497 1 ambal497.htm AMERICAN BALANCED FUND, INC. ambal497.htm
[Logo - American Funds®]


Prospectus Supplement
January 1, 2009

For the following funds with currently effective prospectuses, prospectus addenda and retirement plan prospectuses dated February 1, 2008 — January 1, 2009

AMCAP Fund,® Inc.
American Balanced Fund,® Inc.
American High-Income Municipal Bond Fund,® Inc.
American High-Income TrustSM
American Mutual Fund,® Inc.
The Bond Fund of America,SM Inc.
Capital Income Builder,® Inc.
Capital World Bond Fund,® Inc.
Capital World Growth and Income Fund,SM Inc.
The Cash Management Trust of America®
EuroPacific Growth Fund®
Fundamental Investors,SM Inc.
The Growth Fund of America,® Inc.
The Income Fund of America,® Inc.
Intermediate Bond Fund of America®
International Growth and Income Fund,SM Inc.
The Investment Company of America®
Limited Term Tax-Exempt Bond Fund of AmericaSM
The New Economy Fund®
New Perspective Fund,® Inc.
New World Fund,SM Inc.
Short-Term Bond Fund of America,SM 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,SM Inc.
U.S. Government Securities FundSM
The U.S. Treasury Money Fund of AmericaSM
Washington Mutual Investors Fund,SM Inc.

Keep this supplement with your prospectus,
prospectus addendum and/or retirement plan prospectus


1.
For each fund listed below, the indicated footnote to the Annual fund operating expenses table in the “Fees and expenses of the fund(s)” section of the Prospectus, Prospectus Addendum and/or Retirement Plan Prospectus, is amended in its entirety as follows:

(a)   The Prospectus for The Tax-Exempt Bond Fund of America, American High-Income Municipal Bond Fund, Limited Term Tax-Exempt Bond Fund of America and The Tax-Exempt Fund of California: Footnote 2

The Prospectus for AMCAP Fund, American Balanced Fund, The Bond Fund of America, Capital World Growth and Income Fund, EuroPacific Growth Fund, Fundamental Investors, The Investment Company of America and The New Economy Fund: Footnote 8

The Prospectus for American High-Income Trust, American Mutual Fund, Capital Income Builder, Capital World Bond Fund, The Growth Fund of America, The Income Fund of America, Intermediate Bond Fund of America, New Perspective Fund, New World Fund, SMALLCAP World Fund and U.S. Government Securities Fund: Footnote 9

The Prospectus Addendum for all the funds listed above in this subparagraph (a), and the Retirement Plan Prospectus for all the funds listed above in this subparagraph (a) except The Tax-Exempt Bond Fund of America, American High-Income Municipal Bond Fund, Limited Term Tax-Exempt Bond Fund of America and The Tax-Exempt Fund of California: Footnote 1

Prospectus and Prospectus Addendum

“The fund’s investment adviser waived a portion of its management fee from September 1, 2004 through December 31, 2008. Management fees and total annual fund operating expenses in the table do not reflect any waiver. Information regarding the effect of any waiver on total annual fund operating expenses can be found in the Financial Highlights table in this prospectus [addendum] and in the fund’s annual report.”

Retirement Plan Prospectus

“The fund’s investment adviser waived a portion of its management fee from September 1, 2004 through December 31, 2008. In addition, the investment adviser paid a portion of the fund’s transfer agent fees for certain R share classes. Management fees, other expenses and total annual fund operating expenses in the table do not reflect any waiver or reimbursement. Information regarding the effect of any waiver and reimbursement on total annual fund operating expenses can be found in the Financial Highlights table in this prospectus and in the fund’s annual report.”

(b)    The Cash Management Trust of America, The U.S. Treasury Money Fund of America and The Tax-Exempt Money Fund of America

Prospectus (footnote 7) and Prospectus Addendum (footnote 1)

“The fund’s investment adviser waived a portion of its management fee from September 1, 2004* through December 31, 2008. Management fees and total annual fund operating expenses in the table do not reflect any waiver. Information regarding the effect of any waiver on total annual fund operating expenses can be found in the Financial Highlights table in this prospectus [addendum] and in the fund’s annual report.”

Retirement Plan Prospectus (footnote 1 for The Cash Management Trust of America and The U.S. Treasury Money Fund of America)

“The fund’s investment adviser waived a portion of its management fee from September 1, 2004* through December 31, 2008. In addition, the investment adviser paid a portion of the fund’s transfer agent fees for certain R share classes and, due to lower short-term interest rates, agreed to pay a portion of the class-specific fees and expenses for some of the share classes. Management fees, other expenses and total annual fund operating expenses in the table do not reflect any waiver or reimbursement. Information regarding the effect of any waivers and reimbursements on total annual fund operating expenses can be found in the Financial Highlights table in this prospectus and in the fund’s annual report.”

*October 1, 2005 in the case of The Cash Management Trust of America

(c)   International Growth and Income Fund

Prospectus (footnote 9) and Prospectus Addendum (footnote 2)

“The fund’s investment adviser waived a portion of its management fee from October 1, 2008 through December 31, 2008. Management fees and total annual fund operating expenses in the table do not reflect any waiver.”

Retirement Plan Prospectus (footnote 2)

“The fund’s investment adviser waived a portion of its management fee from October 1, 2008 through December 31, 2008. Additionally, the fund’s investment adviser is reimbursing the fund a portion of other expenses so that other expenses do not exceed .22% for Class A shares, .28% for Class R-1 shares, .51% for Class R-2 shares, .33% for Class R-3 shares, .26% for Class R-4 shares and .20% for Class R-5 shares. Such reimbursements may be reduced or discontinued at any time as determined by the investment adviser. Management fees, other expenses and total annual fund operating expenses in the table do not reflect any waiver or reimbursement.”

(d)   Short-Term Bond Fund of America

Prospectus (footnote 9) and Prospectus Addendum (footnote 1)

“The fund’s investment adviser waived a portion of its management fee from October 2, 2006 through December 31, 2008. The fund’s investment adviser also reimbursed other fees and expenses. Management fees, other expenses and total annual fund operating expenses in the table do not reflect any waiver or reimbursement. Information regarding the effect of any waiver and reimbursement on total annual fund operating expenses can be found in the Financial Highlights table in this prospectus [addendum] and in the fund’s annual report.”

Retirement Plan Prospectus (footnote 1)

“The fund’s investment adviser waived a portion of its management fee from October 2, 2006 through December 31, 2008. The fund’s investment adviser also reimbursed other fees and expenses. In addition, the investment adviser paid a portion of the fund’s transfer agent fees for certain R share classes. Management fees, other expenses and total annual fund operating expenses in the table do not reflect any waiver or reimbursement. Information regarding the effect of any waiver and reimbursement on total annual fund operating expenses can be found in the Financial Highlights table in this prospectus and in the fund’s annual report.”

(e)   Washington Mutual Investors Fund, The Tax-Exempt Fund of Maryland and The Tax-Exempt Fund of Virginia

Prospectus (footnote 8 for Washington Mutual Investors Fund and footnote 7 for both The Tax-Exempt Fund of Maryland and The Tax-Exempt Fund of Virginia) and Prospectus Addendum (footnote 1)

“The fund’s investment adviser and business manager each waived a portion of their management fees from September 1, 2004 through December 31, 2008. Management fees and total annual fund operating expenses in the table do not reflect any waivers. Information regarding the effect of any waivers on total annual fund operating expenses can be found in the Financial Highlights table in this prospectus [addendum] and in the fund’s annual report.”

Retirement Plan Prospectus (footnote 1 for Washington Mutual Investors Fund)

“The fund’s investment adviser and business manager each waived a portion of their management fees from September 1, 2004 through December 31, 2008. In addition, the investment adviser paid a portion of the fund’s transfer agent fees for certain R share classes. Management fees, other expenses and total annual fund operating expenses in the table do not reflect any waivers or reimbursement. Information regarding the effect of any waivers and reimbursement on total annual fund operating expenses can be found in the Financial Highlights table in this prospectus and in the fund’s annual report.”

2.   The following is added as the last paragraph to the “Investment adviser” subsection in the “Management and organization” section of the Prospectus and Retirement Plan Prospectus:

“Rather than remain as investment divisions, Capital World Investors and Capital Research Global Investors may be incorporated into wholly owned subsidiaries of Capital Research and Management Company. In that event, Capital Research and Management Company would continue to be the investment adviser, and day-to-day investment management of equity assets would continue to be carried out through one or both of these subsidiaries. Capital Research and Management Company and the funds it advises have applied to the Securities and Exchange Commission for an exemptive order that would give Capital Research and Management Company the authority to use, upon approval of the funds’ boards, its management subsidiaries and affiliates to provide day-to-day investment management services to the funds, including making changes to the management subsidiaries and affiliates providing such services. Approval by the funds’ shareholders would be required before any authority granted under an exemptive order could be exercised. There is no assurance that Capital Research and Management Company will incorporate its investment divisions or seek a shareholder vote to exercise any authority, if granted, under an exemptive order.”

3.   The following paragraph is added to the Prospectus and/or Retirement Plan Prospectus for each fund listed below as follows:

For The Tax-Exempt Bond Fund of America, American High-Income Municipal Bond Fund, Limited Term Tax-Exempt Bond Fund of America, The Tax-Exempt Fund of California, The Tax-Exempt Fund of Maryland and The Tax-Exempt Fund of Virginia — added as the last paragraph to the “Purchase of Class A, B and C shares” subsection in the “Purchase and exchange of shares” section of the Prospectus.

For The Cash Management Trust of America, The U.S. Treasury Money Fund of America and The Tax-Exempt Money Fund of America — added as the last paragraph to the “Purchase of Class A, B and C shares” subsection in the “Purchase and exchange of shares” section of the Prospectus, and for The Cash Management Trust of America and The U.S. Treasury Money Fund of America — added after the third paragraph in the “Purchases and exchanges” subsection in the “Purchase, exchange and sale of shares” section of the Retirement Plan Prospectus.

For AMCAP Fund, American Balanced Fund, American High-Income Trust, American Mutual Fund, The Bond Fund of America, Capital Income Builder, Capital World Bond Fund, Capital World Growth and Income Fund, EuroPacific Growth Fund, Fundamental Investors, The Growth Fund of America, The Income Fund of America, Intermediate Bond Fund of America, International Growth and Income Fund, The Investment Company of America, The New Economy Fund, New Perspective Fund, New World Fund, Short-Term Bond Fund of America, SMALLCAP World Fund, U.S. Government Securities Fund and Washington Mutual Investors Fund — added as the last paragraph to the “Employer-sponsored retirement plans” subsection in the “Sales charges” section of the Prospectus and the Retirement Plan Prospectus.

“A 403(b) plan may not invest in Class A, Class B or Class C shares on or after January 1, 2009 unless such plan was invested in Class A, Class B or Class C shares prior to that date.”

4.   Applicable to The Cash Management Trust of America, The U.S. Treasury Money Fund of America and The Tax-Exempt Money Fund of America only — The “Risk/Return summary” section of the Prospectus and Retirement Plan Prospectus is amended by replacing the third and fourth paragraphs with the following:

“Each of the funds paid a fee of 0.01% of its net assets as of September 19, 2008, in order to participate in the program for the initial three-month period, which expired on December 18, 2008.

The United States Treasury Department has extended the program through April 30, 2009. Each of the funds is participating in the program for this extension period and has paid a fee of 0.015% of its net assets as of September 19, 2008, in order to participate for the period from December 19, 2008 through April 30, 2009. The terms and conditions of the program and qualifications for insurance coverage under the program remain the same as for the initial period.

The term of the program may be further extended by the Secretary of the Treasury through September 18, 2009. The duration and terms of any such extension have not been determined. The funds and their boards will evaluate the terms of any extension after they are announced; however, the funds are not required to participate in any further extension.”

5.   Applicable to Capital Income Builder only.

The first paragraph under the heading “Dividends and distributions” in the “Distributions and taxes” section of the Prospectus is amended in its entirety to read as follows:

“The fund intends to distribute dividends to you, usually in March, June, September and December.”

The first paragraph under the heading “Dividends and distributions” in the “Distributions and taxes” section of the Retirement Plan Prospectus is amended in its entirety to read as follows:

“The fund intends to distribute dividends to shareholders, usually in March, June, September and December.”










MFGEBS-018-1208P Litho in USA CGD/LPT/9908-S19416




THE FUND PROVIDES SPANISH TRANSLATION 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



[Logo - American Funds®]


Prospectus Supplement
January 1, 2009

For the following funds with currently effective prospectuses, prospectus addenda and retirement plan prospectuses dated February 1, 2008 — January 1, 2009

AMCAP Fund,® Inc.
American Balanced Fund,® Inc.
American High-Income Municipal Bond Fund,® Inc.
American High-Income TrustSM
American Mutual Fund,® Inc.
The Bond Fund of America,SM Inc.
Capital Income Builder,® Inc.
Capital World Bond Fund,® Inc.
Capital World Growth and Income Fund,SM Inc.
The Cash Management Trust of America®
EuroPacific Growth Fund®
Fundamental Investors,SM Inc.
The Growth Fund of America,® Inc.
The Income Fund of America,® Inc.
Intermediate Bond Fund of America®
International Growth and Income Fund,SM Inc.
The Investment Company of America®
Limited Term Tax-Exempt Bond Fund of AmericaSM
The New Economy Fund®
New Perspective Fund,® Inc.
New World Fund,SM Inc.
Short-Term Bond Fund of America,SM 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,SM Inc.
U.S. Government Securities FundSM
The U.S. Treasury Money Fund of AmericaSM
Washington Mutual Investors Fund,SM Inc.

Keep this supplement with your prospectus,
prospectus addendum and/or retirement plan prospectus


1.
For each fund listed below, the indicated footnote to the Annual fund operating expenses table in the “Fees and expenses of the fund(s)” section of the Prospectus, Prospectus Addendum and/or Retirement Plan Prospectus, is amended in its entirety as follows:

(a)   The Prospectus for The Tax-Exempt Bond Fund of America, American High-Income Municipal Bond Fund, Limited Term Tax-Exempt Bond Fund of America and The Tax-Exempt Fund of California: Footnote 2

The Prospectus for AMCAP Fund, American Balanced Fund, The Bond Fund of America, Capital World Growth and Income Fund, EuroPacific Growth Fund, Fundamental Investors, The Investment Company of America and The New Economy Fund: Footnote 8

The Prospectus for American High-Income Trust, American Mutual Fund, Capital Income Builder, Capital World Bond Fund, The Growth Fund of America, The Income Fund of America, Intermediate Bond Fund of America, New Perspective Fund, New World Fund, SMALLCAP World Fund and U.S. Government Securities Fund: Footnote 9

The Prospectus Addendum for all the funds listed above in this subparagraph (a), and the Retirement Plan Prospectus for all the funds listed above in this subparagraph (a) except The Tax-Exempt Bond Fund of America, American High-Income Municipal Bond Fund, Limited Term Tax-Exempt Bond Fund of America and The Tax-Exempt Fund of California: Footnote 1

Prospectus and Prospectus Addendum

“The fund’s investment adviser waived a portion of its management fee from September 1, 2004 through December 31, 2008. Management fees and total annual fund operating expenses in the table do not reflect any waiver. Information regarding the effect of any waiver on total annual fund operating expenses can be found in the Financial Highlights table in this prospectus [addendum] and in the fund’s annual report.”

Retirement Plan Prospectus

“The fund’s investment adviser waived a portion of its management fee from September 1, 2004 through December 31, 2008. In addition, the investment adviser paid a portion of the fund’s transfer agent fees for certain R share classes. Management fees, other expenses and total annual fund operating expenses in the table do not reflect any waiver or reimbursement. Information regarding the effect of any waiver and reimbursement on total annual fund operating expenses can be found in the Financial Highlights table in this prospectus and in the fund’s annual report.”

(b)    The Cash Management Trust of America, The U.S. Treasury Money Fund of America and The Tax-Exempt Money Fund of America

Prospectus (footnote 7) and Prospectus Addendum (footnote 1)

“The fund’s investment adviser waived a portion of its management fee from September 1, 2004* through December 31, 2008. Management fees and total annual fund operating expenses in the table do not reflect any waiver. Information regarding the effect of any waiver on total annual fund operating expenses can be found in the Financial Highlights table in this prospectus [addendum] and in the fund’s annual report.”

Retirement Plan Prospectus (footnote 1 for The Cash Management Trust of America and The U.S. Treasury Money Fund of America)

“The fund’s investment adviser waived a portion of its management fee from September 1, 2004* through December 31, 2008. In addition, the investment adviser paid a portion of the fund’s transfer agent fees for certain R share classes and, due to lower short-term interest rates, agreed to pay a portion of the class-specific fees and expenses for some of the share classes. Management fees, other expenses and total annual fund operating expenses in the table do not reflect any waiver or reimbursement. Information regarding the effect of any waivers and reimbursements on total annual fund operating expenses can be found in the Financial Highlights table in this prospectus and in the fund’s annual report.”

*October 1, 2005 in the case of The Cash Management Trust of America

(c)   International Growth and Income Fund

Prospectus (footnote 9) and Prospectus Addendum (footnote 2)

“The fund’s investment adviser waived a portion of its management fee from October 1, 2008 through December 31, 2008. Management fees and total annual fund operating expenses in the table do not reflect any waiver.”

Retirement Plan Prospectus (footnote 2)

“The fund’s investment adviser waived a portion of its management fee from October 1, 2008 through December 31, 2008. Additionally, the fund’s investment adviser is reimbursing the fund a portion of other expenses so that other expenses do not exceed .22% for Class A shares, .28% for Class R-1 shares, .51% for Class R-2 shares, .33% for Class R-3 shares, .26% for Class R-4 shares and .20% for Class R-5 shares. Such reimbursements may be reduced or discontinued at any time as determined by the investment adviser. Management fees, other expenses and total annual fund operating expenses in the table do not reflect any waiver or reimbursement.”

(d)   Short-Term Bond Fund of America

Prospectus (footnote 9) and Prospectus Addendum (footnote 1)

“The fund’s investment adviser waived a portion of its management fee from October 2, 2006 through December 31, 2008. The fund’s investment adviser also reimbursed other fees and expenses. Management fees, other expenses and total annual fund operating expenses in the table do not reflect any waiver or reimbursement. Information regarding the effect of any waiver and reimbursement on total annual fund operating expenses can be found in the Financial Highlights table in this prospectus [addendum] and in the fund’s annual report.”

Retirement Plan Prospectus (footnote 1)

“The fund’s investment adviser waived a portion of its management fee from October 2, 2006 through December 31, 2008. The fund’s investment adviser also reimbursed other fees and expenses. In addition, the investment adviser paid a portion of the fund’s transfer agent fees for certain R share classes. Management fees, other expenses and total annual fund operating expenses in the table do not reflect any waiver or reimbursement. Information regarding the effect of any waiver and reimbursement on total annual fund operating expenses can be found in the Financial Highlights table in this prospectus and in the fund’s annual report.”

(e)   Washington Mutual Investors Fund, The Tax-Exempt Fund of Maryland and The Tax-Exempt Fund of Virginia

Prospectus (footnote 8 for Washington Mutual Investors Fund and footnote 7 for both The Tax-Exempt Fund of Maryland and The Tax-Exempt Fund of Virginia) and Prospectus Addendum (footnote 1)

“The fund’s investment adviser and business manager each waived a portion of their management fees from September 1, 2004 through December 31, 2008. Management fees and total annual fund operating expenses in the table do not reflect any waivers. Information regarding the effect of any waivers on total annual fund operating expenses can be found in the Financial Highlights table in this prospectus [addendum] and in the fund’s annual report.”

Retirement Plan Prospectus (footnote 1 for Washington Mutual Investors Fund)

“The fund’s investment adviser and business manager each waived a portion of their management fees from September 1, 2004 through December 31, 2008. In addition, the investment adviser paid a portion of the fund’s transfer agent fees for certain R share classes. Management fees, other expenses and total annual fund operating expenses in the table do not reflect any waivers or reimbursement. Information regarding the effect of any waivers and reimbursement on total annual fund operating expenses can be found in the Financial Highlights table in this prospectus and in the fund’s annual report.”

2.   The following is added as the last paragraph to the “Investment adviser” subsection in the “Management and organization” section of the Prospectus and Retirement Plan Prospectus:

“Rather than remain as investment divisions, Capital World Investors and Capital Research Global Investors may be incorporated into wholly owned subsidiaries of Capital Research and Management Company. In that event, Capital Research and Management Company would continue to be the investment adviser, and day-to-day investment management of equity assets would continue to be carried out through one or both of these subsidiaries. Capital Research and Management Company and the funds it advises have applied to the Securities and Exchange Commission for an exemptive order that would give Capital Research and Management Company the authority to use, upon approval of the funds’ boards, its management subsidiaries and affiliates to provide day-to-day investment management services to the funds, including making changes to the management subsidiaries and affiliates providing such services. Approval by the funds’ shareholders would be required before any authority granted under an exemptive order could be exercised. There is no assurance that Capital Research and Management Company will incorporate its investment divisions or seek a shareholder vote to exercise any authority, if granted, under an exemptive order.”

3.   The following paragraph is added to the Prospectus and/or Retirement Plan Prospectus for each fund listed below as follows:

For The Tax-Exempt Bond Fund of America, American High-Income Municipal Bond Fund, Limited Term Tax-Exempt Bond Fund of America, The Tax-Exempt Fund of California, The Tax-Exempt Fund of Maryland and The Tax-Exempt Fund of Virginia — added as the last paragraph to the “Purchase of Class A, B and C shares” subsection in the “Purchase and exchange of shares” section of the Prospectus.

For The Cash Management Trust of America, The U.S. Treasury Money Fund of America and The Tax-Exempt Money Fund of America — added as the last paragraph to the “Purchase of Class A, B and C shares” subsection in the “Purchase and exchange of shares” section of the Prospectus, and for The Cash Management Trust of America and The U.S. Treasury Money Fund of America — added after the third paragraph in the “Purchases and exchanges” subsection in the “Purchase, exchange and sale of shares” section of the Retirement Plan Prospectus.

For AMCAP Fund, American Balanced Fund, American High-Income Trust, American Mutual Fund, The Bond Fund of America, Capital Income Builder, Capital World Bond Fund, Capital World Growth and Income Fund, EuroPacific Growth Fund, Fundamental Investors, The Growth Fund of America, The Income Fund of America, Intermediate Bond Fund of America, International Growth and Income Fund, The Investment Company of America, The New Economy Fund, New Perspective Fund, New World Fund, Short-Term Bond Fund of America, SMALLCAP World Fund, U.S. Government Securities Fund and Washington Mutual Investors Fund — added as the last paragraph to the “Employer-sponsored retirement plans” subsection in the “Sales charges” section of the Prospectus and the Retirement Plan Prospectus.

“A 403(b) plan may not invest in Class A, Class B or Class C shares on or after January 1, 2009 unless such plan was invested in Class A, Class B or Class C shares prior to that date.”

4.   Applicable to The Cash Management Trust of America, The U.S. Treasury Money Fund of America and The Tax-Exempt Money Fund of America only — The “Risk/Return summary” section of the Prospectus and Retirement Plan Prospectus is amended by replacing the third and fourth paragraphs with the following:

“Each of the funds paid a fee of 0.01% of its net assets as of September 19, 2008, in order to participate in the program for the initial three-month period, which expired on December 18, 2008.

The United States Treasury Department has extended the program through April 30, 2009. Each of the funds is participating in the program for this extension period and has paid a fee of 0.015% of its net assets as of September 19, 2008, in order to participate for the period from December 19, 2008 through April 30, 2009. The terms and conditions of the program and qualifications for insurance coverage under the program remain the same as for the initial period.

The term of the program may be further extended by the Secretary of the Treasury through September 18, 2009. The duration and terms of any such extension have not been determined. The funds and their boards will evaluate the terms of any extension after they are announced; however, the funds are not required to participate in any further extension.”

5.   Applicable to Capital Income Builder only.

The first paragraph under the heading “Dividends and distributions” in the “Distributions and taxes” section of the Prospectus is amended in its entirety to read as follows:

“The fund intends to distribute dividends to you, usually in March, June, September and December.”

The first paragraph under the heading “Dividends and distributions” in the “Distributions and taxes” section of the Retirement Plan Prospectus is amended in its entirety to read as follows:

“The fund intends to distribute dividends to shareholders, usually in March, June, September and December.”










MFGEBS-018-1208P Litho in USA CGD/LPT/9908-S19416

...
 
<PAGE>


                          AMERICAN BALANCED FUND, INC.

                                     Part B
                      Statement of Additional Information

                                 July 30, 2008

                     (as supplemented January 1, 2009)

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
July 30, 2008 or retirement plan prospectus of the fund dated March 1, 2008. You
may obtain a prospectus from your financial adviser or by writing to the fund at
the following address:

                          American Balanced Fund, Inc.
                              Attention: Secretary
                                   One Market
                           Steuart Tower, Suite 1800
                        San Francisco, California 94105
                                  415/421-9360

Certain privileges and/or services described below may not be available to all
shareholders (including shareholders who purchase shares at net asset value
through eligible retirement plans) depending on the shareholder's investment
dealer or retirement plan recordkeeper. Please see your financial adviser,
investment dealer, plan recordkeeper or employer for more information.


                               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. . . . . . . . . .        9
Management of the fund. . . . . . . . . . . . . . . . . . . . . . .       11
Execution of portfolio transactions . . . . . . . . . . . . . . . .       31
Disclosure of portfolio holdings. . . . . . . . . . . . . . . . . .       34
Price of shares . . . . . . . . . . . . . . . . . . . . . . . . . .       35
Taxes and distributions . . . . . . . . . . . . . . . . . . . . . .       37
Purchase and exchange of shares . . . . . . . . . . . . . . . . . .       42
Sales charges . . . . . . . . . . . . . . . . . . . . . . . . . . .       46
Sales charge reductions and waivers . . . . . . . . . . . . . . . .       48
Selling shares. . . . . . . . . . . . . . . . . . . . . . . . . . .       53
Shareholder account services and privileges . . . . . . . . . . . .       53
General information . . . . . . . . . . . . . . . . . . . . . . . .       56
Appendix. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       63
Financial statements





                        American Balanced Fund -- Page 1
<PAGE>


                 CERTAIN INVESTMENT LIMITATIONS AND GUIDELINES

The following limitations and guidelines are considered at the time of purchase,
under normal circumstances, 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 (including money market instruments) generally rated Baa3 or
     better by Moody's Investors Service or BBB- or better by Standard & Poor's
     Corporation, or in unrated securities determined by the investment adviser
     to be of equivalent quality.

.    Although the fund is not normally required to dispose of a security in the
     event its rating is reduced below the current minimum rating for its
     purchase (or if unrated, its quality becomes equivalent to such a rating),
     if, as a result of a downgrade or otherwise, the fund holds more than 5% of
     its net assets in these securities, the fund will dispose of the excess as
     deemed prudent by Capital Research and Management Company, the fund's
     investment adviser.

INVESTING OUTSIDE THE U.S.

.    The fund may invest up to 12% of its assets in securities of issuers
     domiciled outside the United States. In determining the domicile of an
     issuer, the fund's investment adviser will consider the domicile
     determination of a leading provider of global indexes, such as Morgan
     Stanley Capital International, and may also take into account such factors
     as where the company is legally organized, maintains principal corporate
     offices and/or conducts its principal operations.

                        *     *     *     *     *     *

The fund may experience difficulty liquidating certain portfolio securities
during significant market declines or periods of heavy redemptions.


          DESCRIPTION OF CERTAIN SECURITIES AND INVESTMENT TECHNIQUES

The descriptions below are intended to supplement the material in the prospectus
under "Investment objectives, strategies and risks."


EQUITY SECURITIES -- Equity securities represent an ownership position in a
company. Equity securities held by the fund typically consist of common stocks.
The prices of equity securities fluctuate based on, among other things, events
specific to their issuers and market, economic and other conditions. For
example, prices of these securities can be affected by financial contracts held
by the issuer or third parties (such as derivatives) relating to the security or
other assets or indices.


                        American Balanced Fund -- Page 2
<PAGE>


There may be little trading in the secondary market for particular equity
securities, which may adversely affect the fund's ability to value accurately or
dispose of such equity securities. Adverse publicity and investor perceptions,
whether or not based on fundamental analysis, may decrease the value and/or
liquidity of equity securities.


DEBT SECURITIES -- Debt securities are used by issuers to borrow money.
Generally, issuers pay investors periodic interest and repay the amount borrowed
either periodically during the life of the security and/or 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 and their values accrete over
time to face value at maturity. The market prices of debt securities fluctuate
depending on such factors as interest rates, credit quality and maturity. In
general, market prices of debt securities decline when interest rates rise and
increase when interest rates fall.


Certain additional risk factors relating to debt securities are discussed below:


     SENSITIVITY TO INTEREST RATE AND ECONOMIC CHANGES -- Debt securities may be
     sensitive to economic changes, political and corporate developments, and
     interest rate changes. Periods of economic change and uncertainty also can
     be expected to result in increased volatility of market prices and yields
     of certain debt securities. For example, prices of these securities can be
     affected by financial contracts held by the issuer or third parties (such
     as derivatives) relating to the security or other assets or indices.

     PAYMENT EXPECTATIONS -- Debt securities may contain redemption or call
     provisions. If an issuer exercises these provisions in a lower interest
     rate market, the fund would have to replace the security with a lower
     yielding security, resulting in decreased income to investors. If the
     issuer of a debt security defaults on its obligations to pay interest or
     principal or is the subject of bankruptcy proceedings, the fund may incur
     losses or expenses in seeking recovery of amounts owed to it.

     LIQUIDITY AND VALUATION -- There may be little trading in the secondary
     market for particular debt securities, which may affect adversely the
     fund's ability to value accurately or dispose of such debt securities.
     Adverse publicity and investor perceptions, whether or not based on
     fundamental analysis, may decrease the value and/or liquidity of debt
     securities.

The investment adviser attempts to reduce the risks described above through
diversification of the fund's portfolio and by credit analysis of each issuer,
as well as by monitoring broad economic trends and corporate and legislative
developments, but there can be no assurance that it will be successful in doing
so.


Credit ratings for debt securities provided by rating agencies reflect an
evaluation of the safety of principal and interest payments, not market value
risk. The rating of an issuer is a rating agency's view of past and future
potential developments related to the issuer and may not necessarily reflect
actual outcomes. There can be a lag between the time of developments relating to
an issuer and the time a rating is assigned and updated.


Bond rating agencies may assign modifiers (such as +/-) to ratings categories to
signify the relative position of a credit within the rating category. Investment
policies that are based on ratings categories should be read to include any
security within that category, without giving


                        American Balanced Fund -- Page 3
<PAGE>



consideration to the modifier except where otherwise provided. See the Appendix
for more information about credit ratings.


SECURITIES WITH EQUITY AND DEBT CHARACTERISTICS -- The fund may invest in
securities that have a combination of equity and debt characteristics. These
securities may at times behave more like equity than debt or vice versa. Some
types of convertible bonds, preferred stocks or other preferred securities
automatically convert into common stocks or other securities at a stated
conversion ratio and some may be subject to redemption at the option of the
issuer at a predetermined price. These securities, prior to conversion, may pay
a fixed rate of interest or a dividend. Because convertible securities have both
debt and equity characteristics, their values vary in response to many factors,
including the values of the securities into which they are convertible, general
market and economic conditions, and convertible market valuations, as well as
changes in interest rates, credit spreads and the credit quality of the issuer.


The prices and yields of nonconvertible preferred securities or preferred stocks
generally move with changes in interest rates and the issuer's credit quality,
similar to the factors affecting debt securities. Nonconvertible preferred
securities will be treated as debt for fund investment limit purposes.


U.S. GOVERNMENT OBLIGATIONS -- U.S. government obligations are securities backed
by the full faith and credit of the U.S. government. U.S. government obligations
include the following types of securities:


     U.S. TREASURY SECURITIES -- U.S. Treasury securities include direct
     obligations of the U.S. Treasury, such as Treasury bills, notes and bonds.
     For these securities, the payment of principal and interest is
     unconditionally guaranteed by the U.S. government, and thus they are of the
     highest possible credit quality. Such securities are subject to variations
     in market value due to fluctuations in interest rates, but, if held to
     maturity, will be paid in full.

     FEDERAL AGENCY SECURITIES BACKED BY "FULL FAITH AND CREDIT" -- The
     securities of certain U.S. government agencies and government-sponsored
     entities are guaranteed as to the timely payment of principal and interest
     by the full faith and credit of the U.S. government. Such agencies and
     entities include the Government National Mortgage Association (Ginnie Mae),
     the Veterans Administration (VA), the Federal Housing Administration (FHA),
     the Export-Import Bank (Exim Bank), the Overseas Private Investment
     Corporation (OPIC), the Commodity Credit Corporation (CCC) and the Small
     Business Administration (SBA).

OTHER FEDERAL AGENCY OBLIGATIONS -- Additional federal agency securities are
neither direct obligations of, nor guaranteed by, the U.S. government. These
obligations include securities issued by certain U.S. government agencies and
government-sponsored entities. However, they generally involve some form of
federal sponsorship: some operate under a government charter; some are backed by
specific types of collateral; some are supported by the issuer's right to borrow
from the Treasury; and others are supported only by the credit of the issuing
government agency or entity. These agencies and entities include, but are not
limited to: Federal Home Loan Bank, Federal Home Loan Mortgage Corporation
(Freddie Mac), Federal National Mortgage Association (Fannie Mae), Tennessee
Valley Authority and Federal Farm Credit Bank System.


                        American Balanced Fund -- Page 4
<PAGE>



On September 7, 2008, Freddie Mac and Fannie Mae were placed into
conservatorship by their new regulator, the Federal Housing Finance Agency.
Simultaneously, the U.S. Treasury made a commitment of indefinite duration to
maintain the positive net worth of both firms.


PASS-THROUGH SECURITIES -- The fund may invest in various debt obligations
backed by pools of mortgages or other assets including, but not limited to,
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, net of any fees paid to
any insurer or any guarantor of the securities. Pass-through securities may have
either fixed or adjustable coupons. These securities include:


     MORTGAGE-BACKED SECURITIES -- These securities may be issued by U.S.
     government agencies and government-sponsored entities, such as Ginnie Mae,
     Fannie Mae and Freddie Mac, and by private entities. The payment of
     interest and principal on mortgage-backed obligations issued by U.S.
     government agencies may be guaranteed by the full faith and credit of the
     U.S. government (in the case of Ginnie Mae), or may be guaranteed by the
     issuer (in the case of Fannie Mae and Freddie Mac). However, these
     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 those issued by U.S. government agencies. However, these
     securities and the underlying mortgages are not guaranteed by any
     government agencies. These securities generally are structured with one or
     more types of credit enhancements such as insurance or letters of credit
     issued by private companies. Mortgage-backed securities generally permit
     borrowers to prepay their underlying mortgages. Prepayments can alter the
     effective maturity of these instruments.

     COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS) -- CMOs are also backed by a
     pool of mortgages 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 issue at varying schedules
     resulting in bonds with different coupons, effective maturities and
     sensitivities to interest rates. Some CMOs may be structured in a way that
     when interest rates change, the impact of changing prepayment rates on the
     effective maturities of certain issues of these securities is magnified.
     CMOs may be less liquid or may exhibit greater price volatility than other
     types of mortgage or asset-backed securities.

     COMMERCIAL MORTGAGE-BACKED SECURITIES -- These securities are backed by
     mortgages on commercial property, such as hotels, office buildings, retail
     stores, hospitals and other commercial buildings. These securities may have
     a lower prepayment uncertainty 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


                        American Balanced Fund -- Page 5
<PAGE>


     make rental payments and the ability of a property to attract and retain
     tenants. Commercial mortgage-backed securities may be less liquid or
     exhibit greater price volatility than other types of mortgage or
     asset-backed securities.

     ASSET-BACKED SECURITIES -- These 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 that can change their effective
     maturities.

WARRANTS AND RIGHTS -- The fund may purchase warrants, which may be issued
together with bonds or preferred stocks. Warrants generally entitle the holder
to buy a proportionate amount of common stock at a specified price, usually
higher than the current market price. Warrants may be issued with an expiration
date or in perpetuity. Rights are similar to warrants except that they normally
entitle the holder to purchase common stock at a lower price than the current
market price.


INFLATION-INDEXED BONDS -- The fund may invest in inflation-indexed bonds issued
by governments, their agencies or instrumentalities and corporations.


The principal amount of an inflation-indexed bond is adjusted in response to
changes in the level of the consumer price index. Repayment of the original bond
principal upon maturity (as adjusted for inflation) is guaranteed in the case of
U.S. Treasury inflation-indexed bonds, and therefore the principal amount of
such bonds cannot be reduced below par even during a period of deflation.
However, the current market value of these bonds is not guaranteed and will
fluctuate, reflecting the rise and fall of yields. In certain jurisdictions
outside the United States the repayment of the original bond principal upon the
maturity of an inflation-indexed bond is not guaranteed, allowing for the amount
of the bond repaid at maturity to be less than par.


The interest rate for inflation-indexed bonds is fixed at issuance as a
percentage of this adjustable principal. Accordingly, the actual interest income
may both rise and fall as the principal amount of the bonds adjusts in response
to movements of the consumer price index. For example, typically interest income
would rise during a period of inflation and fall during a period of deflation.


REAL ESTATE INVESTMENT TRUSTS -- The fund may invest in securities issued by
real estate investment trusts (REITs), which primarily invest in real estate or
real estate-related loans. Equity REITs own real estate properties, while
mortgage REITs hold construction, development and/or long-term mortgage loans.
The values of REITs may be affected by changes in the value of the underlying
property of the trusts, the creditworthiness of the issuer, property taxes,
interest rates, tax laws and regulatory requirements, such as those relating to
the environment. Both types of REITs are dependent upon management skill and the
cash flows generated by their holdings, the real estate market in general and
the possibility of failing to qualify for any applicable pass-through tax
treatment or failing to maintain any applicable exemptive status afforded under
relevant laws.


                        American Balanced Fund -- Page 6
<PAGE>


INVESTING IN VARIOUS COUNTRIES -- Investing outside the United States may
involve additional risks caused by, among other things, currency controls and
fluctuating currency values; different accounting, auditing, financial reporting
and legal standards and practices in some countries; changing local, regional
and global economic, political and social conditions; expropriation; changes in
tax policy; greater market volatility; differing securities market structures;
higher transaction costs; and various administrative difficulties, such as
delays in clearing and settling portfolio transactions or in receiving payment
of dividends.


The risks described above may be heightened in connection with investments in
developing countries. Although there is no universally accepted definition, the
investment adviser generally considers a developing country as a country that is
in the earlier stages of its industrialization cycle with a low per capita gross
domestic product ("GDP") and a low market capitalization to GDP ratio relative
to those in the United States and the European Union. Historically, the markets
of developing countries have been more volatile than the markets of developed
countries. The fund may invest in securities of issuers in developing countries
only to a limited extent.


Additional costs could be incurred in connection with the fund's investment
activities outside the United States. Brokerage commissions may be higher
outside the United States, and the fund will bear certain expenses in connection
with its currency transactions. Furthermore, increased custodian costs may be
associated with maintaining assets in certain jurisdictions.


The fund may purchase and sell currencies to facilitate securities transactions.


CASH AND CASH EQUIVALENTS -- The fund may hold cash or invest in cash
equivalents. Cash equivalents include (a) commercial paper (for example,
short-term notes with maturities typically up to 12 months in length issued by
corporations, governmental bodies or bank/corporation sponsored conduits
(asset-backed commercial paper)) (b) short-term bank obligations (for example,
certificates of deposit, bankers' acceptances (time drafts on a commercial bank
where the bank accepts an irrevocable obligation to pay at maturity)) or bank
notes, (c) savings association and savings bank obligations (for example, bank
notes and certificates of deposit issued by savings banks or savings
associations), (d) securities of the U.S. government, its agencies or
instrumentalities that mature, or may be redeemed, in one year or less, and (e)
corporate bonds and notes that mature, or that may be redeemed, in one year or
less.


REPURCHASE AGREEMENTS -- The fund may enter into repurchase agreements under
which the fund buys a security and obtains a simultaneous commitment from the
seller to repurchase the security at a specified time and price. Repurchase
agreements permit the fund to maintain liquidity and earn income over periods of
time as short as overnight. The seller must maintain with the fund's custodian
collateral equal to at least 100% of the repurchase price, including accrued
interest, as monitored daily by the investment adviser. The fund will only enter
into repurchase agreements involving securities in which it could otherwise
invest and with selected banks and securities dealers whose financial condition
is monitored by the investment adviser. If the seller under the repurchase
agreement defaults, the fund may incur a loss if the value of the collateral
securing the repurchase agreement has declined and may incur disposition costs
in connection with liquidating the collateral. If bankruptcy proceedings are
commenced with respect to the seller, realization of the collateral by the fund
may be delayed or limited.


FORWARD COMMITMENT, WHEN ISSUED AND DELAYED DELIVERY TRANSACTIONS -- The fund
may enter into commitments to purchase or sell securities at a future date. When
the fund agrees to purchase such securities, it assumes the risk of any decline
in value of the security from the date


                        American Balanced Fund -- Page 7
<PAGE>


of the agreement. If the other party to such a transaction fails to deliver or
pay for the securities, the fund could miss a favorable price or yield
opportunity, or could experience a loss.


The fund will not use these transactions for the purpose of leveraging and will
segregate liquid assets that 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 in connection with these transactions exceed its
segregated assets, the fund temporarily could be in a leveraged position
(because it may 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 if it were 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. After a transaction is entered into,
the fund may still dispose of or renegotiate the transaction. Additionally,
prior to receiving delivery of securities as part of a transaction, the fund may
sell such securities.


The fund may also enter into "roll" transactions which involve the sale of
mortgage-backed or other securities together with a commitment to purchase
similar, but not identical, securities at a later date. The fund assumes the
risk of price and yield fluctuations during the time of the commitment. The fund
will segregate liquid assets which will be marked to market daily in an amount
sufficient to meet its payment obligations in these transactions.


RESTRICTED OR ILLIQUID SECURITIES -- The fund may purchase securities subject to
restrictions on resale. Restricted securities may only be sold pursuant to an
exemption from registration under the Securities Act of 1933 (the "1933 Act"),
or in a registered public offering. Where registration is required, the holder
of a registered security may be obligated to pay all or part of the registration
expense and a considerable period may elapse between the time it decides to seek
registration and the time it may be permitted to sell a security under an
effective registration statement. Difficulty in selling such securities may
result in a loss to the fund or cause it to incur additional administrative
costs.


Securities (including restricted securities) not actively traded 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 the frequency and volume of trading, the commitment of dealers
to make markets and the availability of qualified investors, all of which can
change from time to time. The fund may incur certain additional costs in
disposing of illiquid securities.

                        *     *     *     *     *     *

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 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.


The fund's portfolio turnover rates for the fiscal years ended December 31, 2007
and 2006 were 35% and 34%, respectively. The portfolio turnover rate would equal
100% if each security in a


                        American Balanced Fund -- Page 8
<PAGE>


fund's portfolio were replaced once per year. See "Financial highlights" in the
prospectus for the fund's annual portfolio turnover rate for each of the last
five fiscal years.


Under normal circumstances, the investment adviser anticipates 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.


Fixed-income securities are generally traded on a net basis and usually neither
brokerage commissions nor transfer taxes are involved. Transaction costs are
usually reflected in the spread between the bid and asked price.


                FUNDAMENTAL POLICIES AND INVESTMENT RESTRICTIONS

FUNDAMENTAL POLICIES -- The fund has adopted the following fundamental policies
and investment restrictions, which may not be changed without approval by
holders of a majority of its outstanding shares. Such majority is defined in the
Investment Company Act of 1940, as amended (the "1940 Act"), as the vote of the
lesser of (a) 67% or more of the outstanding voting securities present at a
shareholder meeting, if the holders of more than 50% of the outstanding voting
securities are present in person or by proxy, or (b) more than 50% of the
outstanding voting securities. All percentage limitations are considered at the
time securities are purchased and are based on the fund's net assets unless
otherwise indicated. None of the following investment restrictions involving a
maximum percentage of assets will be considered violated unless the excess
occurs immediately after, and is caused by, an acquisition by the fund.


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 money except for temporarily extraordinary or emergency
purposes, in an amount not exceeding 5% of the fund's total assets at the time
of borrowing.

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.


                        American Balanced Fund -- Page 9
<PAGE>


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 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.

12.  Not to effect short sales of securities.

13.  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.

14.  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.


For purposes of Investment Restriction #9, investments in real estate investment
trusts that own real estate properties are not deemed to be purchases of real
estate by the fund.


Notwithstanding Investment Restriction #14, the fund may purchase warrants
issued together with bonds or preferred stock as well as rights.


NONFUNDAMENTAL POLICIES -- The following policies may be changed without
shareholder approval:


1.   Not to invest in securities of other investment companies, except as
permitted by the 1940 Act.

2.   Not to invest in senior securities, except as permitted by the 1940 Act.

3.   Not to acquire securities of open-end investment companies or unit
investment trusts registered under the 1940 Act in reliance on Sections
12(d)(1)(F) or 12(d)(1)(G) of the 1940 Act.

Notwithstanding non-fundamental Investment Restriction #1, 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.


                       American Balanced Fund -- Page 10
<PAGE>


                             MANAGEMENT OF THE FUND

BOARD OF DIRECTORS AND OFFICERS


"INDEPENDENT" DIRECTORS/1/

 NAME, AGE AND                                                  NUMBER OF
 POSITION WITH FUND                                           PORTFOLIOS/3/
 (YEAR FIRST ELECTED  AS A        PRINCIPAL OCCUPATION(S)       OVERSEEN             OTHER DIRECTORSHIPS/4/ HELD
 DIRECTOR/2/)                     DURING PAST FIVE YEARS       BY DIRECTOR                   BY DIRECTOR
-------------------------------------------------------------------------------------------------------------------

 Mary Jane Elmore, 54           Managing Director and               3              None
 Director (2008)                General Partner,
                                Institutional Venture
                                Partners; former Product
                                Marketing Manager, Intel
                                Corporation's Development
                                Systems Division
-------------------------------------------------------------------------------------------------------------------
 Robert A. Fox, 71              Managing General Partner,           8              Chemtura Corporation
 Director (1976-1978; 1982)     Fox Investments LP;
                                corporate director; retired
                                President and CEO, Foster
                                Farms (poultry producer)
-------------------------------------------------------------------------------------------------------------------
 Leonade D. Jones, 61           Co-founder, VentureThink            7              None
 Chairman of the Board          LLC (developed and managed
 (Independent and               e-commerce businesses) and
 Non-Executive) (1993)          Versura Inc. (education
                                loan exchange); former
                                Treasurer, The Washington
                                Post Company

-------------------------------------------------------------------------------------------------------------------
 William D. Jones, 53           Real estate developer/              5              Sempra Energy;
 Director (2008)                owner, President and CEO,                          SouthWest Water Company
                                CityLink Investment
                                Corporation (acquires,
                                develops and manages real
                                estate ventures in selected
                                urban communities) and City
                                Scene Management Company
                                (provides commercial asset
                                and property management
                                services)

-------------------------------------------------------------------------------------------------------------------
 John M. Lillie, 71             Former President, Sequoia           3              None
 Director (2003)                Associates LLC (investment
                                firm specializing in
                                medium-size buyouts);
                                former CEO, American
                                President Companies
                                (container shipping and
                                transportation services);
                                former CEO, Lucky Stores;
                                former CEO, Leslie Salt

-------------------------------------------------------------------------------------------------------------------
 John G. McDonald, 71           Stanford Investors                  9              iStar Financial, Inc.;
 Director (1975-1978; 1988)     Professor, Graduate School                         Plum Creek Timber Co.;
                                of Business, Stanford                              Scholastic Corporation;
                                University                                         Varian, Inc.
-------------------------------------------------------------------------------------------------------------------
 James J. Postl, 62             Former President and CEO,           3              Centex Corporation;
 Director (2007)                Pennzoil-Quaker State                              Cooper Industries
                                Company (automotive
                                products and services)

-------------------------------------------------------------------------------------------------------------------
 Henry E. Riggs, 73             President Emeritus, Keck            5              None
 Director (1989)                Graduate Institute of
                                Applied Life Sciences
-------------------------------------------------------------------------------------------------------------------
 Isaac Stein, 62                President, Waverley                 3              Alexza Pharmaceuticals, Inc.;
 Director (2004)                Associates (private                                Maxygen, Inc.
                                investment fund); Chairman
                                Emeritus of the Board of
                                Trustees, Stanford
                                University
-------------------------------------------------------------------------------------------------------------------
 Patricia K. Woolf, Ph.D.,      Private investor; corporate         7              None
 74                             director; former Lecturer,
 Director (1988)                Department of Molecular
                                Biology, Princeton
                                University
-------------------------------------------------------------------------------------------------------------------





                       American Balanced Fund -- Page 11
<PAGE>


 [This page is intentionally left blank for this filing.]

                       American Balanced Fund -- Page 12
<PAGE>


"INTERESTED" DIRECTORS/5,6/

                                 PRINCIPAL OCCUPATION(S)
                                 DURING PAST FIVE YEARS
 NAME, AGE AND                        AND POSITIONS            NUMBER OF
 POSITION WITH FUND           HELD WITH AFFILIATED ENTITIES  PORTFOLIOS/3/
 (YEAR FIRST ELECTED AS A     OR THE PRINCIPAL UNDERWRITER     OVERSEEN       OTHER DIRECTORSHIPS/4/ HELD
 DIRECTOR/OFFICER/2/)                  OF THE FUND            BY DIRECTOR             BY DIRECTOR
----------------------------------------------------------------------------------------------------------

 Robert G. O'Donnell, 64       Senior Vice President -             2         None
 Vice Chairman of the Board    Capital World Investors,
 (1990)                        Capital Research and
                               Management Company;
                               Director, Capital Research
                               and Management Company
----------------------------------------------------------------------------------------------------------



OTHER OFFICERS/6/

 NAME, AGE AND
 POSITION WITH FUND          PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
 (YEAR FIRST ELECTED AS       AND POSITIONS HELD WITH AFFILIATED ENTITIES
 AN OFFICER/2/)                 OR THE PRINCIPAL UNDERWRITER OF THE FUND
-------------------------------------------------------------------------------

 Gregory D. Johnson,      Senior Vice President - Capital World Investors,
 45                       Capital Research and Management Company
 President (2003)
-------------------------------------------------------------------------------
 Hilda L. Applbaum, 47    Senior Vice President - Capital World Investors,
 Senior Vice President    Capital Research and Management Company
 (1999)
-------------------------------------------------------------------------------
 Paul F. Roye, 55         Senior Vice President - Fund Business Management
 Senior Vice President    Group, Capital Research and Management Company;
 (2007)                   Director, American Funds Service Company*; former
                          Director of Investment Management, United States
                          Securities and Exchange Commission
-------------------------------------------------------------------------------
 John H. Smet, 52         Senior Vice President - Fixed Income, Capital
 Senior Vice President    Research and Management Company; Director, American
 (2000)                   Funds Distributors, Inc.*
-------------------------------------------------------------------------------
 Jeffrey T. Lager, 40     Senior Vice President - Capital World Investors,
 Vice President (2002)    Capital Research Company*
-------------------------------------------------------------------------------
 Patrick F. Quan, 50      Vice President - Fund Business Management Group,
 Secretary (1986)         Capital Research and Management Company
-------------------------------------------------------------------------------
 Jennifer M. Buchheim,    Vice President - Fund Business Management Group,
 35                       Capital Research and Management Company
 Treasurer (2005)
-------------------------------------------------------------------------------
 Bryan K. Nielsen, 35     Vice President, Capital Guardian Trust Company*;
 Assistant Treasurer      Vice President, Capital International, Inc.*
 (2008)
-------------------------------------------------------------------------------





                       American Balanced Fund -- Page 13
<PAGE>


*  Company affiliated with Capital Research and Management Company.

1  The term "independent" director refers to a director who is not an "interested
   person" of the fund within the meaning of the 1940 Act.
2  Directors and officers of the fund serve until their resignation, removal or
   retirement.
3  Funds managed by Capital Research and Management Company, including the
   American Funds; American Funds Insurance Series,(R) which is composed of 16
   funds and serves as the underlying investment vehicle for certain variable
   insurance contracts; American Funds Target Date Retirement Series,(R) Inc.,
   which is composed of nine funds and is available through tax-deferred
   retirement plans and IRAs; and Endowments, which is composed of two portfolios
   and is available to certain nonprofit organizations.
4  This includes all directorships (other than those in the American Funds or
   other funds managed by Capital Research and Management Company) that are held
   by each director as a director of a public company or a registered investment
   company.
5  "Interested persons" of the fund within the meaning of the 1940 Act, on the
   basis of their affiliation with the fund's investment adviser, Capital Research
   and Management Company, or affiliated entities (including the fund's principal
   underwriter).
6  All of the officers listed, except Jeffrey T. Lager, are officers and/or
   directors/trustees of one or more of the other funds for which Capital Research
   and Management Company serves as investment adviser.

THE ADDRESS FOR ALL DIRECTORS AND OFFICERS OF THE FUND IS 333 SOUTH HOPE STREET,
55TH FLOOR, LOS ANGELES, CALIFORNIA 90071, ATTENTION: SECRETARY.


                       American Balanced Fund -- Page 14
<PAGE>


FUND SHARES OWNED BY DIRECTORS AS OF DECEMBER 31, 2007

                                                     AGGREGATE DOLLAR RANGE/1/
                                                             OF SHARES
                                                        OWNED IN ALL FUNDS
                                                       IN THE AMERICAN FUNDS
                          DOLLAR RANGE/1/ OF FUND         FAMILY OVERSEEN
          NAME                SHARES OWNED/2/               BY DIRECTOR
-------------------------------------------------------------------------------

 "INDEPENDENT" DIRECTORS
-------------------------------------------------------------------------------
 Mary Jane Elmore/3/         $50,001 - $100,000            Over $100,000
-------------------------------------------------------------------------------
 Robert A. Fox                 Over $100,000               Over $100,000
-------------------------------------------------------------------------------
 Leonade D. Jones              Over $100,000               Over $100,000
-------------------------------------------------------------------------------
 William D. Jones/3/         $50,001 - $100,000            Over $100,000
-------------------------------------------------------------------------------
 John M. Lillie                Over $100,000               Over $100,000
-------------------------------------------------------------------------------
 John G. McDonald              Over $100,000               Over $100,000
-------------------------------------------------------------------------------
 James J. Postl                Over $100,000               Over $100,000
-------------------------------------------------------------------------------
 Henry E. Riggs                Over $100,000               Over $100,000
-------------------------------------------------------------------------------
 Isaac Stein                   Over $100,000               Over $100,000
-------------------------------------------------------------------------------
 Patricia K. Woolf           $50,001 - $100,000            Over $100,000
-------------------------------------------------------------------------------
 "INTERESTED" DIRECTORS
-------------------------------------------------------------------------------
 Robert G. O'Donnell           Over $100,000               Over $100,000
-------------------------------------------------------------------------------

1  Ownership disclosure is made using the following ranges: None; $1 - $10,000;
   $10,001 - $50,000; $50,001 - $100,000; and Over $100,000. The amounts listed
   for "interested" directors include shares owned through The Capital Group
   Companies, Inc. retirement plan and 401(k) plan.
2  An independent director also may have exposure to the fund through an
   allocation of some or all of his or her nonqualified deferred compensation
   account.
3  Mary Jane Elmore and William D. Jones were elected as directors on August 7,
   2008. The dollar range of fund shares owned is as of August 7, 2008.


DIRECTOR COMPENSATION -- No compensation is paid by the fund to any officer or
director who is a director, officer or employee of the investment adviser or its
affiliates. The boards of funds advised by the investment adviser typically meet
either individually or jointly with the boards of one or more other such funds
with substantially overlapping board membership (in each case referred to as a
"board cluster"). The fund typically pays each independent director an annual
fee, which ranges from $16,500 to $35,000, based primarily on the total number
of board clusters on which that independent director serves.


In addition, the fund generally pays independent directors attendance and other
fees for meetings of the board and its committees. Board and committee chairs
receive additional fees for their services.


                       American Balanced Fund -- Page 15
<PAGE>


Independent directors also receive attendance fees for certain special joint
meetings and information sessions with directors and trustees of other groupings
of funds advised by the investment adviser. The fund and the other funds served
by each independent director each pay an equal portion of these attendance fees.


No pension or retirement benefits are accrued as part of fund expenses.
Independent directors may elect, on a voluntary basis, to defer all or a portion
of their fees through a deferred compensation plan in effect for the fund. The
fund also reimburses certain expenses of the independent directors.


DIRECTOR COMPENSATION EARNED DURING THE FISCAL YEAR ENDED DECEMBER 31, 2007

                                                     TOTAL COMPENSATION (INCLUDING
                                                         VOLUNTARILY DEFERRED
                                                           COMPENSATION/1/)
                         AGGREGATE COMPENSATION        FROM ALL FUNDS MANAGED BY
                         (INCLUDING VOLUNTARILY     CAPITAL RESEARCH AND MANAGEMENT
                        DEFERRED COMPENSATION/1/)    COMPANY OR ITS AFFILIATES/2/
         NAME                 FROM THE FUND
-----------------------------------------------------------------------------------

 Mary Jane Elmore/5/                None                           None
-----------------------------------------------------------------------------------
 Robert A. Fox/3/                $45,642                       $278,041
-----------------------------------------------------------------------------------
 Leonade D. Jones/3/              67,667                        342,375
-----------------------------------------------------------------------------------
 William D. Jones/5/                None                        112,100
-----------------------------------------------------------------------------------
 John M. Lillie                   64,500                        129,450
-----------------------------------------------------------------------------------
 John G. McDonald/3/              43,187                        368,500
-----------------------------------------------------------------------------------
 James J. Postl/4/                70,833                         70,833
-----------------------------------------------------------------------------------
 Henry E. Riggs/3/                52,750                        248,771
-----------------------------------------------------------------------------------
 Isaac Stein                      58,750                        117,950
-----------------------------------------------------------------------------------
 Patricia K. Woolf/3/             53,959                        306,125
-----------------------------------------------------------------------------------

1  Amounts may be deferred by eligible directors under a nonqualified 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 American Funds
   as designated by the directors. Compensation shown in this table for the fiscal
   year ended December 31, 2007 does not include earnings on amounts deferred in
   previous fiscal years. See footnote 3 to this table for more information.
2  Funds managed by Capital Research and Management Company, including the
   American Funds; American Funds Insurance Series,(R) which is composed of 16
   funds and serves as the underlying investment vehicle for certain variable
   insurance contracts; American Funds Target Date Retirement Series,(R) Inc.,
   which is composed of nine funds and is available through tax-deferred
   retirement plans and IRAs; and Endowments, which is composed of two portfolios
   and is available to certain nonprofit organizations.
3  Since the deferred compensation plan's adoption, the total amount of deferred
   compensation accrued by the fund (plus earnings thereon) through the 2007
   fiscal year for participating directors is as follows: Robert A. Fox
   ($636,161), Leonade D. Jones ($122,155), John G. McDonald ($487,925), Henry E.
   Riggs ($390,613) and Patricia K. Woolf ($265,462). Amounts deferred and
   accumulated earnings thereon are not funded and are general unsecured
   liabilities of the fund until paid to the directors.
4  Elected effective May 15, 2007.
5  Mary Jane Elmore and William D. Jones were elected as directors on August 7,
   2008 and, therefore, received no compensation from the fund during the fiscal
   year ended December 31, 2007.


As of June 1, 2008, 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 of the fund.


                       American Balanced Fund -- Page 16
<PAGE>


FUND ORGANIZATION AND THE BOARD OF DIRECTORS -- The fund, an open-end,
diversified management investment company, was organized as a Delaware
corporation on September 6, 1932, and reorganized in Maryland on February 2,
1990. Although the board of directors has delegated day-to-day oversight to the
investment adviser, all fund operations are supervised by the fund's board,
which meets periodically and performs duties required by applicable state and
federal laws.


Under Maryland law, the business affairs of a fund are managed under the
direction of the board of directors, and all powers of the fund are exercised by
or under the authority of the board except as reserved to the shareholders by
law or the fund's charter or by-laws. Maryland law requires each director to
perform his/her duties as a director, including his/her duties as a member of
any board committee on which he/she serves, in good faith, in a manner he/she
reasonably believes to be in the best interest of the fund, and with the care
that an ordinarily prudent person in a like position would use under similar
circumstances.


Independent board members are paid certain fees for services rendered to the
fund as described above. They may elect to defer all or a portion of these fees
through a deferred compensation plan in effect for the fund.


The fund has several different classes of shares. Shares of each class represent
an interest in the same investment portfolio. Each class has pro rata rights as
to voting, redemption, dividends and liquidation, except that each class bears
different distribution expenses and may bear different transfer agent fees and
other expenses properly attributable to the particular class as approved by the
board of directors and set forth in the fund's rule 18f-3 Plan. Each class'
shareholders have exclusive voting rights with respect to the respective class'
rule 12b-1 plans adopted in connection with the distribution of shares and on
other matters in which the interests of one class are different from interests
in another class. Shares of all classes of the fund vote together on matters
that affect all classes in substantially the same manner. Each class votes as a
class on matters that affect that class alone. Note that 529 college savings
plan account owners invested in Class 529 shares are not shareholders of the
fund and, accordingly, do not have the rights of a shareholder, such as the
right to vote proxies relating to fund shares. As the legal owner of the fund's
Class 529 shares, the Virginia College Savings Plan/SM/ will vote any proxies
relating to such fund shares.


The fund does not hold annual meetings of shareholders. However, significant
matters that require shareholder approval, such as certain elections of board
members or a change in a fundamental investment policy, will be presented to
shareholders at a meeting called for such purpose. Shareholders have one vote
per share owned. At the request of the holders of at least 10% of the shares,
the fund will hold a meeting at which any member of the board could be removed
by a majority vote.


The fund's articles of incorporation and by-laws as well as separate
indemnification agreements that the fund has entered into with independent
directors provide in effect that, subject to certain conditions, the fund will
indemnify its officers and directors against liabilities or expenses actually
and reasonably incurred by them relating to their service to the fund. However,
directors are not protected from liability by reason of their willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of their office.


COMMITTEES OF THE BOARD OF DIRECTORS -- The fund has an audit committee
comprised of Mary Jane Elmore, Robert A. Fox, Leonade D. Jones, John M. Lillie,
James J. Postl and


                       American Balanced Fund -- Page 17
<PAGE>



Isaac Stein, none of whom is an "interested person" of the fund within the
meaning of the 1940 Act. The committee provides oversight regarding the fund's
accounting and financial reporting policies and practices, its internal controls
and the internal controls of the fund's principal service providers. The
committee acts as a liaison between the fund's independent registered public
accounting firm and the full board of directors. Four audit committee meetings
were held during the 2007 fiscal year.


The fund has a contracts committee comprised of Mary Jane Elmore, Robert A. Fox,
Leonade D. Jones, William D. Jones, John M. Lillie, John G. McDonald, James J.
Postl, Henry E. Riggs, Isaac Stein and Patricia K. Woolf, none of whom is an
"interested person" of the fund within the meaning of the 1940 Act. The
committee's principal function is to request, review and consider the
information deemed necessary to evaluate the terms of certain agreements between
the fund and its investment adviser or the investment adviser's affiliates, such
as the Investment Advisory and Service Agreement, Principal Underwriting
Agreement, Administrative Services Agreement and Plans of Distribution adopted
pursuant to rule 12b-1 under the 1940 Act, that the fund may enter into, renew
or continue, and to make its recommendations to the full board of directors on
these matters. One contracts committee meeting was held during the 2007 fiscal
year.


The fund has a nominating committee comprised of William D. Jones, John M.
Lillie, John G. McDonald, Henry E. Riggs and Patricia K. Woolf, none of whom is
an "interested person" of the fund within the meaning of the 1940 Act. The
committee periodically reviews such issues as the board's composition,
responsibilities, committees, compensation and other relevant issues, and
recommends any appropriate changes to the full board of directors. The committee
also evaluates, selects and nominates independent director candidates to the
full board of directors. While the committee normally is able to identify from
its own and other resources an ample number of qualified candidates, it will
consider shareholder suggestions of persons to be considered as nominees to fill
future vacancies on the board. Such suggestions must be sent in writing to the
nominating committee of the fund, addressed to the fund's secretary, and must be
accompanied by complete biographical and occupational data on the prospective
nominee, along with a written consent of the prospective nominee for
consideration of his or her name by the committee. Six nominating committee
meetings were held during the 2007 fiscal year.


The fund has a proxy committee comprised of Robert A. Fox, Leonade D. Jones,
John G. McDonald, Isaac Stein and Patricia K. Woolf, none of whom is an
"interested person" of the fund within the meaning of the 1940 Act. The
committee's functions include establishing and reviewing procedures and policies
for voting proxies of companies held in the fund's portfolio, making
determinations with regard to certain contested proxy voting issues, and
discussing related current issues. Four proxy committee meetings were held
during the 2007 fiscal year.


PROXY VOTING PROCEDURES AND PRINCIPLES -- The fund and its investment adviser
have adopted Proxy Voting Procedures and Principles (the "Principles") with
respect to voting proxies of securities held by the fund, other American Funds,
Endowments and American Funds Insurance Series. The complete text of these
principles is available on the American Funds website at americanfunds.com.
Certain American Funds, including the fund, have established separate proxy
voting committees that vote proxies or delegate to a voting officer the
authority to vote on behalf of those funds. Proxies for all other funds are
voted by a committee of the appropriate equity investment division of the
investment adviser under authority delegated by those funds'


                       American Balanced Fund -- Page 18
<PAGE>


boards. Therefore, if more than one fund invests in the same company, they may
vote differently on the same proposal.


All U.S. proxies are voted. Proxies for companies outside the U.S. also are
voted, provided there is sufficient time and information available. After a
proxy statement is received, the investment adviser prepares a summary of the
proposals contained in the proxy statement. A discussion of any potential
conflicts of interest also is included in the summary. For proxies of securities
managed by a particular investment division of the investment adviser, the
initial voting recommendation is made by one or more of the division's
investment analysts familiar with the company and industry. A second
recommendation is made by a proxy coordinator (an investment analyst with
experience in corporate governance and proxy voting matters) within the
appropriate investment division, based on knowledge of these Principles and
familiarity with proxy-related issues. The proxy summary and voting
recommendations are made available to the appropriate proxy voting committee for
a final voting decision.


The analyst and proxy coordinator making voting recommendations are responsible
for noting any potential material conflicts of interest. One example might be
where a director of one or more American Funds is also a director of a company
whose proxy is being voted. In such instances, proxy voting committee members
are alerted to the potential conflict. The proxy voting committee may then elect
to vote the proxy or seek a third-party recommendation or vote of an ad hoc
group of committee members.


The Principles, which have been in effect in substantially their current form
for many years, provide an important framework for analysis and decision-making
by all funds. However, they are not exhaustive and do not address all potential
issues. The Principles provide a certain amount of flexibility so that all
relevant facts and circumstances can be considered in connection with every
vote. As a result, each proxy received is voted on a case-by-case basis
considering the specific circumstances of each proposal. The voting process
reflects the funds' understanding of the company's business, its management and
its relationship with shareholders over time.


Information regarding how the fund voted proxies relating to portfolio
securities during the 12-month period ended June 30 of each year will be
available on or about September 1 of each year (a) without charge, upon request
by calling American Funds Service Company at 800/421-0180, (b) on the American
Funds website and (c) on the SEC's website at sec.gov.


The following summary sets forth the general positions of the American Funds,
Endowments, American Funds Insurance Series and the investment adviser on
various proposals. A copy of the full Principles is available upon request, free
of charge, by calling American Funds Service Company or visiting the American
Funds website.


     DIRECTOR MATTERS -- The election of a company's slate of nominees for
     director generally is supported. Votes may be withheld for some or all of
     the nominees if this is determined to be in the best interest of
     shareholders. Separation of the chairman and CEO positions also may be
     supported.

     GOVERNANCE PROVISIONS -- Typically, proposals to declassify a board (elect
     all directors annually) are supported based on the belief that this
     increases the directors' sense of accountability to shareholders. Proposals
     for cumulative voting generally are supported in order to promote
     management and board accountability and an opportunity for leadership
     change. Proposals designed to make director elections more meaningful,
     either by


                       American Balanced Fund -- Page 19
<PAGE>


     requiring a majority vote or by requiring any director receiving more
     withhold votes than affirmative votes to tender his or her resignation,
     generally are supported.

     SHAREHOLDER RIGHTS -- Proposals to repeal an existing poison pill generally
     are supported. (There may be certain circumstances, however, when a proxy
     voting committee of a fund or an investment division of the investment
     adviser believes that a company needs to maintain anti-takeover
     protection.) Proposals to eliminate the right of shareholders to act by
     written consent or to take away a shareholder's right to call a special
     meeting typically are not supported.

     COMPENSATION AND BENEFIT PLANS -- Option plans are complicated, and many
     factors are considered in evaluating a plan. Each plan is evaluated based
     on protecting shareholder interests and a knowledge of the company and its
     management. Considerations include the pricing (or repricing) of options
     awarded under the plan and the impact of dilution on existing shareholders
     from past and future equity awards. Compensation packages should be
     structured to attract, motivate and retain existing employees and qualified
     directors; however, they should not be excessive.

     ROUTINE MATTERS -- The ratification of auditors, procedural matters
     relating to the annual meeting and changes to company name are examples of
     items considered routine. Such items generally are voted in favor of
     management's recommendations unless circumstances indicate otherwise.

PRINCIPAL FUND SHAREHOLDERS - The following table identifies those investors who
own of record or are known by the fund to own beneficially 5% or more of any
class of its shares as of the opening of business on June 1, 2008. Unless
otherwise indicated, the ownership percentages below represent ownership of
record rather than beneficial ownership.


                 NAME AND ADDRESS                    OWNERSHIP PERCENTAGE
----------------------------------------------------------------------------

 Edward D. Jones & Co.                               Class A        19.40%
 Maryland Heights, MO                                Class B         8.04
----------------------------------------------------------------------------
 First Clearing LLC                                  Class B         7.44
 Glen Allen, VA                                      Class C         5.69
----------------------------------------------------------------------------
 Merrill Lynch                                       Class C        14.36
 Jacksonville, FL
----------------------------------------------------------------------------
 Citigroup Global Markets, Inc.                      Class C        11.76
 New York, NY
----------------------------------------------------------------------------
 A G Edwards & Sons Inc.                             Class C         5.26
 Saint Louis, MO
----------------------------------------------------------------------------
 Charles Schwab & Co., Inc.                          Class F-1      10.65
 San Francisco, CA                                   Class R-4       6.53
----------------------------------------------------------------------------
 Prudential Investment Management Service            Class F-1       5.47
 Newark, NJ
----------------------------------------------------------------------------
 Hartford Life Insurance Co.                         Class R-1      32.49
 Hartford, CT                                        Class R-3       7.97
----------------------------------------------------------------------------
 John Hancock Life Insurance Co. USA                 Class R-3      15.28
 Boston, MA
----------------------------------------------------------------------------
 ING Life Insurance & Annuity                        Class R-3      12.19
 Hartford, CT
----------------------------------------------------------------------------
 Fidelity Investments Institutional Operations Co.   Class R-5      23.43
 Covington, KY
----------------------------------------------------------------------------
 McLeod Health                                       Class R-5       5.13
 Wilmington, DE
----------------------------------------------------------------------------




                       American Balanced Fund -- Page 20
<PAGE>


UNLESS OTHERWISE NOTED, REFERENCES IN THIS STATEMENT OF ADDITIONAL INFORMATION
TO CLASS F SHARES, CLASS R SHARES OR CLASS 529 SHARES REFER TO BOTH F SHARE
CLASSES, ALL R SHARE CLASSES OR ALL 529 SHARE CLASSES, RESPECTIVELY.

INVESTMENT ADVISER -- Capital Research and Management Company, the fund's
investment adviser, founded in 1931, maintains research facilities in the United
States and abroad (Los Angeles, San Francisco, New York, Washington, DC, London,
Geneva, Hong Kong, Singapore and Tokyo). These facilities are staffed with
experienced investment professionals. The investment adviser is located at 333
South Hope Street, Los Angeles, CA 90071 and 6455 Irvine Center Drive, Irvine,
CA 92618. It is a wholly owned subsidiary of The Capital Group Companies, Inc.,
a holding company for several investment management subsidiaries. Capital
Research and Management Company manages equity assets through two investment
divisions, Capital World Investors and Capital Research Global Investors, and
manages fixed-income assets through its Fixed Income division. Capital World
Investors and Capital Research Global Investors make investment decisions on an
independent basis.


The investment adviser has adopted policies and procedures that address issues
that may arise as a result of an investment professional's management of the
fund and other funds and accounts. Potential issues could involve allocation of
investment opportunities and trades among funds and accounts, use of information
regarding the timing of fund trades, investment professional compensation and
voting relating to portfolio securities. The investment adviser believes that
its policies and procedures are reasonably designed to address these issues.


COMPENSATION OF INVESTMENT PROFESSIONALS -- As described in the prospectus, the
investment adviser uses a system of multiple portfolio counselors in managing
fund assets. In addition, Capital Research and Management Company's investment
analysts may make investment decisions with respect to a portion of a fund's
portfolio within their research coverage.


Portfolio counselors and investment analysts are paid competitive salaries by
Capital Research and Management Company. In addition, they may receive bonuses
based on their individual portfolio results. Investment professionals also may
participate in profit-sharing plans. The relative mix of compensation
represented by bonuses, salary and profit-sharing plans will vary depending on
the individual's portfolio results, contributions to the organization and other
factors.


To encourage a long-term focus, bonuses based on investment results are
calculated by comparing pretax total investment returns to relevant benchmarks
over the most recent year, a four-year rolling average and an eight-year rolling
average with greater weight placed on the


                       American Balanced Fund -- Page 21
<PAGE>



four-year and eight-year rolling averages. For portfolio counselors, benchmarks
may include measures of the marketplaces in which the fund invests and measures
of the results of comparable mutual funds. For investment analysts, benchmarks
may include relevant market measures and appropriate industry or sector indexes
reflecting their areas of expertise. Capital Research and Management Company
makes periodic subjective assessments of analysts' contributions to the
investment process and this is an element of their overall compensation. The
investment results of each of the fund's portfolio counselors may be measured
against one or more of the following benchmarks, depending on his or her
investment focus: S&P 500; Lipper Growth & Income Funds Index and Barclays
Capital U.S. Aggregate Index (formerly Lehman Brothers U.S. Aggregate Index).



PORTFOLIO COUNSELOR FUND HOLDINGS AND OTHER MANAGED ACCOUNTS -- As described
below, portfolio counselors may personally own shares of the fund. In addition,
portfolio counselors may manage portions of other mutual funds or accounts
advised by Capital Research and Management Company or its affiliates.


THE FOLLOWING TABLE REFLECTS INFORMATION AS OF DECEMBER 31, 2007:

                                          NUMBER             NUMBER
                                         OF OTHER           OF OTHER          NUMBER
                                        REGISTERED           POOLED          OF OTHER
                                        INVESTMENT         INVESTMENT        ACCOUNTS
                                     COMPANIES (RICS)   VEHICLES (PIVS)      FOR WHICH
                                        FOR WHICH          FOR WHICH         PORTFOLIO
                                        PORTFOLIO          PORTFOLIO         COUNSELOR
                      DOLLAR RANGE      COUNSELOR          COUNSELOR       IS A MANAGER
                        OF FUND        IS A MANAGER       IS A MANAGER      (ASSETS OF
     PORTFOLIO           SHARES      (ASSETS OF RICS    (ASSETS OF PIVS   OTHER ACCOUNTS
     COUNSELOR          OWNED/1/     IN BILLIONS)/2/    IN BILLIONS)/3/   IN BILLIONS)/4/
-------------------------------------------------------------------------------------------

 Robert G.                Over         2       $ 82.6         None             None
 O'Donnell             $1,000,000
-------------------------------------------------------------------------------------------
 Gregory D. Johnson    $100,001 -      2       $ 82.6         None             None
                        $500,000
-------------------------------------------------------------------------------------------
 Hilda L. Applbaum     $100,001 -      2       $ 87.8         None             None
                        $500,000
-------------------------------------------------------------------------------------------
 John H. Smet          $100,001 -      5       $238.4         None           3      $2.42
                        $500,000
-------------------------------------------------------------------------------------------
 Alan N. Berro         $100,001 -      3       $192.2         None             None
                        $500,000
-------------------------------------------------------------------------------------------
 James R. Mulally         Over         2       $114.7      3      $0.77      7      $1.79
                       $1,000,000
-------------------------------------------------------------------------------------------
 Dina N. Perry         $100,001 -      3       $199.2      1      $1.09        None
                        $500,000
-------------------------------------------------------------------------------------------




                       American Balanced Fund -- Page 22
<PAGE>


1  Ownership disclosure is made using the following ranges: None; $1 - $10,000;
   $10,001 - $50,000; $50,001 - $100,000; $100,001 - $500,000; $500,001 -
   $1,000,000; and Over $1,000,000. The amounts listed include shares owned
   through The Capital Group Companies, Inc. retirement plan and 401(k) plan.
2  Indicates fund(s) where the portfolio counselor also has significant
   responsibilities for the day to day management of the fund(s). Assets noted are
   the total net assets of the registered investment companies and are not the
   total assets managed by the individual, which is a substantially lower amount.
   No fund has an advisory fee that is based on the performance of the fund.
3  Represents funds advised or sub-advised by Capital Research and Management
   Company and sold outside the United States and/ or fixed-income assets in
   institutional accounts managed by investment adviser subsidiaries of Capital
   Group International, Inc., an affiliate of Capital Research and Management
   Company. Assets noted are the total net assets of the funds or accounts and are
   not the total assets managed by the individual, which is a substantially lower
   amount. No fund or account has an advisory fee that is based on the performance
   of the fund or account.
4  Reflects other professionally managed accounts held at companies affiliated
   with Capital Research and Management Company. Personal brokerage accounts of
   portfolio counselors and their families are not reflected.


INVESTMENT ADVISORY AND SERVICE AGREEMENT -- The Investment Advisory and Service
Agreement (the "Agreement") between the fund and the investment adviser will
continue in effect until December 31, 2009, unless sooner terminated, and may be
renewed from year to year thereafter, provided that any such renewal has been
specifically approved at least annually by (a) the board of directors, or by the
vote of a majority (as defined in the 1940 Act) of the outstanding voting
securities of the fund, and (b) the vote of a majority of directors who are not
parties to the Agreement or interested persons (as defined in the 1940 Act) of
any such party, cast in person at a meeting called for the purpose of voting on
such approval. The Agreement provides that the investment adviser has no
liability to the fund for its acts or omissions in the performance of its
obligations to the fund not involving willful misconduct, bad faith, gross
negligence or reckless disregard of its obligations under the Agreement. 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 Agreement
automatically terminates in the event of its assignment (as defined in the 1940
Act).


In addition to providing investment advisory services, the investment adviser
furnishes the services and pays the compensation and travel expenses of persons
to perform the fund's executive, administrative, clerical and bookkeeping
functions, and provides suitable office space, necessary small office equipment
and utilities, general purpose accounting forms, supplies and postage used at
the fund's offices. The fund pays all expenses not assumed by the investment
adviser, including, but not limited to: custodian, stock transfer and dividend
disbursing fees and expenses; shareholder recordkeeping and administrative
expenses; costs of the designing, printing and mailing of reports, prospectuses,
proxy statements and notices to its shareholders;


                       American Balanced Fund -- Page 23
<PAGE>


taxes; expenses of the issuance and redemption of fund shares (including stock
certificates, registration and qualification fees and expenses); expenses
pursuant to the fund's plans of distribution (described below); legal and
auditing expenses; compensation, fees and expenses paid to independent
directors; association dues; costs of stationery and forms prepared exclusively
for the fund; and costs of assembling and storing shareholder account data.


The investment adviser receives a management fee at the annual rate of 0.42% on
the first $500 million of the fund's daily 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, 0.25% of
such assets over $10.5 billion to $13 billion, 0.245% of such assets over $13
billion to $17 billion, 0.24% of such assets over $17 billion to $21 billion,
0.235% of such assets over $21 billion to $27 billion, 0.230% of such assets
over $27 billion to $34 billion, 0.225% of such assets over $34 billion to $44
billion, 0.220% of such assets over $44 billion to $55 billion, 0.215% of such
assets over $55 billion to $71 billion, and 0.210% of such assets over $71
billion.


The Agreement provides for a management fee reduction to the extent that the
annual ordinary operating expenses of the fund's Class A shares exceed 1 1/2% of
the first $30 million of the net assets of the fund and 1% of the average net
assets in excess thereof. Expenses which are not subject to these limitations
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. To the extent the fund's management fee must be waived due to Class
A share expense ratios exceeding the expense limitations described above,
management fees will be reduced similarly for all classes of shares of the fund,
or other Class A fees will be waived in lieu of management fees.


For the fiscal years ended December 31, 2007, 2006 and 2005, the investment
adviser was entitled to receive from the fund management fees of $140,741,000,
$127,668,000 and $118,294,000, respectively. After giving effect to the
management fee waiver described below, the fund paid the investment adviser
management fees of $126,667,000 (a reduction of $14,074,000), $114,901,000 (a
reduction of $12,767,000), and $107,841,000 (a reduction of $10,453,000) for the
fiscal years ended December 31, 2007, 2006 and 2005, respectively.


For the period from September 1, 2004 through March 31, 2005, the investment
adviser agreed to waive 5% of the management fees that it was otherwise entitled
to receive under the Agreement. From April 1, 2005 through December 31, 2008,
this waiver increased to 10% of the management fees that the investment adviser
was otherwise entitled to receive. The waiver was discontinued effective January
1, 2009.


ADMINISTRATIVE SERVICES AGREEMENT -- The Administrative Services Agreement (the
"Administrative Agreement") between the fund and the investment adviser relating
to the fund's Class C, F, R and 529 shares will continue in effect until
December 31, 2009, unless sooner terminated, and may be renewed from year to
year thereafter, provided that any such renewal has been specifically approved
at least annually by the vote of a majority of directors who are not parties to
the Administrative Agreement or interested persons (as defined in the 1940 Act)
of any such party, cast in person at a meeting called for the purpose of voting
on such approval. The fund may terminate the Administrative Agreement at any
time by vote of a majority of independent directors. The investment adviser has
the right to terminate the Administrative


                       American Balanced Fund -- Page 24
<PAGE>


Agreement upon 60 days' written notice to the fund. The Administrative Agreement
automatically terminates in the event of its assignment (as defined in the 1940
Act).


Under the Administrative Agreement, the investment adviser provides certain
transfer agent and administrative services for shareholders of the fund's Class
C and F shares, and Class R and 529 shares. The investment adviser may contract
with third parties, including American Funds Service Company,/(R)/ the fund's
Transfer Agent, to provide some of these services. Services include, but are not
limited to, shareholder account maintenance, transaction processing, tax
information reporting and shareholder and fund communications. In addition, the
investment adviser monitors, coordinates, oversees and assists with the
activities performed by third parties providing such services. For Class R-1 and
R-2 shares, the investment adviser has agreed to pay a portion of the fees
payable under the Administrative Agreement that would otherwise have been paid
by the fund. For the year ended December 31, 2007, the total fees paid by the
investment adviser were $6,000.


The investment adviser receives an administrative services fee at the annual
rate of up to 0.15% of the average daily net assets for Class C, F, R (excluding
Class R-5 shares) and 529 shares for administrative services provided to these
share classes. Administrative services fees are paid monthly and accrued daily.
The investment adviser uses a portion of this fee to compensate third parties
for administrative services provided to the fund. Of the remainder, the
investment adviser does not retain more than 0.05% of the average daily net
assets for each applicable share class. For Class R-5 shares, the administrative
services fee is calculated at the annual rate of up to 0.10% of the average
daily net assets. The administrative services fee includes compensation for
transfer agent and shareholder services provided to the fund's Class C, F, R and
529 shares. In addition to making administrative service fee payments to
unaffiliated third parties, the investment adviser also makes payments from the
administrative services fee to American Funds Service Company according to a fee
schedule, based principally on the number of accounts serviced, contained in a
Shareholder Services Agreement between the fund and American Funds Service
Company.


During the 2007 fiscal year, administrative services fees, gross of any payments
made by the investment adviser, were:

                                             ADMINISTRATIVE SERVICES FEE
------------------------------------------------------------------------------

               CLASS C                               $8,504,000
------------------------------------------------------------------------------
              CLASS F-1                               1,235,000
------------------------------------------------------------------------------
              CLASS F-2                                      --
------------------------------------------------------------------------------
             CLASS 529-A                              1,334,000
------------------------------------------------------------------------------
             CLASS 529-B                                381,000
------------------------------------------------------------------------------
             CLASS 529-C                                611,000
------------------------------------------------------------------------------
             CLASS 529-E                                 85,000
------------------------------------------------------------------------------
            CLASS 529-F-1                                34,000
------------------------------------------------------------------------------
              CLASS R-1                                 143,000
------------------------------------------------------------------------------
              CLASS R-2                               4,753,000
------------------------------------------------------------------------------
              CLASS R-3                               5,703,000
------------------------------------------------------------------------------
              CLASS R-4                               2,882,000
------------------------------------------------------------------------------
              CLASS R-5                                 730,000
------------------------------------------------------------------------------





                       American Balanced Fund -- Page 25
<PAGE>


PRINCIPAL UNDERWRITER AND PLANS OF DISTRIBUTION -- American Funds
Distributors,/(R)/ 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; 6455 Irvine Center Drive, Irvine, CA
92618; 3500 Wiseman Boulevard, San Antonio, TX 78251; 8332 Woodfield Crossing
Boulevard, Indianapolis, IN 46240; and 5300 Robin Hood Road, Norfolk, VA 23513.


The Principal Underwriter receives revenues relating to sales of the fund's
shares, as follows:


     .    For Class A and 529-A shares, the Principal Underwriter receives
          commission revenue consisting of the balance of the Class A and 529-A
          sales charge remaining after the allowances by the Principal
          Underwriter to investment dealers.

     .    For Class B and 529-B shares, the Principal Underwriter sells its
          rights to the 0.75% distribution-related portion of the 12b-1 fees
          paid by the fund, as well as any contingent deferred sales charges, to
          a third party. The Principal Underwriter compensates investment
          dealers for sales of Class B and 529-B shares out of the proceeds of
          this sale and keeps any amounts remaining after this compensation is
          paid.

     .    For Class C and 529-C shares, the Principal Underwriter receives any
          contingent deferred sales charges that apply during the first year
          after purchase.

In addition, the fund reimburses the Principal Underwriter for advancing
immediate service fees to qualified dealers and advisers upon the sale of Class
B, 529-B, C and 529-C shares. The fund also reimburses the Principal Underwriter
for service fees (and, in the case of Class 529-E shares, commissions) paid on a
quarterly basis to qualified dealers and advisers in connection with investments
in Class F-1, 529-F-1, 529-E, R-1, R-2, R-3 and R-4 shares.


Commissions, revenue or service fees retained by the Principal Underwriter after
allowances or compensation to dealers were:

                                                                 COMMISSIONS,        ALLOWANCE OR
                                                                    REVENUE          COMPENSATION
                                           FISCAL YEAR/PERIOD  OR FEES RETAINED       TO DEALERS
-----------------------------------------------------------------------------------------------------

                 CLASS A                          2007            $21,903,000        $ 96,943,000
                                                  2006             19,623,000          88,391,000
                                                  2005             32,034,000         145,394,000
-----------------------------------------------------------------------------------------------------
                 CLASS B                          2007              1,933,000          12,547,000
                                                  2006              2,418,000          14,487,000
                                                  2005              4,421,000          27,592,000
-----------------------------------------------------------------------------------------------------
                 CLASS C                          2007                 76,000           8,685,000
                                                  2006              2,773,000           7,595,000
                                                  2005              4,427,000          13,217,000
-----------------------------------------------------------------------------------------------------
               CLASS 529-A                        2007              1,253,000           5,898,000
                                                  2006              1,205,000           5,778,000
                                                  2005              1,562,000           7,530,000
-----------------------------------------------------------------------------------------------------
               CLASS 529-B                        2007                166,000           1,116,000
                                                  2006                196,000           1,220,000
                                                  2005                293,000           1,730,000
-----------------------------------------------------------------------------------------------------
               CLASS 529-C                        2007                     --             988,000
                                                  2006                 97,000             897,000
                                                  2005                 89,000           1,099,000
-----------------------------------------------------------------------------------------------------




                       American Balanced Fund -- Page 26
<PAGE>


Plans of distribution -- The fund has adopted plans of distribution (the
"Plans") pursuant to rule 12b-1 under the 1940 Act. The Plans permit the fund to
expend amounts to finance any activity 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.


Each Plan is specific to a particular share class of the fund. As the fund has
not adopted a Plan for Class F-2 or Class R-5, no 12b-1 fees are paid from Class
F-2 or Class R-5 share assets and the following disclosure is not applicable to
these share classes.


Payments under the Plans may be made for service-related and/or
distribution-related expenses. Service-related expenses include paying service
fees to qualified dealers. Distribution-related expenses include commissions
paid to qualified dealers. The amounts actually paid under the Plans for the
past fiscal year, expressed as a percentage of the fund's average daily net
assets attributable to the applicable share class, are disclosed in the
prospectus under "Fees and expenses of the fund." Further information regarding
the amounts available under each Plan is in the "Plans of Distribution" section
of the prospectus.


                       American Balanced Fund -- Page 27
<PAGE>


Following is a brief description of the Plans:


     CLASS A AND 529-A -- For Class A and 529-A shares, up to 0.25% of the
     fund's average daily net assets attributable to such shares is reimbursed
     to the Principal Underwriter for paying service-related expenses, and the
     balance available under the applicable Plan may be paid to the Principal
     Underwriter for distribution-related expenses. The fund may annually expend
     up to 0.25% for Class A shares and up to 0.50% for Class 529-A shares under
     the applicable Plan.

     Distribution-related expenses for Class A and 529-A shares include dealer
     commissions and wholesaler compensation paid on sales of shares of $1
     million or more purchased without a sales charge. Commissions on these "no
     load" purchases (which are described in further detail under the "Sales
     Charges" section of this statement of additional information) in excess of
     the Class A and 529-A Plan limitations and not reimbursed to the Principal
     Underwriter during the most recent fiscal quarter are recoverable for five
     quarters, provided that the reimbursement of such commissions does not
     cause the fund to exceed the annual expense limit. After five quarters,
     these commissions are not recoverable.

     CLASS B AND 529-B -- The Plans for Class B and 529-B shares provide for
     payments to the Principal Underwriter of up to 0.25% of the fund's average
     daily net assets attributable to such shares for paying service-related
     expenses and 0.75% for distribution-related expenses, which include the
     financing of commissions paid to qualified dealers.

     OTHER SHARE CLASSES (CLASS C, 529-C, F-1, 529-F-1, 529-E, R-1, R-2, R-3 AND
     R-4) -- The Plans for each of the other share classes that have adopted
     Plans provide for payments to the Principal Underwriter for paying
     service-related and distribution-related expenses of up to the following
     amounts of the fund's average daily net assets attributable to such shares:

                                                                        TOTAL
                                           SERVICE    DISTRIBUTION    ALLOWABLE
                                           RELATED      RELATED         UNDER
                  SHARE CLASS            PAYMENTS/1/  PAYMENTS/1/    THE PLANS/2/
----------------------------------------------------------------------------------

          Class C                           0.25%        0.75%          1.00%
         -------------------------------------------------------------------------
          Class 529-C                       0.25         0.75           1.00
         -------------------------------------------------------------------------
          Class F-1                         0.25           --           0.50
         -------------------------------------------------------------------------
          Class 529-F-1                     0.25           --           0.50
         -------------------------------------------------------------------------
          Class 529-E                       0.25         0.25           0.75
         -------------------------------------------------------------------------
          Class R-1                         0.25         0.75           1.00
         -------------------------------------------------------------------------
          Class R-2                         0.25         0.50           1.00
         -------------------------------------------------------------------------
          Class R-3                         0.25         0.25           0.75
         -------------------------------------------------------------------------
          Class R-4                         0.25           --           0.50
----------------------------------------------------------------------------------

          1  Amounts in these columns represent the amounts approved by the board of
             directors under the applicable Plan.
          2  The fund may annually expend the amounts set forth in this column under
             the current Plans with the approval of the board of directors.


                       American Balanced Fund -- Page 28
<PAGE>


During the 2007 fiscal year, 12b-1 expenses accrued and paid, and if applicable,
unpaid, were:

                                                      12B-1 UNPAID LIABILITY
                               12B-1 EXPENSES              OUTSTANDING
------------------------------------------------------------------------------

        CLASS A                 $92,936,000                $10,701,000
------------------------------------------------------------------------------
        CLASS B                  54,732,000                  4,652,000
------------------------------------------------------------------------------
        CLASS C                  59,820,000                  5,273,000
------------------------------------------------------------------------------
       CLASS F-1                  3,320,000                    380,000
------------------------------------------------------------------------------
      CLASS 529-A                 2,745,000                    318,000
------------------------------------------------------------------------------
      CLASS 529-B                 3,326,000                    301,000
------------------------------------------------------------------------------
      CLASS 529-C                 5,460,000                    527,000
------------------------------------------------------------------------------
      CLASS 529-E                   399,000                     37,000
------------------------------------------------------------------------------
     CLASS 529-F-1                       --                         --
------------------------------------------------------------------------------
       CLASS R-1                    960,000                     97,000
------------------------------------------------------------------------------
       CLASS R-2                  8,580,000                    780,000
------------------------------------------------------------------------------
       CLASS R-3                 16,362,000                  1,503,000
------------------------------------------------------------------------------
       CLASS R-4                  4,799,000                    447,000
------------------------------------------------------------------------------



Approval of the Plans -- As required by rule 12b-1 and the 1940 Act, the Plans
(together with the Principal Underwriting Agreement) have been approved by the
full board of directors and separately by a majority of the independent
directors of the fund who have no direct or indirect financial interest in the
operation of the Plans or the Principal Underwriting Agreement. In addition, the
selection and nomination of independent directors of the fund are committed to
the discretion of the independent directors during the existence of the Plans.


Potential benefits of the Plans to the fund include quality shareholder
services, savings to the fund in transfer agency costs, and benefits to the
investment process from growth or stability of assets. The Plans may not be
amended to materially increase the amount spent for distribution without
shareholder approval. Plan expenses are reviewed quarterly by the board of
directors and the Plans must be renewed annually by the board of directors.


FEE TO VIRGINIA COLLEGE SAVINGS PLAN -- With respect to Class 529 Shares, as
compensation for its oversight and administration, Virginia College Savings Plan
receives a quarterly fee accrued daily and calculated at the annual rate of
0.10% on the first $30 billion of the net assets invested in Class 529 Shares of
the American Funds, 0.09% on net assets between $30 billion and $60 billion,
0.08% on net assets between $60 billion and $90 billion, 0.07% on net assets
between $90 billion and $120 billion, and 0.06% on net assets between $120
billion and $150 billion. The fee for any given calendar quarter is accrued and
calculated on the basis of average net assets of Class 529 Shares of the
American Funds for the last month of the prior calendar quarter.


                       American Balanced Fund -- Page 29
<PAGE>



OTHER COMPENSATION TO DEALERS -- As of October 2008, the top dealers (or their
affiliates) that American Funds Distributors anticipates will receive additional
compensation (as described in the prospectus) include:

     AIG Advisors Group
          Advantage Capital Corporation
          AIG Financial Advisors, Inc.
          American General Securities Incorporated
          FSC Securities Corporation
          Royal Alliance Associates, Inc.
     AXA Advisors, LLC
     Cadaret, Grant & Co., Inc.
     Cambridge Investment Research, Inc.
     Commonwealth Financial Network
     Cuna Brokerage Services, Inc.
     Deutsche Bank Securities Inc.
     Edward Jones
     Genworth Financial Securities Corporation
     Hefren-Tillotson, Inc.
     HTK / Janney Montgomery Group
          Hornor, Townsend & Kent, Inc.
          Janney Montgomery Scott LLC
     ING Advisors Network Inc.
          Bancnorth Investment Group, Inc.
          Financial Network Investment Corporation
          Guaranty Brokerage Services, Inc.
          ING Financial Partners, Inc.
          Multi-Financial Securities Corporation
          Primevest Financial Services, Inc.
     Intersecurities / Transamerica
          InterSecurities, Inc.
          Transamerica Financial Advisors, Inc.
     JJB Hilliard/PNC Bank
          J.J.B. Hilliard, W.L. Lyons, Inc.
          PNC Bank, National Association
          PNC Investments LLC
     Lincoln Financial Advisors Corporation
     LPL Group
          Associated Securities Corp.
          LPL Financial Corporation
          Mutual Service Corporation
          Uvest Investment Services
          Waterstone Financial Group, Inc.
     Merrill Lynch, Pierce, Fenner & Smith Incorporated
     Metlife Enterprises
          Metlife Securities Inc.
          New England Securities
          Tower Square Securities
          Walnut Street Securities, Inc.
     MML Investors Services, Inc.


                       American Balanced Fund -- Page 30
<PAGE>


     Morgan Keegan & Company, Inc.
     Morgan Stanley & Co., Incorporated
     National Planning Holdings Inc.
          Invest Financial Corporation
          Investment Centers of America, Inc.
          National Planning Corporation
          SII Investments, Inc.
     NFP Securities, Inc.
     Northwestern Mutual Investment Services, LLC
     Park Avenue Securities LLC
     Princor Financial Services Corporation
     Raymond James Group
          Raymond James & Associates, Inc.
          Raymond James Financial Services Inc.
     RBC Dain Rauscher Inc.
     Robert W. Baird & Co. Incorporated
     Securian / C.R.I.
          CRI Securities, LLC
          Securian Financial Services, Inc.
     Smith Barney
          Legg Mason
          Primerica Financial Services
     U.S. Bancorp Investments, Inc.
     UBS Financial Services Inc.
     Wachovia Group
          A. G. Edwards, a Division of Wachovia Securities, LLC
          First Clearing LLC
          Wachovia Securities Financial Network, LLC
          Wachovia Securities Investment Services Group
          Wachovia Securities Latin American Channel
          Wachovia Securities Private Client Group
     Wells Fargo Investments, LLC

                      EXECUTION OF PORTFOLIO TRANSACTIONS

The investment adviser places orders with broker-dealers for the fund's
portfolio transactions. Purchases and sales of equity securities on a securities
exchange or an over-the-counter market are effected through broker-dealers who
receive commissions for their services. Generally, commissions relating to
securities traded on foreign exchanges will be higher than commissions relating
to securities traded on U.S. exchanges and may not be subject to negotiation.
Equity securities may also be purchased from underwriters at prices that include
underwriting fees. Purchases and sales of fixed-income securities are generally
made with an issuer or a primary market-maker acting as principal with no stated
brokerage commission. The price paid to an underwriter for fixed-income
securities includes underwriting fees. Prices for fixed-income securities in
secondary trades usually include undisclosed compensation to the market-maker
reflecting the spread between the bid and ask prices for the securities.


In selecting broker-dealers, the investment adviser strives to obtain "best
execution" (the most favorable total price reasonably attainable under the
circumstances) for the fund's portfolio transactions, taking into account a
variety of factors. These factors include the size and type of


                       American Balanced Fund -- Page 31
<PAGE>


transaction, the nature and character of the markets for the security to be
purchased or sold, the cost, quality and reliability of the executions and the
broker-dealer's ability to offer liquidity and anonymity. The investment adviser
considers these factors, which involve qualitative judgments, when selecting
broker-dealers and execution venues for fund portfolio transactions. The
investment adviser views best execution as a process that should be evaluated
over time as part of an overall relationship with particular broker-dealer firms
rather than on a trade-by-trade basis. The fund does not consider the investment
adviser as having an obligation to obtain the lowest commission rate available
for a portfolio transaction to the exclusion of price, service and qualitative
considerations.


The investment adviser may execute portfolio transactions with broker-dealers
who provide certain brokerage and/or investment research services to it, but
only when in the investment adviser's judgment the broker-dealer is capable of
providing best execution for that transaction. The receipt of these services
permits the investment adviser to supplement its own research and analysis and
makes available the views of, and information from, individuals and the research
staffs of other firms. Such views and information may be provided in the form of
written reports, telephone contacts and meetings with securities analysts. These
services may include, among other things, reports and other communications with
respect to individual companies, industries, countries and regions, economic,
political and legal developments, as well as scheduling meetings with corporate
executives and seminars and conferences related to relevant subject matters. The
investment adviser considers these services to be supplemental to its own
internal research efforts and therefore the receipt of investment research from
broker-dealers does not tend to reduce the expenses involved in the investment
adviser's research efforts. If broker-dealers were to discontinue providing such
services it is unlikely the investment adviser would attempt to replicate them
on its own, in part because they would then no longer provide an independent,
supplemental viewpoint. Nonetheless, if it were to attempt to do so, the
investment adviser would incur substantial additional costs. Research services
that the investment adviser receives from broker-dealers may be used by the
investment adviser in servicing the fund and other funds and accounts that it
advises; however, not all such services will necessarily benefit the fund.


The investment adviser may pay commissions in excess of what other
broker-dealers might have charged - including on an execution-only basis - for
certain portfolio transactions in recognition of brokerage and/or investment
research services provided by a broker-dealer. In this regard, the investment
adviser has adopted a brokerage allocation procedure consistent with the
requirements of Section 28(e) of the U.S. Securities Exchange Act of 1934.
Section 28(e) permits an investment adviser to cause an account to pay a higher
commission to a broker-dealer that provides certain brokerage and/or investment
research services to the investment adviser, if the investment adviser makes a
good faith determination that such commissions are reasonable in relation to the
value of the services provided by such broker-dealer to the investment adviser
in terms of that particular transaction or the investment adviser's overall
responsibility to the fund and other accounts that it advises. Certain brokerage
and/or investment research services may not necessarily benefit all accounts
paying commissions to each such broker-dealer; therefore, the investment adviser
assesses the reasonableness of commissions in light of the total brokerage and
investment research services provided by each particular broker-dealer.


In accordance with its internal brokerage allocation procedure, each equity
investment division of the investment adviser periodically assesses the
brokerage and investment research services provided by each broker-dealer from
which it receives such services. Using its judgment, each equity investment
division of the investment adviser then creates lists with suggested levels of


                       American Balanced Fund -- Page 32
<PAGE>


commissions for particular broker-dealers and provides those lists to its
trading desks. Neither the investment adviser nor the fund incurs any obligation
to any broker-dealer to pay for research by generating trading commissions. The
actual level of business received by any broker-dealer may be less than the
suggested level of commissions and can, and often does, exceed the suggested
level in the normal course of business. As part of its ongoing relationships
with broker-dealers, the investment adviser routinely meets with firms,
typically at the firm's request, to discuss the level and quality of the
brokerage and research services provided, as well as the perceived value and
cost of such services. In valuing the brokerage and investment research services
the investment adviser receives from broker-dealers in connection with its good
faith determination of reasonableness, the investment adviser does not attribute
a dollar value to such services, but rather takes various factors into
consideration, including the quantity, quality and usefulness of the services to
the investment adviser.


The investment adviser seeks, on an ongoing basis, to determine what the
reasonable levels of commission rates are in the marketplace. The investment
adviser takes various considerations into account when evaluating such
reasonableness, including, (a) rates quoted by broker-dealers, (b) the size of a
particular transaction in terms of the number of shares and dollar amount, (c)
the complexity of a particular transaction, (d) the nature and character of the
markets on which a particular trade takes place, (e) the ability of a
broker-dealer to provide anonymity while executing trades, (f) the ability of a
broker-dealer to execute large trades while minimizing market impact, (g) the
extent to which a broker-dealer has put its own capital at risk, (h) the level
and type of business done with a particular broker-dealer over a period of time,
(i) historical commission rates, and (j) commission rates that other
institutional investors are paying.


When executing portfolio transactions in the same equity security for the funds
and accounts, or portions of funds and accounts, over which the investment
adviser, through its equity investment divisions, has investment discretion,
each of the investment divisions will normally aggregate its respective
purchases or sales and execute them as part of the same transaction or series of
transactions. When executing portfolio transactions in the same fixed-income
security for the fund and the other funds or accounts over which it or one of
its affiliated companies has investment discretion, the investment adviser will
normally aggregate such purchases or sales and execute them as part of the same
transaction or series of transactions. The objective of aggregating purchases
and sales of a security is to allocate executions in an equitable manner among
the funds and other accounts that have concurrently authorized a transaction in
such security.


The investment adviser may place orders for the fund's portfolio transactions
with broker-dealers who have sold shares in the funds managed by the investment
adviser or its affiliated companies; however, it does not consider whether a
broker-dealer has sold shares of the funds managed by the investment adviser or
its affiliated companies when placing any such orders for the fund's portfolio
transactions.


Brokerage commissions paid on portfolio transactions for the fiscal years ended
December 31, 2007, 2006 and 2005 amounted to $12,090,000, $15,590,000 and
$21,963,000, respectively. The volume of trading activity decreased during each
of these years, resulting in a decrease from prior years in brokerage
commissions paid on portfolio transactions.


The fund is required to disclose information regarding investments in the
securities of its "regular" broker-dealers (or parent companies of its regular
broker-dealers) that derive more than 15% of their revenue from broker-dealer,
underwriter or investment adviser activities. A regular broker--


                       American Balanced Fund -- Page 33
<PAGE>


dealer is (a) one of the 10 broker-dealers that received from the fund the
largest amount of brokerage commissions by participating, directly or
indirectly, in the fund's portfolio transactions during the fund's most recent
fiscal year; (b) one of the 10 broker-dealers that engaged as principal in the
largest dollar amount of portfolio transactions of the fund during the fund's
most recent fiscal year; or (c) one of the 10 broker-dealers that sold the
largest amount of securities of the fund during the fund's most recent fiscal
year.


At the end of the fund's most recent fiscal year, the fund's regular
broker-dealers included Citigroup Global Markets Inc., Goldman Sachs & Co., J.P.
Morgan Securities Inc., Lehman Brothers, Merrill Lynch, Pierce, Fenner & Smith
Inc., UBS Financial Services and Wachovia Securities Private Client Group. As of
the fund's most recent fiscal year-end, the fund held equity securities of
Citigroup Inc. in the amount of $427,027,000 and Wachovia Corporation in the
amount of $287,127,000. The fund held debt securities of Citigroup Inc. in the
amount of $51,277,000, Goldman Sachs Group Inc. in the amount of $16,217,000,
JPMorgan Chase & Co. in the amount of $169,268,000, Lehman Brothers Holdings
Inc. in the amount of $49,237,000, Merrill Lynch & Co., Inc. in the amount of
$17,506,000, UBS AG in the amount of $16,143,000 and Wachovia Bank NA in the
amount of $77,387,000.


                        DISCLOSURE OF PORTFOLIO HOLDINGS

The fund's investment adviser, on behalf of the fund, has adopted policies and
procedures with respect to the disclosure of information about fund portfolio
securities. These policies and procedures have been reviewed by the fund's board
of directors and compliance will be periodically assessed by the board in
connection with reporting from the fund's Chief Compliance Officer.


Under these policies and procedures, the fund's complete list of portfolio
holdings available for public disclosure, dated as of the end of each calendar
quarter, is permitted to be posted on the American Funds website no earlier than
the tenth day after such calendar quarter. In practice, the public portfolio
typically is posted on the website approximately 45 days after the end of the
calendar quarter. In addition, the fund's list of top 10 equity portfolio
holdings measured by percentage of net assets invested, dated as of the end of
each calendar month, is permitted to be posted on the American Funds website no
earlier than the tenth day after such month. Such portfolio holdings information
may then be disclosed to any person pursuant to an ongoing arrangement to
disclose portfolio holdings information to such person no earlier than one day
after the day on which the information is posted on the American Funds website.
The fund's custodian, outside counsel and auditor, each of which requires
portfolio holdings information for legitimate business and fund oversight
purposes, may receive the information earlier.


Affiliated persons of the fund, including officers of the fund and employees of
the investment adviser and its affiliates, who receive portfolio holdings
information are subject to restrictions and limitations on the use and handling
of such information pursuant to applicable codes of ethics, including
requirements not to trade in securities based on confidential and proprietary
investment information, to maintain the confidentiality of such information, and
to preclear securities trades and report securities transactions activity, as
applicable. For more information on these restrictions and limitations, please
see the "Code of Ethics" section in this statement of additional information and
the Code of Ethics. Third party service providers of the fund, as described in
this statement of additional information, receiving such information are subject
to confidentiality obligations. When portfolio holdings information is disclosed
other than through the American Funds website to persons not affiliated with the
fund (which, as described above, would typically


                       American Balanced Fund -- Page 34
<PAGE>



occur no earlier than one day after the day on which the information is posted
on the American Funds website), such persons will be bound by agreements
(including confidentiality agreements) or fiduciary obligations that restrict
and limit their use of the information to legitimate business uses only. Neither
the fund nor its investment adviser or any affiliate thereof receives
compensation or other consideration in connection with the disclosure of
information about portfolio securities.


Subject to board policies, the authority to disclose a fund's portfolio
holdings, and to establish policies with respect to such disclosure, resides
with the appropriate investment-related committees of the fund's investment
adviser. In exercising their authority, the committees determine whether
disclosure of information about the fund's portfolio securities is appropriate
and in the best interest of fund shareholders. The investment adviser has
implemented policies and procedures to address conflicts of interest that may
arise from the disclosure of fund holdings. For example, the investment
adviser's code of ethics specifically requires, among other things, the
safeguarding of information about fund holdings and contains prohibitions
designed to prevent the personal use of confidential, proprietary investment
information in a way that would conflict with fund transactions. In addition,
the investment adviser believes that its current policy of not selling portfolio
holdings information and not disclosing such information to unaffiliated third
parties until such holdings have been made public on the American Funds website
(other than to certain fund service providers for legitimate business and fund
oversight purposes) helps reduce potential conflicts of interest between fund
shareholders and the investment adviser and its affiliates.

                                PRICE OF SHARES

Shares are purchased at the offering price or sold at the net asset value price
next determined after the purchase or sell order is received and accepted by the
fund or the Transfer Agent; the offering or net asset value 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 or their authorized designees,
accepted by the Principal Underwriter, the Transfer Agent, a dealer or any of
their designees. In the case of orders sent directly to the fund or the Transfer
Agent, an investment dealer should be indicated. The dealer is responsible for
promptly transmitting purchase and sell orders to the Principal Underwriter.


Orders received by the investment dealer or authorized designee, the Transfer
Agent or the fund after the time of the determination of the net asset value
will be entered at the next calculated offering price. Note that investment
dealers or other intermediaries may have their own rules about share
transactions and may have earlier cut-off times than those of the fund. For more
information about how to purchase through your intermediary, contact your
intermediary directly.


Prices that appear in the newspaper do not always indicate prices at which you
will be purchasing and redeeming shares of the fund, since such prices generally
reflect the previous day's closing price, while 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
as of approximately 4 p.m. New York time, which is the normal close of trading
on the New York Stock Exchange, each day the Exchange is open. If, for example,
the Exchange closes at 1 p.m., the fund's share price would still be determined
as of 4 p.m. New York time. 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


                       American Balanced Fund -- Page 35
<PAGE>


Day; Independence Day; Labor Day; Thanksgiving; and Christmas Day. Each share
class of the fund has a separately calculated net asset value (and share price).


All portfolio securities of funds managed by Capital Research and Management
Company (other than money market funds) are valued, and the net asset values per
share for each share class are determined, as indicated below. The fund follows
standard industry practice by typically reflecting changes in its holdings of
portfolio securities on the first business day following a portfolio trade.


1.    Equity securities, including depositary receipts, are valued at the
official closing price of, or 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. Prices for each security are taken from the principal exchange or
market in which the security trades. Fixed-income securities are valued at
prices obtained from an independent 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 bid prices, if asked prices are not available) or at prices for
securities of comparable maturity, quality and type. The pricing services base
bond prices on, among other things, an evaluation of the yield curve as of
approximately 3 p.m. New York time. The fund's investment adviser performs
certain checks on these prices prior to calculation of the fund's net asset
value.

Securities with both fixed-income and equity characteristics (e.g., convertible
bonds, preferred stocks, units comprised of more than one type of security,
etc.), or equity securities traded principally among fixed-income dealers, are
valued in the manner described above for either equity or fixed-income
securities, depending on which method is deemed most appropriate by the
investment adviser.

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 currencies other than U.S.
dollars 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 market quotations are not readily available or
are considered unreliable are valued at fair value as determined in good faith
under policies approved by the fund's board. Subject to board oversight, the
fund's board has delegated the obligation to make fair valuation determinations
to a valuation committee established by the fund's investment adviser. The board
receives regular reports describing fair-valued securities and the valuation
methods used.


The valuation committee has adopted guidelines and procedures (consistent with
SEC rules and guidance) to ensure that certain basic principles and factors are
considered when making all fair value determinations. As a general principle,
securities lacking readily available market quotations, or that have quotations
that are considered unreliable by the investment adviser, are valued in good
faith by the valuation committee based upon what the fund might reasonably
expect to receive upon their current sale. The valuation committee considers all
indications of


                       American Balanced Fund -- Page 36
<PAGE>


value available to it in determining the fair value to be assigned to a
particular security, including, without limitation, the type and cost of the
security, contractual or legal restrictions on resale of the security, relevant
financial or business developments of the issuer, actively traded similar or
related securities, conversion or exchange rights on the security, related
corporate actions, significant events occurring after the close of trading in
the security and changes in overall market conditions. The valuation committee
employs additional fair value procedures to address issues related to equity
holdings of applicable fund portfolios outside the United States. Securities
owned by these funds trade in markets that open and close at different times,
reflecting time zone differences. If significant events occur after the close of
a market (and before these fund's net asset values are next determined) which
affect the value of portfolio securities, appropriate adjustments from closing
market prices may be made to reflect these events. Events of this type could
include, for example, earthquakes and other natural disasters or significant
price changes in other markets (e.g., U.S. stock markets).


2.   Each class of shares represents interests in the same portfolio of
investments and is identical in all respects to each other class, except for
differences relating to distribution, service and other charges and expenses,
certain voting rights, differences relating to eligible investors, the
designation of each class of shares, conversion features and exchange
privileges. Expenses attributable to the fund, but not to a particular class of
shares, are borne by each class pro rata based on relative aggregate net assets
of the classes. Expenses directly attributable to a class of shares are borne by
that class of shares. Liabilities, including accruals of taxes and other expense
items attributable to particular share classes, are deducted from total assets
attributable to such share classes.

3.   Net assets so obtained for each share class are then divided by the total
number of shares outstanding of that share class, and the result, rounded to the
nearest cent, is the net asset value per share for that share class.

                            TAXES AND DISTRIBUTIONS

FUND TAXATION -- The fund has elected to be treated as a regulated investment
company under Subchapter M of the Internal Revenue Code (the "Code"). A
regulated investment company qualifying under Subchapter M of the Code is
required to distribute to its shareholders at least 90% of its investment
company taxable income (including the excess of net short-term capital gain over
net long-term capital losses) and generally is not subject to federal income tax
to the extent that it distributes annually 100% of its investment company
taxable income and net realized capital gains in the manner required under the
Code. The fund intends to distribute annually all of its investment company
taxable income and net realized capital gains and therefore does not expect to
pay federal income tax, although in certain circumstances, the fund may
determine that it is in the interest of shareholders to distribute less than
that amount.


To be treated as a regulated investment company under Subchapter M of the Code,
the fund must also (a) derive at least 90% of its gross income from dividends,
interest, payments with respect to securities loans, net income from certain
publicly traded partnerships and gains from the sale or other disposition of
securities or foreign currencies, or other income (including, but not limited
to, gains from options, futures or forward contracts) derived with respect to
the business of investing in such 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, U.S. government
securities and securities of other regulated investment companies, and other
securities (for purposes of this calculation, generally limited in respect of
any one issuer, to


                       American Balanced Fund -- Page 37
<PAGE>


an amount not greater than 5% of the market value 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 (other than U.S.
government securities or the securities of other regulated investment companies)
any one issuer; two or more issuers which the fund controls and which are
determined to be engaged in the same or similar trades or businesses; or the
securities of certain publicly traded partnerships.


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 (a) 98% of ordinary income (generally net investment income)
for the calendar year, (b) 98% of capital gain (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
(c) 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 (a) amounts actually distributed
by the fund from its current year's ordinary income and capital gain net income
and (b) any amount on which the fund pays income tax during the periods
described above. Although the fund intends to distribute its net investment
income and net capital gains so as to avoid excise tax liability, the fund may
determine that it is in the interest of shareholders to distribute a lesser
amount.


The following information may not apply to you if you hold fund shares in a
tax-deferred account, such as a retirement plan or education savings account.
Please see your tax adviser for more information.


DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS -- Dividends and capital gain
distributions on fund shares will be reinvested in shares of the fund of the
same class, unless shareholders indicate in writing that they wish to receive
them in cash or in shares of the same class of other American Funds, as provided
in the prospectus. Dividends and capital gain distributions by 529 share classes
will be automatically reinvested.


Distributions of investment company taxable income and net realized capital
gains to  shareholders will be taxable whether received in shares or in cash,
unless such shareholders are exempt from taxation. Shareholders electing to
receive distributions in the form of additional shares will have a cost basis
for federal income tax purposes in each share so received equal to the net asset
value of that share on the reinvestment date. Dividends and capital gain
distributions by the fund to a tax-deferred retirement plan account are not
taxable currently.


     DIVIDENDS -- The fund intends to follow the practice of distributing
     substantially all of its investment company taxable income. Investment
     company taxable income generally includes dividends, interest, net
     short-term capital gains in excess of net long-term capital losses, and
     certain foreign currency gains, if any, less expenses and certain foreign
     currency losses. To the extent the fund invests in stock of domestic and
     certain foreign corporations and meets the applicable holding period
     requirement, it may receive "qualified dividends". The fund will designate
     the amount of "qualified dividends" to its shareholders in a notice sent
     within 60 days of the close of its fiscal year and will report "qualified
     dividends" to shareholders on Form 1099-DIV.


                       American Balanced Fund -- Page 38
<PAGE>


     Under the Code, gains or losses attributable to fluctuations in exchange
     rates that occur between the time the fund accrues receivables or
     liabilities denominated in a foreign currency and the time the fund
     actually collects such receivables, or pays such liabilities, generally are
     treated as ordinary income or ordinary loss. Similarly, on disposition of
     debt securities denominated in a foreign currency and on disposition of
     certain futures contracts, forward contracts and options, gains or losses
     attributable to fluctuations in the value of foreign currency between the
     date of acquisition of the security or contract and the date of disposition
     are also treated as ordinary gain or loss. These gains or losses, referred
     to under the Code as Section 988 gains or losses, may increase or decrease
     the amount of the fund's investment company taxable income to be
     distributed to its shareholders as ordinary income.


     If the fund invests in stock of certain passive foreign investment
     companies, the fund may be subject to U.S. federal income taxation on a
     portion of any "excess distribution" with respect to, or gain from the
     disposition of, such stock. The tax would be determined by allocating such
     distribution or gain ratably to each day of the fund's holding period for
     the stock. The distribution or gain so allocated to any taxable year of the
     fund, other than the taxable year of the excess distribution or
     disposition, would be taxed to the fund at the highest ordinary income rate
     in effect for such year, and the tax would be further increased by an
     interest charge to reflect the value of the tax deferral deemed to have
     resulted from the ownership of the foreign company's stock. Any amount of
     distribution or gain allocated to the taxable year of the distribution or
     disposition would be included in the fund's investment company taxable
     income and, accordingly, would not be taxable to the fund to the extent
     distributed by the fund as a dividend to its shareholders.


     To avoid such tax and interest, the fund intends to elect to treat these
     securities as sold on the last day of its fiscal year and recognize any
     gains for tax purposes at that time. Under this election, deductions for
     losses are allowable only to the extent of any prior recognized gains, and
     both gains and losses will be treated as ordinary income or loss. The fund
     will be required to distribute any resulting income, even though it has not
     sold the security and received cash to pay such distributions. Upon
     disposition of these securities, any gain recognized is treated as ordinary
     income and loss is treated as ordinary loss to the extent of any prior
     recognized gain.


     Dividends from domestic corporations are expected to comprise some portion
     of the fund's gross income. To the extent that such dividends constitute
     any of the fund's gross income, a portion of the income distributions of
     the fund may be eligible for the deduction for dividends received by
     corporations. Corporate shareholders will be informed of the portion of
     dividends that so qualifies. The dividends-received deduction is reduced to
     the extent that either the fund shares, or the underlying shares of stock
     held by the fund, with respect to which dividends are received, are treated
     as debt-financed under federal income tax law, and is eliminated if the
     shares are deemed to have been held by the shareholder or the fund, as the
     case may be, for less than 46 days during the 91-day period beginning on
     the date that is 45 days before the date on which the shares become
     ex-dividend. Capital gain distributions are not eligible for the
     dividends-received deduction.


     A portion of the difference between the issue price of zero coupon
     securities and their face value (original issue discount) is considered to
     be income to the fund each year, even though the fund will not receive cash
     interest payments from these securities. This


                       American Balanced Fund -- Page 39
<PAGE>


     original issue discount (imputed income) will comprise a part of the
     investment company taxable income of the fund that must be distributed to
     shareholders in order to maintain the qualification of the fund as a
     regulated investment company and to avoid federal income taxation at the
     level of the fund.


     The price of a bond purchased after its original issuance may reflect
     market discount which, depending on the particular circumstances, may
     affect the tax character and amount of income required to be recognized by
     a fund holding the bond. In determining whether a bond is purchased with
     market discount, certain de minimis rules apply.


     Dividend and interest income received by the fund from sources outside the
     United States may be subject to withholding and other taxes imposed by such
     foreign jurisdictions. Tax conventions between certain countries and the
     United States, however, may reduce or eliminate these foreign taxes. Some
     foreign countries impose taxes on capital gains with respect to investments
     by foreign investors.


     CAPITAL GAIN DISTRIBUTIONS -- The fund also intends to follow the practice
     of distributing the entire excess of net realized long-term capital gains
     over net realized short-term capital losses. Net capital gains for a fiscal
     year are computed by taking into account any capital loss carryforward of
     the fund.

     If any net long-term capital gains in excess of net short-term capital
     losses are retained by the fund for reinvestment, requiring federal income
     taxes to be paid thereon by the fund, the fund intends to elect to treat
     such capital gains as having been distributed to shareholders. As a result,
     each shareholder will report such capital gains as long-term capital gains
     taxable to individual shareholders at a maximum 15% capital gains rate,
     will be able to claim a pro rata share of federal income taxes paid by the
     fund on such gains as a credit against personal federal income tax
     liability, and will be entitled to increase the adjusted tax basis on fund
     shares by the difference between a pro rata share of the retained gains and
     such shareholder's related tax credit.


SHAREHOLDER TAXATION -- In January of each year, individual shareholders holding
fund shares in taxable accounts will receive a statement of the federal income
tax status of all distributions. Shareholders of the fund also may be subject to
state and local taxes on distributions received from the fund.


     DIVIDENDS -- Fund dividends are taxable to shareholders as ordinary income.
     All or a portion of a fund's dividend distribution may be a "qualified
     dividend." If the fund meets the applicable holding period requirement, it
     will distribute dividends derived from qualified corporation dividends to
     shareholders as qualified dividends. Interest income from bonds and money
     market instruments and nonqualified foreign dividends will be distributed
     to shareholders as nonqualified fund dividends. The fund will report on
     Form 1099-DIV the amount of each shareholder's dividend that may be treated
     as a qualified dividend. If a shareholder other than a corporation meets
     the requisite holding period requirement, qualified dividends are taxable
     at a maximum rate of 15%.

     CAPITAL GAINS -- Distributions of the excess of net long-term capital gains
     over net short-term capital losses that the fund properly designates as
     "capital gain dividends" generally will be taxable as long-term capital
     gain. Regardless of the length of time the shares of the fund have been
     held by a shareholder, a capital gain distribution by the fund is subject


                       American Balanced Fund -- Page 40
<PAGE>


     to a maximum tax rate of 15%. Any loss realized upon the redemption of
     shares held at the time of redemption for six months or less from the date
     of their purchase will be treated as a long-term capital loss to the extent
     of any amounts treated as distributions of long-term capital gains during
     such six-month period.

Distributions by the fund result in a reduction in the net asset value of the
fund's shares. Investors should consider the tax implications of buying shares
just prior to a distribution. The price of shares purchased at that time
includes the amount of the forthcoming distribution. Those purchasing just prior
to a distribution will subsequently receive a partial return of their investment
capital upon payment of the distribution, which will be taxable to them.


Redemptions of shares, including exchanges for shares of other American Funds,
may result in federal, state and local tax consequences (gain or loss) to the
shareholder.


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 purposes 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 fund(s).


Any loss realized on a redemption or exchange of shares of the fund will be
disallowed to the extent substantially identical shares are reacquired within
the 61-day period beginning 30 days before and ending 30 days after the shares
are disposed of. Any loss disallowed under this rule will be added to the
shareholder's tax basis in the new shares purchased.


The fund will be required to report to the IRS all distributions of investment
company taxable income and capital gains as well as gross proceeds from the
redemption or exchange of fund shares, except in the case of certain exempt
shareholders. Under the backup withholding provisions of Section 3406 of the
Code, distributions of investment company taxable income and capital gains and
proceeds from the redemption or exchange of a regulated investment company may
be subject to backup withholding of federal income tax in the case of non-exempt
U.S. shareholders who fail to furnish the investment company with their taxpayer
identification numbers and with required certifications regarding their status
under the federal income tax law. Withholding may also be required if the fund
is notified by the IRS or a broker that the taxpayer identification number
furnished by the shareholder is incorrect or that the shareholder has previously
failed to report interest or dividend income. If the withholding provisions are
applicable, any such distributions and proceeds, whether taken in cash or
reinvested in additional shares, will be reduced by the amounts required to be
withheld.


The foregoing discussion of U.S. federal income tax law relates solely to the
application of that law to U.S. persons (i.e., U.S. citizens and residents and
U.S. corporations, partnerships, trusts and estates). Each shareholder who is
not a U.S. person should consider the U.S. and foreign tax consequences of
ownership of shares of the fund, including the possibility that such a
shareholder may be subject to a U.S. withholding tax at a rate of 30% (or a
lower rate under an applicable income tax treaty) on dividend income received by
the shareholder.


Shareholders should consult their tax advisers about the application of federal,
state and local tax law in light of their particular situation.


                       American Balanced Fund -- Page 41
<PAGE>


UNLESS OTHERWISE NOTED, ALL REFERENCES IN THE FOLLOWING PAGES TO CLASS A, B, C
OR F-1 SHARES ALSO REFER TO THE CORRESPONDING CLASS 529-A, 529-B, 529-C OR
529-F-1 SHARES. CLASS 529 SHAREHOLDERS SHOULD ALSO REFER TO THE APPLICABLE
PROGRAM DESCRIPTION FOR INFORMATION ON POLICIES AND SERVICES SPECIFICALLY
RELATING TO THESE ACCOUNTS. SHAREHOLDERS HOLDING SHARES THROUGH AN ELIGIBLE
RETIREMENT PLAN SHOULD CONTACT THEIR PLAN'S ADMINISTRATOR OR RECORDKEEPER FOR
INFORMATION REGARDING PURCHASES, SALES AND EXCHANGES.

                        PURCHASE AND EXCHANGE OF SHARES

PURCHASES BY INDIVIDUALS -- As described in the prospectus, you may generally
open an account and purchase fund shares by contacting a financial adviser or
investment dealer authorized to sell the fund's shares. You may make investments
by any of the following means:


     CONTACTING YOUR FINANCIAL ADVISER -- Deliver or mail a check to your
     financial adviser.

     BY MAIL -- for initial investments, you may mail a check, made payable to
     the fund, directly to the address indicated on the account application.
     Please indicate an investment dealer on the account application. You may
     make additional investments by filling out the "Account Additions" form at
     the bottom of a recent account statement and mailing the form, along with a
     check made payable to the fund, using the envelope provided with your
     account statement.

     The amount of time it takes for us to receive regular U.S. postal mail may
     vary and there is no assurance that we will receive such mail on the day
     you expect. Mailing addresses for regular U.S. postal mail can be found in
     the prospectus. To send investments or correspondence to us via overnight
     mail or courier service, use either of the following addresses:

           American Funds
           8332 Woodfield Crossing Blvd.
           Indianapolis, IN 46240-2482

           American Funds
           5300 Robin Hood Rd.
           Norfolk, VA  23513-2407

     BY TELEPHONE -- using the American FundsLine. Please see the "Shareholder
     account services and privileges" section of this statement of additional
     information for more information regarding this service.

     BY INTERNET -- using americanfunds.com. Please see the "Shareholder account
     services and privileges" section of this statement of additional
     information for more information regarding this service.

     BY WIRE -- If you are making a wire transfer, instruct your bank to wire
     funds to:

           Wells Fargo Bank
           ABA Routing No. 121000248
           Account No. 4600-076178


                       American Balanced Fund -- Page 42
<PAGE>


           Your bank should include the following information when wiring funds:

           For credit to the account of:
           American Funds Service Company
           (fund's name)

           For further credit to:
           (shareholder's fund account number)
           (shareholder's name)

     You may contact American Funds Service Company at 800/421-0180 if you have
     questions about making wire transfers.

OTHER PURCHASE INFORMATION -- Class 529 shares may be purchased only through
CollegeAmerica by investors establishing qualified higher education savings
accounts. Class 529-E shares may be purchased only by investors participating in
CollegeAmerica through an eligible employer plan. Class R-5 shares are also
available to clients of the Personal Investment Management group of Capital
Guardian Trust Company who do not have an intermediary associated with their
accounts and without regard to the $1 million purchase minimum. In addition, the
American Funds state tax-exempt funds are qualified for sale only in certain
jurisdictions, and tax-exempt funds in general should not serve as retirement
plan investments. The fund and the Principal Underwriter reserve the right to
reject any purchase order.


PURCHASE MINIMUMS AND MAXIMUMS -- All investments are subject to the purchase
minimums and maximums described in the prospectus. As noted in the prospectus,
purchase minimums may be waived or reduced in certain cases.


In the case of American Funds non-tax-exempt funds, the initial purchase minimum
of $25 may be waived for the following account types:


     .    Payroll deduction retirement plan accounts (such as, but not limited
          to, 403(b), 401(k), SIMPLE IRA, SARSEP and deferred compensation plan
          accounts); and

     .    Employer-sponsored CollegeAmerica accounts.

The following account types may be established without meeting the initial
purchase minimum:


     .    Retirement accounts that are funded with employer contributions; and

     .    Accounts that are funded with monies set by court decree.

The following account types may be established without meeting the initial
purchase minimum, but shareholders wishing to invest in two or more funds must
meet the normal initial purchase minimum of each fund:


     .    Accounts that are funded with (a) transfers of assets, (b) rollovers
          from retirement plans, (c) rollovers from 529 college savings plans or
          (d) required minimum distribution automatic exchanges; and

     .    American Funds money market fund accounts registered in the name of
          clients of Capital Guardian Trust Company's Personal Investment
          Management group.


                       American Balanced Fund -- Page 43
<PAGE>



Certain accounts held on the fund's books, known as omnibus accounts, contain
multiple underlying accounts that are invested in shares of the fund. These
underlying accounts are maintained by entities such as financial intermediaries
and are subject to the applicable initial purchase minimums as described in the
prospectus and this statement of additional information. However, in the case
where the entity maintaining these accounts aggregates the accounts' purchase
orders for fund shares, such accounts are not required to meet the fund's
minimum amount for subsequent purchases.


EXCHANGES -- You may only exchange shares into other American Funds within the
same share class. However, exchanges from Class A shares of The Cash Management
Trust of America may be made to Class B or C shares of other American Funds for
dollar cost averaging purposes. Exchanges are not permitted from Class A shares
of The Cash Management Trust of America to Class B or C shares of Intermediate
Bond Fund of America, Limited Term Tax-Exempt Bond Fund of America and
Short-Term Bond Fund of America. Exchange purchases are subject to the minimum
investment requirements of the fund purchased and no sales charge generally
applies. However, exchanges of shares from American Funds 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. Exchanges of Class F shares generally may only be made through
fee-based programs of investment firms that have special agreements with the
fund's distributor and certain registered investment advisers.


You may exchange shares of other classes by contacting the Transfer Agent, by
contacting your investment dealer or financial adviser, by using American
FundsLine or americanfunds.com, or by telephoning 800/421-0180 toll-free, or
faxing (see "American Funds Service Company service areas" in the prospectus for
the appropriate fax numbers) the Transfer Agent. For more information, see
"Shareholder account services and privileges" in this statement of additional
information. THESE TRANSACTIONS HAVE THE SAME TAX CONSEQUENCES AS ORDINARY SALES
AND PURCHASES.


Shares held in employer-sponsored retirement plans may be exchanged into other
American Funds by contacting your plan administrator or recordkeeper. Exchange
redemptions and purchases are processed simultaneously at the share prices next
determined after the exchange order is received (see "Price of shares" in this
statement of additional information).


FREQUENT TRADING OF FUND SHARES -- As noted in the prospectus, certain
redemptions may trigger a purchase block lasting 30 calendar days under the
fund's "purchase blocking policy." Under this policy, systematic redemptions
will not trigger a purchase block and systematic purchases will not be
prevented. For purposes of this policy, systematic redemptions include, for
example, regular periodic automatic redemptions and statement of intention
escrow share redemptions. Systematic purchases include, for example, regular
periodic automatic purchases and automatic reinvestments of dividends and
capital gain distributions.


OTHER POTENTIALLY ABUSIVE ACTIVITY -- In addition to implementing purchase
blocks, American Funds Service Company will monitor for other types of activity
that could potentially be harmful to the American Funds - for example,
short-term trading activity in multiple funds. When identified, American Funds
Service Company will request that the shareholder discontinue the activity. If
the activity continues, American Funds Service Company will freeze the
shareholder account to prevent all activity other than redemptions of fund
shares.


                       American Balanced Fund -- Page 44
<PAGE>


MOVING BETWEEN SHARE CLASSES

     If you wish to "move" your investment between share classes (within the
     same fund or between different funds), we generally will process your
     request as an exchange of the shares you currently hold for shares in the
     new class or fund. Below is more information about how sales charges are
     handled for various scenarios.

     EXCHANGING CLASS B SHARES FOR CLASS A SHARES -- If you exchange Class B
     shares for Class A shares during the contingent deferred sales charge
     period you are responsible for paying any applicable deferred sales charges
     attributable to those Class B shares, but you will not be required to pay a
     Class A sales charge. If, however, you exchange your Class B shares for
     Class A shares after the contingent deferred sales charge period, you are
     responsible for paying any applicable Class A sales charges.

     EXCHANGING CLASS C SHARES FOR CLASS A SHARES -- If you exchange Class C
     shares for Class A shares, you are still responsible for paying any Class C
     contingent deferred sales charges and applicable Class A sales charges.

     EXCHANGING CLASS C SHARES FOR CLASS F SHARES -- If you are part of a
     qualified fee-based program and you wish to exchange your Class C shares
     for Class F shares to be held in the program, you are still responsible for
     paying any applicable Class C contingent deferred sales charges.

     EXCHANGING CLASS F SHARES FOR CLASS A SHARES -- You can exchange Class F
     shares held in a qualified fee-based program for Class A shares without
     paying an initial Class A sales charge if all of the following requirements
     are met: (a) you are leaving or have left the fee-based program, (b) you
     have held the Class F shares in the program for at least one year, and (c)
     you notify American Funds Service Company of your request. If you have
     already redeemed your Class F shares, the foregoing requirements apply and
     you must purchase Class A shares within 90 days after redeeming your Class
     F shares to receive the Class A shares without paying an initial Class A
     sales charge.

     EXCHANGING CLASS A SHARES FOR CLASS F SHARES -- If you are part of a
     qualified fee-based program and you wish to exchange your Class A shares
     for Class F shares to be held in the program, any Class A sales charges
     (including contingent deferred sales charges) that you paid or are payable
     will not be credited back to your account.

     EXCHANGING CLASS A SHARES FOR CLASS R SHARES -- Provided it is eligible to
     invest in Class R shares, a retirement plan currently invested in Class A
     shares may exchange its shares for Class R shares. Any Class A sales
     charges that the retirement plan previously paid will not be credited back
     to the plan's account.

     EXCHANGING CLASS F-1 SHARES FOR CLASS F-2 SHARES -- If you are part of a
     qualified fee-based program that offers Class F-2 shares, you may exchange
     your Class F-1 shares for Class F-2 shares to be held in the program.

     MOVING BETWEEN OTHER SHARE CLASSES -- If you desire to move your investment
     between share classes and the particular scenario is not described in this
     statement of additional information, please contact American Funds Service
     Company at 800/421-0180 for more information.


                       American Balanced Fund -- Page 45
<PAGE>


     NON-REPORTABLE TRANSACTIONS -- Automatic conversions described in the
     prospectus will be non-reportable for tax purposes. In addition, except in
     the case of a movement between a 529 share class and a non-529 share class,
     an exchange of shares from one share class of a fund to another share class
     of the same fund will be treated as a non-reportable exchange for tax
     purposes, provided that the exchange request is received in writing by
     American Funds Service Company and processed as a single transaction.

                                 SALES CHARGES

CLASS A PURCHASES


     PURCHASES BY CERTAIN 403(B) PLANS


     A 403(b) plan may not invest in Class A, Class B or Class C shares on or
     after January 1, 2009 unless such plan was invested in Class A, Class B or
     Class C shares prior to that date.

     Participant accounts of a 403(b) plan that was treated as an individual-type
     plan for sales charge purposes prior to January 1, 2009, may continue to be
     treated as accounts of an individual-type plan for sales charge purposes.
     Participant accounts of a 403(b) plan that was treated as an employer-sponsored
     plan for sales charge purposes prior to January 1, 2009, may continue to be
     treated as accounts of an employer-sponsored plan for sales charge purposes.
     Participant accounts of a 403(b) plan that is established on or after January 1,
     2009 are treated as accounts of an employer-sponsored plan for sales charge
     purposes.


     PURCHASES BY SEP PLANS AND SIMPLE IRA PLANS

     Participant accounts in a Simplified Employee Pension (SEP) plan or a
     Savings Incentive Match Plan for Employees of Small Employers IRA (SIMPLE
     IRA) plan will be aggregated together for Class A sales charge purposes if
     the SEP plan or SIMPLE IRA plan was established after November 15, 2004 by
     an employer adopting a prototype plan produced by American Funds
     Distributors, Inc. In the case where the employer adopts any other plan
     (including, but not limited to, an IRS model agreement), each participant's
     account in the plan will be aggregated with the participant's own personal
     investments that qualify under the aggregation policy. A SEP plan or SIMPLE
     IRA plan with a certain method of aggregating participant accounts as of
     November 15, 2004 may continue with that method so long as the employer has
     not modified the plan document since that date.

     OTHER PURCHASES

     Pursuant to a determination of eligibility by a vice president or more
     senior officer of the Capital Research and Management Company Fund
     Administration Unit, or by his or her designee, Class A shares of the
     American Funds stock, stock/bond and bond funds may be sold at net asset
     value to:

     (1)  current or retired directors, trustees, officers and advisory board
          members of, and certain lawyers who provide services to, the funds
          managed by Capital Research and Management Company, current or retired
          employees of Washington Management Corporation, current or retired
          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)  currently registered representatives and assistants directly employed
          by such representatives, retired registered representatives with
          respect to accounts established while active, or full-time employees
          (collectively, "Eligible Persons") (and their (a) spouses or
          equivalents if recognized under local law, (b) parents and


                       American Balanced Fund -- Page 46
<PAGE>


          children, including parents and children in step and adoptive
          relationships, sons-in-law and daughters-in-law, and (c)
          parents-in-law, if the Eligible Persons or the spouses, children or
          parents of the Eligible Persons are listed in the account registration
          with the parents-in-law) of dealers who have sales agreements with the
          Principal Underwriter (or who clear transactions through such
          dealers), plans for the dealers, and plans that include as
          participants only the Eligible Persons, their spouses, parents and/or
          children;

     (3)  currently registered investment advisers ("RIAs") and assistants
          directly employed by such RIAs, retired RIAs with respect to accounts
          established while active, or full-time employees (collectively,
          "Eligible Persons") (and their (a) spouses or equivalents if
          recognized under local law, (b) parents and children, including
          parents and children in step and adoptive relationships, sons-in-law
          and daughters-in-law and (c) parents-in-law, if the Eligible Persons
          or the spouses, children or parents of the Eligible Persons are listed
          in the account registration with the parents-in-law) of RIA firms that
          are authorized to sell shares of the funds, plans for the RIA firms,
          and plans that include as participants only the Eligible Persons,
          their spouses, parents and/or children;

     (4)  companies exchanging securities with the fund through a merger,
          acquisition or exchange offer;

     (5)  insurance company separate accounts;

     (6)  accounts managed by subsidiaries of The Capital Group Companies, Inc.;

     (7)  The Capital Group Companies, Inc., its affiliated companies and
          Washington Management Corporation;

     (8)  an individual or entity with a substantial business relationship with
          The Capital Group Companies, Inc. or its affiliates, or an individual
          or entity related or relating to such individual or entity;

     (9)  wholesalers and full-time employees directly supporting wholesalers
          involved in the distribution of insurance company separate accounts
          whose underlying investments are managed by any affiliate of The
          Capital Group Companies, Inc.; and

     (10) full-time employees of banks that have sales agreements with the
          Principal Underwriter, who are solely dedicated to directly supporting
          the sale of mutual funds.

     Shares are offered at net asset value to these persons and organizations
     due to anticipated economies in sales effort and expense. Once an account
     is established under this net asset value privilege, additional investments
     can be made at net asset value for the life of the account.

     TRANSFERS TO COLLEGEAMERICA -- A transfer from the Virginia Prepaid
     Education Program/SM/ or the Virginia Education Savings Trust/SM/ to a
     CollegeAmerica account will be made with no sales charge. No commission
     will be paid to the dealer on such a transfer.

MOVING BETWEEN ACCOUNTS -- Investments in certain account types may be moved to
other account types without incurring additional Class A sales charges. These
transactions include, for example:


                       American Balanced Fund -- Page 47
<PAGE>


     .    redemption proceeds from a non-retirement account (for example, a
          joint tenant account) used to purchase fund shares in an IRA or other
          individual-type retirement account;

     .    required minimum distributions from an IRA or other individual-type
          retirement account used to purchase fund shares in a non-retirement
          account; and

     .    death distributions paid to a beneficiary's account that are used by
          the beneficiary to purchase fund shares in a different account.

LOAN REPAYMENTS -- Repayments on loans taken from a retirement plan or an
individual-type retirement account are not subject to sales charges if American
Funds Service Company is notified of the repayment.


DEALER COMMISSIONS AND COMPENSATION -- Commissions (up to 1.00%) are paid to
dealers who initiate and are responsible for certain Class A share purchases not
subject to initial sales charges. These purchases consist of purchases of $1
million or more, purchases by employer-sponsored defined contribution-type
retirement plans investing $1 million or more or with 100 or more eligible
employees, and purchases made at net asset value by certain retirement plans,
endowments and foundations with assets of $50 million or more. Commissions on
such investments (other than IRA rollover assets that roll over at no sales
charge under the fund's IRA rollover policy as described in the prospectus) are
paid to dealers at the following rates: 1.00% on amounts of less than $4
million, 0.50% on amounts of at least $4 million but less than $10 million and
0.25% on amounts of at least $10 million. Commissions are based on cumulative
investments over the life of the account with no adjustment for redemptions,
transfers, or market declines. For example, if a shareholder has accumulated
investments in excess of $4 million (but less than $10 million) and subsequently
redeems all or a portion of the account(s), purchases following the redemption
will generate a dealer commission of 0.50%.


A dealer concession of up to 1% may be paid by the fund under its Class A plan
of distribution to reimburse the Principal Underwriter in connection with dealer
and wholesaler compensation paid by it with respect to investments made with no
initial sales charge.


                      SALES CHARGE REDUCTIONS AND WAIVERS

REDUCING YOUR CLASS A SALES CHARGE -- As described in the prospectus, there are
various ways to reduce your sales charge when purchasing Class A shares.
Additional information about Class A sales charge reductions is provided below.


     STATEMENT OF INTENTION -- By establishing a statement of intention (the
     "Statement"), you enter into a nonbinding commitment to purchase shares of
     the American Funds (excluding money market funds) over a 13-month period
     and receive the same sales charge (expressed as a percentage of your
     purchases) as if all shares had been purchased at once.

     The Statement period starts on the date on which your first purchase made
     toward satisfying the Statement is processed. The market value of your
     existing holdings eligible to be aggregated (see below) as of the day
     immediately before the start of the Statement period may be credited toward
     satisfying the Statement.


                       American Balanced Fund -- Page 48
<PAGE>



     You may revise the commitment you have made in your Statement upward at any
     time during the Statement period. If your prior commitment has not been met
     by the time of the revision, the Statement period during which purchases
     must be made will remain unchanged. Purchases made from the date of the
     revision will receive the reduced sales charge, if any, resulting from the
     revised Statement. If your prior commitment has been met by the time of the
     revision, your original Statement will be considered met and a new
     Statement will be established.

     The Statement will be considered completed if the shareholder dies within
     the 13-month Statement period. Commissions to dealers will not be adjusted
     or paid on the difference between the Statement amount and the amount
     actually invested before the shareholder's death.

     When a shareholder elects to use a Statement, shares equal to 5% of the
     dollar amount specified in the Statement may be held in escrow in the
     shareholder's account out of the initial purchase (or subsequent purchases,
     if necessary) by the Transfer Agent. All dividends and any capital gain
     distributions on shares held in escrow will be credited to the
     shareholder's account in shares (or paid in cash, if requested). If the
     intended investment is not completed within the specified Statement period,
     the purchaser may be required to 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. Any dealers assigned to the shareholder's account at the
     time a purchase was made during the Statement period will receive a
     corresponding commission adjustment if appropriate. If the difference is
     not paid by the close of the Statement period, 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 may be liable
     to the Principal Underwriter for the balance still outstanding.

     Certain payroll deduction retirement plans purchasing Class A shares under
     a Statement on or before November 12, 2006, may continue to purchase Class
     A shares at the sales charge determined by that particular Statement until
     the plans' values reach the amounts specified in their Statements. Upon
     reaching such amounts, the Statements for these plans will be deemed
     completed and will terminate. After such termination, these plans are
     eligible for additional sales charge reductions by meeting the criteria
     under the fund's rights of accumulation policy.

     In addition, if you currently have individual holdings in American Legacy
     variable annuity contracts or variable life insurance policies that were
     established on or before March 31, 2007, you may continue to apply
     purchases under such contracts and policies to a Statement.

     Shareholders purchasing shares at a reduced sales charge under a Statement
     indicate their acceptance of these terms and those in the prospectus with
     their first purchase.

     AGGREGATION -- Qualifying investments for aggregation include those made by
     you and your "immediate family" as defined in the prospectus, if all
     parties are purchasing shares for their own accounts and/or:


                       American Balanced Fund -- Page 49
<PAGE>



     .    individual-type employee benefit plans, such as an IRA, single-
          participant Keogh-type plan, or a participant account of a 403(b) plan
          that is treated as an individual-type plan for sales charge purposes
          (see "Purchases by certain 403(b) plans" under "Sales charges" above);


     .    SEP plans and SIMPLE IRA plans established after November 15, 2004 by
          an employer adopting any plan document other than a prototype plan
          produced by American Funds Distributors, Inc.;

     .    business accounts solely controlled by you or your immediate family
          (for example, you own the entire business);

     .    trust accounts established by you or your immediate family (for trusts
          with only one primary beneficiary, upon the trustor's death the trust
          account may be aggregated with such beneficiary's own accounts; for
          trusts with multiple primary beneficiaries, upon the trustor's death
          the trustees of the trust may instruct American Funds Service Company
          to establish separate trust accounts for each primary beneficiary;
          each primary beneficiary's separate trust account may then be
          aggregated with such beneficiary's own accounts);

     .    endowments or foundations established and controlled by you or your
          immediate family; or

     .    529 accounts, which will be aggregated at the account owner level
          (Class 529-E accounts may only be aggregated with an eligible employer
          plan).

     Individual purchases by a trustee(s) or other fiduciary(ies) may also be
     aggregated if the investments are:

     .    for a single trust estate or fiduciary account, including employee
          benefit plans other than the individual-type employee benefit plans
          described above;

     .    made for two or more employee benefit plans of a single employer or of
          affiliated employers as defined in the 1940 Act, excluding the
          individual-type employee benefit plans described above;

     .    for a diversified common trust fund or other diversified pooled
          account not specifically formed for the purpose of accumulating fund
          shares;

     .    for nonprofit, charitable or educational organizations, or any
          endowments or foundations established and controlled by such
          organizations, or any employer-sponsored retirement plans established
          for the benefit of the employees of such organizations, their
          endowments, or their foundations;


     .    for participant accounts of a 403(b) plan that is treated as an employer-
          sponsored plan for sales charge purposes (see "Purchases by certain 403(b)
          plans" under "Sales charges" above), or made for participant accounts of
          two or more such plans, in each case of a single employer or affiliated
          employers as defined in the 1940 Act; or


     .    for a SEP or SIMPLE IRA plan established after November 15, 2004 by an
          employer adopting a prototype plan produced by American Funds
          Distributors, Inc.


                       American Balanced Fund -- Page 50
<PAGE>


     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 -- As described in the prospectus, you may reduce your
     Class A sales charge by combining purchases of all classes of shares in the
     American Funds, as well as holdings in Endowments and applicable holdings
     in the American Funds Target Date Retirement Series. Shares of money market
     funds purchased through an exchange, reinvestment or cross-reinvestment
     from a fund having a sales charge also qualify. However, direct purchases
     of American Funds money market funds are excluded. If you currently have
     individual holdings in American Legacy variable annuity contracts or
     variable life insurance policies that were established on or before March
     31, 2007, you may continue to combine purchases made under such contracts
     and policies to reduce your Class A sales charge.

     RIGHTS OF ACCUMULATION -- Subject to the limitations described in the
     aggregation policy, you may take into account your accumulated holdings in
     all share classes of the American Funds, as well as your holdings in
     Endowments and applicable holdings in the American Funds Target Date
     Retirement Series, to determine your sales charge on investments in
     accounts eligible to be aggregated. Direct purchases of American Funds
     money market funds are excluded. Subject to your investment dealer's or
     recordkeeper's capabilities, your accumulated holdings will be calculated
     as the higher of (a) the current value of your existing holdings (the
     "market value") or (b) the amount you invested (including reinvested
     dividends and capital gains, but excluding capital appreciation) less any
     withdrawals (the "cost value"). Depending on the entity on whose books your
     account is held, the value of your holdings in that account may not be
     eligible for calculation at cost value. For example, accounts held in
     nominee or street name may not be eligible for calculation at cost value
     and instead may be calculated at market value for purposes of rights of
     accumulation.

     The value of all of your holdings in accounts established in calendar year
     2005 or earlier will be assigned an initial cost value equal to the market
     value of those holdings as of the last business day of 2005. Thereafter,
     the cost value of such accounts will increase or decrease according to
     actual investments or withdrawals. You must contact your financial adviser
     or American Funds Service Company if you have additional information that
     is relevant to the calculation of the value of your holdings.

     When determining your American Funds Class A sales charge, if your
     investment is not in an employer-sponsored retirement plan, you may also
     continue to take into account the market value (as of the day prior to your
     American Funds investment) of your individual holdings in various American
     Legacy variable annuity contracts and variable life insurance policies that
     were established on or before March 31, 2007. An employer-sponsored
     retirement plan may also continue to take into account the market value of
     its investments in American Legacy Retirement Investment Plans that were
     established on or before March 31, 2007.

     You may not purchase Class B or 529-B shares if your combined American
     Funds and applicable American Legacy holdings cause you to be eligible to
     purchase Class A or


                       American Balanced Fund -- Page 51
<PAGE>


     529-A shares at the $100,000 or higher sales charge discount rate. In
     addition, you may not purchase Class C or 529-C shares if such combined
     holdings cause you to be eligible to purchase Class A or 529-A shares at
     the $1 million or more sales charge discount rate (i.e. at net asset
     value).

     If you make a gift of American Funds Class A shares, upon your request, you
     may purchase the shares at the sales charge discount allowed under rights
     of accumulation of all of your American Funds and applicable American
     Legacy accounts.

CDSC WAIVERS FOR CLASS A, B AND C SHARES -- As noted in the prospectus, a
contingent deferred sales charge ("CDSC") may be waived for redemptions due to
death or postpurchase disability of a shareholder (this generally excludes
accounts registered in the names of trusts and other entities). In the case of
joint tenant accounts, if one joint tenant dies, a surviving joint tenant, at
the time he or she notifies the Transfer Agent of the other joint tenant's death
and removes the decedent's name from the account, may redeem shares from the
account without incurring a CDSC. Redemptions made after the Transfer Agent is
notified of the death of a joint tenant will be subject to a CDSC.


In addition, a CDSC may be waived for the following types of transactions, if
together they do not exceed 12% of the value of an "account" (defined below)
annually (the "12% limit"):


     .    Required minimum distributions taken from retirement accounts upon the
          shareholder's attainment of age 70-1/2 (required minimum distributions
          that continue to be taken by the beneficiary(ies) after the account
          owner is deceased also qualify for a waiver).

     .    Redemptions through an automatic withdrawal plan ("AWP") (see
          "Automatic withdrawals" under "Shareholder account services and
          privileges" in this statement of additional information). For each AWP
          payment, assets that are not subject to a CDSC, such as appreciation
          on shares and shares acquired through reinvestment of dividends and/or
          capital gain distributions, will be redeemed first and will count
          toward the 12% limit. If there is an insufficient amount of assets not
          subject to a CDSC to cover a particular AWP payment, shares subject to
          the lowest CDSC will be redeemed next until the 12% limit is reached.
          Any dividends and/or capital gain distributions taken in cash by a
          shareholder who receives payments through an AWP will also count
          toward the 12% limit. In the case of an AWP, the 12% limit is
          calculated at the time an automatic redemption is first made, and is
          recalculated at the time each additional automatic redemption is made.
          Shareholders who establish an AWP should be aware that the amount of a
          payment not subject to a CDSC may vary over time depending on
          fluctuations in the value of their accounts. This privilege may be
          revised or terminated at any time.

     For purposes of this paragraph, "account" means:

     .    in the case of Class A shares, your investment in Class A shares of
          all American Funds (investments representing direct purchases of
          American Funds money market funds are excluded);

     .    in the case of Class B shares, your investment in Class B shares of
          the particular fund from which you are making the redemption; and


                       American Balanced Fund -- Page 52
<PAGE>


     .    in the case of Class C shares, your investment in Class C shares of
          the particular fund from which you are making the redemption.

CDSC waivers are allowed only in the cases listed here and in the prospectus.
For example, CDSC waivers will not be allowed on redemptions of Class 529-B and
529-C shares due to termination of CollegeAmerica; a determination by the
Internal Revenue Service that CollegeAmerica does not qualify as a qualified
tuition program under the Code; proposal or enactment of law that eliminates or
limits the tax-favored status of CollegeAmerica; or elimination of the fund by
the Virginia College Savings Plan as an option for additional investment within
CollegeAmerica.

                                 SELLING SHARES

The methods for selling (redeeming) shares are described more fully in the
prospectus. If you wish to sell your shares by contacting American Funds Service
Company directly, any such request must be signed by the registered
shareholders. To contact American Funds Service Company via overnight mail or
courier service, see "Purchase and exchange of shares."


A signature guarantee may be required for certain redemptions. In such an event,
your signature may be guaranteed by a domestic stock exchange or the Financial
Industry Regulatory Authority, bank, savings association or credit union that is
an eligible guarantor institution. The Transfer Agent reserves the right to
require a signature guarantee on any redemptions.


Additional documentation may be required for sales of shares held in corporate,
partnership or fiduciary accounts. You must include with your written request
any shares you wish to sell that are in certificate form.


If you sell Class A, B or C shares and request a specific dollar amount to be
sold, we will sell sufficient shares so that the sale proceeds, after deducting
any applicable CDSC, equals the dollar amount requested.


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 10
business 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 1940 Act), 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.


You may request that redemption proceeds of $1,000 or more from money market
funds be wired to your bank by writing American Funds Service Company. A
signature guarantee is required on all requests to wire funds.


                  SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES

The following services and privileges are generally available to all
shareholders. However, certain services and privileges may not be available for
Class 529 shareholders or if your account is held with an investment dealer or
through an employer-sponsored retirement plan.


AUTOMATIC INVESTMENT PLAN -- An automatic investment plan enables you to make
monthly or quarterly investments in the American Funds through automatic debits
from your bank account.


                       American Balanced Fund -- Page 53
<PAGE>


To set up a plan, you must fill out an account application and specify the
amount that you would like to invest and the date on which you would like your
investments to occur. The plan will begin within 30 days after your account
application is received. Your bank account will be debited on the day or a few
days before your investment is made, depending on the bank's capabilities. The
Transfer Agent will then invest your money into the fund you specified on or
around the date you specified. If the date you specified falls on a weekend or
holiday, your money will be invested on the following business day. However, if
the following business day falls in the next month, your money will be invested
on the business day immediately preceding the weekend or holiday. If your bank
account cannot be debited due to insufficient funds, a stop-payment or the
closing of the account, the plan may be terminated and the related investment
reversed. You may change the amount of the investment or discontinue the plan at
any time by contacting the Transfer Agent.


AUTOMATIC REINVESTMENT -- Dividends and capital gain distributions are
reinvested in additional shares of the same class and fund at net asset value
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. Dividends and capital gain
distributions paid to retirement plan shareholders or shareholders of the 529
share classes will be automatically reinvested.


If you have elected to receive dividends and/or capital gain distributions in
cash, and the postal or other delivery service is unable to deliver checks to
your address of record, or you do not respond to mailings from American Funds
Service Company with regard to uncashed distribution checks, your distribution
option will automatically be converted to having all dividends and other
distributions reinvested in additional shares.


CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS -- For all share classes,
except the 529 classes of shares, you may cross-reinvest dividends and capital
gains (distributions) into other American Funds in the same share class at net
asset value, subject to the following conditions:


(1)  the aggregate value of your account(s) in the fund(s) paying distributions
equals or exceeds $5,000 (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);

(2)  if the value of the account of the fund receiving distributions is below
the minimum initial investment requirement, distributions must be automatically
reinvested; and

(3)  if you discontinue the cross-reinvestment of distributions, the value of
the account of the fund receiving distributions 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.

AUTOMATIC EXCHANGES -- For all share classes, you may automatically exchange
shares of the same class in amounts of $50 or more among any of the American
Funds on any day (or preceding business day if the day falls on a nonbusiness
day) of each month you designate.


AUTOMATIC WITHDRAWALS -- Depending on the type of account, for all share classes
except R shares, you may automatically withdraw shares from any of the American
Funds. You can make automatic withdrawals of $50 or more. You can designate the
day of each period for withdrawals and request that checks be sent to you or
someone else. Withdrawals may also be


                       American Balanced Fund -- Page 54
<PAGE>



electronically deposited to your bank account. The Transfer Agent will withdraw
your money from the fund you specify on or around the date you specify. If the
date you specified falls on a weekend or holiday, the redemption will take place
on the previous business day. However, if the previous business day falls in the
preceding month, the redemption will take place on the following business day
after the weekend or holiday. You should consult with your adviser or
intermediary to determine if your account is eligible for automatic withdrawals.



Withdrawal payments are not to be considered as dividends, yield or income.
Generally, 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.


Redemption proceeds from an automatic withdrawal plan are not eligible for
reinvestment without a sales charge.


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, purchases through
automatic investment plans and certain retirement plans, as well as automatic
exchanges and withdrawals will be confirmed at least quarterly.


AMERICAN FUNDSLINE AND AMERICANFUNDS.COM -- You may check your share balance,
the price of your shares or your most recent account transaction; redeem shares
(up to $75,000 per American Funds shareholder each day) from nonretirement plan
accounts; or exchange shares around the clock with American FundsLine or using
americanfunds.com. To use American FundsLine, call 800/325-3590 from a
TouchTone(TM) telephone. Redemptions and exchanges through American FundsLine
and americanfunds.com are subject to the conditions noted above and in
"Telephone and Internet purchases, redemptions and exchanges" below. You will
need your fund number (see the list of the American Funds under "General
information -- fund numbers"), personal identification number (generally the
last four digits of your Social Security number or other tax identification
number associated with your account) and account number.


Generally, all shareholders are automatically eligible to use these services.
However, if you are not currently authorized to do so, you may complete an
American FundsLink Authorization Form. Once you establish this privilege, you,
your financial adviser or any person with your account information may use these
services.


TELEPHONE AND INTERNET PURCHASES, REDEMPTIONS AND EXCHANGES -- By using the
telephone (including American FundsLine) or the Internet (including
americanfunds.com), or fax 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 liabilities (including attorney fees) that may be incurred in
connection with the exercise of these privileges. Generally, all shareholders
are automatically eligible to use these services. However, you may elect to opt
out of these services 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, it and/or the fund may
be liable for losses due to unauthorized or


                       American Balanced Fund -- Page 55
<PAGE>


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.


CHECKWRITING -- You may establish check writing privileges for Class A shares
(but not Class 529-A shares) of American Funds money market funds upon meeting
the fund's initial purchase minimum of $1,000. This can be done by using an
account 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 of registered shareholders exactly as indicated on your account
application.


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 of record owns
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.


While payment of redemptions normally will be in cash, the fund's articles of
incorporation permit payment of the redemption price wholly or partly with
portfolio securities or other fund assets under conditions and circumstances
determined by the fund's board of directors. For example, redemptions could be
made in this manner if the board determined that making payments wholly in cash
over a particular period would be unfair and/or harmful to other fund
shareholders.


SHARE CERTIFICATES -- Shares are credited to your account and certificates are
not issued unless you request them by contacting the Transfer Agent.
Certificates are not available for the 529 or R share classes.


                              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 JPMorgan Chase Bank, 270 Park Avenue, New York, NY 10017-2070, as
Custodian. If the fund holds securities of issuers outside the U.S., the
Custodian may hold these securities pursuant to subcustodial arrangements in
banks outside the U.S. or branches of U.S. banks outside the U.S.


TRANSFER AGENT -- American Funds Service Company, a wholly owned subsidiary of
the investment adviser, maintains the records of shareholder accounts, 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. The principal office of American Funds Service Company is
located at 6455 Irvine Center Drive, Irvine, CA 92618. American Funds Service
Company was paid a fee of $36,047,000 for Class A shares and $5,005,000 for
Class B shares for the 2007 fiscal year. American Funds Service Company is also
compensated for certain transfer agency services provided to all other share
classes from the administrative services fees paid to Capital Research and
Management Company, as described under "Administrative services agreement."


                       American Balanced Fund -- Page 56
<PAGE>


In the case of certain shareholder accounts, third parties who may be
unaffiliated with the investment adviser provide transfer agency and shareholder
services in place of American Funds Service Company. These services are rendered
under agreements with American Funds Service Company or its affiliates and the
third parties receive compensation according to such agreements. Compensation
for transfer agency and shareholder services, whether paid to American Funds
Service Company or such third parties, is ultimately paid from fund assets and
is reflected in the expenses of the fund as disclosed in the prospectus.


INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM -- Deloitte & Touche LLP, 695 Town
Center Drive, Suite 1200, Costa Mesa, CA 92626, serves as the fund's independent
registered public accounting firm, providing audit services, preparation of tax
returns and review of certain documents 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 audited by Deloitte &
Touche LLP, an independent registered public accounting firm, as stated in their
report appearing herein. Such financial statements have been so included in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing. The selection of the fund's independent registered
public accounting firm is reviewed and determined annually by the board of
directors.


INDEPENDENT LEGAL COUNSEL -- Paul, Hastings, Janofsky & Walker LLP, 515 South
Flower Street, Los Angeles, CA 90071, serves as independent legal counsel
("counsel") for the fund and for independent directors in their capacities as
such. Certain legal matters in connection with certain capital shares offered by
the prospectus have been passed upon for the fund by Paul, Hastings, Janofsky &
Walker LLP and DLA Piper US LLP, Baltimore, Maryland.  A determination with
respect to the independence of the fund's counsel will be made at least annually
by the independent directors of the fund, as prescribed by the 1940 Act and
related rules.


PROSPECTUSES, REPORTS TO SHAREHOLDERS AND PROXY STATEMENTS -- The fund's fiscal
year ends on December 31. Shareholders are provided updated prospectuses
annually and at least semiannually with reports showing the fund's investment
portfolio or summary investment portfolio, financial statements and other
information. The fund's annual financial statements are audited by the fund's
independent registered public accounting firm, Deloitte & Touche LLP. In
addition, shareholders may also receive proxy statements for the fund. 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 prospectuses, shareholder reports and proxy
statements. To receive additional copies of a prospectus, report or proxy
statement, shareholders should contact the Transfer Agent.


Shareholders may also elect to receive updated prospectuses, annual reports and
semi-annual reports electronically by signing up for electronic delivery on our
website, americanfunds.com. Upon electing the electronic delivery of updated
prospectuses and other reports, a shareholder will no longer automatically
receive such documents in paper form by mail. A shareholder who elects
electronic delivery is able to cancel this service at any time and return to
receiving updated prospectuses and other reports in paper form by mail.


Prospectuses, annual reports and semi-annual reports that are mailed to
shareholders by the American Funds organization are printed with ink containing
soy and/or vegetable oil on paper containing recycled fibers.


                       American Balanced Fund -- Page 57
<PAGE>


CODES OF ETHICS -- The fund and Capital Research and Management Company and its
affiliated companies, including the fund's Principal Underwriter, have adopted
codes of ethics that allow for personal investments, including securities in
which the fund may invest from time to time. These codes include a ban on
acquisitions of securities pursuant to an initial public offering; restrictions
on acquisitions of private placement securities; preclearance 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.


LEGAL PROCEEDINGS -- On February 16, 2005, the NASD (now the Financial Industry
Regulatory Authority, or FINRA) filed an administrative complaint against the
Principal Underwriter. The complaint alleges violations of certain NASD rules by
the Principal Underwriter with respect to the selection of broker-dealer firms
that buy and sell securities for mutual fund investment portfolios. The
complaint seeks sanctions, restitution and disgorgement. On August 30, 2006, a
FINRA Hearing Panel ruled against the Principal Underwriter and imposed a $5
million fine. On April 30, 2008, FINRA's National Adjudicatory Council affirmed
the decision by FINRA's Hearing Panel. The Principal Underwriter has appealed
this decision to the Securities and Exchange Commission.


The investment adviser and Principal Underwriter believe that the likelihood
that this matter could have a material adverse effect on the fund or on the
ability of the investment adviser or Principal Underwriter to perform their
contracts with the fund is remote. In addition, class action lawsuits have been
filed in the U.S. District Court, Central District of California, relating to
this and other matters. The investment adviser believes that these suits are
without merit and will defend itself vigorously.


DETERMINATION OF NET ASSET VALUE, REDEMPTION PRICE AND MAXIMUM OFFERING PRICE
PER SHARE FOR CLASS A SHARES -- DECEMBER 31, 2007

Net asset value and redemption price per share
  (Net assets divided by shares outstanding). .                     $19.31
Maximum offering price per share
  (100/94.25 of net asset value per share,
  which takes into account the fund's current maximum
  sales charge). . . . . . . . . . . . . . . .                      $20.49



OTHER INFORMATION -- The fund reserves the right to modify the privileges
described in this statement of additional information at any time.


The financial statements, including the investment portfolio and the report of
the fund's independent registered public accounting firm contained in the annual
report, are included in this statement of additional information. The following
information on fund numbers is not included in the annual report:


                       American Balanced Fund -- Page 58
<PAGE>


FUND NUMBERS -- Here are the fund numbers for use with our automated telephone
line, American FundsLine/(R)/, or when making share transactions:

                                               FUND NUMBERS
                              -------------------------------------------------
FUND                          CLASS A  CLASS B  CLASS C  CLASS F-1   CLASS F-2
-------------------------------------------------------------------------------

STOCK AND STOCK/BOND FUNDS
AMCAP Fund/(R)/ . . . . . .     002      202      302       402         602
American Balanced Fund/(R)/     011      211      311       411         611
American Mutual Fund/(R)/ .     003      203      303       403         603
Capital Income Builder/(R)/     012      212      312       412         612
Capital World Growth and
Income Fund/SM/ . . . . . .     033      233      333       433         633
EuroPacific Growth Fund/(R)/    016      216      316       416         616
Fundamental Investors/SM/ .     010      210      310       410         610
The Growth Fund of
America/(R)/. . . . . . . .     005      205      305       405         605
The Income Fund of
America/(R)/. . . . . . . .     006      206      306       406         606
International Growth and
Income Fund/SM/ . . . . . .     034      234      334       434         634
The Investment Company of
America/(R)/. . . . . . . .     004      204      304       404         604
The New Economy Fund/(R)/ .     014      214      314       414         614
New Perspective Fund/(R)/ .     007      207      307       407         607
New World Fund/SM/  . . . .     036      236      336       436         636
SMALLCAP World Fund/(R)/  .     035      235      335       435         635
Washington Mutual Investors
Fund/SM/  . . . . . . . . .     001      201      301       401         601
BOND FUNDS
American High-Income
Municipal Bond Fund/(R)/  .     040      240      340       440         640
American High-Income
Trust/SM/ . . . . . . . . .     021      221      321       421         621
The Bond Fund of America/SM/    008      208      308       408         608
Capital World Bond Fund/(R)/    031      231      331       431         631
Intermediate Bond Fund of
America/SM/ . . . . . . . .     023      223      323       423         623
Limited Term Tax-Exempt Bond
Fund of America/SM/ . . . .     043      243      343       443         643
Short-Term Bond Fund of
America/SM/ . . . . . . . .     048      248      348       448         648
The Tax-Exempt Bond Fund of
America/(R)/. . . . . . . .     019      219      319       419         619
The Tax-Exempt Fund of
California/(R)/*. . . . . .     020      220      320       420         620
The Tax-Exempt Fund of
Maryland/(R)/*. . . . . . .     024      224      324       424         624
The Tax-Exempt Fund of
Virginia/(R)/*. . . . . . .     025      225      325       425         625
U.S. Government Securities
Fund/SM/. . . . . . . . . .     022      222      322       422         622
MONEY MARKET FUNDS
The Cash Management Trust of
America/(R)/. . . . . . . .     009      209      309       409         609
The Tax-Exempt Money Fund of
America/SM/ . . . . . . . .     039      N/A      N/A       N/A         N/A
The U.S. Treasury Money Fund
of America/SM/  . . . . . .     049      N/A      N/A       N/A         N/A
___________
*Qualified for sale only in certain jurisdictions.



                       American Balanced Fund -- Page 59
<PAGE>

                                                 FUND NUMBERS
                                 ----------------------------------------------
                                  CLASS    CLASS    CLASS    CLASS     CLASS
FUND                              529-A    529-B    529-C    529-E    529-F-1
-------------------------------------------------------------------------------

STOCK AND STOCK/BOND FUNDS
AMCAP Fund . . . . . . . . . .    1002     1202     1302     1502       1402
American Balanced Fund . . . .    1011     1211     1311     1511       1411
American Mutual Fund . . . . .    1003     1203     1303     1503       1403
Capital Income Builder . . . .    1012     1212     1312     1512       1412
Capital World Growth and Income
Fund . . . . . . . . . . . . .    1033     1233     1333     1533       1433
EuroPacific Growth Fund  . . .    1016     1216     1316     1516       1416
Fundamental Investors  . . . .    1010     1210     1310     1510       1410
The Growth Fund of America . .    1005     1205     1305     1505       1405
The Income Fund of America . .    1006     1206     1306     1506       1406
International Growth and Income
Fund . . . . . . . . . . . . .    1034     1234     1334     1534       1434
The Investment Company of
America. . . . . . . . . . . .    1004     1204     1304     1504       1404
The New Economy Fund . . . . .    1014     1214     1314     1514       1414
New Perspective Fund . . . . .    1007     1207     1307     1507       1407
New World Fund . . . . . . . .    1036     1236     1336     1536       1436
SMALLCAP World Fund  . . . . .    1035     1235     1335     1535       1435
Washington Mutual Investors
Fund . . . . . . . . . . . . .    1001     1201     1301     1501       1401
BOND FUNDS
American High-Income Trust . .    1021     1221     1321     1521       1421
The Bond Fund of America . . .    1008     1208     1308     1508       1408
Capital World Bond Fund  . . .    1031     1231     1331     1531       1431
Intermediate Bond Fund of
America. . . . . . . . . . . .    1023     1223     1323     1523       1423
Short-Term Bond Fund of America   1048     1248     1348     1548       1448
U.S. Government Securities Fund   1022     1222     1322     1522       1422
MONEY MARKET FUND
The Cash Management Trust of
America. . . . . . . . . . . .    1009     1209     1309     1509       1409





                       American Balanced Fund -- Page 60
<PAGE>

                                                    FUND NUMBERS
                                       ----------------------------------------
                                       CLASS   CLASS   CLASS   CLASS    CLASS
FUND                                    R-1     R-2     R-3     R-4      R-5
-------------------------------------------------------------------------------

STOCK AND STOCK/BOND FUNDS
AMCAP Fund . . . . . . . . . . . . .    2102    2202    2302    2402     2502
American Balanced Fund . . . . . . .    2111    2211    2311    2411     2511
American Mutual Fund . . . . . . . .    2103    2203    2303    2403     2503
Capital Income Builder . . . . . . .    2112    2212    2312    2412     2512
Capital World Growth and Income Fund    2133    2233    2333    2433     2533
EuroPacific Growth Fund  . . . . . .    2116    2216    2316    2416     2516
Fundamental Investors  . . . . . . .    2110    2210    2310    2410     2510
The Growth Fund of America . . . . .    2105    2205    2305    2405     2505
The Income Fund of America . . . . .    2106    2206    2306    2406     2506
International Growth and Income Fund    2134    2234    2334    2434     2534
The Investment Company of America  .    2104    2204    2304    2404     2504
The New Economy Fund . . . . . . . .    2114    2214    2314    2414     2514
New Perspective Fund . . . . . . . .    2107    2207    2307    2407     2507
New World Fund . . . . . . . . . . .    2136    2236    2336    2436     2536
SMALLCAP World Fund  . . . . . . . .    2135    2235    2335    2435     2535
Washington Mutual Investors Fund . .    2101    2201    2301    2401     2501
BOND FUNDS
American High-Income Municipal Bond
Fund . . . . . . . . . . . . . . . .     N/A     N/A     N/A     N/A     2540
American High-Income Trust . . . . .    2121    2221    2321    2421     2521
The Bond Fund of America . . . . . .    2108    2208    2308    2408     2508
Capital World Bond Fund  . . . . . .    2131    2231    2331    2431     2531
Intermediate Bond Fund of America  .    2123    2223    2323    2423     2523
Limited Term Tax-Exempt Bond Fund of
America. . . . . . . . . . . . . . .     N/A     N/A     N/A     N/A     2543
Short-Term Bond Fund of America. . .    2148    2248    2348    2448     2548
The Tax-Exempt Bond Fund of America      N/A     N/A     N/A     N/A     2519
The Tax-Exempt Fund of California* .     N/A     N/A     N/A     N/A     2520
The Tax-Exempt Fund of Maryland* . .     N/A     N/A     N/A     N/A     2524
The Tax-Exempt Fund of Virginia* . .     N/A     N/A     N/A     N/A     2525
U.S. Government Securities Fund  . .    2122    2222    2322    2422     2522
MONEY MARKET FUNDS
The Cash Management Trust of America    2109    2209    2309    2409     2509
The Tax-Exempt Money Fund of America     N/A     N/A     N/A     N/A     2539
The U.S. Treasury Money Fund of
America  . . . . . . . . . . . . . .    2149    2249    2349    2449     2549
___________
*Qualified for sale only in certain
jurisdictions.





                       American Balanced Fund -- Page 61
<PAGE>

                                                  FUND NUMBERS
                                   --------------------------------------------
                                            CLASS  CLASS  CLASS  CLASS   CLASS
FUND                               CLASS A   R-1    R-2    R-3    R-4     R-5
-------------------------------------------------------------------------------

AMERICAN FUNDS TARGET DATE RETIREMENT SERIES/(R)/
American Funds 2050 Target Date
Retirement Fund/(R)/ . . . . . .     069    2169   2269   2369   2469    2569
American Funds 2045 Target Date
Retirement Fund/(R)/ . . . . . .     068    2168   2268   2368   2468    2568
American Funds 2040 Target Date
Retirement Fund/(R)/ . . . . . .     067    2167   2267   2367   2467    2567
American Funds 2035 Target Date
Retirement Fund/(R)/ . . . . . .     066    2166   2266   2366   2466    2566
American Funds 2030 Target Date
Retirement Fund/(R)/ . . . . . .     065    2165   2265   2365   2465    2565
American Funds 2025 Target Date
Retirement Fund/(R)/ . . . . . .     064    2164   2264   2364   2464    2564
American Funds 2020 Target Date
Retirement Fund/(R)/ . . . . . .     063    2163   2263   2363   2463    2563
American Funds 2015 Target Date
Retirement Fund/(R)/ . . . . . .     062    2162   2262   2362   2462    2562
American Funds 2010 Target Date
Retirement Fund/(R)/ . . . . . .     061    2161   2261   2361   2461    2561





                       American Balanced Fund -- Page 62
<PAGE>


                                    APPENDIX

The following descriptions of debt security ratings are based on information
provided by Moody's Investors Service and Standard & Poor's Corporation.


                          DESCRIPTION OF BOND RATINGS

MOODY'S
LONG-TERM RATING DEFINITIONS

Aaa
Obligations rated Aaa are judged to be of the highest quality, with minimal
credit risk.


Aa
Obligations rated Aa are judged to be of high quality and are subject to very
low credit risk.


A
Obligations rated A are considered upper-medium grade and are subject to low
credit risk.


Baa
Obligations rated Baa are subject to moderate credit risk. They are considered
medium-grade and as such may possess certain speculative characteristics.


Ba
Obligations rated Ba are judged to have speculative elements and are subject to
substantial credit risk.


B
Obligations rated B are considered speculative and are subject to high credit
risk.


Caa
Obligations rated Caa are judged to be of poor standing and are subject to very
high credit risk.


Ca
Obligations rated Ca are highly speculative and are likely in, or very near,
default, with some prospect of recovery of principal and interest.


C
Obligations rated C are the lowest rated class of bonds and are typically in
default, with little prospect for recovery of principal or interest.


NOTE: Moody's appends numerical modifiers 1, 2, and 3 to each generic rating
classification from Aa through Caa. The modifier 1 indicates that the obligation
ranks in the higher end of its generic rating category; the modifier 2 indicates
a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of
that generic rating category.


                       American Balanced Fund -- Page 63
<PAGE>


STANDARD & POOR'S
LONG-TERM ISSUE CREDIT RATINGS

AAA
An obligation rated AAA has the highest rating assigned by Standard & Poor's.
The obligor's capacity to meet its financial commitment on the obligation is
extremely strong.


AA
An obligation rated AA differs from the highest-rated obligations only in small
degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.


A
An obligation rated A is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in
higher-rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.


BBB
An obligation rated BBB exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity of the obligor to meet its financial commitment on the
obligation.


BB, B, CCC, CC, AND C
Obligations rated BB, B, CCC, CC, and C are regarded as having significant
speculative characteristics. BB indicates the least degree of speculation and C
the highest. While such obligations will likely have some quality and protective
characteristics, these may be outweighed by large uncertainties or major
exposures to adverse conditions.


BB
An obligation rated BB is less vulnerable to nonpayment than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial, or economic conditions which could lead to the obligor's
inadequate capacity to meet its financial commitment on the obligation.


B
An obligation rated B is more vulnerable to nonpayment than obligations rated
BB, but the obligor currently has the capacity to meet its financial commitment
on the obligation. Adverse business, financial, or economic conditions will
likely impair the obligor's capacity or willingness to meet its financial
commitment on the obligation.


CCC
An obligation rated CCC is currently vulnerable to nonpayment and is dependent
upon favorable business, financial, and economic conditions for the obligor to
meet its financial commitment on the obligation. In the event of adverse
business, financial, or economic conditions, the obligor is not likely to have
the capacity to meet its financial commitment on the obligation.


CC
An obligation rated CC is currently highly vulnerable to nonpayment.


                       American Balanced Fund -- Page 64
<PAGE>


C

A C rating is assigned to obligations that are currently highly vulnerable to
nonpayment, obligations that have payment arrearages allowed by the terms of the
documents, or obligations of an issuer that is the subject of a bankruptcy
petition or similar action which have not experienced a payment default. Among
others, the C rating may be assigned to subordinated debt, preferred stock or
other obligations on which cash payments have been suspended in accordance with
the instrument's terms.


D
An obligation rated D is in payment default. The D rating category is used when
payments on an obligation are not made on the date due even if the applicable
grace period has not expired, unless Standard & Poor's believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition or the taking of a similar action if
payments on an obligation are jeopardized.


PLUS (+) OR MINUS (-)
The ratings from AA to CCC may be modified by the addition of a plus or minus
sign to show relative standing within the major rating categories.


                       American Balanced Fund -- Page 65
 
...

[logo – American Funds®]



American Balanced Fund®
Investment portfolio
 
December 31, 2007



Common stocks — 63.46%
  
Shares
    
Market value
(000)
  
             
INFORMATION TECHNOLOGY — 12.87%
            
Microsoft Corp.
    
41,950,000
     $
1,493,420
  
International Business Machines Corp.
    
10,090,000
      
1,090,729
  
Nokia Corp. (ADR)
    
22,800,000
      
875,292
  
Oracle Corp.1
    
32,200,000
      
727,076
  
Cisco Systems, Inc.1
    
26,300,000
      
711,941
  
Intel Corp.
    
16,800,000
      
447,888
  
Hewlett-Packard Co.
    
7,800,000
      
393,744
  
Google Inc., Class A1
    
460,000
      
318,081
  
Motorola, Inc.
    
18,700,000
      
299,948
  
QUALCOMM Inc.
    
6,000,000
      
236,100
  
Yahoo! Inc.1
    
8,750,000
      
203,525
  
Agilent Technologies, Inc.1
    
5,000,000
      
183,700
  
Analog Devices, Inc.
    
5,170,066
      
163,891
  
Dell Inc.1
    
6,000,000
      
147,060
  
EMC Corp.1
    
6,922,900
      
128,281
  
Automatic Data Processing, Inc.
    
2,750,000
      
122,458
  
Intuit Inc.1
    
3,700,000
      
116,957
  
Texas Instruments Inc.
    
3,000,000
      
100,200
  
Nortel Networks Corp. (CAD denominated)1
    
1,835,000
      
27,693
  
Nortel Networks Corp.1
    
700,000
      
10,563
  
             
7,798,547
  
                 
                 
INDUSTRIALS — 9.29%
                
General Electric Co.
    
28,400,000
      
1,052,788
  
Northrop Grumman Corp.
    
8,735,000
      
686,920
  
Deere & Co.
    
6,500,000
      
605,280
  
FedEx Corp.
    
4,600,000
      
410,182
  
Caterpillar Inc.
    
5,500,000
      
399,080
  
United Technologies Corp.
    
4,630,000
      
354,380
  
United Parcel Service, Inc., Class B
    
4,900,000
      
346,528
  
Illinois Tool Works Inc.
    
4,850,000
      
259,669
  
Union Pacific Corp.
    
2,000,000
      
251,240
  
Emerson Electric Co.
    
4,000,000
      
226,640
  
Parker Hannifin Corp.
    
2,550,000
      
192,041
  
General Dynamics Corp.
    
2,100,000
      
186,879
  
Koninklijke Philips Electronics NV2
    
4,250,000
      
183,915
  
Boeing Co.
    
2,000,000
      
174,920
  
European Aeronautic Defence and Space Co. EADS NV2
    
5,000,000
      
158,497
  
Tyco International Ltd.
    
3,460,000
      
137,189
  
             
5,626,148
  
                 
                 
FINANCIALS — 7.94%
                
Berkshire Hathaway Inc., Class A1
    
7,270
      
1,029,432
  
Bank of America Corp.
    
16,800,000
      
693,168
  
Wells Fargo & Co.
    
21,220,000
      
640,632
  
Fannie Mae
    
13,350,000
      
533,733
  
Citigroup Inc.
    
14,505,000
      
427,027
  
American International Group, Inc.
    
5,000,000
      
291,500
  
Wachovia Corp.
    
7,550,000
      
287,127
  
SunTrust Banks, Inc.
    
2,905,000
      
181,533
  
Lincoln National Corp.
    
2,650,000
      
154,283
  
U.S. Bancorp
    
4,800,000
      
152,352
  
Washington Mutual, Inc.
    
9,500,000
      
129,295
  
Marsh & McLennan Companies, Inc.
    
4,700,000
      
124,409
  
Freddie Mac
    
2,500,000
      
85,175
  
Société Générale2
    
550,000
      
78,488
  
             
4,808,154
  
                 
                 
HEALTH CARE — 7.42%
                
Eli Lilly and Co.
    
12,702,000
      
678,160
  
Merck & Co., Inc.
    
9,600,000
      
557,856
  
Abbott Laboratories
    
8,500,000
      
477,275
  
Johnson & Johnson
    
5,200,000
      
346,840
  
UnitedHealth Group Inc.
    
5,300,000
      
308,460
  
Medtronic, Inc.
    
6,000,000
      
301,620
  
Pfizer Inc
    
13,000,000
      
295,490
  
Bristol-Myers Squibb Co.
    
10,250,000
      
271,830
  
Roche Holding AG2
    
1,558,422
      
268,097
  
Wyeth
    
4,700,000
      
207,693
  
Aetna Inc.
    
3,400,000
      
196,282
  
CIGNA Corp.
    
3,000,000
      
161,190
  
Stryker Corp.
    
1,800,000
      
134,496
  
Amgen Inc.1
    
2,500,000
      
116,100
  
Sanofi-Aventis2
    
1,000,000
      
91,266
  
AstraZeneca PLC (ADR)
    
2,000,000
      
85,640
  
             
4,498,295
  
                 
                 
CONSUMER STAPLES — 6.80%
                
Wal-Mart Stores, Inc.
    
21,200,000
      
1,007,636
  
Coca-Cola Co.
    
14,800,000
      
908,276
  
Altria Group, Inc.
    
10,850,000
      
820,043
  
Walgreen Co.
    
16,350,000
      
622,608
  
Avon Products, Inc.
    
5,700,000
      
225,321
  
Unilever NV (New York registered)
    
4,500,000
      
164,070
  
PepsiCo, Inc.
    
1,800,000
      
136,620
  
H.J. Heinz Co.
    
2,750,000
      
128,370
  
Anheuser-Busch Companies, Inc.
    
2,000,000
      
104,680
  
             
4,117,624
  
                 
                 
ENERGY — 5.89%
                
Chevron Corp.
    
9,000,000
      
839,970
  
Exxon Mobil Corp.
    
6,100,000
      
571,509
  
Schlumberger Ltd.
    
5,000,000
      
491,850
  
Occidental Petroleum Corp.
    
6,150,000
      
473,488
  
ConocoPhillips
    
3,800,000
      
335,540
  
Royal Dutch Shell PLC, Class A (ADR)
    
3,150,000
      
265,230
  
TOTAL SA (ADR)
    
2,500,000
      
206,500
  
EnCana Corp.
    
3,000,000
      
204,010
  
Marathon Oil Corp.
    
3,000,000
      
182,580
  
             
3,570,677
  
                 
                 
CONSUMER DISCRETIONARY — 4.80%
                
Target Corp.
    
11,329,348
      
566,467
  
Time Warner Inc.
    
24,750,000
      
408,623
  
Lowe’s Companies, Inc.
    
14,200,000
      
321,204
  
Kohl’s Corp.1
    
5,900,000
      
270,220
  
Best Buy Co., Inc.
    
5,100,000
      
268,515
  
News Corp., Class A
    
12,000,000
      
245,880
  
Carnival Corp., units
    
4,916,100
      
218,717
  
Magna International Inc., Class A
    
1,750,000
      
140,753
  
Sony Corp.2
    
2,200,000
      
119,406
  
Carnival PLC2
    
2,555,000
      
111,782
  
CBS Corp., Class B
    
3,605,400
      
98,247
  
Gannett Co., Inc.
    
2,400,000
      
93,600
  
Home Depot, Inc.
    
1,650,000
      
44,451
  
             
2,907,865
  
                 
                 
TELECOMMUNICATION SERVICES — 3.07%
                
AT&T Inc.
    
14,987,500
      
622,880
  
Vodafone Group PLC2
    
157,062,500
      
583,404
  
Sprint Nextel Corp., Series 1
    
25,000,000
      
328,250
  
Verizon Communications Inc.
    
7,500,000
      
327,675
  
             
1,862,209
  
                 
                 
MATERIALS — 3.06%
                
Alcoa Inc.
    
10,848,200
      
396,502
  
E.I. du Pont de Nemours and Co.
    
8,500,000
      
374,765
  
Weyerhaeuser Co.
    
4,590,000
      
338,466
  
International Paper Co.
    
9,500,000
      
307,610
  
Bayer AG, non-registered shares2
    
2,000,000
      
182,081
  
Rohm and Haas Co.
    
2,775,000
      
147,269
  
Dow Chemical Co.
    
2,800,000
      
110,376
  
             
1,857,069
  
                 
                 
UTILITIES — 0.34%
                
Exelon Corp.
    
2,500,000
      
204,100
  
                 
                 
                 
MISCELLANEOUS — 1.98%
                
Other common stocks in initial period of acquisition
            
1,198,970
  
                 
                 
Total common stocks (cost: $30,517,589,000)
            
38,449,658
  
                 
                 
                 
Preferred stocks — 0.52%
                
                 
FINANCIALS — 0.37%
                
Sumitomo Mitsui Banking Corp. 6.078%3,4
    
38,556,000
      
35,711
  
MUFG Capital Finance 1 Ltd. 6.346% noncumulative4
    
34,900,000
      
33,108
  
Wachovia Capital Trust III 5.80%4
    
30,000,000
      
26,825
  
Fannie Mae, Series O, 7.00%3,4
    
365,335
      
16,931
  
Fannie Mae, Series E, 5.10%
    
108,000
      
3,672
  
Banco Santander Central Hispano, SA 6.50%5
    
940,000
      
19,623
  
XL Capital Ltd., Series E, 6.50%4
    
20,035,000
      
17,547
  
Swire Pacific Capital Ltd. 8.84% cumulative guaranteed perpetual capital securities3
    
370,000
      
10,903
  
Aspen Insurance Holdings Ltd. 7.401% noncumulative4
    
395,000
      
8,438
  
Fuji JGB Investment LLC, Series A, 9.87% noncumulative3,4
    
7,725,000
      
7,797
  
ING Capital Funding Trust III 8.439% noncumulative4
    
6,750,000
      
7,156
  
National Bank of Canada, Series A, 8.35% exchangeable depositary shares
    
300,000
      
6,531
  
HSBC Capital Funding LP, Series 2, 10.176% noncumulative step-up2,3,4
    
5,000,000
      
6,464
  
BNP Paribas Capital Trust 9.003% noncumulative trust3,4
    
6,000,000
      
6,425
  
DBS Capital Funding Corp., Series A, 7.657% noncumulative guaranteed preference shares3,4
    
5,500,000
      
5,881
  
CIT Group Inc., Series B, 5.189%2
    
70,000
      
4,550
  
RBS Capital Trust I 4.709% noncumulative trust4
    
4,500,000
      
4,054
  
             
221,616
  
                 
                 
U.S. GOVERNMENT AGENCY SECURITIES — 0.01%
                
US AgBank 6.11%3,4
    
10,000,000
      
8,828
  
                 
                 
MISCELLANEOUS — 0.14%
                
Other preferred stocks in initial period of acquisition
            
82,005
  
                 
                 
Total preferred stocks (cost: $327,374,000)
            
312,449
  
                 
                 
   
Shares or
          
Convertible securities — 0.04%
  
principal amount
          
                 
FINANCIALS — 0.04%
                
Countrywide Financial Corp., Series A, 1.743% convertible debentures 20373,4
   $
25,000,000
      
19,620
  
Fannie Mae, Series 2004-1, 5.375% convertible preferred
    
95
      
7,837
  
                 
Total convertible securities (cost: $31,475,000)
            
27,457
  
                 
                 
   
Principal amount
          
Bonds & notes — 29.36%
     (000 )        
                 
CORPORATE BONDS & NOTES — 10.35%
                
FINANCIALS — 4.90%
                
Washington Mutual, Inc. 5.55% 2010
   $
15,000
      
14,125
  
Washington Mutual, Inc. 5.00% 2012
    
4,000
      
3,511
  
Washington Mutual, Inc. 5.184% 20124
    
17,000
      
14,473
  
Washington Mutual, Inc. 5.391% 20124
    
20,000
      
16,888
  
Washington Mutual Bank 5.369% 20134
    
5,000
      
4,197
  
Washington Mutual Bank, FA, Series 16, 5.125% 2015
    
17,500
      
14,844
  
Washington Mutual, Inc. 5.25% 2017
    
25,000
      
20,888
  
Washington Mutual Preferred Funding I Ltd., Series A-1, 6.534% (undated)2,3,4
    
129,100
      
74,878
  
Washington Mutual Preferred Funding III Ltd. 6.895% (undated)3,4
    
30,900
      
18,247
  
Washington Mutual Preferred Funding IV Ltd. 9.75% (undated)3,4
    
32,700
      
26,198
  
International Lease Finance Corp. 5.00% 2010
    
5,000
      
4,988
  
American General Finance Corp., Series J, 5.185% 20114
    
10,000
      
9,876
  
International Lease Finance Corp. 5.00% 2012
    
10,000
      
9,862
  
International Lease Finance Corp., Series R, 5.40% 2012
    
7,500
      
7,569
  
International Lease Finance Corp., Series R, 5.625% 2013
    
10,000
      
10,035
  
American General Finance Corp., Series I, 5.85% 2013
    
10,000
      
9,901
  
International Lease Finance Corp. 5.875% 2013
    
12,100
      
12,314
  
International Lease Finance Corp., Series R, 5.65% 2014
    
16,000
      
16,281
  
American General Finance Corp., Series I, 5.40% 2015
    
7,500
      
6,927
  
American General Finance Corp., Series J, 6.50% 2017
    
30,500
      
29,785
  
American General Finance Corp., Series J, 6.90% 2017
    
26,650
      
26,724
  
ILFC E-Capital Trust II 6.25% 20653,4
    
17,930
      
17,162
  
American International Group, Inc., Series A-1, 6.25% 20874
    
7,790
      
6,989
  
Citigroup Inc. 4.125% 2010
    
20,000
      
19,717
  
Citigroup Inc. 5.125% 2011
    
15,000
      
15,095
  
Citigroup Inc. 6.125% 2017
    
16,000
      
16,465
  
Citigroup Capital XXI 8.30% 2057
    
63,200
      
66,180
  
J.P. Morgan Chase & Co. 4.891% 20154
    
20,000
      
19,272
  
Bank One Corp. 4.90% 2015
    
12,000
      
11,507
  
JPMorgan Chase Bank NA 6.00% 2017
    
15,500
      
15,793
  
JPMorgan Chase & Co. 6.00% 2018
    
5,000
      
5,096
  
JPMorgan Chase Capital XXI, Series U, 5.844% 20374
    
10,000
      
7,891
  
JPMorgan Chase Capital XXV, Series Y, 6.80% 2037
    
15,400
      
14,853
  
JPMorgan Chase Capital XX, Series T, 6.55% 2066
    
10,665
      
9,652
  
JPMorgan Chase Capital XVIII, Series R, 6.95% 2066
    
14,865
      
14,162
  
Wachovia Bank NA 6.60% 2038
    
76,750
      
77,387
  
MBNA Global Capital Funding, Series B, 5.711% 20274
    
18,000
      
15,876
  
BankAmerica Capital III, BankAmerica Corp., Series 3, 5.813% 20274
    
22,500
      
19,335
  
Bank of America Corp. 6.50% 2037
    
38,000
      
38,523
  
CIT Group Inc. 4.00% 2008
    
4,000
      
3,967
  
CIT Group Inc. 6.875% 2009
    
11,500
      
11,586
  
CIT Group Inc. 5.291% 20114
    
5,000
      
4,411
  
CIT Group Inc. 7.625% 2012
    
21,000
      
21,307
  
CIT Group Inc. 5.40% 2013
    
31,000
      
28,195
  
CIT Group Inc. 6.10% 20674
    
5,000
      
3,636
  
Royal Bank of Scotland Group PLC 6.99% (undated)3,4
    
67,300
      
67,215
  
Residential Capital Corp. 7.814% 20094
    
20,000
      
14,300
  
Residential Capital Corp. 7.875% 20104
    
59,685
      
38,497
  
Residential Capital, LLC 8.00% 20124
    
12,290
      
7,620
  
Liberty Mutual Group Inc. 6.50% 20353
    
19,845
      
18,162
  
Liberty Mutual Group Inc. 7.50% 20363
    
25,350
      
24,807
  
Liberty Mutual Group Inc. 7.697% 20973
    
16,885
      
15,876
  
Household Finance Corp. 4.125% 2009
    
12,000
      
11,868
  
Household Finance Corp. 4.75% 2009
    
7,500
      
7,477
  
Household Finance Corp. 6.75% 2011
    
5,000
      
5,191
  
Household Finance Corp. 6.375% 2012
    
13,000
      
13,382
  
HSBC Holdings PLC 6.50% 2037
    
17,200
      
16,724
  
Midland Bank 5.00% Eurodollar note (undated)2,4
    
4,000
      
3,000
  
BNP Paribas 7.195% (undated)3,4
    
57,500
      
56,861
  
XL Capital Finance (Europe) PLC 6.50% 2012
    
3,015
      
3,154
  
Mangrove Bay Pass Through Trust 6.102% 20333,4
    
57,885
      
52,134
  
Capital One Bank 4.875% 2008
    
20,000
      
19,887
  
Capital One Financial Corp. 5.426% 20094
    
15,000
      
14,183
  
Capital One Financial Corp. 6.15% 2016
    
20,000
      
17,776
  
Barclays Bank PLC 5.926% (undated)3,4
    
15,535
      
14,479
  
Barclays Bank PLC 7.434% (undated)3,4
    
35,440
      
36,892
  
Lincoln National Corp. 5.65% 2012
    
10,250
      
10,532
  
Lincoln National Corp. 7.00% 20664
    
39,583
      
39,805
  
Wells Fargo & Co. 5.25% 2012
    
31,000
      
31,549
  
Wells Fargo & Co. 5.625% 2017
    
18,250
      
18,296
  
CNA Financial Corp. 5.85% 2014
    
25,000
      
25,077
  
CNA Financial Corp. 6.50% 2016
    
16,000
      
16,357
  
CNA Financial Corp. 7.25% 2023
    
8,000
      
8,237
  
UniCredito Italiano SpA 5.584% 20173,4
    
40,000
      
39,659
  
UniCredito Italiano SpA 6.00% 20173
    
10,000
      
9,919
  
Lehman Brothers Holdings Inc. 6.50% 2017
    
14,500
      
14,698
  
Lehman Brothers Holdings Inc. 6.75% 2017
    
29,650
      
30,616
  
Lehman Brothers Holdings Inc. 6.875% 2037
    
4,000
      
3,923
  
PRICOA Global Funding I 4.20% 20103
    
11,000
      
11,050
  
Prudential Financial, Inc., Series D, 5.50% 2016
    
14,000
      
13,912
  
Prudential Holdings, LLC, Series C, 8.695% 20233,6
    
19,500
      
24,122
  
Simon Property Group, LP 4.875% 2010
    
20,000
      
19,832
  
Simon Property Group, LP 4.875% 2010
    
5,500
      
5,509
  
Simon Property Group, LP 5.375% 2011
    
5,000
      
4,941
  
Simon Property Group, LP 5.875% 2017
    
19,165
      
18,403
  
Kimco Realty Corp. 6.00% 2012
    
2,750
      
2,780
  
Kimco Realty Corp., Series C, 4.82% 2014
    
13,000
      
12,101
  
Kimco Realty Corp., Series C, 5.783% 2016
    
14,000
      
13,538
  
Kimco Realty Corp. 5.70% 2017
    
21,180
      
19,803
  
Developers Diversified Realty Corp. 3.875% 2009
    
16,500
      
16,127
  
Developers Diversified Realty Corp. 4.625% 2010
    
19,625
      
19,125
  
Developers Diversified Realty Corp. 5.50% 2015
    
13,000
      
12,163
  
Fifth Third Capital Trust IV 6.50% 20674
    
50,500
      
45,875
  
ERP Operating LP 4.75% 2009
    
6,730
      
6,642
  
ERP Operating LP 5.375% 2016
    
25,000
      
23,620
  
ERP Operating LP 5.75% 2017
    
12,000
      
11,447
  
Westfield Capital Corp. Ltd., WT Finance (Australia) Pty Ltd. and WEA Finance LLC 4.375% 20103
    
20,000
      
19,527
  
Westfield Group 5.70% 20163
    
23,000
      
22,037
  
Santander Issuances, SA Unipersonal 5.805% 20163,4
    
20,000
      
20,426
  
Santander Perpetual, SA Unipersonal 6.671% (undated)3,4
    
15,400
      
15,469
  
Abbey National PLC 6.70% (undated)4
    
5,790
      
5,665
  
Hospitality Properties Trust 6.75% 2013
    
14,720
      
15,166
  
Hospitality Properties Trust 6.30% 2016
    
6,500
      
6,382
  
Hospitality Properties Trust 6.70% 2018
    
20,100
      
19,887
  
PNC Funding Corp. 5.16% 20144
    
15,000
      
14,602
  
PNC Funding Corp., Series II, 6.113% (undated)2,3,4
    
15,200
      
12,844
  
PNC Funding Corp., Series I, 6.517% (undated)2,3,4
    
15,000
      
13,125
  
Countrywide Financial Corp., Series B, 5.315% 20122,4
    
15,000
      
10,688
  
Countrywide Financial Corp., Series B, 5.80% 2012
    
39,355
      
28,775
  
New York Life Global Funding 3.875% 20093
    
13,500
      
13,425
  
New York Life Global Funding 5.25% 20123
    
25,000
      
25,606
  
AXA SA 6.379% (undated)3,4
    
42,000
      
36,305
  
TuranAlem Finance BV 8.50% 2015
    
26,250
      
23,166
  
TuranAlem Finance BV 8.25% 20373
    
15,000
      
12,825
  
Glen Meadow Pass Through Trust 6.505% 20672,3,4
    
36,750
      
35,225
  
iStar Financial, Inc. 5.375% 2010
    
8,250
      
7,642
  
iStar Financial, Inc. 6.05% 2015
    
11,000
      
9,334
  
iStar Financial, Inc. 5.875% 20162
    
20,000
      
16,700
  
Allstate Financial Global Funding LLC 4.25% 20083
    
6,975
      
6,958
  
Allstate Corp., Series B, 6.125% 20674
    
17,525
      
16,938
  
Allstate Corp., Series A, 6.50% 20674
    
7,290
      
6,806
  
Monumental Global Funding III 5.443% 20143,4
    
29,000
      
28,180
  
ProLogis 5.50% 2012
    
15,000
      
14,962
  
ProLogis 5.625% 2015
    
13,030
      
12,483
  
Capmark Financial Group, Inc. 5.875% 20123
    
31,650
      
25,076
  
Capmark Financial Group, Inc. 6.30% 20173
    
1,300
      
971
  
Lazard Group LLC 7.125% 2015
    
25,500
      
25,986
  
US Bank National Assn. 4.40% 2008
    
25,000
      
24,902
  
ZFS Finance (USA) Trust V 6.50% 20673,4
    
26,590
      
24,589
  
HSBK (Europe) BV 7.25% 20173
    
27,920
      
24,360
  
Charles Schwab Corp., Series A, 6.375% 2017
    
10,000
      
10,304
  
Schwab Capital Trust I 7.50% 20374
    
13,250
      
13,356
  
QBE Capital Funding II LP 6.797% (undated)3,4
    
24,470
      
23,472
  
Catlin Insurance Ltd. 7.249% (undated)3,4
    
25,135
      
23,018
  
Standard Chartered Bank 6.40% 20173
    
10,800
      
10,987
  
Standard Chartered PLC 6.409% (undated)3,4
    
12,400
      
11,249
  
Ambac Financial Group, Inc. 6.15% 20874
    
29,555
      
21,647
  
American Honda Finance Corp. 5.125% 20103
    
20,500
      
21,083
  
HBOS PLC, Series B, 5.92% (undated)3,4
    
24,000
      
20,965
  
ACE INA Holdings Inc. 5.875% 2014
    
20,000
      
20,511
  
Nationwide Financial Services, Inc. 6.75% 20674
    
21,950
      
20,279
  
American Express Co. 6.15% 2017
    
10,000
      
10,281
  
American Express Co. 6.80% 20664
    
7,500
      
7,617
  
Protective Life Insurance Co., Series 2005-C, 4.85% 2010
    
18,000
      
17,874
  
Merrill Lynch & Co., Inc., Series C, 6.40% 2017
    
5,100
      
5,191
  
Merrill Lynch & Co., Inc. 6.11% 2037
    
13,900
      
12,315
  
Lloyds TSB Group PLC 6.267% (undated)3,4
    
19,100
      
17,356
  
Goldman Sachs Group, Inc. 6.75% 2037
    
16,500
      
16,217
  
UBS AG 5.875% 2017
    
16,000
      
16,143
  
Downey Financial Corp. 6.50% 2014
    
16,880
      
15,367
  
Assurant, Inc. 5.625% 2014
    
15,320
      
15,011
  
Zions Bancorporation 6.00% 2015
    
15,000
      
14,586
  
Resona Bank, Ltd. 5.85% (undated)3,4
    
15,000
      
13,967
  
John Hancock Global Funding II, Series 2004-A, 3.50% 20093
    
14,000
      
13,809
  
Principal Life Insurance Co. 3.20% 2009
    
14,000
      
13,808
  
North Front Pass Through Trust 5.81% 20243,4
    
10,000
      
9,582
  
Nationwide Mutual Insurance Co. 7.875% 20333
    
3,425
      
3,918
  
United Dominion Realty Trust, Inc. 6.50% 2009
    
7,375
      
7,500
  
United Dominion Realty Trust, Inc. 5.00% 2012
    
6,000
      
5,851
  
Brandywine Operating Partnership, LP 5.75% 2012
    
5,250
      
5,202
  
Brandywine Operating Partnership, LP 5.70% 2017
    
8,025
      
7,447
  
State Street Capital Trust IV 5.991% 20774
    
16,000
      
12,459
  
SLM Corp., Series A, 3.95% 2008
    
7,500
      
7,320
  
SLM Corp., Series A, 4.50% 2010
    
5,500
      
5,048
  
Assured Guaranty US Holdings Inc., Series A, 6.40% 20664
    
12,975
      
12,210
  
Chubb Corp. 6.375% 20374
    
12,440
      
12,155
  
Mizuho Capital Investment (USD) 1 Ltd. 6.686% noncumulative preferred (undated)3,4
    
11,650
      
10,917
  
Travelers Property Casualty Corp. 5.00% 2013
    
10,000
      
10,005
  
ING Groep NV 5.775% (undated)4
    
10,300
      
9,537
  
Sumitomo Mitsui Banking Corp. 5.625% (undated)3,4
    
10,000
      
9,352
  
Federal Realty Investment Trust 4.50% 2011
    
8,500
      
8,430
  
Silicon Valley Bank 5.70% 20122
    
8,000
      
7,862
  
Credit Agricole SA 6.637% (undated)3,4
    
8,000
      
7,435
  
City National Corp. 5.125% 20132
    
7,000
      
6,670
  
Loews Corp. 6.00% 2035
    
5,500
      
5,141
  
Genworth Financial, Inc. 6.15% 20664
    
5,000
      
4,550
  
BCI U.S. Funding Trust I 8.01% noncumulative preferred (undated)3,4
    
4,000
      
4,083
  
Bank of Nova Scotia 5.563% 20852,4
    
4,000
      
2,860
  
Den Norske CreditBank 5.375% (undated)2,4
    
3,000
      
2,340
  
Canadian Imperial Bank of Commerce 5.563% Eurodollar note 20852,4
    
1,600
      
1,096
  
             
2,968,126
  
                 
                 
TELECOMMUNICATION SERVICES — 1.32%
                
SBC Communications Inc. 4.125% 2009
    
10,000
      
9,940
  
SBC Communications Inc. 6.25% 2011
    
15,000
      
15,625
  
AT&T Wireless Services, Inc. 7.875% 2011
    
12,170
      
13,189
  
BellSouth Corp. 4.75% 2012
    
22,250
      
22,036
  
AT&T Wireless Services, Inc. 8.125% 2012
    
28,230
      
31,418
  
AT&T Inc. 4.95% 2013
    
16,250
      
16,355
  
SBC Communications Inc. 5.10% 2014
    
15,000
      
14,866
  
SBC Communications Inc. 5.625% 2016
    
49,300
      
49,946
  
BellSouth Capital Funding Corp. 7.875% 2030
    
51,500
      
60,165
  
AT&T Corp 8.00% 20314
    
15,000
      
18,476
  
SBC Communications Inc. 6.45% 2034
    
40,000
      
41,359
  
AT&T Inc. 6.50% 2037
    
25,515
      
26,770
  
AT&T Inc. 6.30% 2038
    
20,000
      
20,389
  
Verizon Global Funding Corp. 7.25% 2010
    
30,000
      
32,179
  
Verizon Communications Inc. 5.50% 2017
    
61,180
      
61,575
  
Verizon Global Funding Corp. 7.75% 2030
    
9,395
      
11,051
  
Verizon Communications Inc. 6.25% 2037
    
50,000
      
51,448
  
Nextel Communications, Inc., Series E, 6.875% 2013
    
54,913
      
54,141
  
Nextel Communications, Inc., Series D, 7.375% 2015
    
35,092
      
34,579
  
Sprint Capital Corp. 6.875% 2028
    
10,845
      
10,313
  
Sprint Capital Corp. 8.75% 2032
    
42,750
      
48,317
  
Telecom Italia Capital SA 5.25% 2015
    
30,500
      
29,761
  
Telecom Italia Capital SA 7.20% 2036
    
26,000
      
28,758
  
Vodafone Group PLC 6.15% 2037
    
36,550
      
36,219
  
British Telecommunications PLC 5.15% 2013
    
16,250
      
16,233
  
British Telecommunications PLC 5.95% 2018
    
19,500
      
19,692
  
Singapore Telecommunications Ltd. 6.375% 20113
    
10,000
      
10,604
  
CenturyTel, Inc., Series N, 6.00% 2017
    
9,500
      
9,560
  
Embarq Corp. 6.738% 2013
    
7,500
      
7,766
  
             
802,730
  
                 
                 
CONSUMER DISCRETIONARY — 1.24%
                
Time Warner Inc. 5.109% 20094
    
10,000
      
9,758
  
AOL Time Warner Inc. 6.875% 2012
    
49,750
      
52,436
  
AOL Time Warner Inc. 7.625% 2031
    
29,375
      
32,600
  
Time Warner Inc. 6.50% 2036
    
24,000
      
23,427
  
Comcast Cable Communications, Inc. 6.875% 2009
    
3,000
      
3,087
  
Comcast Corp. 5.45% 2010
    
25,000
      
25,527
  
Comcast Corp. 5.85% 2015
    
13,000
      
13,114
  
TCI Communications, Inc. 8.75% 2015
    
2,670
      
3,110
  
Comcast Corp. 6.30% 2017
    
10,000
      
10,394
  
Comcast Corp. 6.45% 2037
    
16,500
      
16,856
  
Comcast Corp. 6.95% 2037
    
32,000
      
34,650
  
Cox Communications, Inc. 4.625% 2010
    
25,000
      
24,818
  
Cox Communications, Inc. 7.75% 2010
    
15,000
      
16,010
  
Cox Communications, Inc. 5.45% 2014
    
15,500
      
15,212
  
Toll Brothers Finance Corp. 5.95% 2013
    
2,760
      
2,551
  
Toll Brothers, Inc. 4.95% 2014
    
42,797
      
37,929
  
Toll Brothers, Inc. 5.15% 2015
    
14,290
      
12,987
  
Centex Corp. 5.70% 2014
    
2,900
      
2,576
  
Centex Corp. 5.25% 2015
    
37,030
      
31,404
  
Centex Corp. 6.50% 2016
    
16,650
      
14,821
  
Viacom Inc. 5.75% 2011
    
47,000
      
47,627
  
News America Holdings Inc. 9.25% 2013
    
17,500
      
20,477
  
News America Inc. 5.30% 2014
    
8,750
      
8,717
  
News America Inc. 6.65% 20373
    
17,500
      
18,110
  
Federated Retail Holdings, Inc. 5.35% 2012
    
2,100
      
2,048
  
Federated Retail Holdings, Inc. 5.90% 2016
    
31,890
      
30,085
  
Federated Retail Holdings, Inc. 6.375% 2037
    
9,925
      
8,677
  
DaimlerChrysler North America Holding Corp. 4.75% 2008
    
10,000
      
9,998
  
DaimlerChrysler North America Holding Corp. 7.75% 2011
    
13,160
      
14,151
  
DaimlerChrysler North America Holding Corp. 6.50% 2013
    
14,155
      
14,810
  
Clear Channel Communications, Inc. 4.625% 2008
    
15,000
      
14,992
  
Chancellor Media Corp. of Los Angeles 8.00% 2008
    
9,500
      
9,821
  
Omnicom Group Inc. 5.90% 2016
    
20,000
      
20,318
  
Johnson Controls, Inc. 5.50% 2016
    
18,000
      
17,765
  
McGraw-Hill Companies, Inc. 5.375% 2012
    
16,000
      
16,309
  
Harrah's Operating Co., Inc. 5.50% 2010
    
14,375
      
13,376
  
Harrah's Operating Co., Inc. 6.50% 2016
    
3,500
      
2,611
  
Target Corp. 6.50% 2037
    
15,000
      
15,126
  
D.R. Horton, Inc. 5.625% 2014
    
4,250
      
3,574
  
D.R. Horton, Inc. 6.50% 2016
    
11,844
      
10,292
  
ERAC USA Finance Co. 7.00% 20373
    
15,000
      
13,663
  
Seminole Tribe of Florida 5.798% 20133,6
    
13,140
      
13,442
  
Pulte Homes, Inc. 5.20% 2015
    
10,000
      
8,322
  
Pulte Homes, Inc. 7.875% 2032
    
5,000
      
4,298
  
Marriott International, Inc., Series J, 5.625% 2013
    
10,000
      
9,996
  
J.C. Penney Corp., Inc. 5.75% 2018
    
10,400
      
9,787
  
Limited Brands, Inc. 6.90% 2017
    
8,840
      
8,556
  
Ryland Group, Inc. 5.375% 2012
    
2,750
      
2,477
  
             
752,692
  
                 
                 
INDUSTRIALS — 0.80%
                
Continental Airlines, Inc., Series 2001-1, Class A-2, 6.503% 20116
    
5,000
      
5,043
  
Continental Airlines, Inc., Series 1999-2, Class A-2, 7.056% 20116
    
3,085
      
3,124
  
Continental Airlines, Inc., Series 2000-2, Class A-2, 7.487% 20126
    
300
      
303
  
Continental Airlines, Inc., Series 1997-1, Class A, 7.461% 20166
    
19,791
      
19,282
  
Continental Airlines, Inc., Series 1998-1, Class A, 6.648% 20196
    
11,783
      
11,842
  
Continental Airlines, Inc., Series 1997-4, Class A, 6.90% 20196
    
5,382
      
5,463
  
Continental Airlines, Inc., Series 1999-1, Class A, 6.545% 20206
    
12,621
      
12,704
  
Continental Airlines, Inc., Series 1999-2, Class A-1, 7.256% 20216
    
1,708
      
1,764
  
Continental Airlines, Inc., Series 2001-1, Class A-1, 6.703% 20226
    
8,602
      
8,624
  
Continental Airlines, Inc., Series 2007-1, Class B, 6.903% 20226
    
9,045
      
8,593
  
Continental Airlines, Inc., Series 2000-2, Class A-1, 7.707% 20226
    
15,140
      
15,821
  
General Electric Co. 5.00% 2013
    
20,000
      
20,277
  
General Electric Co. 5.25% 2017
    
24,250
      
24,245
  
General Electric Capital Corp., Series A, 5.145% 20184
    
10,000
      
9,676
  
General Electric Capital Corp., Series A, 5.258% 20262,4
    
40,000
      
38,284
  
Delta Air Lines, Inc., Series 2002-1, Class G-2, MBIA insured, 6.417% 20146
    
29,550
      
30,252
  
Delta Air Lines, Inc., Series 2002-1, Class G-1, MBIA insured, 6.718% 20246
    
20,799
      
21,459
  
BAE SYSTEMS 2001 Asset Trust, Series 2001, Class B, 7.156% 20113,6
    
26,718
      
28,063
  
BAE SYSTEMS 2001 Asset Trust, Series 2001, Class G, MBIA insured, 6.664% 20133,6
    
18,332
      
18,881
  
John Deere Capital Corp., Series D, 4.375% 2008
    
7,500
      
7,490
  
John Deere Capital Corp., Series D, 3.75% 2009
    
12,000
      
11,880
  
John Deere Capital Corp., Series D, 4.125% 2010
    
10,000
      
9,988
  
John Deere Capital Corp. 5.40% 2011
    
14,000
      
14,346
  
Hutchison Whampoa International Ltd. 6.50% 20133
    
31,500
      
33,150
  
American Airlines, Inc., Series 2003-1, Class G, AMBAC insured, 3.857% 20126
    
5,847
      
5,784
  
American Airlines, Inc., Series 2001-2, Class A-1, 6.978% 20126
    
5,085
      
5,145
  
American Airlines, Inc., Series 2001-2, Class B, 8.608% 20126
    
3,000
      
3,030
  
American Airlines, Inc., Series 2001-2, Class A-2, 7.858% 20136
    
13,650
      
14,345
  
Raytheon Co. 4.85% 2011
    
20,000
      
20,065
  
United Air Lines, Inc., Series 2001-1, Class A-2, 6.201% 20106
    
582
      
579
  
United Air Lines, Inc., Series 2001-1, Class A-3, 6.602% 20156
    
1,712
      
1,715
  
United Air Lines, Inc., Series 2007-1, Class A, 6.636% 20242,6
    
15,190
      
14,263
  
CSX Corp. 5.75% 2013
    
15,450
      
15,659
  
Atlas Copco AB 5.60% 20173
    
14,000
      
14,030
  
Union Pacific Corp. 5.75% 2017
    
13,325
      
13,299
  
USG Corp. 6.30% 2016
    
10,000
      
9,049
  
BNSF Funding Trust I 6.613% 20554
    
6,175
      
5,781
  
Southern Capital Corp. Pass Through Trust, Series 2002-1, Class G, MBIA insured, 5.70% 20233,6
    
1,541
      
1,611
  
             
484,909
  
                 
                 
ENERGY — 0.68%
                
Kinder Morgan Energy Partners LP 6.00% 2017
    
41,610
      
41,680
  
Kinder Morgan Energy Partners LP 6.50% 2037
    
10,000
      
9,915
  
Ras Laffan Liquefied Natural Gas Co. Ltd. 3.437% 20093,6
    
6,507
      
6,499
  
Ras Laffan Liquefied Natural Gas II 5.298% 20203,6
    
22,000
      
21,401
  
Ras Laffan Liquefied Natural Gas III 5.838% 20273,6
    
20,000
      
18,934
  
Gaz Capital SA 6.51% 20223
    
27,495
      
26,208
  
Gaz Capital SA, Series 9, 6.51% 2022
    
20,000
      
19,064
  
Canadian Natural Resources Ltd. 5.70% 2017
    
42,400
      
42,217
  
TransCanada PipeLines Ltd. 6.35% 20674
    
44,785
      
42,048
  
Enterprise Products Operating LLC 6.30% 2017
    
13,000
      
13,325
  
Enterprise Products Operating LP 6.875% 2033
    
25,000
      
26,199
  
Devon Financing Corp., ULC 6.875% 2011
    
10,000
      
10,718
  
Devon Financing Corp. ULC 7.875% 2031
    
9,305
      
11,287
  
Husky Energy Inc. 6.80% 2037
    
18,375
      
19,377
  
Enbridge Energy Partners, LP 8.05% 20674
    
17,520
      
17,332
  
XTO Energy Inc. 6.25% 2017
    
14,500
      
15,240
  
Sunoco, Inc. 4.875% 2014
    
15,000
      
14,532
  
EOG Resources, Inc. 5.875% 2017
    
11,375
      
11,684
  
Marathon Oil Corp. 6.00% 2017
    
6,000
      
6,121
  
Marathon Oil Corp. 6.60% 2037
    
4,500
      
4,708
  
Enbridge Inc. 5.60% 2017
    
10,000
      
9,712
  
Williams Companies, Inc. 8.75% 2032
    
6,025
      
7,396
  
Polar Tankers, Inc. 5.951% 20373,6
    
6,685
      
6,499
  
Petroleum Export Ltd., Class A-2, XLCA insured, 4.633% 20103,6
    
6,389
      
6,293
  
             
408,389
  
                 
                 
UTILITIES — 0.53%
                
Exelon Corp. 4.45% 2010
    
20,000
      
19,838
  
Exelon Generation Co., LLC 6.95% 2011
    
15,270
      
15,944
  
Commonwealth Edison Co., First Mortgage Bonds, Series 106, 6.15% 2017
    
10,000
      
10,324
  
Exelon Generation Co., LLC 6.20% 2017
    
7,000
      
6,969
  
MidAmerican Energy Holdings Co., Series D, 5.00% 2014
    
18,000
      
17,529
  
MidAmerican Energy Holdings Co. 6.125% 2036
    
29,875
      
29,904
  
MidAmerican Energy Holdings Co. 6.50% 2037
    
5,000
      
5,239
  
Southern California Edison Co., First and Refunding Mortgage Bonds, Series 2006-B, 4.994% 20094
    
15,000
      
14,983
  
Southern California Edison Co., First and Refunding Mortgage Bonds, Series 2005-A, 5.00% 2016
    
16,000
      
15,660
  
Pacific Gas and Electric Co., First Mortgage Bonds, 3.60% 2009
    
9,500
      
9,400
  
Pacific Gas and Electric Co., First Mortgage Bonds, 6.05% 2034
    
20,000
      
20,032
  
Abu Dhabi National Energy Co. PJSC (TAQA) 5.875% 20163
    
15,350
      
15,055
  
Abu Dhabi National Energy Co. PJSC (TAQA) 6.50% 20363
    
14,000
      
13,527
  
Alabama Power Co., Series FF, 5.20% 2016
    
24,000
      
23,830
  
Appalachian Power Co., Series G, 3.60% 2008
    
9,000
      
8,937
  
Appalachian Power Co., Series M, 5.55% 2011
    
7,800
      
7,898
  
Consolidated Edison Co. of New York, Inc., Series 2004-C, 4.70% 2009
    
15,000
      
15,075
  
San Diego Gas & Electric Co., Series CCC, 5.30% 2015
    
15,000
      
15,019
  
PSEG Power LLC 3.75% 2009
    
14,700
      
14,534
  
Virginia Electric and Power Co., Series 2003-B, 4.50% 2010
    
3,500
      
3,490
  
Virginia Electric and Power Co., Series B, 5.95% 2017
    
10,000
      
10,327
  
SP PowerAssets Ltd. 3.80% 20083
    
11,500
      
11,426
  
Kern River Funding Corp. 4.893% 20183,6
    
5,518
      
5,415
  
Constellation Energy Group, Inc. 6.125% 2009
    
5,000
      
5,101
  
Tri-State Generation and Transmission Assn. Inc., Pass Through Trust, Series 2003-A, 6.04% 20183,6
    
4,702
      
4,764
  
             
320,220
  
                 
                 
HEALTH CARE — 0.43%
                
Cardinal Health, Inc. 5.499% 20093,4
    
23,000
      
23,047
  
Cardinal Health, Inc. 4.00% 2015
    
50,000
      
46,082
  
Cardinal Health, Inc. 6.30% 20163
    
27,500
      
28,233
  
Cardinal Health, Inc. 5.85% 2017
    
3,575
      
3,587
  
AstraZeneca PLC 5.40% 2012
    
15,250
      
15,782
  
AstraZeneca PLC 5.90% 2017
    
25,000
      
26,300
  
Hospira, Inc. 5.31% 20104
    
10,000
      
9,932
  
Hospira, Inc. 5.55% 2012
    
14,120
      
14,372
  
Hospira, Inc. 6.05% 2017
    
8,500
      
8,556
  
UnitedHealth Group Inc. 6.00% 20173
    
30,000
      
30,354
  
Amgen Inc. 4.00% 2009
    
21,000
      
20,854
  
Coventry Health Care, Inc. 6.30% 2014
    
16,500
      
16,910
  
Humana Inc. 6.45% 2016
    
14,200
      
14,332
  
Aetna Inc. 5.75% 2011
    
3,500
      
3,600
  
             
261,941
  
                 
                 
MATERIALS — 0.18%
                
C8 Capital (SPV) Ltd. 6.64% (undated)3,4
    
33,900
      
32,234
  
C10 Capital (SPV) Ltd. 6.722% (undated)3,4
    
22,630
      
20,896
  
Stora Enso Oyj 7.25% 20363
    
24,000
      
24,033
  
United States Steel Corp. 7.00% 2018
    
18,125
      
18,036
  
Alcoa Inc. 5.55% 2017
    
10,000
      
9,719
  
SCA Coordination Center NV 4.50% 20153
    
6,750
      
6,217
  
             
111,135
  
                 
                 
INFORMATION TECHNOLOGY — 0.16%
                
Electronic Data Systems Corp., Series B, 6.50% 20134
    
46,500
      
47,073
  
Electronic Data Systems Corp. 7.45% 2029
    
16,594
      
17,072
  
Cisco Systems, Inc. 5.25% 2011
    
19,685
      
20,197
  
Western Union Co. 5.93% 2016
    
10,000
      
9,995
  
             
94,337
  
                 
                 
CONSUMER STAPLES — 0.11%
                
CVS Corp. 6.036% 20283,6
    
7,661
      
7,378
  
CVS Caremark Corp. 6.943% 20303,6
    
13,000
      
13,075
  
Tyson Foods, Inc. 6.85% 20164
    
16,795
      
17,318
  
Kroger Co. 6.40% 2017
    
15,150
      
15,874
  
Kraft Foods Inc. 6.875% 2038
    
13,000
      
13,540
  
             
67,185
  
                 
                 
Total corporate bonds & notes
            
6,271,664
  
                 
                 
                 
MORTGAGE-BACKED OBLIGATIONS6— 10.29%
                
Fannie Mae, Series 2000-T5, Class B, 7.30% 2010
    
52,930
      
56,848
  
Fannie Mae, Series 2001-T11, Class B, 5.503% 2011
    
45,000
      
46,415
  
Fannie Mae, Series 2003-T1, Class B, 4.491% 2012
    
16,000
      
16,011
  
Fannie Mae 4.89% 2012
    
30,000
      
30,064
  
Fannie Mae 4.00% 2015
    
23,143
      
22,847
  
Fannie Mae 5.00% 2018
    
19,402
      
19,535
  
Fannie Mae 5.00% 2018
    
3,769
      
3,795
  
Fannie Mae 5.00% 2018
    
2,170
      
2,180
  
Fannie Mae 5.50% 2018
    
19,535
      
19,882
  
Fannie Mae 11.00% 2018
    
507
      
588
  
Fannie Mae 5.50% 2019
    
3,470
      
3,532
  
Fannie Mae 5.50% 2020
    
48,737
      
49,453
  
Fannie Mae 11.00% 2020
    
182
      
202
  
Fannie Mae 6.00% 2021
    
9,091
      
9,303
  
Fannie Mae, Series 2003-48, Class TJ, 4.50% 2022
    
17,550
      
17,277
  
Fannie Mae 10.50% 2022
    
330
      
372
  
Fannie Mae, Series 2001-4, Class NA, 11.897% 20254
    
482
      
539
  
Fannie Mae 6.00% 2026
    
23,421
      
23,857
  
Fannie Mae 8.50% 2027
    
94
      
101
  
Fannie Mae 8.50% 2027
    
73
      
78
  
Fannie Mae 8.50% 2027
    
49
      
53
  
Fannie Mae 8.50% 2027
    
33
      
36
  
Fannie Mae, Series 2002-W3, Class A-5, 7.50% 2028
    
1,139
      
1,208
  
Fannie Mae 7.50% 2030
    
261
      
282
  
Fannie Mae 7.50% 2030
    
55
      
59
  
Fannie Mae 7.50% 2031
    
281
      
303
  
Fannie Mae 7.50% 2031
    
199
      
215
  
Fannie Mae, Series 2001-20, Class D, 11.073% 20314
    
121
      
139
  
Fannie Mae 5.50% 2032
    
4,177
      
4,215
  
Fannie Mae 5.50% 2033
    
124,617
      
124,670
  
Fannie Mae 5.50% 2033
    
47,959
      
47,979
  
Fannie Mae 5.50% 2033
    
36,658
      
36,674
  
Fannie Mae 5.50% 2033
    
27,295
      
27,299
  
Fannie Mae 5.50% 2033
    
4,581
      
4,583
  
Fannie Mae 5.00% 2035
    
8,992
      
8,778
  
Fannie Mae 5.00% 2035
    
4,670
      
4,559
  
Fannie Mae 5.50% 2035
    
22,945
      
22,919
  
Fannie Mae 5.50% 2035
    
16,507
      
16,509
  
Fannie Mae 6.50% 2035
    
19,970
      
20,624
  
Fannie Mae, Series 2006-43, Class JO, principal only, 0% 2036
    
7,340
      
5,551
  
Fannie Mae 4.50% 2036
    
29,147
      
27,647
  
Fannie Mae 5.50% 2036
    
34,698
      
34,647
  
Fannie Mae 5.50% 2036
    
12,081
      
12,063
  
Fannie Mae 5.50% 2036
    
4,081
      
4,075
  
Fannie Mae, Series 2006-49, Class PA, 6.00% 2036
    
18,825
      
19,379
  
Fannie Mae 6.00% 2036
    
9,001
      
9,143
  
Fannie Mae 6.50% 2036
    
15,991
      
16,321
  
Fannie Mae 5.50% 2037
    
29,527
      
29,134
  
Fannie Mae 5.684% 20374
    
31,994
      
32,408
  
Fannie Mae 6.00% 2037
    
131,212
      
133,278
  
Fannie Mae 6.00% 20372
    
28,582
      
28,725
  
Fannie Mae 6.50% 2037
    
73,487
      
74,908
  
Fannie Mae 6.50% 2037
    
28,890
      
29,485
  
Fannie Mae 6.50% 2037
    
12,445
      
12,794
  
Fannie Mae 6.50% 2037
    
4,745
      
4,842
  
Fannie Mae 6.50% 2037
    
3,141
      
3,206
  
Fannie Mae 7.00% 2037
    
54,076
      
55,702
  
Fannie Mae 7.00% 2037
    
53,428
      
55,602
  
Fannie Mae 7.00% 2037
    
19,867
      
20,464
  
Fannie Mae 7.00% 2037
    
15,198
      
15,655
  
Fannie Mae 7.00% 2037
    
14,467
      
14,902
  
Fannie Mae 7.00% 2037
    
10,379
      
10,691
  
Fannie Mae 7.00% 2037
    
6,817
      
7,031
  
Fannie Mae, Series 2001-T10, Class A-1, 7.00% 2041
    
774
      
808
  
Fannie Mae, Series 2001-50, Class BA, 7.00% 2041
    
703
      
752
  
Fannie Mae, Series 2002-W1, Class 2A, 7.50% 2042
    
988
      
1,047
  
Fannie Mae 6.50% 2047
    
10,303
      
10,476
  
Fannie Mae 6.50% 2047
    
5,820
      
5,918
  
Fannie Mae 6.50% 2047
    
4,589
      
4,666
  
Fannie Mae 6.50% 2047
    
4,192
      
4,263
  
Fannie Mae 6.50% 2047
    
3,282
      
3,337
  
Fannie Mae 6.50% 2047
    
3,169
      
3,223
  
Fannie Mae 6.50% 2047
    
1,448
      
1,473
  
Fannie Mae 7.00% 2047
    
8,136
      
8,366
  
Fannie Mae 7.00% 2047
    
4,837
      
4,973
  
Fannie Mae 7.00% 2047
    
3,715
      
3,820
  
Fannie Mae 7.00% 2047
    
3,373
      
3,468
  
Fannie Mae 7.00% 2047
    
3,029
      
3,115
  
Fannie Mae 7.00% 2047
    
2,780
      
2,858
  
Fannie Mae 7.00% 2047
    
1,941
      
1,995
  
Fannie Mae 7.00% 2047
    
1,557
      
1,601
  
Fannie Mae 7.00% 2047
    
712
      
732
  
Fannie Mae 7.00% 2047
    
418
      
430
  
Freddie Mac 8.50% 2008
     — *     — *
Freddie Mac, Series SF02, Class GC, 2.64% 2009
    
827
      
824
  
Freddie Mac 4.00% 2015
    
23,032
      
22,265
  
Freddie Mac, Series 2310, Class B, 9.886% 20154
    
181
      
205
  
Freddie Mac 5.00% 2018
    
20,713
      
20,812
  
Freddie Mac 10.00% 2018
    
422
      
482
  
Freddie Mac 8.50% 2020
    
284
      
310
  
Freddie Mac 8.50% 2020
    
25
      
27
  
Freddie Mac 6.00% 2026
    
28,847
      
29,397
  
Freddie Mac 6.00% 2026
    
21,058
      
21,459
  
Freddie Mac 6.00% 2026
    
15,933
      
16,236
  
Freddie Mac, Series T-041, Class 3-A, 7.50% 2032
    
4,005
      
4,246
  
Freddie Mac, Series 3061, Class PN, 5.50% 2035
    
17,208
      
17,460
  
Freddie Mac, Series 3156, Class PO, principal only, 0% 20362
    
21,028
      
16,080
  
Freddie Mac, Series 3146, Class PO, principal only, 0% 20362
    
14,910
      
11,192
  
Freddie Mac, Series 3233, Class PA, 6.00% 2036
    
36,417
      
37,517
  
Freddie Mac, Series 3318, Class JT, 5.50% 2037
    
35,245
      
35,478
  
Freddie Mac, Series 3312, Class PA, 5.50% 2037
    
26,337
      
26,518
  
Freddie Mac 6.00% 2037
    
474,748
      
481,775
  
Freddie Mac 6.00% 2037
    
58,750
      
59,637
  
Freddie Mac 6.00% 2037
    
50,631
      
51,380
  
Freddie Mac, Series 3272, Class PA, 6.00% 2037
    
28,636
      
29,522
  
Countrywide Alternative Loan Trust, Series 2005-6CB, Class 2-A-1, 5.00% 2020
    
3,761
      
3,599
  
Countrywide Alternative Loan Trust, Series 2005-20CB, Class 4-A-1, 5.25% 2020
    
32,085
      
30,919
  
Countrywide Alternative Loan Trust, Series 2006-J3, Class 3-A-1, 5.50% 20212
    
20,269
      
19,191
  
Countrywide Alternative Loan Trust, Series 2004-5CB, Class 1-A-1, 6.00% 2034
    
11,083
      
10,759
  
Countrywide Alternative Loan Trust, Series 2005-46CB, Class A-8, 5.50% 2035
    
57,373
      
57,202
  
Countrywide Alternative Loan Trust, Series 2005-40CB, Class A-1, 5.50% 2035
    
21,933
      
21,381
  
Countrywide Alternative Loan Trust, Series 2005-21CB, Class A-9, 5.50% 2035
    
18,536
      
18,458
  
Countrywide Alternative Loan Trust, Series 2005-54CB, Class 1-A-7, 5.50% 2035
    
17,928
      
17,915
  
Countrywide Alternative Loan Trust, Series 2005-64CB, Class 1-A-7, 5.50% 2035
    
15,435
      
15,139
  
Countrywide Alternative Loan Trust, Series 2004-28CB, Class 5-A-1, 5.75% 2035
    
15,605
      
15,018
  
Countrywide Alternative Loan Trust, Series 2005-62, Class 2-A-1, 5.863% 20352,4
    
13,220
      
12,824
  
Countrywide Alternative Loan Trust, Series 2005-21CB, Class A-17, 6.00% 2035
    
25,780
      
25,515
  
Countrywide Alternative Loan Trust, Series 2004-36CB, Class 1-A-1, 6.00% 20352
    
21,892
      
21,344
  
Countrywide Alternative Loan Trust, Series 2005-50CB, Class 3-A-1, 6.00% 2035
    
11,891
      
11,546
  
Countrywide Alternative Loan Trust, Series 2006-6CB, Class 1-A-1, 5.50% 20362
    
8,176
      
7,939
  
Countrywide Alternative Loan Trust, Series 2006-16CB, Class A-2, 6.00% 2036
    
13,512
      
13,407
  
Countrywide Alternative Loan Trust, Series 2007-2CB, Class 1-A-9, 5.75% 2037
    
13,941
      
13,712
  
Countrywide Alternative Loan Trust, Series 2007-HY4, Class 3-A-1, 5.876% 20474
    
37,165
      
36,170
  
Residential Accredit Loans, Inc., Series 2003-QS14, Class A-1, 5.00% 20182
    
7,971
      
7,853
  
Residential Accredit Loans, Inc., Series 2004-QS6, Class A-1, 5.00% 20192
    
15,781
      
15,549
  
Residential Accredit Loans, Inc., Series 2004-QS16, Class 1-A-1, 5.50% 2034
    
26,589
      
26,172
  
Residential Accredit Loans, Inc., Series 2005-QR1, Class A, 6.00% 20342
    
36,337
      
35,247
  
Residential Accredit Loans, Inc., Series 2005-QS4, Class A-3, 5.50% 20352
    
32,898
      
32,394
  
Residential Accredit Loans, Inc., Series 2006-QS1, Class A-3, 5.75% 2036
    
56,680
      
56,647
  
Residential Accredit Loans, Inc., Series 2006-QA1, Class A-III-1, 6.25% 20364
    
25,864
      
25,610
  
Residential Accredit Loans, Inc., Series 2007-QS9, Class A-33, 6.50% 2037
    
48,154
      
48,342
  
Residential Accredit Loans, Inc., Series 2007-QS11, Class A-1, 7.00% 2037
    
55,340
      
55,666
  
CS First Boston Mortgage Securities Corp., Series 2003-23, Class VII-A-1, 5.00% 20182
    
5,273
      
5,196
  
CS First Boston Mortgage Securities Corp., Series 2005-7, Class III-A-1, 5.00% 20202
    
12,025
      
11,680
  
CS First Boston Mortgage Securities Corp., Series 2002-34, Class I-A-1, 7.50% 2032
    
2,180
      
2,191
  
CS First Boston Mortgage Securities Corp., Series 2002-30, Class I-A-1, 7.50% 2032
    
1,899
      
1,908
  
CS First Boston Mortgage Securities Corp., Series 2003-21, Class V-A-1, 6.50% 2033
    
2,117
      
2,121
  
CS First Boston Mortgage Securities Corp., Series 2003-29, Class V-A-1, 7.00% 2033
    
2,939
      
2,940
  
CS First Boston Mortgage Securities Corp., Series 2001-CKN5, Class A-4, 5.435% 2034
    
23,691
      
24,015
  
CS First Boston Mortgage Securities Corp., Series 2004-5, Class IV-A-1, 6.00% 2034
    
8,219
      
8,123
  
CS First Boston Mortgage Securities Corp., Series 2001-CF2, Class A-3, 6.238% 2034
    
436
      
435
  
CS First Boston Mortgage Securities Corp., Series 2001-CP4, Class A-4, 6.18% 2035
    
34,900
      
36,398
  
CS First Boston Mortgage Securities Corp., Series 2005-5, Class IV-A-1, 6.25% 2035
    
16,960
      
16,913
  
CS First Boston Mortgage Securities Corp., Series 2001-CK1, Class A-3, 6.38% 2035
    
40,576
      
41,869
  
CS First Boston Mortgage Securities Corp., Series 2006-2R, Class A-PO, principal only, 0% 20362,3
    
18,322
      
13,263
  
CS First Boston Mortgage Securities Corp., Series 2003-CK2, Class A-4, 4.801% 2036
    
17,585
      
17,336
  
CS First Boston Mortgage Securities Corp., Series 2001-CK6, Class A-3, 6.387% 2036
    
20,675
      
21,580
  
CS First Boston Mortgage Securities Corp., Series 2002-CKN2, Class A-3, 6.133% 2037
    
16,045
      
16,827
  
CS First Boston Mortgage Securities Corp., Series 2005-C1, Class A-3, 4.813% 2038
    
13,200
      
12,970
  
CS First Boston Mortgage Securities Corp., Series 2005-C4, Class A-2, 5.017% 2038
    
10,000
      
9,971
  
CS First Boston Mortgage Securities Corp., Series 2004-C4, Class A-2, 3.88% 2039
    
13,000
      
12,746
  
CS First Boston Mortgage Securities Corp., Series 2004-C4, Class A-4, 4.283% 2039
    
5,000
      
4,854
  
CS First Boston Mortgage Securities Corp., Series 2005-C6, Class A-3, 5.23% 20404
    
30,875
      
30,624
  
CS First Boston Mortgage Securities Corp., Series 1998-C1, Class A-1B, 6.48% 2040
    
3,725
      
3,733
  
Wells Fargo Mortgage-backed Securities Trust, Series 2003-16, Class II-A-1, 4.50% 2018
    
20,600
      
19,697
  
Wells Fargo Mortgage-backed Securities Trust, Series 2005-13, Class A-1, 5.00% 2020
    
51,247
      
49,920
  
Wells Fargo Mortgage-backed Securities Trust, Series 2006-1, Class A-3, 5.00% 2021
    
20,221
      
19,695
  
Wells Fargo Mortgage-backed Securities Trust, Series 2003-B, Class A-1, 4.149% 20334
    
3,591
      
3,501
  
Wells Fargo Mortgage-backed Securities Trust, Series 2003-3, Class II-A-1, 5.25% 2033
    
33,787
      
33,179
  
Wells Fargo Mortgage-backed Securities Trust, Series 2005-AR10, Class II-A-6, 4.11% 20354
    
30,000
      
29,380
  
Wells Fargo Mortgage-backed Securities Trust, Series 2006-AR15, Class A-1, 5.657% 20364
    
62,783
      
61,771
  
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2004-CIBC10, Class A-2, 3.89% 2037
    
7,093
      
7,023
  
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2002-CIBC5, Class A-1, 4.372% 2037
    
10,686
      
10,640
  
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2005-CIBC12, Class A-2, 4.739% 2037
    
2,319
      
2,309
  
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2005-CIBC12, Class A-3B, 5.317% 20374
    
63,000
      
63,183
  
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2002-C1, Class A-3, 5.376% 2037
    
10,680
      
10,820
  
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2003-ML1, Class A-1, 3.972% 2039
    
15,933
      
15,776
  
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2005-LDP4, Class A-2, 4.79% 2042
    
15,000
      
14,909
  
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2005-LDP4, Class A-SB, 4.824% 2042
    
25,000
      
24,583
  
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2005-LDP4, Class A-3A1, 4.871% 2042
    
5,000
      
4,945
  
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2006-LDP7, Class A-4, 5.875% 20454
    
20,375
      
21,123
  
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2005-LDP1, Class A-2, 4.625% 2046
    
34,265
      
33,999
  
Structured Adjustable Rate Mortgage Loan Trust, Series 2006-4, Class 5-A-1, 5.922% 20364
    
83,827
      
83,180
  
Structured Adjustable Rate Mortgage Loan Trust, Series 2006-2, Class 5-A-1, 6.00% 20364
    
49,102
      
48,210
  
Structured Adjustable Rate Mortgage Loan Trust, Series 2006-12, Class 2-A1, 5.963% 20374
    
21,787
      
21,446
  
GE Commercial Mortgage Corp., Series 2004-C1, Class A-2, 3.915% 2038
    
3,000
      
2,952
  
GE Commercial Mortgage Corp., Series 2005-C3, Class A-4, 5.046% 20454
    
24,730
      
24,685
  
GE Commercial Mortgage Corp., Series 2005-C4, Class A-3A, 5.333% 20454
    
65,575
      
65,955
  
GE Commercial Mortgage Corp., Series 2005-C1, Class A-2, 4.353% 2048
    
34,140
      
33,700
  
Wachovia Bank Commercial Mortgage Trust, Series 2005-C16, Class A-PB, 4.692% 2041
    
32,750
      
32,196
  
Wachovia Bank Commercial Mortgage Trust, Series 2005-C17, Class A-2, 4.782% 2042
    
27,000
      
26,884
  
Wachovia Bank Commercial Mortgage Trust, Series 2005-C17, Class A-4, 5.083% 20424
    
50,455
      
49,817
  
Morgan Stanley Mortgage Loan Trust, Series 2004-3, Class 4-A, 5.684% 20344
    
41,225
      
39,833
  
Morgan Stanley Mortgage Loan Trust, Series 2005-10, Class 4-A-1, 5.50% 20352
    
36,799
      
34,973
  
Morgan Stanley Mortgage Loan Trust, Series 2007-11AR, Class 2-A-1, 6.64% 20374
    
28,651
      
28,622
  
GMAC Commercial Mortgage Securities, Inc., Series 2001-C1, Class A-2, 6.465% 2034
    
84,339
      
87,507
  
GMAC Commercial Mortgage Securities, Inc., Series 1999-C3, Class F, 7.834% 20364
    
4,000
      
4,145
  
GMAC Commercial Mortgage Securities, Inc., Series 2002-C2, Class A-2, 5.389% 2038
    
2,986
      
3,012
  
Crown Castle Towers LLC, Series 2005-1, Class A-FX, 4.643% 20353
    
65,800
      
65,787
  
Crown Castle Towers LLC, Series 2005-1, Class C, 5.074% 20352,3
    
10,200
      
9,977
  
Crown Castle Towers LLC, Series 2005-1, Class D, 5.612% 20353
    
7,550
      
7,479
  
Crown Castle Towers LLC, Series 2006-1, Class E, 6.065% 20362,3
    
10,000
      
9,521
  
Wells Fargo Alternative Loan Trust, Series 2007-PA3, Class III-A-1, 6.25% 2037
    
67,626
      
66,957
  
Wells Fargo Alternative Loan Trust, Series 2007-PA3, Class IV-A-1, 6.50% 2037
    
25,219
      
25,318
  
Banc of America Mortgage Securities Trust, Series 2004-5, Class 3-A-1, 4.50% 2019
    
76,705
      
73,339
  
Banc of America Mortgage Securities Trust, Series 2004-5, Class 3-A-2, 4.75% 2019
    
14,858
      
14,337
  
WaMu Mortgage Pass-Through Certificates Trust, Series 2003-S6, Class II-A-1, 5.00% 2018
    
6,664
      
6,488
  
WaMu Mortgage Pass-Through Certificates Trust, Series 2004-CB2, Class VII-A, 5.50% 2019
    
4,120
      
4,099
  
WaMu Mortgage Pass-Through Certificates Trust, Series 2007-HY5, Class 3-A1, 5.825% 20372,4
    
23,588
      
23,588
  
WaMu Mortgage Pass-Through Certificates Trust, Series 2007-HY7, Class 2-A1, 5.88% 20374
    
35,806
      
35,616
  
WaMu Mortgage Pass-Through Certificates Trust, Series 2005-AR15, Class A-1-A, 5.125% 20454
    
12,752
      
12,047
  
Banc of America Commercial Mortgage Inc., Series 2002-PB2, Class A-4, 6.186% 2035
    
4,350
      
4,524
  
Banc of America Commercial Mortgage Inc., Series 2001-1, Class A-2, 6.503% 2036
    
43,814
      
45,741
  
Banc of America Commercial Mortgage Inc., Series 2003-2, Class A-1, 3.411% 2041
    
8,612
      
8,538
  
Banc of America Commercial Mortgage Inc., Series 2005-4, Class A-2, 4.764% 2045
    
23,175
      
22,985
  
American Tower Trust I, Series 2007-1A, Class A-FX, 5.42% 20372,3
    
18,300
      
17,750
  
American Tower Trust I, Series 2007-1A, Class B, 5.537% 20372,3
    
20,000
      
19,173
  
American Tower Trust I, Series 2007-1A, Class C, 5.615% 20373
    
12,000
      
11,299
  
American Tower Trust I, Series 2007-1A, Class D, 5.957% 20372,3
    
32,200
      
29,791
  
Salomon Brothers Commercial Mortgage Trust, Series 2000-C3, Class A-2, 6.592% 2033
    
19,500
      
20,287
  
Salomon Brothers Commercial Mortgage Trust, Series 2001-C1, Class A-2, 6.226% 2035
    
122
      
122
  
Salomon Brothers Commercial Mortgage Trust, Series 2001-C1, Class A-3, 6.428% 2035
    
53,934
      
56,276
  
Chase Mortgage Finance Trust, Series 2003-S9, Class A-1, 5.00% 2018
    
43,178
      
42,049
  
Chase Mortgage Finance Trust, Series 2003-S4, Class II-A-1, 5.00% 2018
    
32,203
      
31,349
  
CHL Mortgage Pass-Through Trust, Series 2003-J1, Class 3-A-1, 5.00% 20182
    
17,248
      
16,929
  
CHL Mortgage Pass-Through Trust, Series 2003-HYB3, Class 4-A-1, 3.487% 20334
    
2,808
      
2,759
  
CHL Mortgage Pass-Through Trust, Series 2003-56, Class 6-A-1, 4.837% 20334
    
11,067
      
10,906
  
CHL Mortgage Pass-Through Trust, Series 2005-HYB8, Class 4-A-1, 5.617% 20354
    
26,782
      
25,891
  
CHL Mortgage Pass-Through Trust, Series 2006-HYB5, Class 3-A-1B, 5.928% 20364
    
15,001
      
14,756
  
Tower Ventures, LLC, Series 2006-1, Class A1-FX, 5.361% 20362,3
    
22,800
      
22,701
  
Tower Ventures, LLC, Series 2006-1, Class A-2, 5.45% 20362,3
    
31,000
      
30,856
  
Tower Ventures, LLC, Series 2006-1, Class C, 5.707% 20363
    
15,000
      
14,994
  
Structured Asset Securities Corp., Series 2004-15, Class 2-A-1, 4.75% 2019
    
63,103
      
60,980
  
Structured Asset Securities Corp., Series 2004-3, Class 3-A-1, 5.50% 2019
    
5,645
      
5,477
  
Structured Asset Securities Corp., Series 1998-RF2, Class A, 8.516% 20273,4
    
1,164
      
1,162
  
Bear Stearns Asset-backed Securities I Trust, Series 2005-AC3, Class II-A-1, 5.25% 2020
    
41,917
      
41,662
  
Bear Stearns Asset-backed Securities I Trust, Series 2006-AC2, Class II-1A-1, 6.00% 2036
    
20,179
      
19,954
  
Bear Stearns Commercial Mortgage Securities Inc., Series 2002-PBW1, Class A-1, 3.97% 2035
    
8,747
      
8,652
  
Bear Stearns Commercial Mortgage Securities Inc., Series 2001-TOP2, Class A-2, 6.48% 2035
    
13,205
      
13,850
  
Bear Stearns Commercial Mortgage Securities Inc., Series 2005-PWR9, Class A-2, 4.735% 2042
    
38,000
      
37,755
  
Commercial Mortgage Trust, Series 2000-C1, Class E, 8.132% 2033
    
4,000
      
4,316
  
Commercial Mortgage Trust, Series 2003-LNB1, Class A-2, 4.084% 2038
    
39,825
      
38,318
  
Commercial Mortgage Trust, Series 2004-LNB2, Class A-3, 4.221% 2039
    
17,217
      
16,973
  
American Home Mortgage Assets Trust, Series 2007-3, Class II-2A-1, 6.25% 20374
    
58,297
      
57,806
  
Bear Stearns ARM Trust, Series 2003-3, Class III-A-1, 5.12% 20334
    
3,321
      
3,283
  
Bear Stearns ARM Trust, Series 2003-9, Class III-A-3, 4.339% 20344
    
21,447
      
20,825
  
Bear Stearns ARM Trust, Series 2003-9, Class III-A-2, 4.964% 20344
    
14,429
      
14,177
  
Bear Stearns ARM Trust, Series 2005-10, Class A-3, 4.65% 20352,4
    
20,000
      
19,026
  
First Horizon Alternative Mortgage Securities Trust, Series 2005-FA8, Class I-A-14, 5.50% 2035
    
29,069
      
28,915
  
First Horizon Alternative Mortgage Securities Trust, Series 2005-FA11, Class I-A-5, 5.75% 2036
    
27,324
      
27,100
  
IndyMac IMSC Mortgage Loan Trust, Series 2007-F2, Class 2-A-1, 6.50% 2037
    
13,620
      
13,690
  
IndyMac IMSC Mortgage Loan Trust, Series 2007-F3, Class 3-A-1, 7.00% 2037
    
39,861
      
40,391
  
Chase Commercial Mortgage Securities Corp., Series 1998-2, Class A-2, 6.39% 2030
    
24,783
      
24,942
  
Chase Commercial Mortgage Securities Corp., Series 1998-1, Class A-2, 6.56% 2030
    
2,338
      
2,336
  
Chase Commercial Mortgage Securities Corp., Series 2000-1, Class A-2, 7.757% 2032
    
24,568
      
25,588
  
SBA CMBS Trust, Series 2005-1, Class A, 5.369% 20352,3
    
16,250
      
16,410
  
SBA CMBS Trust, Series 2005-1, Class D, 6.219% 20352,3
    
4,000
      
3,908
  
SBA CMBS Trust, Series 2006-1A, Class A, 5.314% 20363
    
27,350
      
27,359
  
SBA CMBS Trust, Series 2006-1A, Class B, 5.451% 20362,3
    
2,000
      
1,978
  
GSR Mortgage Loan Trust, Series 2004-6F, Class IVA-1, 5.00% 2019
    
32,780
      
31,911
  
GSR Mortgage Loan Trust, Series 2004-2F, Class XIIIA-1, 5.00% 2019
    
8,462
      
8,266
  
GSR Mortgage Loan Trust, Series 2004-15F, Class 5A-1, 5.50% 2020
    
8,485
      
8,381
  
Banc of America Alternative Loan Trust, Series 2005-2, Class 3-A-1, 5.00% 20202
    
11,611
      
11,412
  
Banc of America Alternative Loan Trust, Series 2005-12, Class 5-A-1, 5.25% 2021
    
37,273
      
36,556
  
IndyMac INDX Mortgage Loan Trust, Series 2006-AR5, Class 2-A-1, 5.844% 20364
    
13,659
      
13,393
  
IndyMac INDX Mortgage Loan Trust, Series 2006-AR11, Class 6-A-1, 5.883% 20362,4
    
23,647
      
23,443
  
Lehman Mortgage Trust, Series 2005-1, Class 6-A1, 5.00% 20202
    
5,836
      
5,743
  
Lehman Mortgage Trust, Series 2006-2, Class 4-A1, 5.00% 2036
    
14,667
      
14,327
  
Lehman Mortgage Trust, Series 2007-7, Class 6-A4, 7.00% 20372
    
16,013
      
16,008
  
GE Capital Commercial Mortgage Corp., Series 2002-2, Class A-3, 5.349% 2036
    
10,000
      
10,121
  
GE Capital Commercial Mortgage Corp., Series 2002-3, Class A-1, 4.229% 2037
    
25,695
      
25,311
  
Bear Stearns Commercial Mortgage Securities Trust, Series 2005-PWR7, Class A-2, 4.945% 2041
    
31,940
      
31,657
  
GMAC Mortgage Loan Trust, Series 2006-AR1, Class 2-A-1, 5.642% 20364
    
31,360
      
30,812
  
Bear Stearns ALT-A Trust, Series 2006-2, Class II-4-A-1, 5.93% 20364
    
30,788
      
29,712
  
Washington Mutual Mortgage, WMALT Series 2005-AR1, Class A-1-A, 5.125% 20352,4
    
10,617
      
10,090
  
Washington Mutual Mortgage, WMALT Series 2005-1, Class 5-A-1, 6.00% 2035
    
17,810
      
17,300
  
Citigroup-Deutsche Bank Commercial Mortgage Trust, Series 2006-CD3, Class A-5, 5.617% 2048
    
25,000
      
25,314
  
L.A. Arena Funding, LLC, Series 1, Class A, 7.656% 20263
    
20,960
      
21,743
  
Citigroup Commercial Mortgage Trust, Series 2004-C2, Class A-4, 4.623% 2041
    
21,190
      
20,908
  
Morgan Stanley Dean Witter Capital I Trust, Series 2002-HQ, Class A-2, 6.09% 2034
    
969
      
970
  
Morgan Stanley Dean Witter Capital I Trust, Series 2000-PRIN, Class C, 7.741% 20344
    
7,435
      
8,615
  
Morgan Stanley Dean Witter Capital I Trust, Series 2001-TOP5, Class A-3, 6.16% 2035
    
7,224
      
7,327
  
Morgan Stanley Dean Witter Capital I Trust, Series 2003-TOP9, Class A-1, 3.98% 2036
    
2,093
      
2,054
  
Morgan Stanley Capital I, Inc., Series 1999-FNV1, Class A-2, 6.53% 2031
    
9,024
      
9,105
  
Morgan Stanley Capital I, Inc., Series 2004-RR2, Class A-1, 4.39% 20332,3
    
9,481
      
8,722
  
LB-UBS Commercial Mortgage Trust, Series 2000-C3, Class A-2, 7.95% 2025
    
3,691
      
3,900
  
LB-UBS Commercial Mortgage Trust, Series 2002-C1, Class A-4, 6.462% 2031
    
13,185
      
13,857
  
Citicorp Mortgage Securities, Inc., Series 2005-5, Class II-A-3, 5.00% 2020
    
17,936
      
17,466
  
Prudential Mortgage Capital Funding, LLC, Series ROCK 2001-C1, Class A-2, 6.605% 2034
    
15,555
      
16,386
  
First Union National Bank Commercial Mortgage Trust, Series 2000-C1, Class A-1, 7.739% 2032
    
416
      
417
  
First Union National Bank Commercial Mortgage Trust, Series 2002-C1, Class A-1, 5.585% 2034
    
5,863
      
5,929
  
First Union National Bank Commercial Mortgage Trust, Series 2002-C1, Class A-2, 6.141% 2034
    
8,810
      
9,249
  
Banc of America Funding Trust, Series 2004-3, Class 2-A-1, 4.75% 2019
    
13,926
      
13,438
  
J.P. Morgan Mortgage Trust, Series 2004-S1, Class 1-A-7, 5.00% 2019
    
12,750
      
12,455
  
Meristar Commercial Mortgage Trust, Series 1999-C1, Class A-1, 7.28% 20163
    
2,629
      
2,686
  
Meristar Commercial Mortgage Trust, Series 1999-C1, Class B, 7.90% 20163
    
7,750
      
8,105
  
Residential Asset Securitization Trust, Series 2005-A6CB, Class A-7, 6.00% 20352
    
10,533
      
10,205
  
GS Mortgage Securities Corp. II, Series 1998-C1, Class D, 7.101% 20304
    
10,000
      
10,119
  
Residential Funding Mortgage Securities I, Inc., Series 2004-S9, Class II-A-1, 4.75% 2019
    
8,932
      
8,724
  
Merrill Lynch Mortgage Trust, Series 2005-LC1, Class A-2, 5.202% 20444
    
8,615
      
8,629
  
Adjustable Rate Mortgage Trust, Series 2006-1, Class 3-A-3, 5.913% 20364
    
7,504
      
7,441
  
Residential Funding Corp., Series 2003-RM2, Class A-II, 5.00% 2018
    
7,591
      
7,389
  
MASTR Asset Securitization Trust, Series 2003-9, Class 1-A-1, 5.00% 2018
    
7,181
      
6,992
  
Merrill Lynch Mortgage Investors, Inc., Series 1999-C1, Class A-2, 7.56% 2031
    
5,821
      
6,013
  
Banc of America Mortgage Securities, Inc., Series 2003-G, Class 2-A-1, 4.088% 20334
    
5,163
      
5,205
  
HarborView Mortgage Loan Trust, Series 2005-15, Class 2-A1A2, 5.749% 20454
    
5,085
      
4,900
  
Hilton Hotel Pool Trust, Series 2000-HLTA, Class A-1, 7.055% 20153
    
4,002
      
4,168
  
ABN AMRO Mortgage Corp., Series 2003-9, Class A-1, 4.50% 2018
    
3,862
      
3,693
  
DLJ Commercial Mortgage Corp., Series 1999-CG1, Class A-1B, 6.46% 2032
    
3,497
      
3,540
  
MASTR Alternative Loan Trust, Series 2005-3, Class 1-A-1, 5.50% 2035
    
3,579
      
3,412
  
Chase Manhattan Bank — First Union National Bank, Commercial Mortgage Trust, Series 1999-1, Class C, 7.625% 2031
    
3,000
      
3,134
  
Host Marriott Pool Trust, Series 1999-HMTA, Class A, 6.98% 20153
    
2,556
      
2,610
  
Government National Mortgage Assn. 9.00% 2009
    
216
      
217
  
Government National Mortgage Assn. 10.00% 2020
    
371
      
430
  
Government National Mortgage Assn. 10.00% 2021
    
665
      
774
  
Bank of America, NA and First Union National Bank Commercial Mortgage Trust, Series 2001-3, Class A-1, 4.89% 2037
    
1,267
      
1,267
  
Morgan Stanley Capital I Trust, Series 2003-IQ5, Class C, 5.16% 20384
    
1,200
      
1,192
  
             
6,232,765
  
                 
                 
BONDS & NOTES OF U.S. GOVERNMENT & GOVERNMENT AGENCIES — 6.72%
                
U.S. Treasury 3.625% 20082,7
    
25,864
      
25,935
  
U.S. Treasury 4.75% 2008
    
20,000
      
20,228
  
U.S. Treasury 5.625% 2008
    
250,000
      
252,013
  
U.S. Treasury 3.625% 2009
    
20,000
      
20,155
  
U.S. Treasury 3.875% 20092,7
    
764,346
      
787,302
  
U.S. Treasury 4.50% 2009
    
100,000
      
101,789
  
U.S. Treasury 0.875% 20102,7
    
22,056
      
21,993
  
U.S. Treasury 3.50% 20112,7
    
30,010
      
32,288
  
U.S. Treasury 4.625% 2011
    
248,000
      
260,090
  
U.S. Treasury 5.00% 2011
    
25,000
      
26,404
  
U.S. Treasury 2.00% 20122,7
    
41,183
      
42,710
  
U.S. Treasury 3.00% 20122,7
    
59,841
      
64,865
  
U.S. Treasury 3.375% 20122,7
    
70,596
      
77,052
  
U.S. Treasury 3.625% 2013
    
10,000
      
10,065
  
U.S. Treasury 4.25% 2013
    
644,835
      
668,107
  
U.S. Treasury 9.25% 2016
    
55,000
      
75,097
  
U.S. Treasury 4.625% 2017
    
32,000
      
33,447
  
U.S. Treasury 8.875% 2017
    
72,500
      
99,738
  
U.S. Treasury 7.875% 2021
    
104,000
      
139,863
  
U.S. Treasury 6.25% 2023
    
88,500
      
105,951
  
U.S. Treasury 2.375% 20252,7
    
55,418
      
58,260
  
U.S. Treasury 6.875% 2025
    
167,000
      
214,725
  
U.S. Treasury 6.00% 2026
    
42,000
      
49,705
  
U.S. Treasury 5.25% 2029
    
21,000
      
23,113
  
Federal Home Loan Bank 5.125% 2013
    
115,000
      
121,036
  
Federal Home Loan Bank 5.625% 2016
    
144,800
      
152,739
  
Fannie Mae 6.00% 2011
    
83,000
      
88,845
  
Fannie Mae 5.25% 2012
    
100,000
      
104,181
  
Fannie Mae 6.25% 2029
    
31,625
      
37,118
  
Fannie Mae 7.25% 2030
    
4,000
      
5,261
  
Freddie Mac 4.875% 2008
    
14,575
      
14,632
  
Freddie Mac 5.25% 2011
    
160,000
      
167,518
  
Federal Agricultural Mortgage Corp. 4.25% 2008
    
64,500
      
64,479
  
Federal Agricultural Mortgage Corp. 4.875% 20113
    
68,500
      
70,565
  
Federal Agricultural Mortgage Corp. 5.50% 20113
    
7,000
      
7,352
  
CoBank ACB 5.591% 20222,3,4
    
18,500
      
16,696
  
United States Government-Guaranteed Certificates of Participation, Overseas Private Investment Corp.,
                
Series 2000-044-A, 3.74% 20156
    
7,746
      
7,735
  
             
4,069,052
  
                 
                 
ASSET-BACKED OBLIGATIONS6— 1.96%
                
Drive Auto Receivables Trust, Series 2005-1, Class A-4, MBIA insured, 4.01% 2012
    
19,367
      
19,288
  
Drive Auto Receivables Trust, Series 2005-2, Class A-3, MBIA insured, 4.26% 20123
    
18,580
      
18,528
  
Drive Auto Receivables Trust, Series 2005-3, Class A-4, FSA insured, 5.09% 20133
    
47,500
      
47,292
  
Drive Auto Receivables Trust, Series 2006-2, Class A-3, MBIA insured, 5.33% 20143
    
18,750
      
18,448
  
AmeriCredit Automobile Receivables Trust, Series 2006-B-G, Class A-4, FGIC insured, 5.21% 2013
    
20,880
      
20,893
  
AmeriCredit Automobile Receivables Trust, Series 2006-A-F, Class A-4, FSA insured, 5.64% 2013
    
20,000
      
20,156
  
AmeriCredit Automobile Receivables Trust, Series 2007-C-M, Class A-4-A, MBIA insured, 5.55% 20142
    
14,225
      
13,689
  
AmeriCredit Automobile Receivables Trust, Series 2007-D-F, Class A-4-A, FSA insured, 5.56% 2014
    
15,000
      
15,102
  
ARG Funding Corp., Series 2005-1, Class A-1, MBIA insured, 4.02% 20093
    
15,600
      
15,581
  
ARG Funding Corp., Series 2005-1, Class A-3, MBIA insured, 4.29% 20112,3
    
8,000
      
7,520
  
ARG Funding Corp., Series 2005-2, Class A-4, AMBAC insured, 4.84% 20112,3
    
49,500
      
46,406
  
World Omni Auto Receivables Trust, Series 2006-B, Class A-4, 5.12% 2012
    
62,000
      
61,903
  
New Century Home Equity Loan Trust, Series 2004-A, Class A-II-5, FGIC insured, 5.25% 2034
    
10,000
      
9,741
  
New Century Home Equity Loan Trust, Series 2004-A, Class A-II-6, FGIC insured, 5.541% 20344
    
34,977
      
33,632
  
New Century Home Equity Loan Trust, Series 2006-2, Class A-2-b, 5.025% 20364
    
19,000
      
17,758
  
CPS Auto Receivables Trust, Series 2003-D, Class A-2, FSA insured, 3.56% 20102,3
    
2,966
      
2,933
  
CPS Auto Receivables Trust, Series 2004-B, Class A-2, XLCA insured, 3.56% 20113
    
3,691
      
3,661
  
CPS Auto Receivables Trust, Series 2005-D, Class A-2, FSA insured, 5.06% 20123
    
18,000
      
18,093
  
CPS Auto Receivables Trust, Series 2006-A, Class 1-A-4, FSA insured, 5.33% 20123
    
9,000
      
9,095
  
CPS Auto Receivables Trust, Series 2007-A, Class A-4, MBIA insured, 5.05% 20133
    
9,000
      
8,594
  
CPS Auto Receivables Trust, Series 2007-TFC, Class A-2, XLCA insured, 5.25% 20133
    
17,000
      
16,957
  
GMAC Mortgage Loan Trust, Series 2006-HE3, Class A-5, FGIC insured, 5.809% 20362,4
    
13,000
      
9,750
  
GMAC Mortgage Loan Trust, Series 2007-HE2, Class A-2, FGIC insured, 6.054% 20372,4
    
10,000
      
9,127
  
GMAC Mortgage Loan Trust, Series 2007-HE2, Class A-3, FGIC insured, 6.193% 20372,4
    
24,000
      
21,446
  
Washington Mutual Master Note Trust, Series 2007-A4A, Class A-4, 5.20% 20142,3
    
25,000
      
24,985
  
Washington Mutual Master Note Trust, Series 2006-A2A, Class A, 5.078% 20153,4
    
15,000
      
14,644
  
Rental Car Finance Corp., Series 2005-1, Class A-2, XLCA insured, 4.59% 20113
    
36,230
      
36,149
  
UPFC Auto Receivables Trust, Series 2007-B, Class A-3, AMBAC insured, 6.15% 20142
    
36,750
      
36,096
  
Residential Funding Mortgage Securities II, Inc., Series 2007-HSA2, Class A-1F, MBIA insured, 8.47% 20374
    
33,118
      
32,983
  
Susquehanna Auto Lease Trust, Series 2007-1, Class A-3, 5.25% 20103
    
31,050
      
31,335
  
Long Beach Acceptance Auto Receivables Trust, Series 2004-A, Class A-2, FSA insured, 2.841% 20104
    
3,698
      
3,640
  
Long Beach Acceptance Auto Receivables Trust, Series 2004-C, Class A-4, FSA insured, 3.777% 2011
    
12,266
      
12,080
  
Long Beach Acceptance Auto Receivables Trust, Series 2005-B, Class A-4, FSA insured, 4.522% 2012
    
14,000
      
13,970
  
Hertz Vehicle Financing LLC, Rental Car Asset-backed Notes, Series 2005-1, Class A-5, MBIA insured, 5.08% 20112,3
    
29,550
      
28,146
  
Triad Automobile Receivables Trust, Series 2006-C, Class A-3, AMBAC insured, 5.26% 2011
    
25,750
      
25,750
  
Capital Auto Receivables Asset Trust, Series 2004-2, Class A-4, 3.75% 2009
    
25,500
      
25,321
  
Securitized Asset-backed Receivables LLC Trust, Series 2006-HE2, Class A-2C, 5.015% 20364
    
20,000
      
16,262
  
Securitized Asset-backed Receivables LLC Trust, Series 2006-NC3, Class A-2B, 5.015% 20364
    
10,000
      
8,444
  
Residential Asset Securities Corp. Trust, Series 2001-KS3, Class A-I-6, 5.96% 2031
    
6,944
      
6,927
  
Residential Asset Securities Corp. Trust, Series 2004-KS9, Class A-I-4, FGIC insured, 4.61% 2032
    
10,000
      
9,720
  
Residential Asset Securities Corp. Trust, Series 2003-KS8, Class A-I-6, 4.83% 20332
    
7,689
      
7,028
  
Residential Asset Securities Corp. Trust, Series 2003-KS6, Class A-2, 5.465% 20332,4
    
191
      
173
  
PG&E Energy Recovery Funding LLC, Series 2005-1, Class A-2, 3.87% 2011
    
7,364
      
7,316
  
PG&E Energy Recovery Funding LLC, Series 2005-2, Class A-3, 5.12% 2014
    
16,076
      
16,244
  
USAA Auto Owner Trust, Series 2007-1, Class A-4, 5.55% 20132
    
24,000
      
22,613
  
Ameriquest Mortgage Securities Inc., Series 2004-R4, Class M-1, 5.415% 20342,4
    
25,786
      
21,918
  
Honda Auto Receivables Owner Trust, Series 2005-4, Class A-4, 4.60% 2010
    
20,000
      
19,964
  
American Express Credit Account Master Trust, Series 2005-5, Class A, 5.068% 20134
    
19,500
      
19,378
  
CarMax Auto Owner Trust, Series 2007-2, Class A-3, 5.23% 2011
    
19,125
      
19,074
  
Prestige Auto Receivables Trust, Series 2007-1, Class A-3, FSA insured, 5.58% 20143
    
17,000
      
17,242
  
West Penn Funding LLC, Transition Bonds, Series 2005-A, Class A-1, 4.46% 20103
    
16,570
      
16,599
  
Credit-Based Asset Servicing and Securitization LLC, Series 2007-CB1, Class AF-2, 5.721% 20374
    
18,000
      
16,579
  
Drivetime Auto Owner Trust, Series 2005-C, Class A-3, MBIA insured, 5.006% 20113,4
    
15,078
      
15,057
  
RAMP Trust, Series 2003-RZ4, Class A-7, 4.79% 20332,4
    
7,675
      
6,997
  
RAMP Trust, Series 2003-RS11, Class A-I-7, 4.828% 20332
    
8,738
      
7,908
  
Santander Drive Auto Receivables Trust, Series 2007-1, Class A-4, FGIC insured, 5.078% 20144
    
15,000
      
14,621
  
Bear Stearns Asset-backed Securities I Trust, Series 2005-CL1, Class A-1, 5.365% 20344
    
16,014
      
14,400
  
Advanta Business Card Master Trust, Series 2005-A3, Class A, 4.70% 2011
    
14,250
      
14,265
  
Chase Credit Card Owner Trust, Series 2003-4, Class B, 5.678% 20164
    
14,000
      
13,888
  
Cendant Timeshare Receivables Funding, LLC, Series 2005-1, Class A-1, FGIC insured, 4.67% 20173
    
13,451
      
13,216
  
GE SeaCo Finance SRL, Series 2004-1, Class A, AMBAC insured, 5.328% 20192,3,4
    
13,712
      
13,095
  
MBNA Credit Card Master Note Trust, Series 2002-1, Class C, 6.80% 2014
    
12,500
      
12,698
  
CWHEQ Revolving Home Equity Loan Trust, Series 2007-C, Class A, 5.178% 20372,4
    
14,280
      
12,411
  
Morgan Stanley ABS Capital I Inc., Series 2004-NC3, Class M-1, 5.395% 20342,4
    
14,117
      
11,825
  
Option One Mortgage Loan Trust, Series 2006-3, Class II-A-2, 4.965% 20374
    
10,000
      
9,360
  
CWHEQ Home Equity Loan Trust, Series 2006-S4, Class A-6, AMBAC insured, 5.834% 20342,4
    
10,000
      
8,517
  
First Investors Auto Owner Trust, Series 2005-A, Class A-2, MBIA insured, 4.23% 20123
    
7,491
      
7,430
  
Home Equity Asset Trust, Series 2004-2, Class M-1, 5.395% 20342,4
    
7,984
      
6,707
  
World Financial Network Credit Card Master Note Trust, Series 2004-A, Class B, 5.528% 20132,4
    
7,000
      
6,594
  
WFS Financial Owner Trust, Series 2004-1, Class C, 2.49% 2011
    
272
      
272
  
WFS Financial Owner Trust, Series 2004-1, Class A-4, 2.81% 2011
    
4,406
      
4,401
  
CWABS, Inc., Series 2004-BC1, Class M-1, 5.365% 20342,4
    
5,581
      
4,660
  
GSAA Home Equity Trust, Series 2006-7, Class AF-5A, 6.205% 20462,4
    
5,125
      
4,596
  
Impac CMB Grantor Trust, Series 2004-6, Class 1-A-1, 5.265% 20344
    
1,941
      
1,877
  
Impac CMB Grantor Trust, Series 2004-6, Class M-2, 5.465% 20342,4
    
1,834
      
1,385
  
MASTR Asset-backed Securities Trust, Series 2006-AB1, Class A-4, 5.719% 20364
    
3,000
      
2,717
  
Home Equity Mortgage Trust, Series 2006-3, Class A-1, 5.594% 20362,4
    
3,728
      
2,423
  
Vanderbilt Acquisition Loan Trust, Series 2002-1, Class A-3, 5.70% 20232
    
2,018
      
1,906
  
             
1,189,399
  
                 
                 
MUNICIPALS — 0.04%
                
State of South Dakota, Educational Enhancement Funding Corp., Tobacco Settlement Asset-backed Bonds,
                
Series 2002-A, Class A, 6.72% 2025
    
18,366
      
17,044
  
State of New York, Sales Tax Asset Receivable Corp., Taxable Revenue Bonds, Series 2005-B, FGIC insured, 4.06% 2010
    
5,000
      
4,950
  
State of Louisiana, Tobacco Settlement Financing Corp., Tobacco Settlement Asset-backed Bonds,
                
Series 2001-A, Class A, 6.36% 2025
    
3,464
      
3,354
  
             
25,348
  
                 
                 
                 
Total bonds & notes (cost: $17,890,745,000)
            
17,788,228
  
                 
                 
Short-term securities — 6.43%
                
                 
Federal Home Loan Bank 4.24%–4.63% due 1/2–5/7/20088
    
739,200
      
733,937
  
Freddie Mac 4.16%–4.24% due 3/3–5/12/2008
    
597,025
      
590,296
  
Procter & Gamble International Funding S.C.A. 4.20%–4.76% due 1/3–3/4/20083
    
364,523
      
363,175
  
U.S. Treasury Bills 3.125%–4.168% due 4/3–6/19/2008
    
261,300
      
258,279
  
Hewlett-Packard Co. 4.245%–4.265% due 1/7–1/18/20083
    
232,800
      
232,437
  
Variable Funding Capital Corp. 4.65%–5.50% due 1/7–1/28/20083
    
225,200
      
224,502
  
General Electric Co. 4.48% due 3/17/2008
    
100,000
      
99,001
  
General Electric Capital Services, Inc. 4.61%–4.63% due 3/10–4/8/2008
    
100,000
      
98,895
  
General Electric Capital Corp. 4.15% due 1/2/2008
    
10,000
      
9,998
  
JPMorgan Chase & Co. 4.95% due 2/15–3/24/2008
    
146,300
      
144,900
  
Jupiter Securitization Co., LLC 4.65% due 3/20/20083
    
27,500
      
27,174
  
International Lease Finance Corp. 4.31%–4.75% due 1/3–2/14/2008
    
161,100
      
160,399
  
Fannie Mae 4.19%–4.27% due 2/25–4/30/2008
    
106,328
      
105,593
  
Medtronic Inc. 4.22%–4.52% due 1/22–1/23/20083
    
101,800
      
101,481
  
Coca-Cola Co. 4.20%–4.50% due 2/4–3/5/20083
    
87,000
      
86,374
  
Bank of America Corp. 4.655%–4.695% due 2/26–3/14/2008
    
84,600
      
83,858
  
Wells Fargo & Co. 4.30% due 1/17/2008
    
70,000
      
69,858
  
United Parcel Service Inc. 4.40% due 3/31/20083
    
69,700
      
68,864
  
Federal Farm Credit Banks 4.56% due 2/7/2008
    
59,000
      
58,745
  
Honeywell International Inc. 4.47% due 1/10–1/15/20083
    
58,200
      
58,091
  
IBM Capital Inc. 4.22% due 1/29/20083
    
55,000
      
54,813
  
Wal-Mart Stores Inc. 4.73% due 1/29/20083
    
50,000
      
49,795
  
HSBC Finance Corp. 4.65% due 1/30/2008
    
50,000
      
49,786
  
Johnson & Johnson 4.20% due 1/10/20083
    
38,500
      
38,455
  
John Deere Capital Corp. 4.55% due 1/31/20083
    
30,000
      
29,868
  
Private Export Funding Corp. 4.75% due 1/28/20083
    
25,000
      
24,902
  
FCAR Owner Trust I 6.05% due 1/11/2008
    
23,500
      
23,456
  
Becton, Dickinson and Co. 4.22% due 1/16/2008
    
20,000
      
19,962
  
Paccar Financial Corp. 4.60% due 1/24/2008
    
18,400
      
18,340
  
Caterpillar Financial Services Corp. 4.20% due 2/19/2008
    
7,900
      
7,854
  
                 
Total short-term securities (cost: $3,892,202,000)
            
3,893,088
  
                 
                 
Total investment securities (cost: $52,659,385,000)
            
60,470,880
  
Other assets less liabilities
            
118,082
  
                 
Net assets
           $
60,588,962
  


*Amount less than one thousand.

“Miscellaneous” securities include holdings in their initial period of acquisition that have not previously been publicly disclosed.

1
Security did not produce income during the last 12 months.
2
Valued under fair value procedures adopted by authority of the board of directors. The total value of all such securities was $4,076,421,000.
3
Purchased in a transaction exempt from registration under the Securities Act of 1933. May be resold in the United States in transactions exempt from registration, normally to qualified institutional buyers. The total value of all such securities was $3,874,396,000, which represented 6.39% of the net assets of the fund.
4
Coupon rate may change periodically.
5
Purchased in a transaction exempt from registration under the Securities Act of 1933. This security (acquired 1/11/2007 at a cost of $23,500,000) may be subject to legal or contractual restrictions on resale.
6
Principal payments may be made periodically. Therefore, the effective maturity date may be earlier than the stated maturity date.
7
Index-linked bond whose principal amount moves with a government retail price index.
8
This security, or a portion of this security, has been segregated to cover funding requirements on investment transactions settling in the future.

ADR = American Depositary Receipts

 

 
Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so you may lose money.

Investors should carefully consider the investment objectives, risks, charges and expenses of the American Funds. This and other important information is contained in each fund’s prospectus, which can be obtained from your financial professional and should be read carefully before investing.
 
 
 
 
 
MFGEFP-911-0208O-S10884
 


 
 
 
Financial statements
        
         
Statement of assets and liabilities
        
at December 31, 2007
 (dollars and shares in thousands, except per-share amounts)
         
Assets:
        
   Investment securities at market (cost: $52,659,385)
    
$60,470,880
  
   Cash
    
7,658
  
   Receivables for:
        
      Sales of investments
  
$80,272
    
      Sales of fund's shares
  
156,553
    
      Dividends and interest
  
236,937
473,762
  
     
60,952,300
  
Liabilities:
        
   Payables for:
        
      Purchases of investments
  
110,835
    
      Repurchases of fund's shares
  
208,021
    
      Investment advisory services
  
11,019
    
      Services provided by affiliates
  
30,918
    
      Directors' deferred compensation
  
1,902
    
      Other
  
643
363,338
  
Net assets at December 31, 2007
    
$60,588,962
  
         
Net assets consist of:
        
   Capital paid in on shares of capital stock
    
$52,195,760
  
   Undistributed net investment income
    
160,822
  
   Undistributed net realized gain
    
420,757
  
   Net unrealized appreciation
    
7,811,623
  
Net assets at December 31, 2007
    
$60,588,962
  
         
Total authorized capital stock - 5,500,000 shares, $.001 par value (3,141,109 total shares outstanding) 
    
 
Net assets
Shares outstanding
Net asset value per share*
         
Class A
$37,998,977
1,967,911
$19.31
  
Class B
5,391,416
280,114
19.25
  
Class C
6,078,324
316,057
19.23
  
Class F
1,373,799
71,163
19.31
  
Class 529-A
1,322,991
68,582
19.29
  
Class 529-B
342,415
17,758
19.28
  
Class 529-C
567,261
29,414
19.29
  
Class 529-E
83,759
4,344
19.28
  
Class 529-F
36,022
1,868
19.28
  
Class R-1
103,931
5,407
19.22
  
Class R-2
1,167,581
60,721
19.23
  
Class R-3
3,300,952
171,552
19.24
  
Class R-4
1,864,520
96,683
19.28
  
Class R-5
957,014
49,535
19.32
  
* Maximum offering price and redemption price per share were equal to the net asset value per share for all share classes, except for Class A and 529-A, for which the maximum offering prices per share were $20.49 and $20.47, respectively.
         
         
See Notes to Financial Statements
        
         
Statement of operations
        
for the year ended December 31, 2007
  
(dollars in thousands)
  
         
Investment income:
        
   Income:
        
      Dividends (net of non-U.S. taxes of $11,808)
  
$798,041
    
      Interest
  
1,136,552
$1,934,593
  
         
   Fees and expenses(*):
        
      Investment advisory services
  
140,741
    
      Distribution services
  
253,439
    
      Transfer agent services
  
41,052
    
      Administrative services
  
28,630
    
      Reports to shareholders
  
1,651
    
      Registration statement and prospectus
  
1,765
    
      Postage, stationery and supplies
  
4,693
    
      Directors' compensation
  
622
    
      Auditing and legal
  
127
    
      Custodian
  
531
    
      State and local taxes
  
1
    
      Other
  
142
    
      Total fees and expenses before reimbursements/waivers
  
473,394
    
   Less reimbursements/waivers of fees and expenses:
        
      Investment advisory services
  
14,074
    
      Administrative services
  
6
    
      Total fees and expenses after reimbursements/waivers
    
459,314
  
   Net investment income
    
1,475,279
  
         
Net realized gain and unrealized appreciation on investments
        
   and currency:
        
   Net realized gain on:
        
      Investments
  
1,907,326
    
      Currency transactions
  
395
1,907,721
  
   Net unrealized appreciation (depreciation) on:
        
      Investments
  
224,845
    
      Currency translations
  
(93)
224,752
  
         Net realized gain and unrealized appreciation
        
            on investments and currency
    
2,132,473
  
Net increase in net assets resulting from operations
    
$3,607,752
  
         
* Additional information related to class-specific fees and expenses is included in the Notes to Financial Statements.
    
         
See Notes to Financial Statements
        
         
         
Statements of changes in net assets
  
(dollars in thousands)
  
         
   
Year ended December 31
  
   
2007
2006
  
Operations:
        
   Net investment income
  
$1,475,279
$1,263,551
  
   Net realized gain on investments and currency transactions
  
1,907,721
1,304,434
  
   Net unrealized appreciation on investments and currency translations
  
224,752
3,321,314
  
      Net increase in net assets resulting from operations
  
3,607,752
5,889,299
  
         
Dividends and distributions paid to shareholders:
        
   Dividends from net investment income and currency gain
  
(1,451,530)
(1,251,580)
  
   Distributions from net realized gain on investments
  
(1,345,066)
(1,174,211)
  
      Total dividends and distributions paid to shareholders
  
(2,796,596)
(2,425,791)
  
         
Net capital share transactions
  
3,578,270
789,477
  
         
Total increase in net assets
  
4,389,426
4,252,985
  
         
Net assets:
        
   Beginning of year
  
56,199,536
51,946,551
  
  
        
   End of year (including undistributed net investment income:      $160,822 and$135,629, respectively) 
$60,588,962
$56,199,536
  
         
         
See Notes to Financial Statements
        
         
 
 
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 common stocks and fixed-income securities.

The fund offers 14 share classes consisting of four retail share classes, five 529 college savings plan share classes and five retirement plan share classes. The 529 college savings plan share classes (529-A, 529-B, 529-C, 529-E and 529-F) can be utilized to save for college education. The five retirement plan share classes (R-1, R-2, R-3, R-4 and R-5) are sold without any sales charges and do not carry any conversion rights. The fund’s share classes are described below:

Share class
  
Initial sales charge
  
Contingent deferred sales charge upon redemption
  
Conversion feature
Class A and 529-A
  
Up to 5.75%
  
None (except 1% for certain redemptions within one year of purchase without an initial sales charge)
  
None
Class B and 529-B
  
None
  
Declines from 5% to 0% for redemptions within six years of purchase
  
Class B and 529-B convert to Class A and 529-A, respectively, after eight years
Class C
  
None
  
1% for redemptions within one year of purchase
  
Class C converts to Class F after 10 years
Class 529-C
  
None
  
1% for redemptions within one year of purchase
  
None
Class 529-E
  
None
  
None
  
None
Class F and 529-F
  
None
  
None
  
None
Class R-1, R-2, R-3, R-4 and R-5
  
None
  
None
  
None
 

Holders of all share classes have equal pro rata rights to assets, dividends and liquidation proceeds. Each share class has identical voting rights, except for the exclusive right to vote on matters affecting only its class. Share classes have different fees and expenses ("class-specific fees and expenses"), primarily due to different arrangements for distribution, administrative and shareholder services. Differences in class-specific fees and expenses will result in differences in net investment income and, therefore, the payment of different per-share dividends by each class.

Significant accounting policies– The financial statements have been prepared to comply with accounting principles generally accepted in the United States of America. These principles require management to make estimates and assumptions that affect reported amounts and disclosures. Actual results could differ from those estimates. The following is a summary of the significant accounting policies followed by the fund:

Security valuation– Equity securities are valued at the official closing price of, or 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. Prices for each security are taken from the principal exchange or market in which the security trades. Fixed-income securities, including short-term securities purchased with more than 60 days left to maturity, are valued at prices obtained from an independent pricing service when such prices are available. However, where the investment adviser deems it appropriate, such securities will be valued at the mean quoted bid and asked prices (or bid prices, if asked prices are not available) or at prices for securities of comparable maturity, quality and type. Securities with both fixed-income and equity characteristics, or equity securities traded principally among fixed-income dealers, are valued in the manner described above for either equity or fixed-income securities, depending on which method is deemed most appropriate by the investment adviser. Short-term securities purchased within 60 days to maturity are valued at amortized cost, which approximates market value. The value of short-term securities originally purchased with maturities greater than 60 days is determined based on an amortized value to par when they reach 60 days or less remaining to maturity. The ability of the issuers of the debt securities held by the fund to meet their obligations may be affected by economic developments in a specific industry, state or region.

Securities and other assets for which representative market quotations are not readily available or are considered unreliable by the investment adviser are fair valued as determined in good faith under procedures adopted by authority of the fund's board of directors. Market quotations may be considered unreliable if events occur that materially affect the value of securities (particularly securities outside the U.S.) between the close of trading in those securities and the close of regular trading on the New York Stock Exchange. Various factors may be reviewed in order to make a good faith determination of a security’s fair value. These factors include, but are not limited to, the type and cost of the security; contractual or legal restrictions on resale of the security; relevant financial or business developments of the issuer; actively traded similar or related securities; conversion or exchange rights on the security; related corporate actions; significant events occurring after the close of trading in the security; and changes in overall market conditions.

Security transactions and related investment income– Security transactions are recorded by the fund as of the date the trades are executed with brokers. Realized gains and losses from security transactions are determined based on the specific identified cost of the securities. In the event a security is purchased with a delayed payment date, the fund will segregate liquid assets sufficient to meet its payment obligations. Dividend income is recognized on the ex-dividend date and interest income is recognized on an accrual basis. Market discounts, premiums and original issue discounts on fixed-income securities are amortized daily over the expected life of the security.

Class allocations – Income, fees and expenses (other than class-specific fees and expenses) and realized and unrealized gains and losses are allocated daily among the various share classes based on their relative net assets.  Class-specific fees and expenses, such as distribution, administrative and shareholder services, are charged directly to the respective share class.

Dividends and distributions to shareholders– Dividends and distributions paid to shareholders are recorded on the ex-dividend date.

Currency translation– Assets and liabilities, including investment securities, denominated in currencies other than U.S. dollars are translated into U.S. dollars at the exchange rates in effect on the valuation date. Purchases and sales of investment securities and income and expenses are translated into U.S. dollars at the exchange rates on the dates of such transactions. On the accompanying financial statements, the effects of changes in exchange rates on investment securities are included with the net realized gain or loss and net unrealized appreciation or depreciation on investments. The realized gain or loss and unrealized appreciation or depreciation resulting from all other transactions denominated in currencies other than U.S. dollars are disclosed separately.

Mortgage dollar rolls – The fund may enter into mortgage dollar roll transactions in which the fund sells a mortgage-backed security to a counterparty and simultaneously enters into an agreement with the same counterparty to buy back a similar security on a specific future date at a predetermined price. Each mortgage dollar roll is treated as a financing transaction; therefore, any gain or loss is considered unrealized until the roll reaches completion. Risks may arise due to the delayed payment date and the potential inability of counterparties to complete the transaction. Income is generated as consideration for entering into these transactions and is included in interest income on the accompanying financial statements.

2.  
Investments outside the U.S.

Investment risk – The risks of investing in securities of issuers outside the U.S. may include, but are not limited to, investment and repatriation restrictions; revaluation of currencies; adverse political, social and economic developments; government involvement in the private sector; limited and less reliable investor information; lack of liquidity; certain local tax law considerations; and limited regulation of the securities markets.

Taxation– Dividend and interest income is recorded net of non-U.S. taxes paid.

3. Federal income taxation and distributions                                                                                                

The fund complies with the requirements under Subchapter M of the Internal Revenue Code applicable to mutual funds and intends to distribute substantially all of its net taxable income and net capital gains each year. The fund is not subject to income taxes to the extent such distributions are made. Therefore, no federal income tax provision is required. 

The fund adopted the provisions of Financial Accounting Standards Board Interpretation No. 48 (“FIN 48”), Accounting for Uncertainty in Income Taxes, on June 29, 2007. The implementation of FIN 48 resulted in no material liability for unrecognized tax benefits and no material change to the beginning net asset value of the fund.

As of and during the period ended December 31, 2007, the fund did not have a liability for any unrecognized tax benefits. The fund recognizes interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the statement of operations. During the period, the fund did not incur any interest or penalties.

The fund is not subject to examination by U.S. federal tax authorities for tax years before 2004 and by state tax authorities for tax years before 2003.

Distributions– Distributions paid to shareholders are based on net investment income and net realized gains determined on a tax basis, which may differ from net investment income and net realized gains for financial reporting purposes. These differences are due primarily to differing treatment for items such as currency gains and losses; short-term capital gains and losses; capital losses related to sales of certain securities within 30 days of purchase; unrealized appreciation of certain investments in securities outside the U.S.; paydowns on fixed-income securities; and income on certain investments. The fiscal year in which amounts are distributed may differ from the year in which the net investment income and net realized gains are recorded by the fund for financial reporting purposes. The fund may also designate a portion of the amount paid to redeeming shareholders as a distribution for tax purposes.

During the year ended December 31, 2007, the fund reclassified $1,587,000 from undistributed net realized gain to undistributed net investment income, and $143,000 from undistributed net investment income and $136,499,000 from undistributed net realized gain to capital paid in on shares of capital stock to align financial reporting with tax reporting.

As of December 31, 2007, the tax basis components of distributable earnings, unrealized appreciation (depreciation) and cost of investment securities were as follows:

     
(dollars in thousands)
Undistributed ordinary income
    
    $161,588
Undistributed long-term capital gain
    
      430,670
Gross unrealized appreciation on investment securities
    
9,803,397
Gross unrealized depreciation on investment securities
    
(2,003,383)
Net unrealized appreciation on investment securities
    
7,800,014
Cost of investment securities
    
52,670,866

The tax character of distributions paid to shareholders was as follows (dollars in thousands):

 
   
Year ended December 31, 2007   
    
Year ended December 31, 2006   
  
   
Ordinary income
    
Long-term capital gains
    
Total distributions paid
    
Ordinary income
    
Long-term capital gains
    
Total distributions paid
  
Share class
                                    
Class A
   $
980,332
     $
841,541
     $
1,821,873
     $
858,582
     $
740,326
     $
1,598,908
  
Class B
    
103,910
      
120,134
      
224,044
      
94,095
      
112,812
      
206,907
  
Class C
    
111,310
      
135,314
      
246,624
      
97,563
      
120,375
      
217,938
  
Class F
    
35,297
      
30,506
      
65,803
      
30,712
      
25,986
      
56,698
  
Class 529-A
    
32,076
      
29,147
      
61,223
      
25,350
      
23,369
      
48,719
  
Class 529-B
    
5,949
      
7,601
      
13,550
      
4,814
      
6,491
      
11,305
  
Class 529-C
    
9,777
      
12,566
      
22,343
      
7,752
      
10,408
      
18,160
  
Class 529-E
    
1,829
      
1,853
      
3,682
      
1,452
      
1,511
      
2,963
  
Class 529-F
    
905
      
788
      
1,693
      
640
      
580
      
1,220
  
Class R-1
    
1,808
      
2,316
      
4,124
      
1,254
      
1,721
      
2,975
  
Class R-2
    
21,104
      
25,958
      
47,062
      
17,330
      
22,577
      
39,907
  
Class R-3
    
76,178
      
73,791
      
149,969
      
62,774
      
63,645
      
126,419
  
Class R-4
    
49,609
      
42,800
      
92,409
      
39,471
      
35,866
      
75,337
  
Class R-5
    
21,446
      
20,751
      
42,197
      
9,791
      
8,544
      
18,335
  
Total
   $
1,451,530
     $
1,345,066
     $
2,796,596
     $
1,251,580
     $
1,174,211
     $
2,425,791
  

4. Fees and transactions with related parties

Capital Research and Management Company ("CRMC"), the fund’s investment adviser, is the parent company of American Funds Service Company SM ("AFS"), the fund’s transfer agent, and American Funds Distributors, SM Inc. ("AFD"), the principal underwriter of the fund’s shares.

Investment advisory services – The Investment Advisory and Service Agreement with CRMC provides for monthly fees accrued daily. These fees are based on a declining series of annual rates beginning with 0.420% on the first $500 million of daily net assets and decreasing to 0.210% on such assets in excess of $71 billion. CRMC is currently waiving 10% of investment advisory services fees. During the year ended December 31, 2007, total investment advisory services fees waived by CRMC were $14,074,000. As a result, the fee shown on the accompanying financial statements of $140,741,000, which was equivalent to an annualized rate of 0.237%, was reduced to $126,667,000, or 0.213% of average daily net assets.

Class-specific fees and expenses – Expenses that are specific to individual share classes are accrued directly to the respective share class. The principal class-specific fees and expenses are described below:

Distribution services – The fund has adopted plans of distribution for all share classes, except Class R-5. Under the plans, the board of directors approves certain categories of expenses that are used to finance activities primarily intended to sell fund shares and service existing accounts. The plans provide for payments, based on an annualized percentage of average daily net assets, ranging from 0.25% to 1.00% as noted below. In some cases, the board of directors has limited the amounts that may be paid to less than the maximum allowed by the plans. All share classes may use up to 0.25% of average daily net assets to pay service fees, or to compensate AFD for paying service fees, to firms that have entered into agreements with AFD to provide certain shareholder services. The remaining amounts available to be paid under each plan are paid to dealers to compensate them for their sales activities.

For Class A and 529-A, the board of directors has also approved the reimbursement of dealer and wholesaler commissions paid by AFD for certain shares sold without a sales charge. These classes reimburse AFD for amounts billed within the prior 15 months but only to the extent that the overall annual expense limit of 0.25% is not exceeded. As of December 31, 2007, there were no unreimbursed expenses subject to reimbursement for Class A or 529-A.

Share class
Currently approved limits
Plan limits
Class A
0.25%
0.25%
Class 529-A
0.25
0.50
Class B and 529-B
1.00
1.00
Class C, 529-C and R-1
1.00
1.00
Class R-2
0.75
1.00
Class 529-E and R-3
0.50
0.75
Class F, 529-F and R-4
0.25
0.50

Transfer agent services– The fund has a transfer agent agreement with AFS for Class A and B. Under this agreement, these share classes compensate AFS for transfer agent services including shareholder recordkeeping, communications and transaction processing. AFS is also compensated for certain transfer agent services provided to all other share classes from the administrative services fees paid to CRMC described below.

Administrative services – The fund has an administrative services agreement with CRMC to provide transfer agent and other related shareholder services for all share classes other than Class A and B. Each relevant share class pays CRMC annual fees up to 0.15% (0.10% for Class R-5) based on its respective average daily net assets. Each relevant share class also pays AFS additional amounts for certain transfer agent services. CRMC and AFS may use these fees to compensate third parties for performing these services. CRMC has agreed to pay AFS on the fund's behalf for a portion of the transfer agent services fees for some of the retirement plan share classes. For the year ended December 31, 2007, the total administrative services fees paid by CRMC were $324 and $6,000 for Class R-1 and R-2, respectively. Administrative services fees are presented gross of any payments made by CRMC. Each 529 share class is subject to an additional annual administrative services fee of 0.10% of its respective average daily net assets; this fee is payable to the Commonwealth of Virginia for the maintenance of the 529 college savings plan. Although these amounts are included with administrative services fees on the accompanying financial statements, the Commonwealth of Virginia is not considered a related party.

Expenses under the agreements described above for the year ended December 31, 2007, were as follows (dollars in thousands):

Share class
Distribution services
Transfer agent services
Administrative services
CRMC administrative services
Transfer agent services
Commonwealth of Virginia administrative services
Class A
$92,936
$36,047
Not applicable
Not applicable
Not applicable
Class B
 54,732
5,005
Not applicable
Not applicable
Not applicable
Class C
59,820
 
 
 
Included
in administrative services
$7,539
$965
Not applicable
Class F
3,320
1,122
113
Not applicable
Class 529-A
2,745
1,175
159
$1,244
Class 529-B
3,326
317
64
333
Class 529-C
5,460
517
94
546
Class 529-E
399
75
10
80
Class 529-F
-
30
4
32
Class R-1
960
109
34
Not applicable
Class R-2
8,580
1,693
3,060
Not applicable
Class R-3
16,362
4,619
1,084
Not applicable
Class R-4
4,799
2,827
55
Not applicable
Class R-5
Not applicable
717
13
Not applicable
Total
$253,439
$41,052
$20,740
$5,655
$2,235

Directors’ deferred compensation– Since the adoption of the deferred compensation plan in 1993, directors who are unaffiliated with CRMC may elect to defer the cash payment of part or all of their compensation. These deferred amounts, which remain as liabilities of the fund, are treated as if invested in shares of the fund or other American Funds. These amounts represent general, unsecured liabilities of the fund and vary according to the total returns of the selected funds. Directors’ compensation of $622,000, shown on the accompanying financial statements, includes $455,000 in current fees (either paid in cash or deferred) and a net increase of $167,000 in the value of the deferred amounts.

Affiliated officers and directors – Officers and certain directors of the fund are or may be considered to be affiliated with CRMC, AFS and AFD. No affiliated officers or directors received any compensation directly from the fund.

5. Capital share transactions

Capital share transactions in the fund were as follows (dollars and shares in thousands):

 
Share class
  
Sales(*)
    
Reinvestments of dividends and distributions
    
Repurchases(*)
    
Net increase (decrease)
  
   
Amount
    
Shares
    
Amount
    
Shares
    
Amount
    
Shares
    
Amount
    
Shares
  
Year ended December 31, 2007
                                                
Class A
   $
6,267,912
      
319,127
     $
1,748,923
      
89,690
     $ (5,959,299 )     (303,537 )   $
2,057,536
      
105,280
  
Class B
    
373,510
      
19,119
      
213,611
      
10,987
       (665,658 )     (33,984 )     (78,537 )     (3,878 )
Class C
    
957,450
      
48,945
      
232,473
      
11,967
       (936,681 )     (47,906 )    
253,242
      
13,006
  
Class F
    
385,326
      
19,618
      
56,897
      
2,920
       (333,445 )     (16,953 )    
108,778
      
5,585
  
Class 529-A
    
241,270
      
12,306
      
61,208
      
3,142
       (118,911 )     (6,047 )    
183,567
      
9,401
  
Class 529-B
    
37,533
      
1,914
      
13,548
      
696
       (23,976 )     (1,219 )    
27,105
      
1,391
  
Class 529-C
    
116,281
      
5,933
      
22,339
      
1,147
       (78,824 )     (4,009 )    
59,796
      
3,071
  
Class 529-E
    
16,013
      
817
      
3,680
      
189
       (9,624 )     (489 )    
10,069
      
517
  
Class 529-F
    
10,236
      
520
      
1,692
      
87
       (4,134 )     (209 )    
7,794
      
398
  
Class R-1
    
42,100
      
2,162
      
4,088
      
211
       (25,553 )     (1,309 )    
20,635
      
1,064
  
Class R-2
    
398,589
      
20,383
      
47,034
      
2,421
       (372,699 )     (19,025 )    
72,924
      
3,779
  
Class R-3
    
890,243
      
45,588
      
149,941
      
7,716
       (843,517 )     (43,102 )    
196,667
      
10,202
  
Class R-4
    
687,095
      
35,181
      
92,401
      
4,745
       (667,360 )     (33,965 )    
112,136
      
5,961
  
Class R-5
    
634,082
      
32,339
      
42,053
      
2,156
       (129,577 )     (6,564 )    
546,558
      
27,931
  
Total net increase
                                                                
   (decrease)
   $
11,057,640
      
563,952
     $
2,689,888
      
138,074
     $ (10,169,258 )     (518,318 )   $
3,578,270
      
183,708
  
                                                                 
Year ended December 31, 2006
                                                                
Class A
   $
5,136,339
      
279,341
     $
1,536,857
      
82,119
     $ (6,445,634 )     (351,004 )   $
227,562
      
10,456
  
Class B
    
405,315
      
22,154
      
197,211
      
10,532
       (735,333 )     (40,183 )     (132,807 )     (7,497 )
Class C
    
805,710
      
43,982
      
205,383
      
10,975
       (1,210,047 )     (66,245 )     (198,954 )     (11,288 )
Class F
    
265,909
      
14,440
      
49,614
      
2,652
       (384,185 )     (20,983 )     (68,662 )     (3,891 )
Class 529-A
    
212,120
      
11,530
      
48,713
      
2,603
       (107,663 )     (5,857 )    
153,170
      
8,276
  
Class 529-B
    
39,884
      
2,173
      
11,304
      
602
       (23,188 )     (1,265 )    
28,000
      
1,510
  
Class 529-C
    
100,547
      
5,470
      
18,157
      
966
       (65,347 )     (3,558 )    
53,357
      
2,878
  
Class 529-E
    
14,744
      
802
      
2,963
      
158
       (8,503 )     (462 )    
9,204
      
498
  
Class 529-F
    
9,066
      
494
      
1,220
      
65
       (2,882 )     (157 )    
7,404
      
402
  
Class R-1
    
29,338
      
1,602
      
2,941
      
157
       (16,554 )     (905 )    
15,725
      
854
  
Class R-2
    
347,844
      
19,010
      
39,876
      
2,130
       (274,833 )     (14,992 )    
112,887
      
6,148
  
Class R-3
    
811,622
      
44,388
      
126,394
      
6,763
       (601,436 )     (32,810 )    
336,580
      
18,341
  
Class R-4
    
483,734
      
26,328
      
75,327
      
4,027
       (376,900 )     (20,596 )    
182,161
      
9,759
  
Class R-5
    
154,209
      
8,354
      
18,207
      
971
       (108,566 )     (5,915 )    
63,850
      
3,410
  
Total net increase
                                                                
   (decrease)
   $
8,816,381
      
480,068
     $
2,334,167
      
124,720
     $ (10,361,071 )     (564,932 )   $
789,477
      
39,856
  
                                                                 
(*) Includes exchanges between share classes of the fund.
                                                  

6. Investment transactions

The fund made purchases and sales of investment securities, excluding short-term securities, of $20,926,708,000 and $19,445,582,000, respectively, during the year ended December 31, 2007.

Financial highlights     
                                                                    
                                                                               
         
  Income from investment operations(1)  
    
 Dividends and distributions  
                                      
   
Net asset value, beginning of year
    
Net investment income
    
Net gains on securities (both realized and unrealized)
    
Total from investment operations
    
Dividends (from net investment income)
    
Distributions
(from
capital
gains)
    
Total dividends and distributions
    
Net asset value, end of year
    
Total return (2) (3)
    
Net assets, end of year (in millions)
    
Ratio of expenses to average net assets before reimbursements/
waivers
    
Ratio of expenses to average net assets after reimbursements/
waivers (3)
    
Ratio of net income to average net assets (3)
  
Class A:
                                                                              
   Year ended 12/31/2007
   $
19.02
     $
.53
     $
.72
     $
1.25
     $ (.52 )   $ (.44 )   $ (.96 )   $
19.31
       6.60 %   $
37,999
       .60 %     .58 %     2.68 %
   Year ended 12/31/2006
    
17.82
      
.47
      
1.61
      
2.08
       (.47 )     (.41 )     (.88 )    
19.02
      
11.80
      
35,431
      
.61
      
.58
      
2.57
  
   Year ended 12/31/2005
    
18.00
      
.41
      
.15
      
.56
       (.40 )     (.34 )     (.74 )    
17.82
      
3.12
      
33,009
      
.61
      
.59
      
2.31
  
   Year ended 12/31/2004
    
17.29
      
.39
      
1.12
      
1.51
       (.36 )     (.44 )     (.80 )    
18.00
      
8.92
      
29,162
      
.63
      
.62
      
2.23
  
   Year ended 12/31/2003
    
14.42
      
.37
      
2.87
      
3.24
       (.37 )    
-
       (.37 )    
17.29
      
22.82
      
19,951
      
.67
      
.67
      
2.38
  
Class B:
                                                                                                        
   Year ended 12/31/2007
    
18.96
      
.38
      
.72
      
1.10
       (.37 )     (.44 )     (.81 )    
19.25
      
5.83
      
5,391
      
1.35
      
1.32
      
1.94
  
   Year ended 12/31/2006
    
17.77
      
.33
      
1.60
      
1.93
       (.33 )     (.41 )     (.74 )    
18.96
      
10.95
      
5,386
      
1.36
      
1.33
      
1.82
  
   Year ended 12/31/2005
    
17.95
      
.28
      
.15
      
.43
       (.27 )     (.34 )     (.61 )    
17.77
      
2.37
      
5,180
      
1.36
      
1.34
      
1.56
  
   Year ended 12/31/2004
    
17.24
      
.26
      
1.12
      
1.38
       (.23 )     (.44 )     (.67 )    
17.95
      
8.15
      
4,849
      
1.37
      
1.37
      
1.48
  
   Year ended 12/31/2003
    
14.38
      
.25
      
2.86
      
3.11
       (.25 )    
-
       (.25 )    
17.24
      
21.90
      
3,344
      
1.42
      
1.42
      
1.62
  
Class C:
                                                                                                        
   Year ended 12/31/2007
    
18.95
      
.37
      
.72
      
1.09
       (.37 )     (.44 )     (.81 )    
19.23
      
5.73
      
6,078
      
1.40
      
1.37
      
1.89
  
   Year ended 12/31/2006
    
17.76
      
.32
      
1.60
      
1.92
       (.32 )     (.41 )     (.73 )    
18.95
      
10.90
      
5,743
      
1.41
      
1.38
      
1.77
  
   Year ended 12/31/2005
    
17.94
      
.27
      
.15
      
.42
       (.26 )     (.34 )     (.60 )    
17.76
      
2.30
      
5,582
      
1.42
      
1.40
      
1.51
  
   Year ended 12/31/2004
    
17.24
      
.25
      
1.11
      
1.36
       (.22 )     (.44 )     (.66 )    
17.94
      
8.02
      
4,976
      
1.44
      
1.44
      
1.42
  
   Year ended 12/31/2003
    
14.38
      
.24
      
2.87
      
3.11
       (.25 )    
-
       (.25 )    
17.24
      
21.84
      
2,968
      
1.48
      
1.48
      
1.55
  
Class F:
                                                                                                        
   Year ended 12/31/2007
    
19.02
      
.53
      
.72
      
1.25
       (.52 )     (.44 )     (.96 )    
19.31
      
6.61
      
1,374
      
.59
      
.57
      
2.69
  
   Year ended 12/31/2006
    
17.82
      
.48
      
1.60
      
2.08
       (.47 )     (.41 )     (.88 )    
19.02
      
11.83
      
1,247
      
.59
      
.57
      
2.59
  
   Year ended 12/31/2005
    
18.00
      
.41
      
.15
      
.56
       (.40 )     (.34 )     (.74 )    
17.82
      
3.10
      
1,238
      
.63
      
.61
      
2.30
  
   Year ended 12/31/2004
    
17.29
      
.39
      
1.11
      
1.50
       (.35 )     (.44 )     (.79 )    
18.00
      
8.88
      
1,110
      
.67
      
.67
      
2.19
  
   Year ended 12/31/2003
    
14.42
      
.36
      
2.88
      
3.24
       (.37 )    
-
       (.37 )    
17.29
      
22.79
      
659
      
.69
      
.69
      
2.34
  
Class 529-A:
                                                                                                        
   Year ended 12/31/2007
    
19.01
      
.51
      
.72
      
1.23
       (.51 )     (.44 )     (.95 )    
19.29
      
6.47
      
1,323
      
.68
      
.66
      
2.60
  
   Year ended 12/31/2006
    
17.81
      
.47
      
1.60
      
2.07
       (.46 )     (.41 )     (.87 )    
19.01
      
11.76
      
1,125
      
.66
      
.63
      
2.53
  
   Year ended 12/31/2005
    
17.99
      
.40
      
.15
      
.55
       (.39 )     (.34 )     (.73 )    
17.81
      
3.06
      
907
      
.67
      
.65
      
2.26
  
   Year ended 12/31/2004
    
17.28
      
.38
      
1.12
      
1.50
       (.35 )     (.44 )     (.79 )    
17.99
      
8.88
      
679
      
.69
      
.68
      
2.18
  
   Year ended 12/31/2003
    
14.41
      
.37
      
2.87
      
3.24
       (.37 )    
-
       (.37 )    
17.28
      
22.87
      
389
      
.67
      
.67
      
2.36
  
Class 529-B:
                                                                                                        
   Year ended 12/31/2007
    
19.00
      
.36
      
.71
      
1.07
       (.35 )     (.44 )     (.79 )    
19.28
      
5.64
      
342
      
1.47
      
1.44
      
1.81
  
   Year ended 12/31/2006
    
17.80
      
.31
      
1.61
      
1.92
       (.31 )     (.41 )     (.72 )    
19.00
      
10.87
      
311
      
1.48
      
1.45
      
1.70
  
   Year ended 12/31/2005
    
17.99
      
.25
      
.14
      
.39
       (.24 )     (.34 )     (.58 )    
17.80
      
2.15
      
265
      
1.51
      
1.49
      
1.41
  
   Year ended 12/31/2004
    
17.28
      
.23
      
1.12
      
1.35
       (.20 )     (.44 )     (.64 )    
17.99
      
7.94
      
219
      
1.56
      
1.56
      
1.30
  
   Year ended 12/31/2003
    
14.41
      
.23
      
2.87
      
3.10
       (.23 )    
-
       (.23 )    
17.28
      
21.74
      
137
      
1.58
      
1.58
      
1.44
  
Class 529-C:
                                                                                                        
   Year ended 12/31/2007
    
19.00
      
.36
      
.72
      
1.08
       (.35 )     (.44 )     (.79 )    
19.29
      
5.70
      
567
      
1.47
      
1.44
      
1.82
  
   Year ended 12/31/2006
    
17.81
      
.32
      
1.59
      
1.91
       (.31 )     (.41 )     (.72 )    
19.00
      
10.81
      
501
      
1.47
      
1.44
      
1.71
  
   Year ended 12/31/2005
    
17.99
      
.26
      
.14
      
.40
       (.24 )     (.34 )     (.58 )    
17.81
      
2.22
      
418
      
1.50
      
1.48
      
1.42
  
   Year ended 12/31/2004
    
17.28
      
.23
      
1.12
      
1.35
       (.20 )     (.44 )     (.64 )    
17.99
      
7.94
      
327
      
1.55
      
1.55
      
1.31
  
   Year ended 12/31/2003
    
14.41
      
.23
      
2.87
      
3.10
       (.23 )    
-
       (.23 )    
17.28
      
21.76
      
193
      
1.57
      
1.57
      
1.46
  
Class 529-E:
                                                                                                        
   Year ended 12/31/2007
    
19.00
      
.46
      
.71
      
1.17
       (.45 )     (.44 )     (.89 )    
19.28
      
6.18
      
84
      
.96
      
.94
      
2.32
  
   Year ended 12/31/2006
    
17.80
      
.41
      
1.61
      
2.02
       (.41 )     (.41 )     (.82 )    
19.00
      
11.44
      
73
      
.96
      
.93
      
2.23
  
   Year ended 12/31/2005
    
17.98
      
.35
      
.14
      
.49
       (.33 )     (.34 )     (.67 )    
17.80
      
2.73
      
59
      
.99
      
.97
      
1.93
  
   Year ended 12/31/2004
    
17.28
      
.32
      
1.11
      
1.43
       (.29 )     (.44 )     (.73 )    
17.98
      
8.44
      
45
      
1.04
      
1.03
      
1.83
  
   Year ended 12/31/2003
    
14.41
      
.31
      
2.87
      
3.18
       (.31 )    
-
       (.31 )    
17.28
      
22.37
      
27
      
1.05
      
1.05
      
1.97
  
Class 529-F:
                                                                                                        
   Year ended 12/31/2007
    
19.00
      
.56
      
.71
      
1.27
       (.55 )     (.44 )     (.99 )    
19.28
       6.71      
36
       .46       .44       2.82  
   Year ended 12/31/2006
    
17.80
      
.50
      
1.61
      
2.11
       (.50 )     (.41 )     (.91 )    
19.00
      
11.99
      
28
      
.46
      
.43
      
2.73
  
   Year ended 12/31/2005
    
17.98
      
.42
      
.15
      
.57
       (.41 )     (.34 )     (.75 )    
17.80
      
3.15
      
19
      
.57
      
.55
      
2.35
  
   Year ended 12/31/2004
    
17.27
      
.37
      
1.12
      
1.49
       (.34 )     (.44 )     (.78 )    
17.98
      
8.78
      
14
      
.79
      
.78
      
2.09
  
   Year ended 12/31/2003
    
14.41
      
.35
      
2.86
      
3.21
       (.35 )    
-
       (.35 )    
17.27
      
22.63
      
7
      
.80
      
.80
      
2.16
  
Class R-1:
                                                                                                        
   Year ended 12/31/2007
    
18.94
      
.37
      
.72
      
1.09
       (.37 )     (.44 )     (.81 )    
19.22
      
5.74
      
104
      
1.40
      
1.37
      
1.89
  
   Year ended 12/31/2006
    
17.75
      
.32
      
1.60
      
1.92
       (.32 )     (.41 )     (.73 )    
18.94
      
10.91
      
82
      
1.41
      
1.39
      
1.77
  
   Year ended 12/31/2005
    
17.94
      
.27
      
.13
      
.40
       (.25 )     (.34 )     (.59 )    
17.75
      
2.24
      
62
      
1.45
      
1.42
      
1.49
  
   Year ended 12/31/2004
    
17.24
      
.25
      
1.11
      
1.36
       (.22 )     (.44 )     (.66 )    
17.94
      
8.01
      
41
      
1.48
      
1.46
      
1.43
  
   Year ended 12/31/2003
    
14.39
      
.24
      
2.86
      
3.10
       (.25 )    
-
       (.25 )    
17.24
      
21.77
      
16
      
1.52
      
1.48
      
1.50
  
Class R-2:
                                                                                                        
   Year ended 12/31/2007
    
18.95
      
.37
      
.71
      
1.08
       (.36 )     (.44 )     (.80 )    
19.23
      
5.71
      
1,168
      
1.41
      
1.39
      
1.87
  
   Year ended 12/31/2006
    
17.76
      
.32
      
1.60
      
1.92
       (.32 )     (.41 )     (.73 )    
18.95
      
10.90
      
1,079
      
1.45
      
1.39
      
1.77
  
   Year ended 12/31/2005
    
17.94
      
.27
      
.15
      
.42
       (.26 )     (.34 )     (.60 )    
17.76
      
2.31
      
902
      
1.48
      
1.40
      
1.51
  
   Year ended 12/31/2004
    
17.24
      
.25
      
1.11
      
1.36
       (.22 )     (.44 )     (.66 )    
17.94
      
8.05
      
648
      
1.55
      
1.42
      
1.45
  
   Year ended 12/31/2003
    
14.39
      
.24
      
2.87
      
3.11
       (.26 )    
-
       (.26 )    
17.24
      
21.83
      
293
      
1.70
      
1.44
      
1.54
  
Class R-3:
                                                                                                        
   Year ended 12/31/2007
    
18.96
      
.46
      
.72
      
1.18
       (.46 )     (.44 )     (.90 )    
19.24
      
6.23
      
3,301
      
.92
      
.90
      
2.36
  
   Year ended 12/31/2006
    
17.77
      
.41
      
1.60
      
2.01
       (.41 )     (.41 )     (.82 )    
18.96
      
11.44
      
3,059
      
.92
      
.90
      
2.26
  
   Year ended 12/31/2005
    
17.95
      
.36
      
.15
      
.51
       (.35 )     (.34 )     (.69 )    
17.77
      
2.83
      
2,541
      
.91
      
.89
      
2.02
  
   Year ended 12/31/2004
    
17.25
      
.34
      
1.10
      
1.44
       (.30 )     (.44 )     (.74 )    
17.95
      
8.52
      
1,828
      
.97
      
.97
      
1.94
  
   Year ended 12/31/2003
    
14.40
      
.31
      
2.85
      
3.16
       (.31 )    
-
       (.31 )    
17.25
      
22.27
      
563
      
1.05
      
1.05
      
1.94
  
Class R-4:
                                                                                                        
   Year ended 12/31/2007
    
19.00
      
.52
      
.71
      
1.23
       (.51 )     (.44 )     (.95 )    
19.28
      
6.50
      
1,865
      
.65
      
.62
      
2.64
  
   Year ended 12/31/2006
    
17.80
      
.47
      
1.60
      
2.07
       (.46 )     (.41 )     (.87 )    
19.00
      
11.78
      
1,724
      
.65
      
.62
      
2.53
  
   Year ended 12/31/2005
    
17.99
      
.41
      
.13
      
.54
       (.39 )     (.34 )     (.73 )    
17.80
      
3.03
      
1,441
      
.65
      
.63
      
2.28
  
   Year ended 12/31/2004
    
17.28
      
.39
      
1.11
      
1.50
       (.35 )     (.44 )     (.79 )    
17.99
      
8.89
      
830
      
.67
      
.66
      
2.23
  
   Year ended 12/31/2003
    
14.41
      
.36
      
2.88
      
3.24
       (.37 )    
-
       (.37 )    
17.28
      
22.81
      
258
      
.68
      
.68
      
2.28
  
Class R-5:
                                                                                                        
   Year ended 12/31/2007
    
19.03
      
.58
      
.72
      
1.30
       (.57 )     (.44 )     (1.01 )    
19.32
      
6.86
      
957
      
.35
      
.33
      
2.94
  
   Year ended 12/31/2006
    
17.83
      
.52
      
1.61
      
2.13
       (.52 )     (.41 )     (.93 )    
19.03
      
12.08
      
411
      
.35
      
.33
      
2.82
  
   Year ended 12/31/2005
    
18.01
      
.46
      
.15
      
.61
       (.45 )     (.34 )     (.79 )    
17.83
      
3.38
      
324
      
.36
      
.34
      
2.57
  
   Year ended 12/31/2004
    
17.30
      
.44
      
1.12
      
1.56
       (.41 )     (.44 )     (.85 )    
18.01
      
9.21
      
246
      
.37
      
.36
      
2.51
  
   Year ended 12/31/2003
    
14.43
      
.41
      
2.87
      
3.28
       (.41 )    
-
       (.41 )    
17.30
      
23.16
      
127
      
.38
      
.38
      
2.62
  
 
   
Year ended December 31            
  
   
2007
    
2006
    
2005
    
2004
    
2003
  
                               
Portfolio turnover rate for all classes of shares
     35 %     34 %     35 %     25 %     32 %
                                         
(1) Based on average shares outstanding.
                                        
(2) Total returns exclude any applicable sales charges, including contingent deferred sales charges.            
(3) This column reflects the impact, if any, of certain reimbursements/waivers from CRMC. During some of the years shown, CRMC reduced fees for investment advisory services. In addition, during some of the years shown, CRMC paid a portion of the fund's transfer agent fees for certain retirement plan share classes.
                                         
                                         
See Notes to Financial Statements
                                        
 
 
 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors 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, 2007, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods presented.  These financial statements and financial highlights are the responsibility of the Fund's management.  Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement.  The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  Our procedures included confirmation of securities owned as of December 31, 2007, by correspondence with the custodian and brokers; where replies were not received from brokers, we performed other auditing procedures.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of American Balanced Fund, Inc. as of December 31, 2007, 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 financial highlights for each of the periods presented, in conformity with accounting principles generally accepted in the United States of America.


DELOITTE & TOUCHE LLP

Costa Mesa, California
February 14, 2008


 
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 certain distributions received by shareholders during such fiscal year. The fund hereby designates the following amounts for the fund’s fiscal year ended December 31, 2007:

Long-term capital gains
$1,385,908,000
Qualified dividend income
814,616,000
Corporate dividends received deduction
682,646,000
U.S. government income that may be exempt from state taxation
138,599,000

Individual shareholders should refer to their Form 1099 or other tax information, which was mailed in January 2008, to determine the calendar year amounts to be included on their 2007 tax returns. Shareholders should consult their tax advisers.