taxes and other expense items, are
deducted from total assets; and
3. Net assets so obtained are then divided by the total number of shares
outstanding, and the result, rounded to the nearer cent, is the net asset value
per share.
SELLING SHARES
Shares are sold at the net asset value next determined after your request is
received in good order by American Funds Service Company. You may sell
(redeem) shares in your account in any of the following ways:
THROUGH YOUR DEALER (certain charges may apply)
- - Shares held for you in your dealer's street name must be sold through the
dealer.
WRITING TO AMERICAN FUNDS SERVICE COMPANY
- - Requests must be signed by the registered shareholder(s)
- - A signature guarantee is required if the redemption is:
-- Over $50,000;
-- Made payable to someone other than the registered shareholder(s); or
-- Sent to an address other than the address of record, or an address of
record which has been changed within the last 10 days.
Your signature may be guaranteed by a domestic stock exchange or the National
Association of Securities Dealers, Inc., bank, savings association or credit
union that is an eligible guarantor institution.
- - Additional documentation may be required for sales of shares held in
corporate, partnership or fiduciary accounts.
- - You must include any shares you wish to sell that are in certificate form.
TELEPHONING OR FAXING AMERICAN FUNDS SERVICE COMPANY, OR BY USING AMERICAN
FUNDSLINE(R) OR AMERICAN FUNDSLINE ONLINE(r)
- - Redemptions by telephone or fax (including American FundsLine and American
FundsLine OnLine) are limited to $50,000 per shareholder each day.
- - Checks must be made payable to the registered shareholder(s).
- - Checks must be mailed to an address of record that has been used with the
account for at least 10 days.
MONEY MARKET FUNDS
- - You may have redemptions of $1,000 or more wired to your bank by writing
American Funds Service Company.
- - You may establish check writing privileges (use the money market funds
application)
-- If you request check writing privileges, you will be provided with checks
that you may use to draw against your account. These checks may be made
payable to anyone you designate and must be signed by the authorized number or
registered shareholders exactly as indicated on your checking account signature
card.
Redemption proceeds will not be mailed until sufficient time has passed to
provide reasonable assurance that checks or drafts (including certified or
cashier's checks) for shares purchased have cleared (which may take up to 15
calendar days from the purchase date). Except for delays relating to clearance
of checks for share purchases or in extraordinary circumstances (and as
permissible under the Investment Company Act of 1940), sale proceeds will be
paid on or before the seventh day following receipt and acceptance of an order.
Interest will not accrue or be paid on amounts that represent uncashed
distribution or redemption checks.
The fund may, with 60 days' written notice, close your account if due to a sale
of shares the account has a value of less than the minimum required initial
investment.
You may reinvest proceeds from a redemption or a dividend or capital gain
distribution without a sales charge (any contingent deferred sales charge paid
will be credited to your account) in any fund in The American Funds Group
within 90 days after the date of the redemption or distribution. Redemption
proceeds of shares representing direct purchases in the money market funds are
excluded. Proceeds will be reinvested at the next calculated net asset value
after your request is received and accepted by American Funds Service Company.
CONTINGENT DEFERRED SALES CHARGE -- A contingent deferred sales charge of 1%
applies to certain redemptions from funds other than the money market funds
made within twelve months of purchase on investments of $1 million or more
(other than redemptions by employer-sponsored retirement plans). The charge is
1% of the lesser of the value of the shares redeemed (exclusive of reinvested
dividends and capital gain distributions) or the total cost of such shares.
Shares held for the longest period are assumed to be redeemed first for
purposes of calculating this charge. The charge is waived for exchanges
(except if shares acquired by exchange were then redeemed within 12 months of
the initial purchase); for distributions from 403(b) plans or IRAs due to
death, disability or attainment of age 591/2; for tax-free returns of excess
contributions to IRAs; and, for redemptions through certain automatic
withdrawals not exceeding 10% of the amount that would otherwise be subject to
the charge.
REDEMPTION OF SHARES - The fund's Articles of Incorporation permits the fund to
direct the Transfer Agent to redeem the shares of any shareholder for their
then current net asset value per share if at such time the shareholder owns of
record shares having an aggregate net asset value of less than the minimum
initial investment amount required of new shareholders as set forth in the
fund's current registration statement under the 1940 Act, and subject to such
further terms and conditions as the Board of Directors of the fund may from
time to time adopt.
SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES
AUTOMATIC INVESTMENT PLAN - The automatic investment plan enables shareholders
to make regular monthly or quarterly investments in shares through automatic
charges to their bank accounts. With shareholder authorization and bank
approval, the Transfer Agent will automatically charge the bank account for the
amount specified ($50 minimum), which will be automatically invested in shares
at the offering price on or about the dates you select. Bank accounts will be
charged on the day or a few days before investments are credited, depending on
the bank's capabilities, and shareholders will receive a confirmation statement
at least quarterly. Participation in the plan will begin within 30 days after
receipt of the account application. If the shareholder's bank account cannot
be charged due to insufficient funds, a stop-payment order or the closing of
the account, the plan may be terminated and the related investment reversed.
The shareholder may change the amount of the investment or discontinue the plan
at any time by writing to the Transfer Agent.
AUTOMATIC REINVESTMENT - Dividends and capital gain distributions are
reinvested in additional shares at no sales charge unless you indicate
otherwise on the account application. You also may elect to have dividends
and/or capital gain distributions paid in cash by informing the fund, the
Transfer Agent or your investment dealer.
CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS - You may cross-reinvest
dividends and capital gains ("distributions") into any other fund in The
American Funds Group at net asset value, subject to the following conditions:
a) The aggregate value of your account(s) in the fund(s) paying distributions
equals or exceeds $5000 (this is waived if the value of the account in the fund
receiving the distributions equals or exceeds that fund's minimum initial
investment requirement),
b) If the value of the account of the fund receiving distributions is below the
minimum initial investment requirement, distributions must be automatically
reinvested,
c) If you discontinue the cross-reinvestment of distributions, the value of the
account of the fund receiving distribution must equal or exceed the minimum
initial investment requirement. If you do not meet this requirement within 90
days of notification, the fund has the right to automatically redeem the
account.
EXCHANGE PRIVILEGE - You may exchange shares into other funds in The American
Funds Group. Exchange purchases are subject to the minimum investment
requirements of the fund purchased and no sales charge generally applies.
However, exchanges of shares from the money market funds are subject to
applicable sales charges on the fund being purchased, unless the money market
fund shares were acquired by an exchange from a fund having a sales charge, or
by reinvestment or cross-reinvestment of dividends or capital gain
distributions.
You may exchange shares by writing to the Transfer Agent (see "Redeeming
Shares"), by contacting your investment dealer, by using American FundsLine or
American FundsLine OnLine (see "American FundsLine and American FundsLine
OnLine" below), or by telephoning 800/421-0180 toll-free, faxing (see
"Principal Underwriter and Transfer Agent" in the prospectus for the
appropriate fax numbers) or telegraphing the Transfer Agent. (See "Telephone
and Computer Purchases, Redemptions and Exchanges" below.) Shares held in
corporate-type retirement plans for which Capital Guardian Trust Company serves
as trustee may not be exchanged by telephone, computer, fax or telegraph.
Exchange redemptions and purchases are processed simultaneously at the share
prices next determined after the exchange order is received. (See "Purchase of
Shares--Price of Shares.") THESE TRANSACTIONS HAVE THE SAME TAX CONSEQUENCES AS
ORDINARY SALES AND PURCHASES.
AUTOMATIC EXCHANGES - You may automatically exchange shares (in amounts of $50
or more) among any of the funds in The American Funds Group on any day (or
preceding business day if the day falls on a non-business day) of each month
you designate. You must either (a) meet the minimum initial investment
requirement for the receiving fund, or (b) the originating fund's balance must
be at least $5,000 and the receiving fund's minimum must be met within one
year.
AUTOMATIC WITHDRAWALS - Withdrawal payments are not to be considered as
dividends, yield or income. Automatic investments may not be made into a
shareholder account from which there are automatic withdrawals. Withdrawals of
amounts exceeding reinvested dividends and distributions and increases in share
value would reduce the aggregate value of the shareholder's account. The
Transfer Agent arranges for the redemption by the fund of sufficient shares,
deposited by the shareholder with the Transfer Agent, to provide the withdrawal
payment specified.
ACCOUNT STATEMENTS - Your account is opened in accordance with your
registration instructions. Transactions in the account, such as additional
investments will be reflected on regular confirmation statements from the
Transfer Agent. Dividend and capital gain reinvestments and purchases through
automatic investment plans and certain retirement plans will be confirmed at
least quarterly.
AMERICAN FUNDSLINE AND AMERICAN FUNDSLINE ONLINE - You may check your share
balance, the price of your shares, or your most recent account transaction,
redeem shares (up to $50,000 per shareholder each day), or exchange shares
around the clock with American FundsLine or American FundsLine OnLine. To use
this service, call 800/325-3590 from a TouchTone(tm) telephone or access the
American Funds Web site on the Internet at www.americanfunds.com. Redemptions
and exchanges through American FundsLine and American FundsLine OnLine are
subject to the conditions noted above and in "Shareholder Account Services and
Privileges -- Telephone and Computer Purchases, Redemptions and Exchanges"
below. You will need your fund number (see the list of funds in The American
Funds Group under "Purchase of Shares--Investment Minimums and Fund Numbers"),
personal identification number (the last four digits of your Social Security
number or other tax identification number associated with your account) and
account number.
TELEPHONE AND COMPUTER PURCHASES, REDEMPTIONS AND EXCHANGES -- By using the
telephone (including American FundsLine) or computer (including American
FundsLine OnLine), fax or telegraph purchase, redemption and/or exchange
options, you agree to hold the fund, the Transfer Agent, any of its affiliates
or mutual funds managed by such affiliates, and each of their respective
directors, trustees, officers, employees and agents harmless from any losses,
expenses, costs or liability (including attorney fees) which may be incurred in
connection with the exercise of these privileges. Generally, all shareholders
are automatically eligible to use these options. However, you may elect to opt
out of these options by writing the Transfer Agent (you may also reinstate them
at any time by writing the Transfer Agent). If the Transfer Agent does not
employ reasonable procedures to confirm that the instructions received from any
person with appropriate account information are genuine, the fund may be liable
for losses due to unauthorized or fraudulent instructions. In the event that
shareholders are unable to reach the fund by telephone because of technical
difficulties, market conditions, or a natural disaster, redemption and exchange
requests may be made in writing only.
SHARE CERTIFICATES - Shares are credited to your account and certificates are
not issued unless you request them by writing to American Funds Service
Company.
REDEMPTION OF SHARES - The fund's Articles of Incorporation permits the fund to
direct the Transfer Agent to redeem the shares of any shareholder for their
then current net asset value per share if at such time the shareholder owns of
record shares having an aggregate net asset value of less than the minimum
initial investment amount required of new shareholders as set forth in the
fund's current registration statement under the 1940 Act, and subject to such
further terms and conditions as the Board of Directors of the fund may from
time to time adopt.
EXECUTION OF PORTFOLIO TRANSACTIONS
The Investment Adviser places orders for the fund's portfolio securities
transactions. The Investment Adviser strives to obtain the best available
prices in its portfolio transactions taking into account the costs and
promptness of executions. When circumstances relating to a proposed
transaction indicate that a particular broker (either directly or through its
correspondent clearing agent) is in a position to obtain the best price and
execution, the order is placed with that broker. This may or may not be a
broker who has provided investment research, statistical, or other related
services to the Investment Adviser or has sold shares of the fund or other
funds served by the Investment Adviser. The fund does not have an obligation
to obtain the lowest available commission rate to the exclusion of price,
service and qualitative considerations.
Portfolio transactions for the fund may be executed as part of concurrent
authorizations to purchase or sell the same security for other funds served by
the Investment Adviser, or for trusts or other accounts served by affiliated
companies of the Investment Adviser. Although such concurrent authorizations
potentially could be either advantageous or disadvantageous to the fund, they
are effected only when the Investment Adviser believes that to do so is in the
interest of the fund. When such concurrent authorizations occur, the objective
is to allocate the executions in an equitable manner. The fund will not pay a
mark-up for research in principal transactions.
Brokerage commissions paid on portfolio transactions, including dealer
concessions on underwritings, during the years ended December 31, 1998, 1997
and 1996 amounted to $3,250,000, $2,239,000 and $3,205,000, respectively.
GENERAL INFORMATION
CUSTODIAN OF ASSETS - Securities and cash owned by the fund, including proceeds
from the sale of shares of the fund and of securities in the fund's portfolio,
are held by The Chase Manhattan Bank, One Chase Manhattan Plaza, New York, NY
10081, as Custodian. The Custodian may hold non-U.S. securities pursuant to
sub-custodial arrangements in non-U.S. banks or foreign branches of U.S. banks.
TRANSFER AGENT - American Funds Service Company, a wholly owned subsidiary of
the Investment Adviser, maintains the record of each shareholder's account,
processes purchases and redemptions of the fund's shares, acts as dividend and
capital gain distribution disbursing agent, and performs other related
shareholder service functions. American Funds Service Company was paid a fee
of $3,440,000 for the fiscal year ended December 31, 1998.
INDEPENDENT AUDITORS - Deloitte & Touche LLP located at 1000 Wilshire
Boulevard, Los Angeles, CA 90017, serves as the fund's independent auditors
providing audit services, preparing tax returns and reviewing certain documents
of the fund to be filed with the Securities and Exchange Commission. The
financial statements included in this Statement of Additional Information from
the Annual Report have been so included in reliance on the report of Deloitte &
Touche LLP given on the authority of said firm as experts in accounting and
auditing.
REPORTS TO SHAREHOLDERS - The fund's fiscal year ends on December 31. It
provides shareholders at least semi-annually with reports showing the
investment portfolio, financial statements and other information. The annual
financial statements are audited by the fund's independent auditors, Deloitte &
Touche LLP, whose selection is determined annually by the Board of Directors.
In an effort to reduce the volume of mail shareholders receive from the fund
when a household owns more than one account, the Transfer Agent has taken steps
to eliminate duplicate mailings of shareholder reports. To receive additional
copies of a report shareholders should contact the Transfer Agent.
YEAR 2000 - The fund and its shareholders depend on the proper functioning of
computer systems maintained by the Investment Adviser and its affiliates and
other key service providers. Many computer systems in use today will require
reprogramming or replacement prior to the year 2000 because of the way they
store dates and make date-related calculations. The fund understands that
these service providers are taking steps to address the "Year 2000 problem".
However, there can be no assurance that these steps will be sufficient to avoid
any adverse impact on the fund. In addition, the fund's investments could be
adversely affected by the Year 2000 problem. For example, the markets for
securities in which the fund invests could experience settlement problems and
liquidity issues. Corporate and governmental data processing errors may cause
losses for individual companies and overall economic uncertainties. Earnings of
individual issuers are likely to be affected by the costs of addressing the
problem, which may be substantial and may be reported inconsistently.
PERSONAL INVESTING POLICY - The Investment Adviser and its affiliated companies
have adopted a personal investing policy consistent with Investment Company
Institute guidelines. This policy includes: a ban on acquisitions of
securities pursuant to an initial public offering; restrictions on acquisitions
of private placement securities; pre-clearance and reporting requirements;
review of duplicate confirmation statements; annual recertification of
compliance with codes of ethics; blackout periods on personal investing for
certain investment personnel; ban on short-term trading profits for investment
personnel; limitations on service as a director of publicly traded companies;
and disclosure of personal securities transactions.
The financial statements including the investment portfolio and the report of
Independent Auditors contained in the Annual Report are included in this
Statement of Additional Information. The following information is not included
in the Annual Report:
<TABLE>
<CAPTION>
DETERMINATION OF NET ASSET VALUE, REDEMPTION PRICE AND
MAXIMUM OFFERING PRICE PER SHARE--DECEMBER 31, 1998
<S> <C>
Net asset value and redemption price per share $15.76
(Net assets divided by shares outstanding)
Maximum offering price per share $16.72
(100/94.25 of net asset value per share which takes into
account the fund's current maximum sales charge.)
</TABLE>
REMOVAL OF DIRECTORS BY SHAREHOLDERS - At any meeting of shareholders, duly
called and at which a quorum is present, shareholders holding a majority of the
votes entitled to be cast, remove any director or directors from office and may
elect a successor or successors to fill any resulting vacancies for the
unexpired terms of removed directors. The fund has agreed, at the request of
the staff of the Securities and Exchange Commission, to apply the provisions of
section 16(c) of the 1940 Act with respect to the removal of directors as
though the fund were a common-law trust. Accordingly, the directors of the
fund will promptly call a meeting of shareholders for the purpose of voting
upon the removal of any director when requested in writing to do so by the
record holders of at least 10% of the outstanding shares.
INVESTMENT RESULTS AND RELATED STATISTICS
The fund's yield is 3.32% based on a 30-day (or one month) period ended
December 31, 1998, computed by dividing the net investment income per share
earned during the period by the maximum offering price per share on the last
day of the period, according to the following formula:
YIELD = 2[(a-b/cd+1)/6/-1]
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the period that
were entitled to receive dividends.
d = the maximum offering price per share on the last day of the period.
The fund's average annual total returns for the one, five and ten-year
periods ended on December 31, 1998 were +4.72%, +12.84% and +12.77%,
respectively. The average annual total return (T) is computed by using the
value at the end of the period (ERV) of a hypothetical initial investment of
$1,000 (P) over a period of years (n) according to the following formula as
required by the Securities and Exchange Commission: P(1+T)/n/ = ERV.
In calculating average annual total return, the fund assumes: (1) deduction of
the maximum sales load of 5.75% from the $1,000 initial investment; (2)
reinvestment of dividends and distributions at net asset value on the
reinvestment date determined by the Board; and (3) a complete redemption at the
end of any period illustrated.
The fund may also, at times, calculate total return based on net asset value
per share (rather than the offering price), in which case the figure would not
reflect the effect of any sales charges which would have been paid if shares
were purchased during the period reflected in the computation. Total return
calculated in this manner will be higher. These total returns may be
calculated over periods in addition to those described above. Total return for
unmanaged indices will be calculated assuming reinvestment of dividends and
interest, but will not reflect any deductions for advisory fees, brokerage
costs or administrative expenses. The fund's average annual total return at
net asset value for the one-, five- and ten-year periods ended on December 31,
1998 was +11.13%, +14.19% and +13.44%, respectively.
The fund may also calculate a distribution rate on a taxable and tax equivalent
basis. The distribution rate is computed by dividing the dividends paid by the
fund over the last 12 months by the sum of the month-end net asset value or
maximum offering price and the capital gains paid over the last 12 months. The
distribution rate may differ from the yield.
The fund may include, in advertisements or in reports furnished to present or
prospective shareholders, information on its investment results and/or
comparisons of its investment results to various unmanaged indices (such as The
Dow Jones Average of 30 Industrial Stocks, The Standard & Poor's 500 Stock
Composite Index, the Lehman Brothers Corporate Bond Index, the Lehman Brothers
Aggregate Bond Index and the Salomon Brothers High-Grade Corporate Bond Index)
or results of other mutual funds or investment or savings vehicles. The fund
may also, from time to time, combine its results with those of other funds in
The American Funds Group for purposes of illustrating investment strategies
involving multiple funds. For educational purposes, fund literature may
contain discussions and/or illustrations of volatility, risk tolerance, asset
allocation and investment strategies.
The fund may refer to results and surveys compiled by organizations such as CDA
Investment Services, Ibbotson Associates, Lipper Analytical Services and
Morningstar, Inc. and by the U.S. Department of Commerce. Additionally, the
fund may refer to results published in various newspapers and periodicals,
including Barrons, Forbes, Fortune, Institutional Investor, Kiplinger's
Personal Finance Magazine, Money, U.S. News and World Report and The Wall
Street Journal.
The fund may illustrate the benefits of tax-deferral by comparing taxable
investments to investments made through tax-deferred retirement plans.
The fund may compare its investment results with the Consumer Price Index,
which is a measure of the average change in prices over time in a fixed market
basket of goods and services (E.G. food, clothing, fuels, transportation, and
other goods and services that people buy for day-to-day living).
The investment results for AMBAL set forth below were calculated as described
above. Data contained in Salomon's Market Performance and Lehman Brothers' The
Bond Market Report are used to calculate cumulative total return from their
base period (12/31/68 and 12/31/72, respectively) for each index. The
percentage increases shown in the table below or used in published reports of
the fund are obtained by subtracting the index results at the beginning of the
period from the index results at the end of the period and dividing the
difference by the index results at the beginning of the period.
AMBAL vs. Various Unmanaged Indices
<TABLE>
<CAPTION>
10-Year AMBAL DJIA/1/ S&P 500 Lehman Lehman Salomon Average
Period /2/ Brothers Brothers High-Grade/5/ Savings
1/1 - Corporate Aggregate Account
12/31 /3/ /4/ /6/
<S> <C> <C> <C> <C> <C> <C> <C>
1989 - +232% +460% +477% +156% +142% +180% +60%
1998
1988 - +238 +452 +424 +158 +14 % +180 +63
1997
1987 - +190 +366 +314 +140 +125 +147 +65
1996
1986 - +200 +360 +299 +171 +151 +192 +70
1995
1985 - +205 +349 +282 +175 +158 +199 +76
1994
1984 - +232 +333 +301 +233 +207 +271 +87
1993
1983 - +246 +367 +346 +225 +203 +248 +98
1992
1982 - +309 +452 +404 +316 +274 +353 +111
1991
1981 - +243 +328 +267 +261 +242 +274 +121
1990
1980 - +298 +426 +402 +236 +223 +240 +124
1989
1979 - +252 +340 +352 +189 +187 +180 +124
1988
1978 - +232 +289 +313 +165 +170 +153 +124
1987
1977 - +221 +221 +264 +167 +171 +158 +125
1986
1976 - +246 +211 +281 +173 +171 +155 +123
1985
1975#- +275 +143 +198 +134 N/A +108 +113
1984
</TABLE>
________________
# Since July 26, 1975, the period in which Capital Research and Management
Company has been the fund's adviser.
/1/ The Dow Jones Average of 30 Industrial Stocks is comprised of 30 industrial
companies such as General Motors and General Electric.
/2/ The Standard & Poor's 500 Stock Composite Index is comprised of industrial,
transportation, public utilities, and financial stocks and represents a large
portion of the value of issues traded on the New York Stock Exchange. Selected
issues traded on the American Stock Exchange are also included.
/3/ The Lehman Brothers Corporate Bond Index is comprised of all public, fixed
rate, non-convertible investment grade domestic corporate debt. Issues
included in this index are rated at least Baa by Moody's Investors Service, BBB
by Standard & Poor's Corporation or, in the case of bank bonds not rated by
either of the previously mentioned services, BBB by Fitch Investors Service.
/4/ The Lehman Brothers Aggregate Bond Index covers all sectors of the fixed
income market and is a combination of the Lehman Brothers Treasury Bond Index,
the Agency Bond Index, the Corporate Bond Index, the Yankee Bond Index and the
Mortgage Backed Securities Index.
/5/ The Salomon Brothers High-Grade Corporate Bond Index is comprised of a
sample of high-grade corporate bonds which have a rating of AAA or AA by
Standard & Poor's Corporation.
/6/ Based on figures supplied by the U.S. League of Savings Institutions and
the Federal Reserve Board which reflect all kinds of savings deposits,
including longer-term certificates. Savings accounts offer a guaranteed return
of principal, but no opportunity for capital growth. During a portion of the
period, the maximum rates paid on some savings deposits were fixed by law.
<TABLE>
<CAPTION>
If you are considering the fund for an
Individual Retirement Account. . .
Here's how much you would have if you had invested $2,000 on
January 1 of each year in AMBAL over the past 5 and 10 years:
<S> <C>
5 years 10 years
(1/1/94-12/31/98) (1/1/89-12/31/98)
$14,807 $41,016
</TABLE>
SEE THE DIFFERENCE TIME CAN MAKE IN AN INVESTMENT PROGRAM
<TABLE>
<CAPTION>
<S> <C> <C>
If you had . . . and had taken
invested $10,000 all dividends and
in AMBAL this many capital gain
years ago distributions
in shares, your
investment would
have been worth
this much at
12/31/98
| |
Number Periods Value
of Years 1/1 - 12/31
1 1998 $10,472
2 1997-1998 12,676
3 1996-1998 14,350
4 1995-1998 18,242
5 1994-1998 18,296
6 1993-1998 20,362
7 1992-1998 22,285
8 1991-1998 27,797
9 1990-1998 27,353
10 1989-1998 33,248
11 1988-1998 37,528
12 1987-1998 39,046
13 1986-1998 45,633
14 1985-1998 58,935
15 1984-1998 64,408
16 1983-1998 74,844
17 1982-1998 96,825
18 1981-1998 101,059
19 1980-1998 115,523
20 1979-1998 124,357
21 1978-1998 132,031
22 1977-1998 133,004
23 1976-1998 167,477
24 1975#-1998 176,846
</TABLE>
__________________
# Since July 26, 1975, the period in which Capital Research and Management
Company has been the fund's adviser.
Illustration of a $10,000 investment in AMBAL with
dividends reinvested and capital gain distributions taken in shares
(for the period under CRMC management: July 26, 1975 - December 31, 1998)
<TABLE>
<CAPTION>
COST OF SHARES VALUE OF SHARES
Year Annual Dividends Total From Initial From From Total
Ended Dividends (cumulative) Investment Investment Capital Dividends Value
Dec. 31 Cost Gains Reinvested
Reinvested
<S> <C> <C> <C> <C> <C> <C> <C>
1975# $ 305 $ 305 $10,305 $ 9,629 - $ 319 $ 9,948
1976 594 899 10,899 11,513 - 1,020 12,533
1977 656 1,555 11,555 10,990 - 1,630 12,620
1978 709 2,264 12,264 11,059 - 2,345 13,404
1979 801 3,065 13,065 11,252 - 3,175 14,427
1980 1,050 4,115 14,115 12,008 - 4,490 16,498
1981 1,303 5,418 15,418 11,609 - 5,615 17,224
1982 1,474 6,892 16,892 13,865 - 8,415 22,280
1983 1,724 8,616 18,616 15,007 - 10,862 25,869
1984 1,852 10,468 20,468 13,838 $2,484 11,969 28,291
1985 1,912 12,380 22,380 16,025 4,520 15,982 36,527
1986 2,202 14,582 24,582 14,897 10,863 16,930 42,690
1987 2,710 17,292 27,292 13,934 12,167 18,305 44,406
1988 2,780 20,072 30,072 14,388 14,035 21,700 50,123
1989 3,284 23,356 33,356 15,695 18,227 26,993 60,915
1990 3,457 26,813 36,813 14,195 17,968 27,796 59,959
1991 3,684 30,497 40,497 16,575 21,807 36,383 74,765
1992 3,816 34,313 44,313 16,891 23,986 40,976 81,853
1993 4,072 38,385 48,385 17,290 27,761 46,029 91,080
1994 4,131 42,516 52,516 16,506 26,866 48,014 91,386
1995 4,335 46,851 56,851 19,464 35,427 61,288 116,179
1996 4,684 51,535 61,535 20,014 43,703 67,758 131,475
1997 5,167 56,702 66,702 21,568 59,333 78,230 159,131
1998 5,781 62,483 72,483 21,678 70,784 84,384 176,846
</TABLE>
The dollar amount of capital gain distributions during the period was
$58,400.
# Since July 26, 1975, the period in which Capital Research and Management
Company has been the Fund's adviser.
EXPERIENCE OF INVESTMENT ADVISER - The Investment Adviser manages nine
growth and growth-income funds that are at least 10 years old. In the rolling
10-year periods since January 1, 1969 (138 in all), those funds have had better
total returns than their comparable Lipper indexes in 128 of 138 periods.
Note that past results are not an indication of future investment results.
Also, the fund has different investment policies than the funds mentioned
above. These results are included solely for the purpose of informing
investors about the experience and history of the Investment Adviser.
<TABLE>
AMERICAN BALANCED FUND
INVESTMENT PORTFOLIO DECEMBER 31, 1998
<S> <C> <C> <C>
Percent of
Ten Largest Equity Holdings Net Assets
- -------------------------------------------- ---------
Hewlett-Packard 1.92%
American Stores 1.26
York International 1.18
Ameritech 1.13
Phillips Petroleum 1.05
Genuine Parts 1.02
Eaton 1.02
Philip Morris 1.00
Amoco .98
IBM .94
Investment Mix by Security Type
- --------------------------------------------
Common Stocks 58%
Convertible Debentures and Preferred Stock 1%
Corporate Bonds 13%
Government Bonds 18%
Short-Term Securities & Cash Equivalents 10%
Market Percent
Number of Value of Net
Common Stocks Shares (000) Assets
- -------------------------------------------- --------- --------- ---------
ENERGY
Energy Sources - 5.05%
Amoco Corp. 950,000 57,356 .98
Ashland Inc. 450,000 21,769 .37
Atlantic Richfield Co. 300,000 19,575 .33
Kerr-McGee Corp. 500,000 19,125 .33
Murphy Oil Corp. 1,067,400 44,030 .75
Phillips Petroleum Co. 1,450,000 61,806 1.05
Ultramar Diamond Shamrock Corp. 1,800,000 43,650 .74
Valero Energy Corp. 1,400,000 29,750 .50
Utilities: Electric & Gas - 2.54%
Baltimore Gas and Electric Co. 1,200,000 37,050 .63
Central and South West Corp. 1,600,000 43,900 .75
Duke Energy Corp. 550,000 35,235 .60
FPL Group, Inc. 400,000 24,650 .42
Scottish and Southern Energy PLC (formerly Southern Electric PLC) 750,000 8,485 .14
--------- ---------
446,381 7.59
--------- ---------
MATERIALS
Chemicals - 4.37%
Air Products and Chemicals, Inc. 700,000 28,000 .48
Dow Chemical Co. 250,000 22,734 .39
E.I. du Pont de Nemours and Co. 100,000 5,306 .09
Mallinckrodt Inc. 1,150,000 35,434 .60
Millennium Chemicals Inc. 1,700,000 33,788 .57
Monsanto Co. 900,000 42,750 .73
Morton International, Inc. 2,100,000 51,450 .87
Praxair, Inc. 600,000 21,150 .36
Witco Corp. 1,050,000 16,734 .28
Forest Products & Paper - 3.80%
Georgia-Pacific Corp., Georgia-Pacific Group 650,000 38,066 .65
Georgia-Pacific Corp., Timber Group 700,000 16,669 .28
International Paper Co. 650,000 29,128 .50
Louisiana-Pacific Corp. 1,086,000 19,887 .34
Sonoco Products Co. 1,000,000 29,625 .50
Union Camp Corp. 650,000 43,875 .75
Weyerhaeuser Co. 900,000 45,731 .78
Metals: Nonferrous - 0.76%
Aluminum Co. of America 600,000 44,738 .76
Metals: Steel - 0.31%
Allegheny Teledyne Inc. 900,000 18,394 .31
Miscellaneous Materials & Commodities - 0.31%
Crown Cork & Seal Co., Inc. 600,000 18,488 .31
--------- ---------
561,947 9.55
--------- ---------
CAPITAL EQUIPMENT
Aerospace & Military Technology - 0.67%
Boeing Co. 450,000 14,681 .25
United Technologies Corp. 226,700 24,654 .42
Data Processing & Reproduction - 2.86%
Hewlett-Packard Co. 1,650,000 112,716 1.92
International Business Machines Corp. 300,000 55,425 .94
Electrical & Electronic - 1.79%
Nokia Corp., Class A (ADR) 300,000 36,131 .61
York International Corp. 1,700,000 69,381 1.18
Electronic Components - 1.16%
AMP Inc. 697,800 36,329 .62
Corning Inc. 700,000 31,500 .54
Energy Equipment - 0.94%
Schlumberger Ltd. 1,200,000 55,350 .94
Industrial Components - 2.39%
Dana Corp. 500,000 20,438 .35
Eaton Corp. 850,000 60,084 1.02
Genuine Parts Co. 1,800,000 60,188 1.02
Machinery & Engineering - 1.25%
Caterpillar Inc. 700,000 32,200 .55
Deere & Co. 1,250,000 41,406 .70
--------- ---------
650,483 11.06
--------- ---------
CONSUMER GOODS
Automobiles - 1.15%
DaimlerChrysler AG (New York Registered Shares) (formerly Chrysler Corp.) (1) 280,575 26,953 .46
Nissan Motor Co., Ltd. 6,000,000 18,270 .31
Suzuki Motor Corp. 1,900,000 22,406 .38
Beverages & Tobacco - 3.82%
Anheuser-Busch Companies, Inc. 600,000 39,375 .67
Imperial Tobacco Ltd. 3,500,000 36,576 .62
Philip Morris Companies Inc. 1,100,000 58,850 1.00
RJR Nabisco Holdings Corp. 1,500,000 44,531 .76
UST Inc. 1,295,000 45,163 .77
Food & Household Products - 0.95%
General Mills, Inc. 500,000 38,875 .66
Sara Lee Corp. 600,000 16,913 .29
Health & Personal Care - 2.20%
Astra AB, Class A (ADR) 2,000,000 41,375 .70
Eli Lilly and Co. 200,000 17,775 .30
Pfizer Inc 200,000 25,088 .43
Warner-Lambert Co. 600,000 45,112 .77
Recreation & Other Consumer Products- 0.53%
Pennzoil-Quaker State Co. (formerly Pennzoil Co.) (1) 1,055,527 15,635 .27
Stanley Works 550,000 15,263 .26
Textiles & Apparel - 0.58%
NIKE, Inc., Class B 850,000 34,478 .58
--------- ---------
542,638 9.23
--------- ---------
SERVICES
Broadcasting & Publishing - 0.89%
Gannett Co., Inc. 787,900 52,149 .89
Business & Public Services - 2.32%
Browning-Ferris Industries, Inc. 700,000 19,906 .34
Electronic Data Systems Corp. 900,000 45,225 .77
First Data Corp. 700,000 22,181 .38
IKON Office Solutions, Inc. 3,200,000 27,400 .46
Waste Management, Inc. 475,000 22,147 .37
Merchandising - 3.41%
American Stores Co. 2,000,000 73,875 1.26
Circuit City Stores, Inc. - Circuit City Group 647,000 32,310 .55
J.C. Penney Co., Inc. 850,000 39,844 .68
May Department Stores Co. 900,000 54,337 .92
Telecommunications - 2.83%
Ameritech Corp. 1,050,000 66,544 1.13
AT&T Corp. 400,000 30,100 .51
GTE Corp. 750,000 50,578 .86
U S WEST, Inc. 300,000 19,387 .33
Transportation: Rail & Road - 0.92%
Norfolk Southern Corp. 1,700,000 53,869 .92
--------- ---------
609,852 10.37
--------- ---------
FINANCE
Banking - 2.46%
BankAmerica Corp. 890,000 53,511 .91
Bank of Tokyo-Mitsubishi, Ltd. (ADR) 1,300,000 13,650 .23
First Virginia Banks, Inc. 480,450 22,581 .38
Fleet Financial Group, Inc. 650,000 29,047 .49
Sakura Bank, Ltd. 3,000,000 6,838 .12
Washington Mutual, Inc. 500,000 19,094 .33
Financial Services - 0.91%
Household International, Inc. 1,350,000 53,494 .91
Insurance - 3.61%
Aetna Inc. 450,000 35,381 .60
Allstate Corp. 700,000 27,037 .46
American General Corp. 650,000 50,700 .86
Lincoln National Corp. 300,000 24,544 .42
Royal & Sun Alliance Insurance Group PLC 2,800,000 22,480 .38
St. Paul Companies, Inc. 1,500,000 52,125 .89
Real Estate - 1.38%
Apartment Investment and Management Co., Class A 550,000 20,453 .35
Equity Residential Properties Trust 600,000 24,263 .41
Spieker Properties, Inc. 1,050,000 36,356 .62
--------- ---------
491,554 8.36
--------- ---------
MISCELLANEOUS
Miscellaneous - 1.69%
Other common stocks in initial period of acquisition 99,737 1.69
--------- ---------
Total Common Stocks 3,402,592 57.85
--------- ---------
Shares or
Principal
Convertible Securities and Preferred Stock Amount
- -------------------------------------------- ---------
SERVICES
Transportation: Rail & Road - 0.02%
Union Pacific Capital Trust TIDES 6.25% convertible preferred (2) 30,000 1,373 .02
--------- ---------
FINANCE
Banking - 0.13%
NB Capital Corp. 8.35% exchangeable depositary shares 300,000 7,800 .13
Financial Services - 0.93%
Bell Atlantic Financial Services, Inc. 5.75% convertible debentures 2003 (2) $10,000,000 10,325 .18
Bell Atlantic Financial Services, Inc., 4.25% convertible debentures 2005 $8,000,000 8,200 .14
BNP U.S. Funding LLC, Series A, 7.738% noncumulative preferred (2) 14,000,000 13,444 .23
Fuji JGB Investment LLC, Series A, 9.87% noncumulative preferred (2) 6,500,000 4,649 .08
IBJ Preferred Capital Co. LLC, Series A, 8.79% noncumulative preferred (2) 3,150,000 2,763 .05
Tokai Preferred Capital Co. LLC, Series A, 9.98% noncumulative preferred (2) 17,425,000 14,811 .25
Real Estate - 0.21%
Prologis Trust (formerly Security Capital Industrial 500,000 12,313 .21
Trust), Series D, 7.92% preferred
--------- ---------
74,305 1.27
--------- ---------
MISCELLANEOUS
Multi-Industry - 0.11%
Swire Pacific Capital Ltd. 8.84% cumulative guaranteed 370,000 6,660 .11
perpetual capital securities (2)
--------- ---------
Miscellaneous - 0.14%
Other convertible securities and preferred stock in initial 8,364 .14
period of acquisition
--------- ---------
Total Convertible Securities and Preferred Stock 90,702 1.54
--------- ---------
Total Equity Securities 3,493,294 59.39
--------- ---------
Principal
Amount
Bonds and Notes (000)
- -------------------------------------------- ---------
Industrials - 3.89%
Cendant Corp. 7.75% 2003 6,000 6,064 .10
Columbia/HCA Healthcare Corp. 7.15% 2004 4,000 3,900 .07
Comcast Cable Communications, Inc. 8.375% 2007 5,250 6,091 .10
Deere & Co. 8.95% 2019 7,330 9,033 .15
Fort James Corp. 6.625% 2004 10,000 10,184 .17
Freeport-McMoRan Copper & Gold Inc. 7.50% 2006 4,000 2,540
Freeport-McMoRan Copper & Gold Inc. 7.20% 2026 12,500 8,125 .18
Hearst-Argyle Television, Inc. 7.00% 2018 7,500 7,467 .13
Hutchison Whampoa Finance (CI) Ltd., Series D, 6.988% 2037 (2) 10,000 9,186 .16
Hyundai Semiconductor America, Inc. 8.625% 2007 (2) 11,025 8,158 .14
Inco Ltd. 9.875% 2019 4,200 4,392
Inco Ltd. 9.60% 2022 5,000 5,579 .16
Joseph E. Seagram & Sons, Inc. 6.625% 2005 3,500 3,480
Joseph E. Seagram & Sons, Inc. 6.80% 2008 2,500 2,491
Joseph E. Seagram & Sons, Inc. 7.50% 2018 3,500 3,521 .16
May Department Stores Co. 9.875% 2021 6,500 7,308 .12
News America Holdings Inc. 10.125% 2012 2,000 2,325
News America Holdings Inc. 7.43% 2026 10,000 10,406 .22
OXYMAR 7.50% 2016 (2) 6,000 5,713 .10
Pan Pacific Industrial Investments PLC 0% 2007 (2) 25,000 9,850 .17
PDVSA Finance Ltd. 7.40% 2016 (2) 12,000 10,113 .17
Philip Morris Companies Inc. 7.50% 2004 15,000 16,208 .28
Philips Electronics NV 7.20% 2026 7,500 8,031 .14
Pioneer Natural Resources Co. 7.20% 2028 5,000 3,483 .06
Reliance Industries Ltd. 10.50% 2046 1,500 1,185
Reliance Industries Ltd., Series B, 10.25% 2097 5,000 3,750 .08
Royal Caribbean Cruises Ltd. 7.00% 2007 17,000 17,024 .29
Samsung Electronics Co., Ltd. 7.45% 2002 (2) 2,000 1,780 .03
Scotia Pacific Co. LLC, Timber Collateralized Notes, 6,750 6,626
Class A-1, 6.55% 2028 (2)
Scotia Pacific Co. LLC, Timber Collateralized Notes, 3,750 3,333 .17
Class A-3, 7.71% 2028 (2)
TCI Communications, Inc. 8.75% 2015 4,000 4,969
Tele-Communications, Inc. 8.75% 2023 3,000 3,345 .14
Time Warner Inc. 9.125% 2013 3,000 3,798
Time Warner Inc. 7.25% 2017 5,000 5,436
Time Warner Inc. 6.85% 2026 4,825 4,981 .23
Wharf International Finance Ltd., Series A, 7.625% 2007 11,500 9,226 .17
--------- ---------
229,101 3.89
--------- ---------
Electrical Utilities - 0.56%
Commonwealth Edison Co. 9.875% 2020 11,000 13,205 .23
Israel Electric Corp. Ltd. 7.125% 2005 (2) 7,500 7,538
Israel Electric Corp. Ltd. 7.75% 2027 (2) 7,500 7,265 .25
Transener SA 9.25% 2008 (2) 3,050 2,653 .05
United Utilities 6.875% 2028 2,000 1,971 .03
--------- ---------
32,632 .56
--------- ---------
Gas Utilities - 0.04%
Energen Corp., Series B, 7.125% 2028 2,500 2,479 .04
--------- ---------
Telephone - 0.34%
Cable & Wireless Communications PLC 6.625% 2005 7,000 7,056
Cable & Wireless Communications PLC 6.75% 2008 5,000 5,086 .21
Sprint Capital Corp. 6.875% 2028 2,500 2,628 .04
U S WEST Capital Funding, Inc. 6.50% 2018 5,000 5,117 .09
--------- ---------
19,887 .34
--------- ---------
Transportation - 1.31%
Airplanes Pass Through Trust, pass-through certificates, 7,351 7,544 .13
Series 1, Class C, 8.15% 2019 (3)
Canadian National Railway Co. 6.45% 2036 (4) 2,000 2,057 .03
Continental Airlines, Inc., pass-through certificates, 3,000 3,018
Series 1998-3, Class C-2, 7.25% 2005 (3)
Continental Airlines, Inc., pass-through certificates, 5,000 5,033
Series 1998-3, Class A-2, 6.32% 2008 (3)
Continental Airlines, Inc., pass-through certificates, 1,898 2,087
Series 1996-2B, 8.56% 2014 (3)
Continental Airlines, Inc., pass-through certificates, 9,541 9,821
Series 1996-A, 6.94% 2015 (3)
Continental Airlines, Inc., pass-through certificates, 2,500 2,510 .38
Series 1997-4A, 6.90% 2018 (3)
Delta Air Lines, Inc., pass-through certificates, 1,500 1,662
Series 1992-A2, 9.20% 2014 (3)
Delta Air Lines, Inc., pass-through certificates, 5,000 6,320 .14
Series 1993-A2, 10.50% 2016 (3)
Jet Equipment Trust, Series 1995-B, Class B, 7.83% 2015 (2) 7,394 7,794
Jet Equipment Trust, Series 1995-A, Class B, 8.64% 2015 (2) 4,619 5,157 .22
United Air Lines, Inc. 10.67% 2004 5,000 5,916
United Air Lines, Inc., pass-through certificates, 5,965 6,677
Series 1995-A1, 9.02% 2012 (3)
United Air Lines, Inc., pass-through certificates, 4,000 4,525 .29
Series 1995-A2, 9.56% 2018 (3)
USAir, Inc., Class A, 6.76% 2009 6,967 6,898 .12
--------- ---------
77,019 1.31
--------- ---------
Financial - 2.46%
Abbey National PLC 6.70% (undated) 5,000 4,908 .08
Ahmanson Capital Trust I Capital Securities, Series A, 8.36% 2026 (2) 4,000 4,480 .08
AT&T Capital Corp. 6.60% 2005 10,000 9,581 .16
Bankers Trust New York Corp. 8.25% 2005 5,000 5,521
Bankers Trust New York Corp. 6.70% 2007 4,000 4,133 .16
Bank of Nova Scotia 5.813% Eurodollar Note (undated) (4) 4,000 3,080 .05
Bank of Scotland 7.00% 2049 4,225 4,217 .07
Barnett Capital I 8.06% 2026 4,000 4,494 .08
BHP Finance Ltd. 8.50% 2012 2,500 2,801 .05
Canadian Imperial Bank of Commerce 5.813% Eurodollar Note (undated) (4) 1,600 1,228 .02
Capital One Bank 6.375% 2003 6,000 5,880
Capital One Bank 7.15% 2006 10,000 10,052 .27
Chase Capital I, Capital Securities, Series A, 7.67% 2026 2,500 2,690
Chase Capital II, Global Floating Rate Capital Securities, 3,950 3,734 .11
Series B, 5.719% 2027 (4)
Den Norske CreditBank 5.50% (undated) (4) 3,000 2,130 .04
First Union Corp. 6.82%/7.57% 2026 (5) 4,500 4,985 .08
Fleet Capital Trust 6.226% 2028 (4) 3,500 3,465 .06
Fuji International Finance (Bermuda) Trust, Fuji Bank, Ltd. 8,000 5,280 .09
7.30% Eurodollar Note (undated) (4)
Household Finance Corp. 6.40% 2008 7,000 7,228 .12
HSBC America 7.808% 2026 (2) 2,500 2,395 .04
Lindsey Morden Group Inc., Series B, 7.00% 2008 8,000 5,138 .09
MBNA Corp., MBNA Capital A, Series A, 8.278% 2026 11,600 11,901 .20
Midland Bank 5.375% Eurodollar Note (undated) (4) 4,000 3,078 .05
National Westminster Bank PLC 7.75% (undated) 10,000 10,551 .18
Newcourt Credit Group Inc., Series A, 7.125% 2003 (2) 2,500 2,488 .04
Riggs National Corp. 8.875% 2027 (2) 2,000 2,104 .04
Spintab AB 7.50% (undated) (2) (4) 1,600 1,622 .03
Washington Mutual Capital I Subordinated Subordinated 4,050 4,442 .08
Capital Income Securities 8.375% 2027
Zurich Capital Trust I Capital Securities 8.376% 2037 (2) 10,000 11,178 .19
--------- ---------
144,784 2.46
--------- ---------
Real Estate - 0.83%
CarrAmerica Realty Corp. 6.875% 2008 5,000 4,763 .08
EOP Operating LP 6.625% 2005 4,500 4,411
EOP Operating LP 7.25% 2018 2,000 1,889 .11
ERP Operating LP 7.95% 2002 1,500 1,556 .03
Irvine Apartment Communities, LP 7.00% 2007 5,000 4,543 .08
Irvine Co. 7.46% 2006 (2) (6) 2,500 2,330 .04
ProLogis Trust 7.05% 2006 4,000 3,903
ProLogis Trust (formerly Security Capital Industrial Trust) 7.875% 2009 5,000 4,999 .15
Shopping Center Associates 6.75% 2004 (2) 5,000 4,941 .08
SocGen Real Estate Co. LLC, Series A, 7.64% 2049 (2) (5) 17,000 15,659 .26
--------- ---------
48,994 .83
--------- ---------
Collateralized Mortgage/Asset-Backed Obligations (3) - 3.68%
Asset-Backed Securities Investment Trust, Series 1997-D, 6.79% 2003 2,479 2,482 .04
Case Equipment Loan Trust, Series 1995-A, 7.30% 2002 811 812 .01
Chase Commercial Mortgage Securities Corp., pass-through certificates,
Series 1998-2, Class A-2, 6.39% 2030 6,000 6,179
Chase Commercial Mortgage Securities Corp., pass-through certificates,
Series 1998-2, Class E, 6.39% 2030 2,500 2,168 .15
Chase Manhattan Credit Card Master Trust, Series 1996-4, Class A, 6.73% 2003 7,000 7,028 .12
ComEd Transitional Funding Trust, Transitional Funding Trust
Notes, Series 1998, Class A-6, 5.63% 2009 7,500 7,445 .13
Commercial Mortgage Acceptance Corp., Series 1998-C1, Class A-1, 6.23% 2007 4,883 4,977 .09
CS First Boston Mortgage Securities Corp., Series 1998-C1, 3,385 3,454 .06
Class A-1A, 6.26% 2040
DLJ Mortgage Acceptance Corp., Series 1997-CF1, Class A1A, 7.40% 2006 (2) 2,714 2,846
DLJ Mortgage Acceptance Corp., Series 1996-CF2, Class A1B, 7.29% 2021 (2) 6,000 6,320
DLJ Mortgage Acceptance Corp., Series 1995-CF2, Class A1B, 6.85% 2027 (2) 6,000 6,191 .27
Deutsche Mortgage & Asset Receiving Corp., Series 1998-C1, 9,602 9,672 .16
Class A-1, 6.22% 2031
FIRSTPLUS Home Loan Owner Trust, Series 1997-1, Class A-6, 6.95% 2015 12,500 12,624 .21
GMAC Commercial Mortgage Securities, Inc., Series 1997-C1, 3,926 4,024
Class A1, 6.83% 2003
GMAC Commercial Mortgage Securities, Inc., Series 1997-C1, 5,000 5,297 .16
Class A3, 6.869% 2007
Green Tree Financial Corp., pass-through certificates, 10,000 10,125 .17
Series 1995-9, Class A-5, 6.80% 2027
Grupo Financiero Banamex Accival, SA de CV 0% 2002 (2) 3,593 3,181 .05
J.P. Morgan Commercial Mortgage Finance Corp., pass-through
certificates, Series 1996-C3, Class A-1, 7.33% 2028 4,593 4,804 .08
MBNA Master Credit Card Trust, Series 1998-E, Class C, 6.60% 2010 (2) 2,500 2,479 .04
Merrill Lynch Mortgage Investors, Inc., Seller Manufactured
Housing Contract, Series 1995-C2, Class A-1, 7.189% 2021 (4) 2,868 2,915
Merrill Lynch Mortgage Investors, Inc., Series 1995-C3, 7,000 7,295 .17
Class A-3, 7.062% 2025 (4)
Morgan Stanley Capital I Inc., Series 1998-WF1, Class A-1, 6.25% 2007 25,135 25,535
Morgan Stanley Capital I Inc., mortgage pass-through 4,958 4,958
certificates, Series 1998-1, 6.75% 2013
Morgan Stanley Capital I Inc., Series 1998-HF2, Class A-2, 6.48% 2030 10,000 10,381 .69
Nomura Asset Securities Corp., Series 1998-D6, Class A-A1, 6.28% 2030 (4) 14,244 14,389 .25
Norwest Asset Securities Corp., Series 1998-8, Class A-1, 6.50% 2013 4,608 4,622
Norwest Asset Securities Corp., Series 1998-31, Class A-1, 6.25% 2014 14,350 14,330 .32
PNC Mortgage Securities Corp., Series 1998-10, 6.50% 2028 (2) 5,990 5,828 .10
Sears Credit Account Master Trust II, Series 1998-2, Class A, 5.25% 2008 8,500 8,327 .14
Structured Asset Securities Corp., pass-through certificates,
Series 1998-RF2, Class A, 8.572% 2022 (2)(4) 12,020 12,908
Structured Asset Securities Corp., pass-through certificates,
Series 1996-CFL, Class A1C, 5.944% 2028 (4) 2,728 2,722 .27
--------- ---------
216,318 3.68
--------- ---------
Governments (excluding U.S. Government) and
Governmental Authorities - 0.09%
Canadian Government 4.25% 2026 (7) 7,847 5,219 .09
--------- ---------
Federal Agency Obligations - Mortgage Pass-Throughs (3) - 2.20%
Fannie Mae 6.00%-12.00% 2008-2028 127,347 130,015 2.21
Freddie Mac 7.50%-10.00% 2008-2024 12,786 13,555 .23
Government National Mortgage Assn:
7.00%-11.00% 2009-2026 103,058 106,807
6.875%-7.00% 2022-2023 (4) 8,953 9,098 1.97
--------- ---------
259,475 4.41
--------- ---------
Federal Agenncy Obligations - Other - 0.09%
Fannie Mae, Series 1997-28, Class C, 7.00% 2027 5,000 5,002 .09
--------- ---------
U.S. Treasury Obligations - 12.74%
5.50% February 2000 50,000 50,469 .86
7.125% February 2000 45,000 46,209 .79
8.75% August 2000 7,500 7,972 .13
14.25% February 2002 2,000 2,547 .04
6.50% May 2002 70,000 73,905 1.26
3.625% July 2002 (7) 87,017 86,436 1.47
10.75% February 2003 7,300 8,924 .15
10.75% May 2003 5,000 6,170 .10
11.125% August 2003 8,500 10,727 .18
11.875% November 2003 15,000 19,577 .33
7.25% May 2004 58,670 65,756 1.12
7.25% August 2004 25,000 28,105 .48
6.50% May 2005 60,000 65,756 1.12
7.00% July 2006 50,000 56,929 .97
3.375% January 2007 (7) 5,175 5,001 .08
3.625% January 2008 (7) 50,753 49,849 .85
10.375% November 2009 15,000 19,158 .33
10.00% May 2010 2,000 2,553 .04
10.375% November 2012 42,000 57,947 .99
7.25% May 2016 10,000 12,114 .21
7.50% November 2016 3,000 3,727 .06
8.875% August 2017 44,675 62,929 1.07
7.875% February 2021 5,000 6,576 .11
--------- ---------
749,336 12.74
--------- ---------
Total Bond & Notes 1,790,246 30.44
--------- ---------
Short-Term Securities
- --------------------------------------------
Corporate Short-Term Notes - 9.18%
American Express Credit Corp. 5.03%-5.12% due 1/5-2/1/99 22,900 22,834 .39
Atlantic Richfield Co. 4.81%-5.06% due 2/9-2/16/99 (2) 45,000 44,731 .76
Walt Disney Co. 4.95%-5.25% due 1/12-1/14/99 55,100 55,004 .94
Duke University 5.25% due 1/7/99 24,500 24,475 .42
Eastman Kodak Co. 5.07%-5.13% due 1/21-2/2/99 53,600 53,397 .91
Ford Motor Credit Co. 5.04%-5.16% due 1/11-1/15/99 26,100 26,050 .44
General Motors Acceptance Corp. 5.10%-5.18% due 1/6-1/20/99 35,900 35,837 .61
H.J. Heinz Co. 5.07%-5.08% due 1/22-1/27/99 39,000 38,857 .66
IBM Credit Corp. 5.15%-5.25% due 1/8-1/11/99 29,500 29,457 .50
International Lease Finance Corp. 5.02%-5.32% due 1/5-1/19/99 32,700 32,640 .55
Lucent Technologies Inc. 5.08%-5.15% due 1/29-2/3/99 59,800 59,528 1.01
Motorola, Inc. 5.08% due 1/28/99 26,128 26,024 .44
National Rural Utilities Cooperative Finance Corp. 5.00%-5.03% due 1/8-1/19/99 39,000 38,926 .66
SBC Communications Inc. 5.00%-5.25% due 1/4-1/19/99 (2) 52,300 52,220 .89
--------- ---------
539,980 9.18
--------- ---------
Federal Agency Short-Term Obligations - 1.28%
Freddie Mac 4.983%-5.08% due 1/25-3/19/99 75,600 75,189 1.28
--------- ---------
Total Short-Term Securities 615,169 10.46
--------- ---------
Total Investment Securities (cost $5,178,488,000) 5,898,709 100.29
Excess of payables over cash and receivables 17,312 .29
--------- ---------
Net Assets 5,881,397 100.00
========= =========
(1) Non-income-producing security.
(2) Purchased in a private placement transaction; resale
may be limited to qualified institutional buyers; resale to the
public may require registration.
(3) 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.
(4) Coupon rates may change periodically.
(5) Step bond; coupon rate will increase at a later date.
(6) Valued under procedures established by the Board of Directors.
(7) Index-linked bond whose principal amount moves with a
government retail price index.
See Notes to Financial Statements
ADR = American Depositary Receipts
</TABLE>
American Balanced Fund
Equity securities added to the portfolio since June 30, 1998
Allegheny Teledyne
American Stores
Apartment Investment and Management
Central and South West
Corning
Crown Cork & Seal
Deere
First Data
GTE
Household International
IKON Office Solutions
Mallinckrodt
Monsanto
Morton International
NIKE
Nissan Motor
J.C. Penney
Schlumberger
Stanley Works
United Technologies
Valero Energy
Washington Mutual
Witco
Equity securities eliminated from the portfolio since June 30, 1998
Columbia/HCA Healthcare
Fannie Mae
J.P. Morgan
PP & L Resources
Royal Dutch Petroleum
Telefonaktiebolaget LM Ericsson
Texaco
Thorn
Union Pacific
Wal-Mart Stores
Wells Fargo
<TABLE>
American Balanced Fund
Financial Statements
- ------------------------------------------------------------- ------------
Statement of Assets and Liabilities (dollars in
at December 31, 1998 thousands)
- ------------------------------------------------------------- ------------
<S> <C> <C>
Assets:
Investment securities at market
(cost: $5,178,488) $5,898,709
Cash 979
Receivables for -
Sales of investments $ 456
Sales of fund's shares 10,869
Dividends and accrued interest 32,819 44,144
---------------- ------------
5,943,832
Liabilities:
Payables for -
Purchases of investments 30,322
Repurchases of fund's shares 29,259
Management services 1,429
Accrued expenses 1,425 62,435
---------------- ------------
Net Assets at December 31, 1998 -
Equivalent to $15.76 per share on
373,247,005 shares of $1 par value
capital stock outstanding (authorized
capital stock--500,000,000 shares) $5,881,397
============
Statement of Operations
for the year ended December 31, 1998 (dollars in
thousands)
- ------------------------------------------------------------- ------------
Investment Income:
Income:
Dividends $ 78,334
Interest 153,400 $ 231,734
----------------
Expenses:
Management services fee 16,104
Distribution expenses 13,816
Transfer agent fee 3,440
Reports to shareholders 156
Registration statement and prospectus 408
Postage, stationery and supplies 618
Directors' fees 86
Auditing and legal fees 44
Custodian fee 101
Taxes other than federal
income tax 2
Other expenses 68 34,843
---------------- ------------
Net investment income 196,891
------------
Realized Gain and Unrealized
Appreciation on Investments:
Net realized gain 455,951
Change in unrealized appreciation on
investments:
Beginning of year 794,613
End of year 720,225 (74,388)
---------------- ------------
Net realized gain and change in unrealized
appreciation on investments 381,563
------------
Net Increase in Net Assets Resulting
from Operations $578,454
============
See Notes to Financial Statements
- ------------------------------------------------------------- ------------
Statement of Changes in Net Assets
(dollars in thousands)
December 31
1998 1997
- ------------------------------------------------------------- ------------
Operations:
Net investment income $ 196,891 $ 170,421
Net realized gain on investments 455,951 371,017
Net change in unrealized appreciation
on investments (74,388) 315,174
---------------- ------------
Net increase in net assets
resulting from operations 578,454 856,612
---------------- ------------
Dividends and Distributions Paid to
Shareholders:
Dividends from net investment income (191,659) (161,568)
Distributions from net realized gain on
investments (366,100) (386,924)
---------------- ------------
Total dividends and distributions (557,759) (548,492)
---------------- ------------
Capital Share Transactions:
Proceeds from shares sold: 87,886,110
and 78,721,605 shares, respectively 1,414,201 1,234,939
Proceeds from shares issued in reinvestment
of net investment income dividends and
distributions of net realized gain on
investments: 34,076,376 and 33,541,362 shares,
respectively 531,997 521,713
Cost of shares repurchased: 69,903,643
and 61,953,439 shares, respectively (1,121,345) (970,176)
---------------- ------------
Net increase in net assets resulting from
capital share transactions 824,853 786,476
---------------- ------------
Total Increase in Net Assets 845,548 1,094,596
Net Assets:
Beginning of year 5,035,849 3,941,253
---------------- ------------
End of year (including undistributed net
investment income: $30,440 and $25,214, $5,881,397 $5,035,849
respectively) ================ ============
See Notes to Financial Statements
</TABLE>
AMERICAN BALANCED FUND
Notes to Financial Statements
1 ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION - 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.
SIGNIFICANT ACCOUNTING POLICIES - The following is a summary of the
significant accounting policies consistently followed by the fund in the
preparation of its financial statements:
SECURITY VALUATION - 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. 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.
NON-U.S. CURRENCY TRANSLATION - Assets or liabilities initially expressed in
terms of non-U.S. 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 non-U.S. currency exchange rates on investment securities are
included with the net realized and unrealized gain or loss on investment
securities.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME - As is customary in the
mutual fund industry, securities transactions are accounted for on the date the
securities are purchased or sold. In the event the fund purchases securities on
a delayed delivery or "when-issued" basis, it will segregate with its custodian
liquid assets in an amount sufficient to meet its payment obligations in these
transactions. Realized gains and losses from securities transactions are
reported on an identified cost basis. Dividend and interest income is reported
on the accrual basis. Discounts and premiums on securities purchased are
amortized.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS - Dividends and distributions paid
to shareholders are recorded on the ex-dividend date.
2 FEDERAL INCOME TAXATION
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, 1998, net unrealized appreciation on investments for book
and federal income tax purposes aggregated $720,221,000, of which $891,992,000
related to appreciated securities and $171,771,000 related to depreciated
securities. There was no difference between book and tax realized gains on
securities transactions for the year ended December 31, 1998. The cost of
portfolio securities for book and federal income tax purposes was
$5,178,488,000 at December 31, 1998.
3. FEES AND TRANSACTIONS WITH RELATED PARTIES
INVESTMENT ADVISORY FEE - The fee of $16,104,000 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.
DISTRIBUTION EXPENSES - 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, 1998, distribution expenses under the Plan were limited to
$13,816,000. Had no limitation been in effect, the fund would have paid
$13,926,000 in distribution expenses under the Plan. As of December 31, 1998,
accrued and unpaid distribution expenses were $1,075,000.
American Funds Distributors, Inc. (AFD), the principal underwriter of the
fund's shares, received $3,369,000 (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.
TRANSFER AGENT FEE - American Funds Service Company (AFS), the transfer agent
for the fund, was paid a fee of $3,440,000.
DEFERRED DIRECTORS' FEES - 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, 1998, aggregate amounts deferred and earnings thereon
were $353,000.
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. INVESTMENT TRANSACTIONS AND OTHER DISCLOSURES
The fund made purchases and sales of investment securities, excluding
short-term securities, of $3,031,269,000 and $2,543,166,000, respectively,
during the year ended December 31, 1998.
As of December 31, 1998, accumulated undistributed net realized gain on
investments was $78,559,000 and additional paid-in capital was $4,678,926,000.
The fund reclassified $6,000 and $37,043,000 from undistributed net investment
income and undistributed net realized gains, respectively, to additional
paid-in capital for the year ended December 31,1998.
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 $101,000 includes $56,000 that was paid by these credits
rather than in cash.
<TABLE>
Per-Share Data and Ratios Year Ended
December 31
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $15.68 $14.55 $14.15 $12.00 $12.57
----------- ---------- ---------- --------- ---------
Income From Investment Operations:
Net investment income $.56 $.58 $.57 $.57 $.57
Net gains or losses on securities (both
realized and unrealized) $1.13 $2.41 $1.24 $2.61 ($.53)
----------- ---------- ---------- --------- ---------
Total from investment operations 1.69 2.99 1.81 3.18 .04
----------- --------- ----------- --------- ---------
Less Distributions:
Dividends (from net investment income) (.56) (.56) (.56) (.56) (.56)
Distributions (from capital gains) (1.05) (1.30) (.85) (.47) (.05)
----------- --------- ----------- --------- ---------
Total distributions (1.61) (1.86) (1.41) (1.03) (.61)
----------- --------- ---------- --------- ---------
Net Asset Value, End of Year $15.76 $15.68 $14.55 $14.15 $12.00
========== ======== ======== ======= =======
Total Return (1) 11.13% 21.04% 13.17% 27.13% .34%
Ratios/Supplemental Data:
Net assets, end of year (in millions) $5,881 $5,036 $3,941 $3,048 $2,082
Ratio of expenses to average net assets .63% .65% .67% .67% .68%
Ratio of net income to average net asset 3.57% 3.74% 4.01% 4.38% 4.76%
Portfolio turnover rate 54.05% 44.01% 43.85% 39.03% 32.05%
(1) Excludes maximum sales charge of 5.75%.
</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, 1998, 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, 1998, 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, 1998, 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, 1999
AMERICAN BALANCED FUND
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
of Record Investment Realized Short- Realized Long-
Income term Gains term Gains
<S> <C> <C> <C> <C>
February 13,1998 February 17, 1998 .14 - 0.08
May 22, 1998 May 26, 1998 .14 - -
August 14, 1998 August 17, 1998 .14 - -
December 21, 1998 December 22, 1998 .14 - 0.97
</TABLE>
Corporate shareholders may exclude up to 70% of qualifying dividends received
during the year. For purposes of computing this exclusion, 36% of the dividends
paid by the fund from net investment income represent qualifying dividends.
Certain states may exempt from income taxation that portion of the dividends
paid from net investment income that was derived from direct U.S. Treasury
obligations. For purposes of computing this exclusion, 18% of the dividends
paid by the fund from net investment income were 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 retirement plan trusts may need this information for their annual
information reporting.
The fund also designates as a capital gain distribution a portion of earnings
and profits paid to shareholders in redemption of their shares.
SHAREHOLDERS SHOULD CONSULT THEIR TAX ADVISERS.
OTHER INFORMATION
Item 23. Exhibits.
a. On file (see SEC file nos. 811-66 and 2-10758)
b. On file (see SEC file nos. 811-66 and 2-10758)
c. On file (see SEC file nos. 811-66 and 2-10758)
d. On file (see SEC file nos. 811-66 and 2-10758)
e. On file (see SEC file nos. 811-66 and 2-10758)
f. None
g. On file (see SEC file nos. 811-66 and 2-10758)
h. None
i. Not applicable to this filing
j. Consent of Independent Auditors
k. None
l. Not applicable to this filing
m. On file (see SEC file nos. 811-66 and 2-10758)
n. EX-27 Financial Data Schedule (EDGAR)
o. None
Item 24. Persons Controlled by or under Common Control with the Fund
None.
Item 25. Indemnification.
Registrant is a joint-insured under Investment Adviser/Mutual Fund Errors and
Omissions Policies written by American International Surplus Lines Insurance
Company, Chubb Custom Insurance Company, and ICI Mutual Insurance Company which
insures its officers and directors against certain liabilities. However, in no
event will Registrant maintain insurance to indemnify any such person for any
act for which Registrant itself is not permitted to indemnify the individual.
The Articles of Incorporation state:
The Corporation shall indemnify (a) its directors to the full extent provided
by the general laws of the State of Maryland now or hereafter in force,
including the advance of expenses under the procedures provided by such laws;
(b) its officers to the same extent it shall indemnify its directors; and (c)
its officers who are not directors to such further extent as shall be
authorized by the Board of Directors and be consistent with law. The foregoing
shall not limit the authority of the Corporation to indemnify other employees
and agents consistent with law.
The By-Laws of the Corporation state:
Section 5.01. Any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that he is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, may be indemnified by the Corporation
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding in the manner and on the terms provided by, and to
the fullest extent authorized by, applicable state law, and shall be
indemnified by the Corporation against such expenses, judgments, fines, and
amounts in the manner and to the fullest extent required by applicable state
law. However, no indemnification may be made under this section in the absence
of a judicial or administrative determination absolving the prospective
indemnitee of liability to the Corporation or its security holders unless,
based upon a review of all material facts, (1) a majority of a quorum of
directors who are neither interested persons of the Corporation nor parties to
the proceeding, or (2) independent legal counsel in a written opinion,
concludes that such person was not guilty of willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties initiated in the conduct
of his office.
Section 5.02. No expenses incurred by a director, officer,
employee, or agent of the Corporation in defending a civil or criminal action,
suit, or proceeding to which he is a party may be paid or reimbursed by the
Corporation in advance of the final disposition of such action, suit, or
proceeding unless:
(1) One of the following determines, on the basis of the facts then known to
it, that there is reason to believe that indemnification would be permissible:
(a) a majority of a quorum of disinterested non-party directors, or, if such
a quorum cannot be obtained, a majority of a committee of two or more
disinterested non-party directors duly designated to act in the matter by a
majority vote of the full board;
(b) special legal counsel selected by such a committee or such a quorum of
disinterested non-party directors; or
(c) the stockholders; and
(2) the Corporation receives the following from the prospective recipient of
the advance:
(a) a written affirmation of his good faith belief that he met the standard
of conduct necessary for indemnification; and
(b) an undertaking to repay the advance if it is ultimately determined that
he is not entitled to indemnification under this Article.
Section 5.03. The Corporation is authorized to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request of
the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against any
liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the Corporation would have
the power to indemnify him against such liability under the provisions of this
Article. Anything in this Article V to the contrary notwithstanding, however,
the Corporation shall not pay for insurance which protects any director or
officer against liabilities arising from action involving willful misfeasance,
bad faith, gross negligence, or reckless disregard of the duties involved in
the conduct of his office; provided, that any such insurance may cover any of
such categories if it provides only for payment to the Corporation and/or third
parties of any damages caused by a director or officer, and also provides that
the insurance company would be subrogated to the rights of the Corporation to
recover from the director or officer.
Item 26. Business and Other Connections of the Investment Adviser.
None.
Item 27. Principal Underwriters.
(a) American Funds Distributors, Inc. is also the Principal Underwriter of
shares of: AMCAP Fund, Inc., American Balanced Fund, Inc., American Funds
Income Series, The American Funds Tax-Exempt Series I, The American Funds
Tax-Exempt Series II, American High-Income Municipal Bond Fund, Inc., American
High-Income Trust, American Mutual Fund, Inc., The Bond Fund of America, Inc.,
Capital Income Builder, Capital World Bond Fund, Capital World Growth and
Income Fund, Inc., The Cash Management Trust of America, EuroPacific Growth
Fund, Fundamental Investors, Inc., The Growth Fund of America, Inc.,
Intermediate Bond Fund of America, The Investment Company of America, Limited
Term Tax-Exempt Bond Fund of America, The New Economy Fund, New Perspective
Fund, Inc., SMALLCAP World Fund, Inc., The Tax-Exempt Bond Fund of America,
Inc., The Tax-Exempt Money Fund of America, The U.S. Treasury Money Fund of
America and Washington Mutual Investors Fund, Inc.
<TABLE>
<CAPTION>
(b) (1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address with Underwriter with Registrant
<S> <C> <C> <C>
David L. Abzug Regional Vice President None
27304 Park Vista Road
Agoura Hills, CA 91301
John A. Agar Vice President None
1501 N. University Drive,
Suite 227A
Little Rock, AR 72207
Robert B. Aprison Regional Vice President None
2983 Bryn Wood Drive
Madison, WI 53711
L William W. Bagnard Vice President None
Steven L. Barnes Vice President None
5400 Mt. Meeker Road,
Suite 1
Minneapolis, MN 55438
B Carl R. Bauer Assistant Vice President None
Michelle A. Bergeron Senior Vice President None
4160 Gateswalk Drive
Smyrna, GA 30080
Joseph T. Blair Senior Vice President None
27 Drumlin Road
West Simsbury, CT 06092
John A. Blanchard Vice President None
6421 Aberdeen Road
Mission Hills, KS 66208
Ian B. Bodell Senior Vice President None
P.O. Box 1665
Brentwood, TN 37024-1665
Michael L. Brethower Senior Vice President None
2320 North Austin Avenue
Georgetown, TX 78626
C. Alan Brown Regional Vice President None
4129 Laclede Avenue
St. Louis, MO 63108
B J. Peter Burns Vice President None
Brian C. Casey Regional Vice President None
9508 Cable Drive
Bethesda, MD 20817
Victor C. Cassato Senior Vice President None
609 W. Littleton Blvd.,
Suite 310
Littleton, CO 80120
Christopher J. Cassin Senior Vice President None
111 W. Chicago Avenue,
Suite G3
Hinsdale, IL 60521
Denise M. Cassin Vice President None
1301 Stoney Creek Drive
San Ramon CA 94538
L Larry P. Clemmensen Director None
L Kevin G. Clifford Director, President and
Co-Chief ExecutiveOfficer None
Ruth M. Collier Senior Vice President None
145 West 67th St. Ste. 12K
New York, NY 10023
S David Coolbaugh Assistant Vice President None
Thomas E. Cournoyer Vice President None
2333 Granada Boulevard
Coral Gables, FL 33134
Douglas A. Critchell Senior Vice President None
4116 Woodbine St.
Chevy Chase, MD 20815
L Carl D. Cutting Vice President None
Daniel J. Delianedis Regional Vice President None
8689 Braxton Drive
Eden Prairie, MN 55347
Michael A. Dilella Vice President None
P.O. Box 661
Ramsey, NJ 07446
G. Michael Dill Senior Vice President None
505 E. Main Street
Jenks, OK 74037
Kirk D. Dodge Senior Vice President None
633 Menlo Avenue, Suite 210
Menlo Park, CA 94025
Peter J. Doran Senior Vice President None
1205 Franklin Avenue
Garden City, NY 11530
L Michael J. Downer Secretary None
Robert W. Durbin Vice President None
74 Sunny Lane
Tiffin, OH 44883
I Lloyd G. Edwards Senior Vice President None
L Paul H. Fieberg Senior Vice President None
John Fodor Vice President None
15 Latisquama Road
Southborough, MA 01772
Clyde E. Gardner Senior Vice President None
Route 2, Box 3162
Osage Beach, MO 65065
B Evelyn K. Glassford Vice President None
Jeffrey J. Greiner Vice President None
12210 Taylor Road
Plain City, OH 43064
L Paul G. Haaga, Jr. Director Senior Vice President
B Mariellen Hamann Assistant Vice President None
David E. Harper Senior Vice President None
R.D. 1, Box 210, Rte 519
Frenchtown, NJ 08825
Ronald R. Hulsey Vice President None
6744 Avalon
Dallas, TX 75214
Robert S. Irish Regional Vice President None
1225 Vista Del Mar Drive
Delray Beach, FL 33843
L Robert L. Johansen Vice President, None
Controller
Michael J. Johnston Director None
630 Fifth Ave., 36th Floor
New York, NY 10111-0121
B Damien M. Jordan Vice President None
Arthur J. Levine Vice President None
12558 Highlands Place
Fishers, IN 46038
B Karl A. Lewis Assistant Vice President None
T. Blake Liberty Regional Vice President None
5506 East Mineral Lane
Littleton, CO 80122
Mark J. Lien Regional Vice President None
5570 Beechwood Terrace
West Des Moines, IA 50266
L Lorin E. Liesy Assistant Vice President None
L Susan G. Lindgren Vice President - None
Institutional Investment
Services Division
LW Robert W. Lovelace Director None
Stephen A. Malbasa Vice President None
13405 Lake Shore Blvd.
Cleveland, OH 44110
Steven M. Markel Senior Vice President None
5241 South Race Street
Littleton, CO 90121
L John C. Massar Senior Vice President None
L E. Lee McClennahan Senior Vice President None
L Jamie R. McCrary Assistant Vice President None
S John V. McLaughlin Senior Vice President None
Terry W. McNabb Vice President None
2002 Barrett Station Road
St. Louis, MO 63131
L R. William Melinat Vice President -Institutional None
Investment ServicesDivision
David R. Murray Regional Vice President None
60 Briant Drive
Sudbury, MA 01776
Stephen S. Nelson Vice President None
P.O. Box 470528
Charlotte, NC 28247-0528
William E. Noe Regional Vice President None
304 River Oaks Road
Brentwood, TN 37027
Peter A. Nyhus Vice President None
3084 Wilds Ridge Court
Prior Lake, MN 55372
Eric P. Olson Vice President None
62 Park Drive
Glenview, IL 60025
Fredric Phillips Senior Vice President None
175 Highland Avenue, 4th Floor
Needham, MA 02194
B Candance Pilgram Assistant Vice President None
Carl S. Platou Vice President None
4021 96th Avenue, SE
Mercer Island, WA 98040
L John O. Post, Jr. Vice President None
S Richard P. Prior Assistant Vice President None
Steven J. Reitman Senior Vice President None
212 The Lane
Hinsdale, IL 60521
Brian A. Roberts Vice President None
11404 Foxhaven Drive
Charlotte, NC 28277
George S. Ross Senior Vice President None
55 Madison Avenue
Morristown, NJ 07962
L Julie D. Roth Vice President None
L James F. Rothenberg Director Chairman of the Board
Douglas F. Rowe Vice President None
30008 Oakland Hills Drive
Georgetown, TX 78628
Christopher Rowey Regional Vice President None
9417 Beverlywood Street
Los Angeles, CA 90034
Dean B. Rydquist Senior Vice President None
1080 Bay Pointe Crossing
Alpharetta, GA 30005
Richard R. Samson Senior Vice President None
4604 Glencoe Avenue, No. 4
Marina del Rey, CA 90292
Joe D. Scarpitti Vice President None
31465 St. Andrews
Westlake, OH 44145
L R. Michael Shanahan Director None
David W. Short Director, Chairman of the Board None
1000 RIDC Plaza, Ste 212 and Co-Chief Executive Officer
Pittsburgh, PA 15238
William P. Simon, Jr. Senior Vice President None
912 Castlehill Lane
Devon, PA 91333
L John C. Smith Vice President -Institutional
Investment Services Division None
L Mary E. Smith Vice President -Institutional
Investment Services Division None
Rodney G. Smith Vice President None
100 N. Central Expressway,
Suite 1214
Richardson, TX 75080
Anthony L. Soave Regional Vice President None
8831 Morning Mist Drive
Clarkston, MI 48348
Nicholas D. Spadaccini Regional Vice President None
855 Markley Woods Way
Cincinnati, OH 45230
L Kristen J. Spazafumo Assistant Vice President None
Daniel S. Spradling Senior Vice President None
1400 Southdown Road
Hillsborough, CA 94010
B Max D. Stites Vice President None
Thomas A. Stout Regional Vice President None
3919 Whooping Crane Circle
Virginia Beach, VA 23455
Craig R. Strauser Vice President None
3 Dover Way
Lake Oswego, OR 97034
Francis N. Strazzeri Senior Vice President None
31641 Saddletree Drive
Westlake Village, CA 91361
L Drew W. Taylor Assistant Vice President None
S James P. Toomey Vice President None
I Christopher E. Trede Vice President None
George F. Truesdail Vice President None
400 Abbotsford Court
Charlotte, NC 28270
Scott W. Ursin-Smith Vice President None
60 Reedland Woods Way
Tiburon, CA 94920
L John David Viale Regional Vice President None
Thomas E. Warren Regional Vice President None
119 Faubel Street
Sarasota, FL 34242
L J. Kelly Webb Sr. Vice President, Treasurer None
Gregory J. Weimer Regional Vice President None
206 Hardwood Drive
Venetia, PA 15367
B Timothy W. Weiss Director None
George J. Wenzel Regional Vice President None
3406 Shakespeare Drive
Troy, MI 48084
Timothy J. Wilson Vice President None
113 Farmview Place
Venetia, PA 15367
B Laura L. Wimberly Vice President None
H Marshall D. Wingo Senior Vice President None
L Robert L. Winston Director, Senior Vice President None
William Yost Vice President None
9320 Overlook Trail
Eden Prairie, MN 55347
Janet M. Young Regional Vice President None
1616 Vermont
Houston, TX 77006
Scott D. Zambon Regional Vice President None
2887 Player Lane
Tustin Ranch, CA 92782
</TABLE>
_______________________
L Business Address, 333 South Hope Street, Los Angeles, CA 90071
LW Business Address, 11100 Santa Monica Boulevard, 15th Floor, Los Angeles, CA
90025
B Business Address, 135 South State College Boulevard, Brea, CA 928621
S Business Address, 3500 Wiseman Boulevard, San Antonio, TX 78230
H Business Address, 5300 Robin Hood Road, Norfolk, VA 23513
I Business Address, 8332 Woodfield Crossing Blvd., Indianapolis, IN 46240
(c) None.
Item 28. Location of Accounts and Records.
Accounts, books and other records required by Rules 31a-1 and 31a-2 under the
Investment Company Act of 1940, are maintained and held in the offices of its
investment adviser, Capital Research and Management Company, 333 South Hope
Street, Los Angeles, California 90071, and/or 135 South State College
Boulevard, Brea, California 92821, and/or the offices of the Registrant, One
Market, Steuart Tower, Suite 1800, San Francisco, CA 94105.
Registrant's records covering shareholder accounts are maintained and kept by
the fund's transfer agent, American Funds Service Company, 135 South State
College Boulevard, Brea, California 92821, 8332 Woodfield Crossing Boulevard,
Indianapolis, IN 46240, 3500 Wiseman Boulevard, San Antonio, Texas 78251 and
5300 Robin Hood Road, Norfolk, VA 23513.
Registrant's records covering portfolio transactions are maintained and kept
by the fund's custodian, The Chase Manhattan Bank, One Chase Manhattan Plaza,
New York, New York 10081.
Item 29. Management Services.
None.
Item 30. Undertakings.
None.
SIGNATURE OF REGISTRANT
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940 the Registrant certifies that it meets all of the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City and County of San Francisco, and State of California on
the 22nd day of February, 1999.
AMERICAN BALANCED FUND, INC.
By /s/ Patrick F. Quan
Patrick F. Quan, Secretary
ATTEST:
/s/ Jennifer L. Yardley
Jennifer L. Yardley
Pursuant to the requirements of the Securities Act of 1933, this amendment to
its registration statement has been signed below on February 22, 1999 by the
following persons in the capacities indicated.
<TABLE>
<CAPTION>
Signature Title
<S> <C> <C>
(1) Principal Executive Officer:
/s/ Robert G. O'Donnell
(Robert G. O'Donnell) President and Director
(2) Principal Financial Officer and Principal
Accounting Officer:
/s/ Anthony W. Hynes, Jr.
(Anthony W. Hynes, Jr.) Treasurer
(3) Directors:
Robert A. Fox* Director
Roberta L. Hazard* Director
Leonade D. Jones* Director
John G. McDonald* Director
/s/ James W. Ratzlaff
(James W. Ratzlaff) Director
Henry E. Riggs* Director
Walter P. Stern* Chairman
Patricia K. Woolf* Director
*By /s/ Patrick F. Quan
Patrick F. Quan, Attorney-in-Fact
</TABLE>
Counsel reports that the amendment does not contain disclosures that would
make the amendment ineligible for effectiveness under the provisions of Rule
485(b).
/s/ Michele Y. Yang
Michele Y. Yang, Counsel
CONSENT OF INDEPENDENT AUDITORS
American Balanced Fund, Inc.:
We consent to (a) the use in this Post-Effective Amendment No. 87 to
Registration Statement No. 2-10758 on Form N-1A of our report dated January 29,
1999 appearing in the Financial Statements, which are included in Part B, the
Statement of Additional Information of such Registration Statement, (b) the
references to us under the heading "General Information" in such Statement of
Additional Information and (c) the reference to us under the heading "Financial
Highlights" in the Prospectus, which is a part of such Registration Statement.
Deloitte & Touche LLP
February 22, 1999
<TABLE> <S> <C>
<ARTICLE> 6
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-1-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 5,178,488
<INVESTMENTS-AT-VALUE> 5,898,709
<RECEIVABLES> 44,144
<ASSETS-OTHER> 979
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 5,943,832
<PAYABLE-FOR-SECURITIES> 30,322
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 32,113
<TOTAL-LIABILITIES> 62,435
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4,678,926
<SHARES-COMMON-STOCK> 373,247,005
<SHARES-COMMON-PRIOR> 321,188,162
<ACCUMULATED-NII-CURRENT> 30,440
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 78,559
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 720,225
<NET-ASSETS> 5,881,397
<DIVIDEND-INCOME> 78,334
<INTEREST-INCOME> 153,400
<OTHER-INCOME> 0
<EXPENSES-NET> 34,843
<NET-INVESTMENT-INCOME> 196,891
<REALIZED-GAINS-CURRENT> 455,951
<APPREC-INCREASE-CURRENT> (74,388)
<NET-CHANGE-FROM-OPS> 578,454
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 191,659
<DISTRIBUTIONS-OF-GAINS> 366,100
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 87,886,110
<NUMBER-OF-SHARES-REDEEMED> 69,903,643
<SHARES-REINVESTED> 34,076,376
<NET-CHANGE-IN-ASSETS> 845,548
<ACCUMULATED-NII-PRIOR> 25,214
<ACCUMULATED-GAINS-PRIOR> 25,751
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 16,104
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 34,953
<AVERAGE-NET-ASSETS> 5,512,602
<PER-SHARE-NAV-BEGIN> 15.68
<PER-SHARE-NII> .56
<PER-SHARE-GAIN-APPREC> 1.13
<PER-SHARE-DIVIDEND> .56
<PER-SHARE-DISTRIBUTIONS> 1.05
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.76
<EXPENSE-RATIO> .006
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
