ambal497.htm

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AMERICAN BALANCED FUND, INC.

Part B
Statement of Additional Information

May 1, 2009

(as supplemented January 1, 2010)

This document is not a prospectus but should be read in conjunction with the
current prospectus of American Balanced Fund, Inc. (the "fund" or "AMBAL") dated
March 1, 2009 or retirement plan prospectus of the fund dated May 1, 2009. 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 . . . . 3
Fund policies . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Management of the fund . . . . . . . . . . . . . . . . . . . . . . 12
Execution of portfolio transactions . . . . . . . . . . . . . . . . 34
Disclosure of portfolio holdings. . . . . . . . . . . . . . . . . . 37
Price of shares . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Taxes and distributions . . . . . . . . . . . . . . . . . . . . . . 42
Purchase and exchange of shares . . . . . . . . . . . . . . . . . . 47
Sales charges . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Sales charge reductions and waivers . . . . . . . . . . . . . . . . 55
Selling shares. . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Shareholder account services and privileges . . . . . . . . . . . . 61
General information . . . . . . . . . . . . . . . . . . . . . . . . 64
Appendix. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Investment portfolio
Financial statements

American Balanced Fund -- Page 1
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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 2% 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.

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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.

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.

American Balanced Fund -- Page 3
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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 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.

These securities may include hybrid securities, which also have equity and debt
characteristics. Such securities are normally at the bottom of an issuer's debt
capital structure. As such, they may be more sensitive to economic changes than
more senior debt securities. These securities may also be viewed as more
equity-like by the market when the issuer or its parent company experience
financial problems.

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.

OBLIGATIONS 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.

American Balanced Fund -- Page 4
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FEDERAL AGENCY SECURITIES -- 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 Federal Financing Bank
(FFB), 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.

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.

American Balanced Fund -- Page 5
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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 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

American Balanced Fund -- Page 6
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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.

INVESTING OUTSIDE THE U.S. -- 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, disclosure, and regulatory and legal standards and practices;
changing local, regional and global economic, political and social conditions;
expropriation; changes in tax policy; greater market volatility; different
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

American Balanced Fund -- Page 7
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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 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.

American Balanced Fund -- Page 8
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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 may be taxable when
distributed to shareholders.

The fund's portfolio turnover rates for the fiscal years ended December 31, 2008
and 2007 were 41% and 35%, respectively. The portfolio turnover rate would equal
100% if each security in a 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.

American Balanced Fund -- Page 9
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FUND POLICIES

All percentage limitations in the following fund policies are considered at the
time securities are purchased and are based on the fund's net assets unless
otherwise indicated. None of the following policies 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.

FUNDAMENTAL POLICIES -- The fund has adopted the following fundamental policies,
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 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.

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.

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.

American Balanced Fund -- Page 10
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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.

CHANGES TO FUNDAMENTAL POLICIES - At a meeting of the fund's shareholders on
November 24, 2009, shareholders approved changes to the fundamental policies
listed above. The fund plans to implement the new fundamental policies in 2010
or early 2011; however, the fund reserves the right to delay the implementation.
The new policies are set forth in a joint proxy statement available on the SEC's
website at sec.gov.

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 11
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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, 55 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, 72 Managing General Partner, 9 None
Chairman of the Board Fox Investments LP;
(Independent and corporate director; retired
Non-Executive) President and CEO, Foster
(1976-1978; 1982) Farms (poultry producer)
------------------------------------------------------------------------------------------------------------
Leonade D. Jones, 62 Co-founder, VentureThink 9 None
Director (1993) LLC (developed and managed
e-commerce businesses) and
Versura Inc. (education
loan exchange); former
Treasurer, The Washington
Post Company
------------------------------------------------------------------------------------------------------------
William D. Jones, 54 Real estate developer/ 6 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, 72 Former CEO, American 3 None
Director (2003) President Companies
(container shipping and
transportation services);
former CEO, Lucky Stores;
former CEO, Leslie Salt
------------------------------------------------------------------------------------------------------------
John G. McDonald, 72 Stanford Investors 12 iStar Financial, Inc.;
Director (1975-1978; Professor, Graduate School Plum Creek Timber Co.;
1988) of Business, Stanford Scholastic Corporation;
University Varian, Inc.
------------------------------------------------------------------------------------------------------------
James J. Postl, 63 Former President and CEO, 3 Cooper Industries;
Director (2007) Pennzoil-Quaker State Pulte, Inc.
Company (automotive
products and services)
------------------------------------------------------------------------------------------------------------
Henry E. Riggs, 74 President Emeritus, Keck 5 None
Director (1989) Graduate Institute of
Applied Life Sciences
------------------------------------------------------------------------------------------------------------
Isaac Stein, 63 President, Waverley 3 Alexza Pharmaceuticals, Inc.;
Director (2004) Associates (private Maxygen, Inc.
investment fund); Chairman
Emeritus of the Board of
Trustees, Stanford
University
------------------------------------------------------------------------------------------------------------

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, 65 Senior Vice President - 3 None
Vice Chairman of the Board Capital World Investors,
(1990) Capital Research and
Management Company;
Director, Capital Research
and Management Company
----------------------------------------------------------------------------------------------------------
Gregory D. Johnson, 46 Senior Vice President - 1 None
President (2003) Capital World Investors,
Capital Research and
Management Company
----------------------------------------------------------------------------------------------------------

American Balanced Fund -- Page 13
<PAGE>

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
-------------------------------------------------------------------------------
Hilda L. Applbaum, 48 Senior Vice President - Capital World Investors,
Senior Vice President Capital Research and Management Company
(1999)
-------------------------------------------------------------------------------
James R. Mulally, 57 Senior Vice President - Fixed Income, Capital
Senior Vice President Research and Management Company; Senior Vice
(2009) President, Capital International Limited
-------------------------------------------------------------------------------
Paul F. Roye, 56 Senior Vice President - Fund Business Management
Senior Vice President Group, Capital Research and Management Company;
(2007) Director, American Funds Service Company*; former
Director, Division of Investment Management, United
States Securities and Exchange Commission
-------------------------------------------------------------------------------
John H. Smet, 53 Senior Vice President - Fixed Income, Capital
Senior Vice President Research and Management Company; Director, The
(2000) Capital Group Companies, Inc.*
-------------------------------------------------------------------------------
Jeffrey T. Lager, 41 Senior Vice President - Capital World Investors,
Vice President (2002) Capital Research Company*
-------------------------------------------------------------------------------
Patrick F. Quan, 51 Vice President - Fund Business Management Group,
Secretary (1986) Capital Research and Management Company
-------------------------------------------------------------------------------
Jennifer M. Buchheim, 36 Vice President - Fund Business Management Group,
Treasurer (2005) Capital Research and Management Company
-------------------------------------------------------------------------------
Julie E. Lawton, 36 Associate - Capital Research and Management Company
Assistant Secretary
(2010)
-------------------------------------------------------------------------------
Bryan K. Nielsen, 36 Vice President, Capital Guardian Trust Company*;
Assistant Treasurer Vice President, Capital International, Inc.*
(2008)
-------------------------------------------------------------------------------

* 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, 2008:

AGGREGATE
DOLLAR
RANGE/1/ OF
INDEPENDENT
AGGREGATE DIRECTORS
DOLLAR RANGE/1/ DOLLAR DEFERRED
OF SHARES RANGE/1 /OF COMPENSATION/2/
OWNED IN INDEPENDENT ALLOCATED TO
ALL FUNDS DIRECTORS ALL FUNDS
IN THE DEFERRED WITHIN
DOLLAR RANGE/1/ AMERICAN FUNDS COMPENSATION/2/ AMERICAN FUNDS
OF FUND FAMILY OVERSEEN ALLOCATED FAMILY OVERSEEN
NAME SHARES OWNED BY DIRECTOR TO FUND BY DIRECTOR
-----------------------------------------------------------------------------------------
"INDEPENDENT" DIRECTORS
-----------------------------------------------------------------------------------------
Mary Jane Elmore $50,001 - Over $100,000 $10,001 - $50,001 -
$100,000 $50,000 $100,000
-----------------------------------------------------------------------------------------
Robert A. Fox Over $100,000 Over $100,000 Over $100,000 Over $100,000
-----------------------------------------------------------------------------------------
Leonade D. Jones $50,001 - Over $100,000 Over $100,000 Over $100,000
$100,000
-----------------------------------------------------------------------------------------
William D. Jones $10,001 - Over $100,000 $1 - $10,000 $50,001 -
$50,000 $100,000
-----------------------------------------------------------------------------------------
John M. Lillie Over $100,000 Over $100,000 N/A N/A
-----------------------------------------------------------------------------------------
John G. McDonald $50,001 - Over $100,000 N/A N/A
$100,000
-----------------------------------------------------------------------------------------
James J. Postl Over $100,000 Over $100,000 $10,001 - Over $100,000
$50,000
-----------------------------------------------------------------------------------------
Henry E. Riggs Over $100,000 Over $100,000 Over $100,000 Over $100,000
-----------------------------------------------------------------------------------------
Isaac Stein Over $100,000 Over $100,000 N/A N/A
-----------------------------------------------------------------------------------------

American Balanced Fund -- Page 15
<PAGE>

AGGREGATE
DOLLAR RANGE/1/
OF SHARES
OWNED IN
ALL FUNDS
IN THE
DOLLAR RANGE/1/ AMERICAN FUNDS
OF FUND FAMILY OVERSEEN
NAME SHARES OWNED BY DIRECTOR
------------------------------------------------------------------------------
"INTERESTED" DIRECTORS
------------------------------------------------------------------------------
Robert G. O'Donnell Over $100,000 Over $100,000
------------------------------------------------------------------------------
Gregory D. Johnson 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 Eligible directors may defer their compensation under a nonqualified deferred
compensation plan. Deferred amounts accumulate at an earnings rate determined
by the total return of one or more American Funds as designated by the
director.

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 $13,125 to $20,000, 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.

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.

American Balanced Fund -- Page 16
<PAGE>

DIRECTOR COMPENSATION EARNED DURING THE FISCAL YEAR ENDED DECEMBER 31, 2008

TOTAL COMPENSATION (INCLUDING
AGGREGATE COMPENSATION VOLUNTARILY DEFERRED COMPENSATION/1/)
(INCLUDING VOLUNTARILY FROM ALL FUNDS MANAGED BY
DEFERRED COMPENSATION/1/) CAPITAL RESEARCH AND MANAGEMENT
NAME FROM THE FUND COMPANY OR ITS AFFILIATES/2/
------------------------------------------------------------------------------------------
Mary Jane Elmore/3/,/4/ $27,916 $ 76,208
------------------------------------------------------------------------------------------
Robert A. Fox/3/ 51,576 325,625
------------------------------------------------------------------------------------------
Leonade D. Jones/3/ 74,142 380,597
------------------------------------------------------------------------------------------
William D. Jones/3/,/4/ 24,271 179,792
------------------------------------------------------------------------------------------
John M. Lillie 69,583 159,319
------------------------------------------------------------------------------------------
John G. McDonald/3/ 50,334 398,667
------------------------------------------------------------------------------------------
James J. Postl/3/ 73,833 122,125
------------------------------------------------------------------------------------------
Henry E. Riggs/3/ 57,834 287,840
------------------------------------------------------------------------------------------
Isaac Stein 63,750 144,125
------------------------------------------------------------------------------------------

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, 2008 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 2008
fiscal year for participating directors is as follows: Mary Jane Elmore
($25,262), Robert A. Fox ($435,885), Leonade D. Jones ($75,938), William D.
Jones ($6,418), John G. McDonald ($535,338), James J. Postl ($59,398) and Henry
E. Riggs ($290,115). Amounts deferred and accumulated earnings thereon are not
funded and are general unsecured liabilities of the fund until paid to the
directors.
4 Mary Jane Elmore and William D. Jones were elected as directors on August 7, 2008.

As of December 1, 2009, 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.

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. At a meeting of the fund's shareholders on November 24, 2009, shareholders
approved the reorganization of the fund to a Delaware statutory trust. The
reorganization is expected to be completed in 2010 or early 2011; however, the
fund reserves the right to delay the implementation. A summary comparison of the
governing documents and state laws affecting the Delaware statutory trust and
the current form of organization of the fund can be found in a joint proxy
statement available on the SEC's website at sec.gov. 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.

American Balanced Fund -- Page 17
<PAGE>

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 Robert A. Fox, Leonade D. Jones, John M. Lillie, James J. Postl and
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 2008 fiscal year.

American Balanced Fund -- Page 18
<PAGE>

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, and Isaac Stein, 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 2008 fiscal year.

The fund has a nominating committee comprised of Leonade D. Jones, William D.
Jones, John M. Lillie, John G. McDonald and Henry E. Riggs, 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 2008 fiscal year.

PROXY VOTING PROCEDURES AND PRINCIPLES -- The fund's investment adviser, in
consultation with the fund's board, has 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. Proxies are voted by a committee of the
appropriate equity investment division of the investment adviser under authority
delegated by the funds' boards. Therefore, if more than one fund invests in the
same company, they may vote differently on the same proposal. In addition, the
funds' boards monitor the proxy voting process and provide guidance with respect
to the Principles.

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,

American Balanced Fund -- Page 19
<PAGE>

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 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.

American Balanced Fund -- Page 20
<PAGE>

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 December 1, 2009. Unless
otherwise indicated, the ownership percentages below represent ownership of
record rather than beneficial ownership.

NAME AND ADDRESS OWNERSHIP OWNERSHIP PERCENTAGE
-------------------------------------------------------------------------------
Edward D. Jones & Co. Record Class A 20.55%
Omnibus Account Class B 9.02
Maryland Heights, MO
-------------------------------------------------------------------------------
First Clearing, LLC Record Class A 6.96
Custody Account Class B 9.46
St. Louis, MO Class C 10.86
Class F-1 7.05
-------------------------------------------------------------------------------
Merrill Lynch Record Class C 12.86
Omnibus Account Class F-2 41.61
Jacksonville, FL
-------------------------------------------------------------------------------
Citigroup Global Markets, Inc. Record Class C 9.21
Omnibus Account Class F-1 7.73
New York, NY
-------------------------------------------------------------------------------
Charles Schwab & Co., Inc. Record Class F-1 9.30
Custody Account Class R-4 5.65
San Francisco, CA
-------------------------------------------------------------------------------
LPL Financial Record Class F-1 6.57
Omnibus Account Class F-2 8.84
San Diego, CA
-------------------------------------------------------------------------------
Hartford Life Insurance Co. Separate Record Class R-1 36.38
Account Beneficial Class R-3 8.68
401K Plan
Hartford, CT
-------------------------------------------------------------------------------
ING Life Insurance & Annuity Record Class R-3 14.87
Hartford, CT Class R-4 6.04
-------------------------------------------------------------------------------
NFS, LLC FEBO Record Class R-4 5.40
401K Plans Beneficial Class R-5 11.31
Covington, KY Class R-6 17.72
-------------------------------------------------------------------------------
John Hancock Life Insurance Co. USA Record Class R-5 35.11
Omnibus Account
Boston, MA
-------------------------------------------------------------------------------
American Funds 2020 Target Date Record Class R-6 15.30
Retirement Fund
Norfolk, VA
-------------------------------------------------------------------------------
American Funds 2025 Target Date Record Class R-6 13.20
Retirement Fund
Norfolk, VA
-------------------------------------------------------------------------------
American Funds 2015 Target Date Record Class R-6 13.11
Retirement Fund
Norfolk, VA
-------------------------------------------------------------------------------
American Funds 2030 Target Date Record Class R-6 12.73
Retirement Fund
Norfolk, VA
-------------------------------------------------------------------------------
American Funds 2010 Target Date Record Class R-6 8.09
Retirement Fund
Norfolk, VA
-------------------------------------------------------------------------------
American Funds 2035 Target Date Record Class R-6 5.22
Retirement Fund
Norfolk, VA
-------------------------------------------------------------------------------

American Balanced Fund -- Page 21
<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.

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. Although not currently contemplated, Capital
Research and Management Company could incorporate its Fixed Income division in
the future and engage it to provide day-to-day investment management of
fixed-income assets. Capital Research and Management Company and each of the
funds it advises have applied to the U.S. Securities and Exchange Commission for
an exemptive order that would give Capital Research and Management Company the
authority to use, upon approval of the fund's board, its management subsidiaries
and affiliates to provide day-to-day investment management services to the fund,
including making changes to the management subsidiaries and affiliates providing
such services. The fund's shareholders approved this arrangement at a meeting of
the fund's shareholders on November 24, 2009. There is no assurance that Capital

American Balanced Fund -- Page 22
<PAGE>

Research and Management Company will incorporate its investment divisions or
exercise any authority, if granted, under an exemptive order.

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 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; Barclays Capital U.S. Aggregate Index (formerly Lehman
Brothers U.S. Aggregate Index); Lipper General U.S. Funds Average and Lipper
Corporate Debt Funds A Rated Average.

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.

American Balanced Fund -- Page 23
<PAGE>

THE FOLLOWING TABLE REFLECTS INFORMATION AS OF DECEMBER 31, 2008:

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. O'Donnell Over 2 $ 48.9 None None
$1,000,000
-------------------------------------------------------------------------------------------
Gregory D. Johnson $100,001 - 2 $ 48.9 None None
$500,000
-------------------------------------------------------------------------------------------
Hilda L. Applbaum $50,001 - 2 $ 57.1 None None
$100,000
-------------------------------------------------------------------------------------------
John H. Smet $100,001 - 7 $178.6 None 3 $2.06
$500,000
-------------------------------------------------------------------------------------------
Alan N. Berro $100,001 - 3 $124.8 None None
$500,000
-------------------------------------------------------------------------------------------
James R. Mulally Over 2 $ 81.8 None None
$1,000,000
-------------------------------------------------------------------------------------------
Dina N. Perry $100,001 - 3 $125.2 1 $0.71 None
$500,000
-------------------------------------------------------------------------------------------

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 or its affiliates 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.

American Balanced Fund -- Page 24
<PAGE>

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, 2010, 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, the Agreement provides that the investment adviser may
delegate all, or a portion of, its investment management responsibilities to one
or more subsidiary advisers that is approved by the fund's board, pursuant to an
agreement between the investment adviser and such subsidiary. Any such
subsidiary adviser will be paid solely by the investment adviser out of its
fees.

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; 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.

For the fiscal years ended December 31, 2008, 2007 and 2006, the investment
adviser was entitled to receive from the fund management fees of $127,758,000,
$140,741,000 and $127,668,000, respectively. After giving effect to the
management fee waiver described below, the fund paid the investment adviser
management fees of $114,982,000 (a reduction of $12,776,000), $126,667,000 (a
reduction of $14,074,000) and $114,901,000 (a reduction of $12,767,000) for the
fiscal years ended December 31, 2008, 2007 and 2006, respectively.

American Balanced Fund -- Page 25
<PAGE>

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, 2010, 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 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.

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 and R-6 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 and R-6 shares, the
administrative services fee is calculated at the annual rate of up to 0.10% and
0.05%, respectively, of the average daily net assets of such class. 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. A
portion of the fees paid to American Funds Service Company for transfer agent
services is also paid directly from the relevant share class.

American Balanced Fund -- Page 26
<PAGE>

During the 2008 fiscal year, administrative services fees, gross of any payments
made by the investment adviser, were:

ADMINISTRATIVE SERVICES FEE
------------------------------------------------------------------------------
CLASS C $8,523,000
------------------------------------------------------------------------------
CLASS F-1 1,250,000
------------------------------------------------------------------------------
CLASS F-2 11,000
------------------------------------------------------------------------------
CLASS 529-A 1,375,000
------------------------------------------------------------------------------
CLASS 529-B 378,000
------------------------------------------------------------------------------
CLASS 529-C 616,000
------------------------------------------------------------------------------
CLASS 529-E 86,000
------------------------------------------------------------------------------
CLASS 529-F-1 39,000
------------------------------------------------------------------------------
CLASS R-1 127,000
------------------------------------------------------------------------------
CLASS R-2 4,308,000
------------------------------------------------------------------------------
CLASS R-3 3,926,000
------------------------------------------------------------------------------
CLASS R-4 2,544,000
------------------------------------------------------------------------------
CLASS R-5 1,261,000
------------------------------------------------------------------------------

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 sold prior to April 21, 2009, the
Principal Underwriter sold 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 compensated investment dealers for sales of
Class B and 529-B shares out of the proceeds of this sale and kept any
amounts remaining after this compensation was 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.

American Balanced Fund -- Page 27
<PAGE>

In addition, the fund reimburses the Principal Underwriter for advancing
immediate service fees to qualified dealers and advisers upon the sale of Class
C and 529-C shares. The fund also reimbursed the Principal Underwriter for
advancing immediate service fees to qualified dealers on sales of Class B and
529-B shares prior to April 21, 2009. 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 2008 $16,528,000 $73,711,000
2007 21,903,000 96,943,000
2006 19,623,000 88,391,000
-----------------------------------------------------------------------------------------------------
CLASS B 2008 1,213,000 9,219,000
2007 1,933,000 12,547,000
2006 2,418,000 14,487,000
-----------------------------------------------------------------------------------------------------
CLASS C 2008 1,676,000 6,112,000
2007 76,000 8,685,000
2006 2,773,000 7,595,000
-----------------------------------------------------------------------------------------------------
CLASS 529-A 2008 1,064,000 5,028,000
2007 1,253,000 5,898,000
2006 1,205,000 5,778,000
-----------------------------------------------------------------------------------------------------
CLASS 529-B 2008 127,000 1,007,000
2007 166,000 1,116,000
2006 196,000 1,220,000
-----------------------------------------------------------------------------------------------------
CLASS 529-C 2008 38,000 793,000
2007 -- 988,000
2006 97,000 897,000
-----------------------------------------------------------------------------------------------------

American Balanced Fund -- Page 28
<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, Class R-5 or Class R-6, no 12b-1 fees are paid
from Class F-2, Class R-5 or Class R-6 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.

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:

American Balanced Fund -- Page 29
<PAGE>

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.

During the 2008 fiscal year, 12b-1 expenses accrued and paid, and if applicable,
unpaid, were:

12B-1 UNPAID LIABILITY
12B-1 EXPENSES OUTSTANDING
------------------------------------------------------------------------------
CLASS A $75,478,000 $4,507,000
------------------------------------------------------------------------------
CLASS B 45,440,000 2,908,000
------------------------------------------------------------------------------
CLASS C 52,494,000 3,495,000
------------------------------------------------------------------------------
CLASS F-1 2,958,000 282,000
------------------------------------------------------------------------------
CLASS 529-A 2,498,000 163,000
------------------------------------------------------------------------------
CLASS 529-B 3,061,000 219,000
------------------------------------------------------------------------------
CLASS 529-C 5,107,000 407,000
------------------------------------------------------------------------------
CLASS 529-E 383,000 28,000
------------------------------------------------------------------------------
CLASS 529-F-1 -- --
------------------------------------------------------------------------------
CLASS R-1 1,020,000 86,000
------------------------------------------------------------------------------
CLASS R-2 7,775,000 579,000
------------------------------------------------------------------------------
CLASS R-3 13,652,000 980,000
------------------------------------------------------------------------------
CLASS R-4 4,312,000 330,000
------------------------------------------------------------------------------

American Balanced Fund -- Page 30
<PAGE>

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.

FUND EXPENSES -- In periods of market volatility, assets of the fund may decline
significantly, causing total annual fund operating expenses to become higher
than the numbers shown in the annual fund operating expenses table in the
prospectus.

American Balanced Fund -- Page 31
<PAGE>

OTHER COMPENSATION TO DEALERS -- As of July 2009, 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
American General Securities Incorporated
FSC Securities Corporation
Royal Alliance Associates, Inc.
SagePoint Financial, Inc.
AXA Advisors, LLC
Cadaret, Grant & Co., Inc
Cambridge Investment Research, Inc.
Commonwealth Financial Network
Cuna Brokerage Services, 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.
J. J. B. Hilliard, W. L. Lyons, LLC
JJB Hilliard/PNC Bank
PNC Bank, National Association
PNC Investments LLC
Lincoln Financial Advisors Corporation
Lincoln Financial Securities 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, Inc.
Walnut Street Securities, Inc.
MML Investors Services, Inc.

American Balanced Fund -- Page 32
<PAGE>

Morgan Keegan & Company, Inc.
Morgan Stanley Smith Barney LLC
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
PFS Investments Inc.
Raymond James Group
Raymond James & Associates, Inc.
Raymond James Financial Services Inc.
RBC Capital Markets Corporation
Robert W. Baird & Co. Incorporated
Securian / C.R.I.
CRI Securities, LLC
Securian Financial Services, Inc.
U.S. Bancorp Investments, Inc.
UBS Financial Services Inc.
Wells Fargo Network
A. G. Edwards, A Division Of Wells Fargo Advisors, LLC
First Clearing LLC
H.D. Vest Investment Securities, Inc.
Wells Fargo Advisors Financial Network, LLC
Wells Fargo Advisors Investment Services Group
Wells Fargo Advisors Latin American Channel
Wells Fargo Advisors Private Client Group
Wells Fargo Investments, LLC

American Balanced Fund -- Page 33
<PAGE>

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 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.

American Balanced Fund -- Page 34
<PAGE>

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
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

American Balanced Fund -- Page 35
<PAGE>

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 of 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, 2008, 2007 and 2006 amounted to $19,284,000, $12,090,000 and
$15,590,000, respectively. The volume of trading activity increased during 2008,
resulting in an increase 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-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. and
J.P. Morgan Securities Inc. As of the fund's most recent fiscal year-end, the
fund held equity securities of Citigroup Inc. in the amount of $222,100,000 and
JPMorgan Chase & Co. in the amount of $302,670,000. The fund held debt
securities of Citigroup Inc. in the amount of $76,125,000, Goldman Sachs Group,
Inc. in the amount of $23,103,000 and JPMorgan Chase & Co. in the amount of
$20,104,000.

American Balanced Fund -- Page 36
<PAGE>

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 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.

American Balanced Fund -- Page 37
<PAGE>

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.

American Balanced Fund -- Page 38
<PAGE>

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 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 American Funds Money Market Fund) 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.

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 one or more independent pricing vendors, when such prices are
available; however, in circumstances where the investment adviser deems it
appropriate to do so, such securities will be valued in good faith at the mean
quoted bid and asked prices that are reasonably and timely available (or bid
prices, if asked prices are not available) or at prices for securities of
comparable maturity, quality and type. The pricing vendors base bond prices on,
among other things, valuation matrices which may incorporate dealer-supplied
valuations, proprietary pricing models and 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.

American Balanced Fund -- Page 39
<PAGE>

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 consider certain relevant principles and factors 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. Fair valuations and valuations of investments that are not
actively trading involve judgment and may differ materially from valuations that
would have been used had greater market activity occurred. The valuation
committee considers relevant indications of value that are reasonably and timely
available to it in determining the fair value to be assigned to a particular
security, such as 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).

American Balanced Fund -- Page 40
<PAGE>

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.

Net assets so obtained for each share class are 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.

American Balanced Fund -- Page 41
<PAGE>

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 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 any one issuer (other than U.S. government securities or the securities of
other regulated investment companies), 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"
generally 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.

American Balanced Fund -- Page 42
<PAGE>

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. When a dividend or a capital gain is distributed by the fund,
the net asset value per share is reduced by the amount of the payment.

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.

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.

American Balanced Fund -- Page 43
<PAGE>

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 to corporate shareholders 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 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 distribute its net
capital gain each year. The fund's net capital gain is 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

American Balanced Fund -- Page 44
<PAGE>

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 net capital gain 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. For non-corporate shareholders, a
capital gain distribution by the fund is subject 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 (including any undistributed
amounts treated as distributed capital gains, as described above) 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).

American Balanced Fund -- Page 45
<PAGE>

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 fund 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 46
<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 transaction confirmation and mailing the form, along
with a check made payable to the fund, using the envelope provided with
your confirmation.

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 47
<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. 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. In
addition, the fund and the Principal Underwriter reserve the right to reject any
purchase order.

Class R-5 and R-6 shares may be made available to certain charitable foundations
organized and maintained by The Capital Group Companies, Inc. or its affiliates.

Class R-5 and R-6 shares may also be made available to the Virginia College
Savings Plan for use in the Virginia Education Savings Trust and the Virginia
Prepaid Education Program.

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:

American Balanced Fund -- Page 48
<PAGE>

. 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.

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 American Funds Money
Market Fund may be made to Class C shares of other American Funds for dollar
cost averaging purposes. Exchanges are not permitted from Class A shares of
American Funds Money Market Fund to Class C shares of Intermediate Bond Fund of
America, Limited Term Tax-Exempt Bond Fund of America or 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 Fund are subject to applicable sales
charges, unless the American Funds 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.

American Balanced Fund -- Page 49
<PAGE>

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.

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.

American Balanced Fund -- Page 50
<PAGE>

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.

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.

American Balanced Fund -- Page 51
<PAGE>

SALES CHARGES

CLASS A PURCHASES

PURCHASES BY CERTAIN 403(B) PLANS

A 403(b) plan may not invest in Class A or C shares unless such plan was
invested in Class A or C shares before January 1, 2009.

Participant accounts of a 403(b) plan that were treated as an
individual-type plan for sales charge purposes before 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 were treated as
an employer-sponsored plan for sales charge purposes before 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 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

American Balanced Fund -- Page 52
<PAGE>

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.

American Balanced Fund -- Page 53
<PAGE>

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:

. 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.

American Balanced Fund -- Page 54
<PAGE>

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 American Funds Money Market Fund) 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,
unless the Statement is upgraded as described below.

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.

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. In addition, effective May 1, 2009, the

American Balanced Fund -- Page 55
<PAGE>

Statements for these plans will expire if they have not been met by the
next anniversary of the establishment of such Statement. 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:

. 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" in this statement of additional information);

. 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;

American Balanced Fund -- Page 56
<PAGE>

. 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" in this statement of
additional information), 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.

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 Fund 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 Fund 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") as of the day prior to your American Funds investment 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.

American Balanced Fund -- Page 57
<PAGE>

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 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.

RIGHT OF REINVESTMENT -- As described in the prospectus, certain
transactions may be eligible for investment without a sales charge pursuant
to the fund's right of reinvestment policy. Recent legislation suspended
required minimum distributions from individual retirement accounts and
employer-sponsored retirement plan accounts for the 2009 tax year. Given
this suspension, proceeds from an automatic withdrawal plan to satisfy a
required minimum distribution may be invested without a sales charge for
the 2009 tax year, or any subsequent period, to the extent such legislation
is extended. This policy is subject to any restrictions regarding the
investment of proceeds from a required minimum distribution that may be
established by the transfer agent.

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 post-purchase 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).

American Balanced Fund -- Page 58
<PAGE>

. 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 Fund 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

. 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.

American Balanced Fund -- Page 59
<PAGE>

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 American Funds
Money Market Fund be wired to your bank by writing American Funds Service
Company. A signature guarantee is required on all requests to wire funds.

American Balanced Fund -- Page 60
<PAGE>

SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES

The following services and privileges are generally available to all
shareholders. However, certain services and privileges described in the
prospectus and this statement of additional information 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. 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 may be automatically 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.

American Balanced Fund -- Page 61
<PAGE>

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 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.

American Balanced Fund -- Page 62
<PAGE>

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 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 Fund 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 permit 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.

American Balanced Fund -- Page 63
<PAGE>

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 $41,638,000 for Class A shares and $5,318,000 for
Class B shares for the 2008 fiscal year. American Funds Service Company is also
compensated for certain transfer agency services provided to all share classes
from the administrative services fees paid to Capital Research and Management
Company and from the relevant share class, as described under "Administrative
services agreement."

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 -- Bingham McCutchen LLP, 355 South Grand Avenue,
Suite 4400, 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 summary prospectuses
annually and at least semi-annually with reports showing the fund's investment
portfolio or summary investment portfolio, financial statements and other
information. Shareholders may request a copy of the

American Balanced Fund -- Page 64
<PAGE>

fund's current prospectus at no cost by calling 800/421-0180 or by sending an
e-mail request to prospectus@americanfunds.com. 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 summary prospectuses,
shareholder reports and proxy statements. To receive additional copies of a
summary prospectus, report or proxy statement, shareholders should contact the
Transfer Agent.

Shareholders may also elect to receive updated summary 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 summary 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 summary prospectuses and other reports in
paper form by mail.

Summary prospectuses, 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.

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.

American Balanced Fund -- Page 65
<PAGE>

DETERMINATION OF NET ASSET VALUE, REDEMPTION PRICE AND MAXIMUM OFFERING PRICE
PER SHARE FOR CLASS A SHARES -- DECEMBER 31, 2008

Net asset value and redemption price per share
(Net assets divided by shares outstanding). . $13.78
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). . . . . . . . . . . . . . . . $14.62

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 66
<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/(R)/ . . . . 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 Funds Short-Term
Tax-Exempt Bond Fund/SM/ . 039 N/A N/A 439 639
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
American Funds Money Market
Fund/SM/ . . . . . . . . . 059 259 359 459 659
___________
*Qualified for sale only in certain jurisdictions.

American Balanced Fund -- Page 67
<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
American Funds Money Market
Fund . . . . . . . . . . . . . 1059 1259 1359 1559 1459

American Balanced Fund -- Page 68
<PAGE>

FUND NUMBERS
------------------------------------------
CLASS CLASS CLASS CLASS CLASS CLASS
FUND R-1 R-2 R-3 R-4 R-5 R-6
-------------------------------------------------------------------------------
STOCK AND STOCK/BOND FUNDS
AMCAP Fund . . . . . . . . . . . . 2102 2202 2302 2402 2502 2602
American Balanced Fund . . . . . . 2111 2211 2311 2411 2511 2611
American Mutual Fund . . . . . . . 2103 2203 2303 2403 2503 2603
Capital Income Builder . . . . . . 2112 2212 2312 2412 2512 2612
Capital World Growth and Income
Fund . . . . . . . . . . . . . . . 2133 2233 2333 2433 2533 2633
EuroPacific Growth Fund . . . . . 2116 2216 2316 2416 2516 2616
Fundamental Investors . . . . . . 2110 2210 2310 2410 2510 2610
The Growth Fund of America . . . . 2105 2205 2305 2405 2505 2605
The Income Fund of America . . . . 2106 2206 2306 2406 2506 2606
International Growth and Income
Fund . . . . . . . . . . . . . . . 2134 2234 2334 2434 2534 2634
The Investment Company of America 2104 2204 2304 2404 2504 2604
The New Economy Fund . . . . . . . 2114 2214 2314 2414 2514 2614
New Perspective Fund . . . . . . . 2107 2207 2307 2407 2507 2607
New World Fund . . . . . . . . . . 2136 2236 2336 2436 2536 2636
SMALLCAP World Fund . . . . . . . 2135 2235 2335 2435 2535 2635
Washington Mutual Investors Fund . 2101 2201 2301 2401 2501 2601
BOND FUNDS
American High-Income Trust . . . . 2121 2221 2321 2421 2521 2621
The Bond Fund of America . . . . . 2108 2208 2308 2408 2508 2608
Capital World Bond Fund . . . . . 2131 2231 2331 2431 2531 2631
Intermediate Bond Fund of America 2123 2223 2323 2423 2523 2623
Short-Term Bond Fund of America. . 2148 2248 2348 2448 2548 2648
U.S. Government Securities Fund . 2122 2222 2322 2422 2522 2622
MONEY MARKET FUNDS
American Funds Money Market Fund . 2159 2259 2359 2459 2559 2659
___________
*Qualified for sale only in certain jurisdictions.

American Balanced Fund -- Page 69
<PAGE>

FUND NUMBERS
---------------------------------------------------
CLASS CLASS CLASS CLASS CLASS CLASS
FUND CLASS A R-1 R-2 R-3 R-4 R-5 R-6
-------------------------------------------------------------------------------
AMERICAN FUNDS TARGET DATE RETIREMENT SERIES/(R)/
American Funds 2050 Target
Date Retirement Fund/(R)/ 069 2169 2269 2369 2469 2569 2669
American Funds 2045 Target
Date Retirement Fund/(R)/ 068 2168 2268 2368 2468 2568 2668
American Funds 2040 Target
Date Retirement Fund/(R)/ 067 2167 2267 2367 2467 2567 2667
American Funds 2035 Target
Date Retirement Fund/(R)/ 066 2166 2266 2366 2466 2566 2666
American Funds 2030 Target
Date Retirement Fund/(R)/ 065 2165 2265 2365 2465 2565 2665
American Funds 2025 Target
Date Retirement Fund/(R)/ 064 2164 2264 2364 2464 2564 2664
American Funds 2020 Target
Date Retirement Fund/(R)/ 063 2163 2263 2363 2463 2563 2663
American Funds 2015 Target
Date Retirement Fund/(R)/ 062 2162 2262 2362 2462 2562 2662
American Funds 2010 Target
Date Retirement Fund/(R)/ 061 2161 2261 2361 2461 2561 2661

American Balanced Fund -- Page 70
<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 71
<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 72
<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 73

....

[logo – American Funds®]

American Balanced Fund®

Investment portfolio

December 31, 2008

Common stocks — 62.78%	Shares			Value (000)

INFORMATION TECHNOLOGY — 13.32%
Microsoft Corp.		48,120,000		$	935,453
Cisco Systems, Inc.1		37,957,000			618,699
Oracle Corp.1		30,819,284			546,426
Nokia Corp. (ADR)		34,330,000			535,548
International Business Machines Corp.		5,850,000			492,336
Yahoo! Inc.1		27,359,000			333,780
Hewlett-Packard Co.		9,100,000			330,239
Intel Corp.		22,500,000			329,850
Applied Materials, Inc.		27,950,000			283,133
Google Inc., Class A1		860,000			264,579
EMC Corp.1		22,224,600			232,691
QUALCOMM Inc.		6,000,000			214,980
SAP AG (ADR)		5,000,000			181,100
Automatic Data Processing, Inc.		2,567,543			101,007
Intuit Inc.1		4,000,000			95,160
Paychex, Inc.		3,250,000			85,410
Corning Inc.		8,000,000			76,240
Texas Instruments Inc.		3,000,000			46,560
Tyco Electronics Ltd.		1,960,000			31,772
					5,734,963


HEALTH CARE — 8.97%
UnitedHealth Group Inc.		20,555,000			546,763
Eli Lilly and Co.		11,602,000			467,213
Abbott Laboratories		6,800,000			362,916
Wyeth		8,800,000			330,088
Pfizer Inc		14,000,000			247,940
Roche Holding AG2		1,558,422			238,404
Aetna Inc.		8,200,000			233,700
Bristol-Myers Squibb Co.		9,500,000			220,875
Medtronic, Inc.		7,000,000			219,940
Merck & Co., Inc.		7,227,200			219,707
Johnson & Johnson		3,500,000			209,405
Amgen Inc.1		2,900,000			167,475
Bayer AG, non-registered shares2		2,000,000			117,781
Schering-Plough Corp.		6,800,000			115,804
AstraZeneca PLC (ADR)		2,000,000			82,060
Stryker Corp.		2,000,000			79,900
					3,859,971


INDUSTRIALS — 7.66%
General Electric Co.		37,500,000			607,500
United Technologies Corp.		6,980,000			374,128
Deere & Co.		8,077,500			309,530
Boeing Co.		6,700,000			285,889
Northrop Grumman Corp.		5,735,000			258,304
FedEx Corp.		3,550,000			227,733
Burlington Northern Santa Fe Corp.		3,000,000			227,130
Emerson Electric Co.		5,250,000			192,202
Union Pacific Corp.		3,400,000			162,520
Parker Hannifin Corp.		3,000,000			127,620
General Dynamics Corp.		2,100,000			120,939
United Parcel Service, Inc., Class B		2,000,000			110,320
Tyco International Ltd.		4,710,000			101,736
Illinois Tool Works Inc.		2,850,000			99,892
European Aeronautic Defence and Space Co. EADS NV2		5,500,000			93,087
					3,298,530


ENERGY — 7.57%
Chevron Corp.		11,900,000			880,243
Exxon Mobil Corp.		6,000,000			478,980
Occidental Petroleum Corp.		7,400,000			443,926
Royal Dutch Shell PLC, Class B (ADR)		6,659,700			342,508
Royal Dutch Shell PLC, Class A (ADR)		1,450,000			76,763
Schlumberger Ltd.		7,950,000			336,524
Baker Hughes Inc.		6,500,000			208,455
TOTAL SA (ADR)		3,060,000			169,218
EnCana Corp.		3,000,000			140,238
ConocoPhillips		1,800,000			93,240
Diamond Offshore Drilling, Inc.		1,500,000			88,410
					3,258,505


FINANCIALS — 7.42%
Berkshire Hathaway Inc., Class A1		7,915			764,589
Wells Fargo & Co.		22,200,000			654,456
American Express Co.		16,479,000			305,685
JPMorgan Chase & Co.		8,521,500			268,683
Bank of America Corp.		18,150,000			255,552
Citigroup Inc.		31,340,000			210,291
Allstate Corp.		4,800,000			157,248
SunTrust Banks, Inc.		4,905,000			144,894
U.S. Bancorp		5,050,000			126,301
Chubb Corp.		2,200,000			112,200
Lincoln National Corp.		4,100,000			77,244
Comerica Inc.		2,857,775			56,727
Marsh & McLennan Companies, Inc.		2,100,000			50,967
American International Group, Inc.		6,400,000			10,048
					3,194,885


CONSUMER STAPLES — 7.24%
Wal-Mart Stores, Inc.		14,935,500			837,284
Philip Morris International Inc.		14,900,000			648,299
Coca-Cola Co.		12,950,000			586,247
Walgreen Co.		19,050,000			469,963
Altria Group, Inc.		10,213,300			153,812
Avon Products, Inc.		5,900,000			141,777
Unilever NV (New York registered)		4,500,000			110,475
H.J. Heinz Co.		2,750,000			103,400
Kraft Foods Inc., Class A		2,500,000			67,125
					3,118,382


CONSUMER DISCRETIONARY — 3.68%
Time Warner Inc.		35,250,000			354,615
Lowe’s Companies, Inc.		12,300,000			264,696
Home Depot, Inc.		8,600,000			197,972
Target Corp.		4,875,000			168,334
News Corp., Class A		16,000,000			145,440
Best Buy Co., Inc.		4,100,000			115,251
Carnival Corp., units		4,600,000			111,872
Nordstrom, Inc.		8,025,000			106,813
Magna International Inc., Class A		1,750,000			52,377
Macy’s, Inc.		4,500,000			46,575
Gannett Co., Inc.		2,400,000			19,200
					1,583,145


TELECOMMUNICATION SERVICES — 2.95%
AT&T Inc.		29,000,000			826,500
Verizon Communications Inc.		8,000,000			271,200
Vodafone Group PLC2		78,312,500			159,456
Sprint Nextel Corp., Series 11		8,000,000			14,640
					1,271,796


MATERIALS — 1.54%
E.I. du Pont de Nemours and Co.		11,822,818			299,117
Alcoa Inc.		17,500,000			197,050
Weyerhaeuser Co.		4,590,000			140,500
Dow Chemical Co.		1,800,000			27,162
					663,829


UTILITIES — 0.78%
Exelon Corp.		6,000,000			333,660


MISCELLANEOUS — 1.65%
Other common stocks in initial period of acquisition					709,864


Total common stocks (cost: $32,895,167,000)					27,027,530



Preferred stocks — 0.69%

FINANCIALS — 0.64%
BNP Paribas 7.195%3,4		57,200,000			36,442
BNP Paribas Capital Trust 9.003% noncumulative trust3,4		6,000,000			3,676
Bank of America Corp., Series K, 8.00% noncumulative4		42,000,000			30,254
Bank of America Corp., Series E, 0% depositary shares		746,800			8,739
JPMorgan Chase & Co., Series I, 7.90%4		40,750,000			33,987
SMFG Preferred Capital USD 1 Ltd. 6.078%3,4		30,671,000			20,845
SMFG Preferred Capital USD 3 Ltd. 9.50%3,4		10,000,000			9,212
XL Capital Ltd., Series C, 6.102%1,2,3		2,315,400			17,397
XL Capital Ltd., Series E, 6.50%4		25,035,000			5,763
Barclays Bank PLC 7.434%3,4		39,975,000			20,237
AXA SA, Series B, 6.379%3,4		42,000,000			18,821
QBE Capital Funding II LP 6.797%3,4		24,470,000			13,845
Citigroup Inc., Series E, 8.40%4		17,850,000			11,809
Lloyds TSB Group PLC 6.267%3,4		19,100,000			7,045
Aspen Insurance Holdings Ltd. 7.401% noncumulative4		515,000			6,389
DBS Capital Funding Corp., Series A, 7.657% noncumulative guaranteed preference shares3,4		5,500,000			5,491
Mizuho Capital Investment (USD) 1 Ltd. 6.686% noncumulative3,4		7,814,000			5,206
PNC Preferred Funding Trust I 6.517%3,4		12,000,000			5,200
ILFC E-Capital Trust II 6.25%3,4		8,030,000			3,357
ILFC E-Capital Trust I 5.90%3,4		4,500,000			1,443
Standard Chartered PLC 6.409%3,4		12,400,000			4,573
ING Capital Funding Trust III 8.439% noncumulative4		6,750,000			3,399
HBOS PLC 6.657%3,4		3,000,000			1,165
Fannie Mae, Series S, 8.25% noncumulative		839,700			724
					275,019


U.S. GOVERNMENT AGENCY SECURITIES — 0.01%
US AgBank 6.11%3,4		10,000,000			6,434


MISCELLANEOUS — 0.04%
Other preferred stocks in initial period of acquisition					17,449


Total preferred stocks (cost: $539,301,000)					298,902


	Principal amount
Bonds & notes — 29.87%		(000	)

MORTGAGE-BACKED OBLIGATIONS5 — 11.12%
Fannie Mae, Series 2000-T5, Class B, 7.30% 2010	$	52,930			56,396
Fannie Mae, Series 2001-T11, Class B, 5.503% 2011		45,000			48,244
Fannie Mae, Series 2003-T1, Class B, 4.491% 2012		16,000			16,873
Fannie Mae 4.89% 2012		30,000			31,466
Fannie Mae 4.00% 2015		17,882			17,730
Fannie Mae 5.00% 2018		3,138			3,238
Fannie Mae 5.00% 2018		1,747			1,802
Fannie Mae 11.00% 2018		426			488
Fannie Mae 5.50% 2019		2,826			2,925
Fannie Mae 5.50% 2020		40,246			41,606
Fannie Mae 11.00% 2020		124			135
Fannie Mae, Series 2003-48, Class TJ, 4.50% 2022		14,670			14,872
Fannie Mae 10.50% 2022		241			271
Fannie Mae, Series 2001-4, Class NA, 11.873% 20254		356			393
Fannie Mae 6.00% 2027		17,909			18,472
Fannie Mae 8.50% 2027		91			99
Fannie Mae 8.50% 2027		66			71
Fannie Mae 8.50% 2027		33			36
Fannie Mae 8.50% 2027		23			25
Fannie Mae, Series 2002-W3, Class A-5, 7.50% 2028		952			1,003
Fannie Mae 7.50% 2030		165			174
Fannie Mae 7.50% 2030		46			48
Fannie Mae 7.50% 2031		238			250
Fannie Mae 7.50% 2031		172			181
Fannie Mae, Series 2001-20, Class D, 11.038% 20314		98			111
Fannie Mae 5.50% 2032		3,362			3,461
Fannie Mae 5.50% 2033		32,907			33,862
Fannie Mae 5.50% 2033		24,413			25,110
Fannie Mae 5.50% 2033		4,147			4,267
Fannie Mae 5.50% 2035		14,748			15,159
Fannie Mae 5.50% 2035		8,774			9,017
Fannie Mae 6.50% 2035		16,869			17,617
Fannie Mae, Series 2006-43, Class JO, principal only, 0% 2036		6,530			5,465
Fannie Mae 5.50% 2036		30,341			31,165
Fannie Mae 5.50% 2036		3,869			3,974
Fannie Mae 5.50% 2036		3,629			3,728
Fannie Mae, Series 2006-49, Class PA, 6.00% 2036		16,536			17,032
Fannie Mae 6.00% 2036		7,765			8,010
Fannie Mae 6.50% 2036		12,375			12,653
Fannie Mae 6.50% 2036		11,218			11,674
Fannie Mae 5.632% 20374		29,332			29,980
Fannie Mae 6.00% 2037		115,403			119,032
Fannie Mae 6.00% 2037		81,752			84,323
Fannie Mae 6.00% 20372		25,920			26,009
Fannie Mae 6.00% 2037		19,424			20,034
Fannie Mae 6.50% 2037		64,881			66,338
Fannie Mae 6.50% 2037		24,469			25,019
Fannie Mae 6.50% 2037		10,023			10,430
Fannie Mae 6.50% 2037		4,179			4,273
Fannie Mae 6.50% 2037		2,708			2,769
Fannie Mae 7.00% 2037		44,743			46,033
Fannie Mae 7.00% 2037		43,098			45,203
Fannie Mae 7.00% 2037		15,991			16,452
Fannie Mae 7.00% 2037		12,364			12,721
Fannie Mae 7.00% 2037		12,021			12,368
Fannie Mae 7.00% 2037		8,317			8,557
Fannie Mae 7.00% 2037		5,838			6,006
Fannie Mae 4.50% 2038		31,914			32,406
Fannie Mae 6.50% 2038		55,876			58,144
Fannie Mae 4.50% 2039		110,000			111,616
Fannie Mae, Series 2001-T10, Class A-1, 7.00% 2041		676			712
Fannie Mae, Series 2001-50, Class BA, 7.00% 2041		625			651
Fannie Mae, Series 2002-W1, Class 2A, 7.50% 2042		864			912
Fannie Mae 6.50% 2047		9,398			9,574
Fannie Mae 6.50% 2047		5,271			5,369
Fannie Mae 6.50% 2047		4,096			4,172
Fannie Mae 6.50% 2047		3,368			3,431
Fannie Mae 6.50% 2047		3,087			3,145
Fannie Mae 6.50% 2047		2,758			2,809
Fannie Mae 6.50% 2047		1,293			1,317
Fannie Mae 7.00% 2047		7,741			7,935
Fannie Mae 7.00% 2047		4,666			4,783
Fannie Mae 7.00% 2047		3,359			3,443
Fannie Mae 7.00% 2047		3,015			3,091
Fannie Mae 7.00% 2047		2,913			2,986
Fannie Mae 7.00% 2047		2,645			2,712
Fannie Mae 7.00% 2047		1,604			1,644
Fannie Mae 7.00% 2047		1,314			1,347
Fannie Mae 7.00% 2047		708			726
Fannie Mae 7.00% 2047		384			393
Freddie Mac, Series 2310, Class B, 9.886% 20154		155			170
Freddie Mac 10.00% 2018		334			376
Freddie Mac 8.50% 2020		255			271
Freddie Mac 8.50% 2020		21			22
Freddie Mac 5.00% 2023		44,401			45,698
Freddie Mac 5.00% 2023		31,337			32,253
Freddie Mac 5.00% 2023		28,614			29,451
Freddie Mac 5.00% 2023		22,964			23,635
Freddie Mac 5.00% 2023		20,941			21,553
Freddie Mac 5.00% 2023		12,549			12,915
Freddie Mac 5.00% 2023		10,971			11,291
Freddie Mac 5.00% 2023		10,502			10,809
Freddie Mac 5.00% 2023		9,508			9,785
Freddie Mac 5.00% 2023		8,253			8,494
Freddie Mac 5.00% 2023		6,296			6,480
Freddie Mac 5.00% 2023		582			599
Freddie Mac 5.50% 2023		23,583			24,350
Freddie Mac 5.50% 2023		19,120			19,742
Freddie Mac 5.50% 2023		12,142			12,537
Freddie Mac 6.00% 2026		22,566			23,331
Freddie Mac 6.00% 2026		16,338			16,892
Freddie Mac 6.00% 2026		12,869			13,305
Freddie Mac 6.50% 2027		4,115			4,281
Freddie Mac 6.50% 2027		1,578			1,642
Freddie Mac 6.50% 2027		1,414			1,472
Freddie Mac 6.50% 2028		3,305			3,439
Freddie Mac, Series T-041, Class 3-A, 7.50% 2032		3,434			3,602
Freddie Mac, Series 3061, Class PN, 5.50% 2035		15,247			15,722
Freddie Mac, Series 3156, Class PO, principal only, 0% 2036		18,809			15,941
Freddie Mac, Series 3146, Class PO, principal only, 0% 20362		13,428			10,397
Freddie Mac, Series 3233, Class PA, 6.00% 2036		32,850			34,014
Freddie Mac 5.438% 20374		11,174			11,386
Freddie Mac, Series 3318, Class JT, 5.50% 2037		32,909			33,680
Freddie Mac 5.50% 2037		28,080			28,775
Freddie Mac, Series 3312, Class PA, 5.50% 2037		24,425			24,963
Freddie Mac 5.587% 20374		4,276			4,355
Freddie Mac 5.724% 20374		8,757			8,958
Freddie Mac, Series 3272, Class PA, 6.00% 2037		25,861			26,790
Freddie Mac 5.00% 2038		62,340			63,630
Freddie Mac 6.00% 2038		388,647			400,809
Freddie Mac 6.00% 2038		28,312			29,203
Freddie Mac 6.00% 2038		6,860			7,076
Freddie Mac 6.00% 2038		6,629			6,837
Freddie Mac 6.00% 2038		4,351			4,488
Government National Mortgage Assn. 9.00% 2009		8			8
Government National Mortgage Assn. 10.00% 2020		316			363
Government National Mortgage Assn. 10.00% 2021		524			604
Government National Mortgage Assn. 6.00% 2038		139,185			143,894
Government National Mortgage Assn. 6.50% 2038		74,057			77,248
Government National Mortgage Assn. 6.50% 2038		34,165			35,637
CS First Boston Mortgage Securities Corp., Series 2005-7, Class III-A-1, 5.00% 2020		10,212			7,953
CS First Boston Mortgage Securities Corp., Series 2002-34, Class I-A-1, 7.50% 2032		1,546			924
CS First Boston Mortgage Securities Corp., Series 2002-30, Class I-A-1, 7.50% 2032		1,179			900
CS First Boston Mortgage Securities Corp., Series 2003-21, Class V-A-1, 6.50% 2033		1,619			1,060
CS First Boston Mortgage Securities Corp., Series 2003-29, Class V-A-1, 7.00% 2033		2,492			2,233
CS First Boston Mortgage Securities Corp., Series 2001-CKN5, Class A-4, 5.435% 2034		21,982			20,366
CS First Boston Mortgage Securities Corp., Series 2004-5, Class IV-A-1, 6.00% 2034		7,286			5,074
CS First Boston Mortgage Securities Corp., Series 2001-CP4, Class A-4, 6.18% 2035		34,900			33,852
CS First Boston Mortgage Securities Corp., Series 2005-5, Class IV-A-1, 6.25% 2035		15,402			9,940
CS First Boston Mortgage Securities Corp., Series 2001-CK1, Class A-3, 6.38% 2035		36,093			34,962
CS First Boston Mortgage Securities Corp., Series 2006-2R, Class A-PO, principal only, 0% 20363		16,849			12,846
CS First Boston Mortgage Securities Corp., Series 2003-CK2, Class A-4, 4.801% 2036		17,585			14,552
CS First Boston Mortgage Securities Corp., Series 2001-CK6, Class A-3, 6.387% 2036		20,674			19,453
CS First Boston Mortgage Securities Corp., Series 2002-CKN2, Class A-3, 6.133% 2037		16,045			15,301
CS First Boston Mortgage Securities Corp., Series 2004-C4, Class A-2, 3.88% 2039		12,991			12,780
CS First Boston Mortgage Securities Corp., Series 2005-C6, Class A-3, 5.23% 20404		30,875			24,093
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2004-CIBC10, Class A-2, 3.89% 2037		4,593			4,532
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2002-CIBC5, Class A-1, 4.372% 2037		9,564			9,234
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2005-CIBC12, Class A-2, 4.739% 2037		2,068			1,945
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2005-CIBC12, Class A-3B, 5.317% 20374		63,000			52,181
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2002-C1, Class A-3, 5.376% 2037		10,680			9,533
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2003-ML1, Class A-1, 3.972% 2039		6,959			6,384
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2005-LDP4, Class A-2, 4.79% 2042		13,836			12,647
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2005-LDP4, Class A-SB, 4.824% 2042		25,000			20,222
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2006-LDP7, Class A-4, 5.875% 20454		20,375			16,049
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2005-LDP1, Class A-2, 4.625% 2046		34,265			32,348
Countrywide Alternative Loan Trust, Series 2005-6CB, Class 2-A-1, 5.00% 2020		3,146			2,447
Countrywide Alternative Loan Trust, Series 2006-J3, Class 3-A-1, 5.50% 2021		17,018			11,270
Countrywide Alternative Loan Trust, Series 2004-5CB, Class 1-A-1, 6.00% 2034		9,801			6,336
Countrywide Alternative Loan Trust, Series 2005-40CB, Class A-1, 5.50% 2035		20,059			14,816
Countrywide Alternative Loan Trust, Series 2005-54CB, Class 1-A-7, 5.50% 2035		13,208			11,654
Countrywide Alternative Loan Trust, Series 2005-64CB, Class 1-A-7, 5.50% 2035		11,826			8,685
Countrywide Alternative Loan Trust, Series 2004-28CB, Class 5-A-1, 5.75% 2035		14,539			12,289
Countrywide Alternative Loan Trust, Series 2004-36CB, Class 1-A-1, 6.00% 2035		19,414			15,162
Countrywide Alternative Loan Trust, Series 2005-50CB, Class 3-A-1, 6.00% 2035		10,445			5,290
Countrywide Alternative Loan Trust, Series 2006-6CB, Class 1-A-1, 5.50% 2036		7,118			5,650
Countrywide Alternative Loan Trust, Series 2007-14T2, Class A-4, 0.821% 20372,4		20,105			8,444
Countrywide Alternative Loan Trust, Series 2007-2CB, Class 1-A-9, 5.75% 2037		12,855			6,181
Countrywide Alternative Loan Trust, Series 2007-HY4, Class 3-A-1, 5.854% 20474		34,084			15,793
Structured Adjustable Rate Mortgage Loan Trust, Series 2006-4, Class 5-A-1, 5.892% 20364		103,304			52,259
Structured Adjustable Rate Mortgage Loan Trust, Series 2006-4, Class 6-A, 5.923% 20364		22,618			11,390
Structured Adjustable Rate Mortgage Loan Trust, Series 2006-2, Class 5-A-1, 6.00% 20364		43,847			20,468
Structured Adjustable Rate Mortgage Loan Trust, Series 2006-12, Class 2-A1, 5.929% 20374		19,510			9,327
Wachovia Bank Commercial Mortgage Trust, Series 2005-C16, Class A-PB, 4.692% 2041		32,750			27,364
Wachovia Bank Commercial Mortgage Trust, Series 2005-C17, Class A-2, 4.782% 2042		24,123			22,665
Wachovia Bank Commercial Mortgage Trust, Series 2005-C17, Class A-4, 5.083% 20424		50,455			41,024
Wells Fargo Mortgage-backed Securities Trust, Series 2003-16, Class II-A-1, 4.50% 2018		18,011			16,332
Wells Fargo Mortgage-backed Securities Trust, Series 2006-1, Class A-3, 5.00% 2021		17,206			13,251
Wells Fargo Mortgage-backed Securities Trust, Series 2003-B, Class A-1, 4.15% 20334		2,860			2,286
Wells Fargo Mortgage-backed Securities Trust, Series 2005-AR10, Class II-A-6, 4.232% 20354		30,000			20,459
Wells Fargo Mortgage-backed Securities Trust, Series 2006-AR19, Class A-6, 5.629% 20364		22,000			12,243
Wells Fargo Mortgage-backed Securities Trust, Series 2006-AR15, Class A-1, 5.665% 20364		31,425			22,076
GMAC Commercial Mortgage Securities, Inc., Series 2001-C1, Class A-2, 6.465% 2034		81,096			78,229
GMAC Commercial Mortgage Securities, Inc., Series 1999-C3, Class F, 7.896% 20364		4,000			3,984
GMAC Commercial Mortgage Securities, Inc., Series 2002-C2, Class A-2, 5.389% 2038		2,535			2,410
Residential Accredit Loans, Inc., Series 2004-QS6, Class A-1, 5.00% 2019		13,477			11,425
Residential Accredit Loans, Inc., Series 2004-QS16, Class 1-A-1, 5.50% 2034		22,188			15,743
Residential Accredit Loans, Inc., Series 2005-QR1, Class A, 6.00% 2034		32,348			18,647
Residential Accredit Loans, Inc., Series 2006-QA1, Class A-III-1, 6.236% 20364		23,132			11,062
Residential Accredit Loans, Inc., Series 2007-QS9, Class A-33, 6.50% 2037		43,444			22,604
GE Commercial Mortgage Corp., Series 2004-C1, Class A-2, 3.915% 2038		1,439			1,314
GE Commercial Mortgage Corp., Series 2005-C3, Class A-4, 5.046% 20454		24,730			22,170
GE Commercial Mortgage Corp., Series 2005-C4, Class A-3A, 5.334% 20454		65,575			53,266
Banc of America Commercial Mortgage Inc., Series 2002-PB2, Class A-4, 6.186% 2035		4,350			4,038
Banc of America Commercial Mortgage Inc., Series 2001-1, Class A-2, 6.503% 2036		40,802			40,090
Banc of America Commercial Mortgage Inc., Series 2005-4, Class A-2, 4.764% 2045		23,175			20,819
Tower Ventures, LLC, Series 2006-1, Class A1-FX, 5.361% 20363		22,800			20,287
Tower Ventures, LLC, Series 2006-1, Class A-2, 5.45% 20362,3		31,000			26,578
Tower Ventures, LLC, Series 2006-1, Class C, 5.707% 20363		15,000			11,250
Bear Stearns Commercial Mortgage Securities Inc., Series 2002-PBW1, Class A-1, 3.97% 2035		7,647			7,424
Bear Stearns Commercial Mortgage Securities Inc., Series 2001-TOP2, Class A-2, 6.48% 2035		13,205			12,908
Bear Stearns Commercial Mortgage Securities Inc., Series 2005-PW10, Class AM, 5.449% 20404		20,000			11,948
Bear Stearns Commercial Mortgage Securities Inc., Series 2005-PWR9, Class A-2, 4.735% 2042		28,000			25,416
Commercial Mortgage Trust, Series 2000-C1, Class E, 8.132% 2033		4,000			3,950
Commercial Mortgage Trust, Series 2003-LNB1, Class A-2, 4.084% 2038		39,825			34,345
Commercial Mortgage Trust, Series 2004-LNB2, Class A-3, 4.221% 2039		17,217			16,108
Morgan Stanley Mortgage Loan Trust, Series 2004-3, Class 4-A, 5.68% 20344		21,628			20,048
Morgan Stanley Mortgage Loan Trust, Series 2005-10, Class 4-A-1, 5.50% 2035		33,561			21,420
Morgan Stanley Mortgage Loan Trust, Series 2007-11AR, Class 2-A-1, 6.617% 20374		25,583			11,347
Bear Stearns ARM Trust, Series 2003-3, Class III-A-1, 5.131% 20334		2,705			1,995
Bear Stearns ARM Trust, Series 2003-9, Class III-A-3, 4.33% 20344		18,685			11,557
Bear Stearns ARM Trust, Series 2003-9, Class III-A-2, 4.955% 20344		12,570			8,344
Bear Stearns ARM Trust, Series 2005-10, Class A-3, 4.65% 20354		20,000			11,601
Bear Stearns ARM Trust, Series 2005-6, Class I-A-1, 4.87% 20354		21,164			11,258
Bear Stearns ARM Trust, Series 2006-4, Class II-A-1, 5.779% 20364		14,142			7,519
American Tower Trust I, Series 2007-1A, Class A-FX, 5.42% 20373		18,300			15,032
American Tower Trust I, Series 2007-1A, Class B, 5.537% 20372,3		20,000			15,162
American Tower Trust I, Series 2007-1A, Class D, 5.957% 20372,3		32,200			19,320
Salomon Brothers Commercial Mortgage Trust, Series 2001-C1, Class A-3, 6.428% 2035		50,200			49,157
Bank of America 5.50% 20123		44,500			45,866
Wells Fargo Alternative Loan Trust, Series 2007-PA3, Class III-A-1, 6.25% 2037		64,544			34,890
Wells Fargo Alternative Loan Trust, Series 2007-PA3, Class IV-A-1, 6.50% 2037		23,064			10,141
CHL Mortgage Pass-Through Trust, Series 2003-J1, Class 3-A-1, 5.00% 2018		14,233			13,844
CHL Mortgage Pass-Through Trust, Series 2003-HYB3, Class 4-A-1, 4.91% 20334		1,355			915
CHL Mortgage Pass-Through Trust, Series 2003-56, Class 6-A-1, 5.312% 20334		7,091			5,220
CHL Mortgage Pass-Through Trust, Series 2005-HYB8, Class 4-A-1, 5.563% 20354		24,302			13,689
CHL Mortgage Pass-Through Trust, Series 2006-HYB5, Class 3-A-1B, 5.911% 20364		13,735			6,616
SBA CMBS Trust, Series 2005-1, Class A, 5.369% 20352,3		16,250			13,000
SBA CMBS Trust, Series 2005-1, Class D, 6.219% 20352,3		4,000			2,600
SBA CMBS Trust, Series 2006-1A, Class A, 5.314% 20362,3		27,350			21,880
SBA CMBS Trust, Series 2006-1A, Class B, 5.451% 20362,3		2,000			1,540
Citigroup-Deutsche Bank Commercial Mortgage Trust, Series 2006-CD3, Class A-5, 5.617% 2048		46,550			35,459
First Horizon Alternative Mortgage Securities Trust, Series 2005-FA8, Class I-A-14, 5.50% 2035		23,938			19,632
First Horizon Alternative Mortgage Securities Trust, Series 2005-FA11, Class I-A-5, 5.75% 2036		21,844			14,741
Bear Stearns Asset-backed Securities I Trust, Series 2005-AC3, Class II-A-1, 5.25% 2020		37,480			32,090
Structured Products Asset Return Certificates Trust, Series 2001-CF1, Class A, 6.36% 20332		33,305			31,691
GE Capital Commercial Mortgage Corp., Series 2002-2, Class A-3, 5.349% 2036		10,000			8,884
GE Capital Commercial Mortgage Corp., Series 2002-3, Class A-1, 4.229% 2037		23,201			21,905
Nationwide Building Society, Series 2007-2, 5.50% 20123		32,500			30,114
GS Mortgage Securities Corp. II, Series 2001-ROCK, Class D, 6.878% 20183		15,000			15,631
GS Mortgage Securities Corp. II, Series 1998-C1, Class D, 15.51% 20304		1,956			1,949
GS Mortgage Securities Corp. II, Series 2006-GG8, Class A-4, 5.56% 2039		11,880			9,017
J.P. Morgan Mortgage Trust, Series 2006-A3, Class 3-A-3, 5.734% 20364		40,000			20,043
J.P. Morgan Mortgage Trust, Series 2006-A7, Class 2-A-4, 5.793% 20374		9,890			4,536
American Home Mortgage Assets Trust, Series 2007-3, Class II-2A-1, 6.25% 20374		53,882			24,349
IndyMac INDX Mortgage Loan Trust, Series 2006-AR5, Class 2-A-1, 5.762% 20364		12,677			6,231
IndyMac INDX Mortgage Loan Trust, Series 2006-AR11, Class 6-A-1, 5.84% 20364		21,370			9,339
IndyMac INDX Mortgage Loan Trust, Series 2006-AR25, Class 3-A-1, 6.253% 20364		14,966			7,046
Crown Castle Towers LLC, Series 2005-1, Class A-FX, 4.643% 20353		25,000			21,250
L.A. Arena Funding, LLC, Series 1, Class A, 7.656% 20263		22,411			19,675
Chase Commercial Mortgage Securities Corp., Series 2000-1, Class A-2, 7.757% 2032		20,038			19,631
IndyMac IMSC Mortgage Loan Trust, Series 2007-F3, Class 3-A-1, 7.00% 2037		35,544			19,419
Citigroup Commercial Mortgage Trust, Series 2004-C2, Class A-4, 4.623% 2041		21,190			18,514
LB-UBS Commercial Mortgage Trust, Series 2000-C3, Class A-2, 7.95% 2025		3,590			3,608
LB-UBS Commercial Mortgage Trust, Series 2002-C1, Class A-4, 6.462% 2031		13,185			12,313
WaMu Mortgage Pass-Through Certificates Trust, Series 2007-HY7, Class 2-A1, 5.859% 20374		31,196			15,785
Prudential Mortgage Capital Funding, LLC, Series ROCK 2001-C1, Class A-2, 6.605% 2034		15,293			15,018
Four Times Square Trust, Series 2000-4TS, Class C, 7.86% 20153		14,000			14,560
GSR Mortgage Loan Trust, Series 2004-2F, Class XIIIA-1, 5.00% 2019		6,898			6,278
GSR Mortgage Loan Trust, Series 2004-15F, Class 5A-1, 5.50% 2020		7,123			6,498
Bear Stearns ALT-A Trust, Series 2006-2, Class II-4-A-1, 5.903% 20364		27,950			12,494
First Union National Bank Commercial Mortgage Trust, Series 2002-C1, Class A-1, 5.585% 2034		2,484			2,451
First Union National Bank Commercial Mortgage Trust, Series 2002-C1, Class A-2, 6.141% 2034		8,810			8,464
Washington Mutual Mortgage, WMALT Series 2005-1, Class 5-A-1, 6.00% 2035		16,735			9,647
Morgan Stanley Dean Witter Capital I Trust, Series 2000-PRIN, Class C, 7.735% 20344		7,435			6,846
Morgan Stanley Dean Witter Capital I Trust, Series 2001-TOP5, Class A-3, 6.16% 2035		921			916
Morgan Stanley Dean Witter Capital I Trust, Series 2003-TOP9, Class A-1, 3.98% 2036		1,800			1,686
Meristar Commercial Mortgage Trust, Series 1999-C1, Class A-1, 7.28% 20163		1,227			1,238
Meristar Commercial Mortgage Trust, Series 1999-C1, Class B, 7.90% 20163		7,750			7,918
Banc of America Alternative Loan Trust, Series 2005-2, Class 3-A-1, 5.00% 2020		9,268			8,527
Merrill Lynch Mortgage Trust, Series 2005-LC1, Class A-2, 5.202% 20444		8,175			7,646
Citigroup Mortgage Loan Trust, Inc., Series 2005-8, Class I-A4A, 5.572% 20352,4		11,373			6,184
Residential Funding Corp., Series 2003-RM2, Class A-II, 5.00% 2018		6,122			5,572
Structured Asset Securities Corp., Series 2004-3, Class 3-A-1, 5.50% 2019		4,918			4,334
Structured Asset Securities Corp., Series 1998-RF2, Class A, 8.461% 20273,4		1,007			1,006
Merrill Lynch Mortgage Investors, Inc., Series 1999-C1, Class A-2, 7.56% 2031		5,009			4,997
GMAC Mortgage Loan Trust, Series 2006-AR1, Class 2-A-1, 5.63% 20364		6,920			4,335
Lehman Mortgage Trust, Series 2005-1, Class 6-A1, 5.00% 2020		5,019			4,317
Adjustable Rate Mortgage Trust, Series 2006-1, Class 3-A-3, 5.882% 20364		6,317			4,314
Hilton Hotel Pool Trust, Series 2000-HLTA, Class A-1, 7.055% 20153		2,856			2,924
Banc of America Mortgage Securities, Inc., Series 2003-G, Class 2-A-1, 4.842% 20334		3,408			2,891
MASTR Alternative Loan Trust, Series 2005-3, Class 1-A-1, 5.50% 2035		3,379			2,368
Host Marriott Pool Trust, Series 1999-HMTA, Class A, 6.98% 20153		1,061			1,069
Morgan Stanley Capital I Trust, Series 2003-IQ5, Class C, 5.325% 20384		1,200			507
Morgan Stanley Capital I, Inc., Series 1999-FNV1, Class A-2, 6.53% 2031		359			358
DLJ Commercial Mortgage Corp., Series 1999-CG1, Class A-1B, 6.46% 2032		19			19
					4,785,876


CORPORATE BONDS & NOTES — 9.57%
FINANCIALS — 3.14%
Citigroup Inc. 4.125% 2010		20,000			19,714
Citigroup Inc. 6.50% 2013		15,000			15,151
Citigroup Inc. 6.00% 2017		10,272			10,242
Citigroup Capital XXI 8.30% 20774		44,800			34,629
Liberty Mutual Group Inc. 6.50% 20353		19,845			11,404
Liberty Mutual Group Inc. 7.50% 20363		25,350			15,467
Liberty Mutual Group Inc., Series A, 7.80% 20873		1,805			811
Liberty Mutual Group Inc., Series C, 10.75% 20883,4		36,795			20,263
Liberty Mutual Group Inc. 7.697% 20973		22,180			14,769
UniCredito Italiano SpA 5.584% 20173,4		40,000			35,000
UniCredito Italiano SpA 6.00% 20173		10,000			8,352
CIT Group Inc. 7.625% 2012		21,000			17,742
CIT Group Inc. 5.40% 2013		31,000			23,432
CIT Group Inc. 6.10% 20674		5,000			1,546
American Express Bank 5.50% 2013		21,300			20,195
American Express Co. 6.15% 2017		22,800			22,017
Berkshire Hathaway Finance Corp. 4.60% 2013		21,000			21,020
Berkshire Hathaway Finance Corp. 5.00% 2013		20,000			20,366
PRICOA Global Funding I 4.20% 20103		11,000			10,792
Prudential Financial, Inc., Series D, 5.50% 2016		14,000			11,296
Prudential Holdings, LLC, Series C, 8.695% 20233,5		19,500			18,830
Metropolitan Life Global Funding I, 5.125% 20133		12,000			11,192
MetLife Capital Trust X 9.25% 20683,4		41,900			29,283
JPMorgan Chase & Co. 4.891% 20154		20,000			20,104
JPMorgan Chase Bank NA 6.00% 2017		5,000			5,052
JPMorgan Chase Capital XXV, Series Y, 6.80% 2037		14,865			13,737
New York Life Global Funding 3.875% 20093		13,500			13,503
New York Life Global Funding 5.25% 20123		25,000			24,545
Westfield Group 5.70% 20163		36,430			24,368
Westfield Group 7.125% 20183		15,750			11,190
CNA Financial Corp. 5.85% 2014		25,000			18,289
CNA Financial Corp. 6.50% 2016		16,000			11,346
CNA Financial Corp. 7.25% 2023		8,000			5,003
Kimco Realty Corp. 6.00% 2012		2,750			2,129
Kimco Realty Corp., Series C, 4.82% 2014		13,000			9,264
Kimco Realty Corp., Series C, 5.783% 2016		14,000			8,895
Kimco Realty Corp. 5.70% 2017		21,180			13,337
Countrywide Financial Corp., Series B, 2.946% 20124		15,000			12,975
Bank of America Corp. 5.30% 2017		10,200			9,701
MBNA Global Capital Funding, Series B, 3.993% 20274		18,000			10,777
Developers Diversified Realty Corp. 3.875% 2009		7,500			7,331
Developers Diversified Realty Corp. 4.625% 2010		28,625			20,172
Developers Diversified Realty Corp. 5.50% 2015		13,000			5,467
Fifth Third Bancorp 8.25% 2038		9,000			7,453
Fifth Third Capital Trust IV 6.50% 20674		50,500			25,268
Household Finance Corp. 6.375% 2012		13,000			12,730
HSBC Holdings PLC 6.50% 2037		17,200			17,525
Midland Bank 2.063% Eurodollar note (undated)4		4,000			2,140
Monumental Global Funding 5.50% 20133		12,000			11,331
Monumental Global Funding III 4.953% 20143,4		29,000			19,255
Royal Bank of Scotland Group PLC 6.99% (undated)3,4		65,483			29,795
Royal Bank of Scotland Group PLC, Series U, 7.64% (undated)4		1,800			718
HBOS PLC 6.75% 20183		34,050			30,017
Simon Property Group, LP 5.30% 2013		11,750			8,792
Simon Property Group, LP 5.875% 2017		15,165			10,142
Simon Property Group, LP 6.125% 2018		15,160			10,260
Principal Life Insurance Co. 3.20% 2009		14,000			14,028
Principal Life Insurance Co. 5.30% 2013		15,500			14,533
Santander Issuances, SA Unipersonal 5.805% 20163,4		20,000			18,003
Santander Perpetual, SA Unipersonal 6.671% (undated)3,4		15,400			9,809
American General Finance Corp., Series I, 5.85% 2013		2,500			950
International Lease Finance Corp., Series R, 5.65% 2014		16,000			10,463
American General Finance Corp., Series I, 5.40% 2015		7,500			2,805
American General Finance Corp., Series J, 6.50% 2017		19,000			7,833
American International Group, Inc. 8.175% 20583,4		11,820			4,604
ERP Operating LP 4.75% 2009		6,730			6,613
ERP Operating LP 5.375% 2016		25,000			17,643
Goldman Sachs Group, Inc. 6.15% 2018		24,000			23,103
ProLogis 5.50% 2012		15,000			9,043
ProLogis 5.625% 2015		13,030			6,492
ProLogis 6.625% 2018		15,500			7,424
Allstate Life Global Funding Trust, Series 2008-4, 5.375% 2013		13,000			12,809
Allstate Corp., Series B, 6.125% 20674		9,600			5,584
Allstate Corp., Series A, 6.50% 20674		7,290			4,108
Glen Meadow Pass-Through Trust 6.505% 20673,4		36,750			14,781
Hartford Financial Services Group, Inc. 8.125% 20684		12,250			6,458
American Honda Finance Corp. 5.125% 20103		20,500			20,226
Hospitality Properties Trust 6.85% 2012		2,000			1,297
Hospitality Properties Trust 6.75% 2013		14,720			9,118
Hospitality Properties Trust 6.70% 2018		21,025			9,792
Lincoln National Corp. 5.65% 2012		10,250			8,454
Lincoln National Corp. 7.00% 20664		27,583			11,597
ACE INA Holdings Inc. 5.875% 2014		20,000			18,639
Protective Life Insurance Co., Series 2005-C, 4.85% 2010		18,000			16,814
PNC Funding Corp. 3.62% 20144		15,000			12,110
PNC Funding Corp., Series II, 6.113% (undated)3,4		10,200			4,215
Lazard Group LLC 7.125% 2015		25,500			16,212
Charles Schwab Corp., Series A, 6.375% 2017		10,000			9,269
Schwab Capital Trust I 7.50% 20374		11,750			5,886
John Hancock Global Funding II, Series 2004-A, 3.50% 20093		14,000			13,984
Assurant, Inc. 5.625% 2014		15,320			11,655
United Dominion Realty Trust, Inc. 6.50% 2009		7,375			7,133
United Dominion Realty Trust, Inc. 5.00% 2012		6,000			4,493
Loews Corp. 6.00% 2035		14,000			10,946
Zions Bancorporation 6.00% 2015		14,320			10,663
Catlin Insurance Ltd. 7.249% (undated)3,4		25,135			10,008
Nationwide Financial Services, Inc. 6.75% 20674		21,950			9,858
iStar Financial, Inc. 5.375% 2010		8,250			3,796
iStar Financial, Inc. 6.50% 2013		3,000			901
iStar Financial, Inc. 5.875% 2016		17,000			4,850
Standard Chartered Bank 6.40% 20173		10,800			8,997
ZFS Finance (USA) Trust V 6.50% 20673,4		21,590			8,863
Resona Bank, Ltd. 5.85% (undated)3,4		15,000			8,514
Capmark Financial Group Inc. 5.875% 2012		23,874			8,146
Capmark Financial Group Inc. 6.30% 2017		1,300			358
Sovereign Bancorp, Inc. 8.75% 2018		9,000			8,269
Chubb Corp. 6.375% 20674		12,440			7,726
Federal Realty Investment Trust 4.50% 2011		8,500			7,150
Nationwide Mutual Insurance 5.81% 20242,3,4		10,000			4,956
Nationwide Mutual Insurance Co. 7.875% 20333		3,425			2,024
Silicon Valley Bank 5.70% 2012		8,000			6,950
Wells Fargo & Co. 4.375% 2013		6,920			6,782
City National Corp. 5.125% 2013		7,000			6,001
ING Groep NV 5.775% (undated)4		10,300			4,416
Credit Agricole SA 6.637% (undated)3,4		8,000			3,800
Bank of Nova Scotia 3.25% 20854		4,000			1,877
Den Norske CreditBank 2.50% (undated)4		3,000			1,441
Canadian Imperial Bank of Commerce 3.25% Eurodollar note 20852,4		1,600			778
					1,352,174


TELECOMMUNICATION SERVICES — 1.21%
SBC Communications Inc. 4.125% 2009		10,000			10,043
SBC Communications Inc. 6.25% 2011		10,000			10,230
AT&T Wireless Services, Inc. 7.875% 2011		12,170			12,605
AT&T Wireless Services, Inc. 8.125% 2012		5,230			5,613
AT&T Inc. 4.95% 2013		16,250			16,354
SBC Communications Inc. 5.10% 2014		15,000			14,763
SBC Communications Inc. 5.625% 2016		49,300			49,595
BellSouth Capital Funding Corp. 7.875% 2030		51,500			56,655
AT&T Corp. 8.00% 20314		15,000			18,897
SBC Communications Inc. 6.45% 2034		40,000			41,998
AT&T Inc. 6.50% 2037		17,010			18,381
Verizon Global Funding Corp. 7.25% 2010		30,000			31,465
Verizon Communications Inc. 5.50% 2017		9,475			9,185
Verizon Communications Inc. 6.10% 2018		21,250			21,210
Verizon Global Funding Corp. 7.75% 2030		9,395			10,447
Verizon Communications Inc. 6.25% 2037		50,000			51,950
Verizon Communications Inc. 6.90% 2038		4,500			5,081
Verizon Communications Inc. 8.95% 2039		8,500			11,013
Telecom Italia Capital SA 5.25% 2015		38,425			29,290
Telecom Italia Capital SA 7.20% 2036		16,000			12,351
Telecom Italia Capital SA 7.721% 2038		31,500			25,935
Vodafone Group PLC 6.15% 2037		18,000			17,851
British Telecommunications PLC 5.15% 2013		16,250			15,493
British Telecommunications PLC 5.95% 2018		855			745
Deutsche Telekom International Finance BV 5.875% 2013		12,500			12,376
Nextel Communications, Inc., Series E, 6.875% 2013		26,000			11,056
					520,582


CONSUMER DISCRETIONARY — 1.19%
AOL Time Warner Inc. 6.875% 2012		49,750			47,829
Time Warner Inc. 5.875% 2016		14,210			12,758
AOL Time Warner Inc. 7.625% 2031		25,315			24,946
Time Warner Inc. 6.50% 2036		20,000			18,187
Comcast Corp. 5.45% 2010		25,000			24,721
Comcast Corp. 5.85% 2015		13,000			12,314
Comcast Corp. 6.45% 2037		16,500			16,473
Comcast Corp. 6.95% 2037		34,250			36,182
Comcast Corp. 6.40% 2038		13,425			13,438
Time Warner Cable Inc. 6.75% 2018		55,370			53,402
Cox Communications, Inc. 4.625% 2010		25,000			24,196
Cox Communications, Inc. 7.75% 2010		15,000			14,729
Cox Communications, Inc. 5.45% 2014		15,500			13,572
News America Holdings Inc. 9.25% 2013		17,500			18,859
News America Inc. 5.30% 2014		8,750			8,069
News America Inc. 6.65% 2037		17,500			17,376
Thomson Reuters Corp. 5.95% 2013		8,140			7,586
Thomson Reuters Corp. 6.50% 2018		30,030			27,354
Viacom Inc. 5.75% 2011		35,000			31,803
Macy’s Retail Holdings, Inc. 7.875% 2015		17,000			12,259
Federated Retail Holdings, Inc. 5.90% 2016		4,660			2,833
Federated Retail Holdings, Inc. 6.375% 2037		3,325			1,876
Omnicom Group Inc. 5.90% 2016		20,000			16,263
Toll Brothers, Inc. 4.95% 2014		20,000			15,074
Seminole Tribe of Florida 5.798% 20133,5		11,185			10,246
McGraw-Hill Companies, Inc. 5.375% 2012		11,000			10,016
ERAC USA Finance Co. 7.00% 20373		15,000			8,278
J.C. Penney Corp., Inc. 5.75% 2018		10,400			6,915
Johnson Controls, Inc. 5.50% 2016		8,000			6,208
					513,762


INDUSTRIALS — 0.95%
Continental Airlines, Inc., Series 2001-1, Class A-2, 6.503% 20115		5,000			3,875
Continental Airlines, Inc., Series 1999-2, Class A-2, 7.056% 20115		3,085			2,962
Continental Airlines, Inc., Series 2000-2, Class A-2, 7.487% 20125		300			270
Continental Airlines, Inc., Series 1997-1, Class A, 7.461% 20165		18,731			12,924
Continental Airlines, Inc., Series 1998-1, Class A, 6.648% 20195		9,634			7,033
Continental Airlines, Inc., Series 1997-4, Class A, 6.90% 20195		4,951			3,961
Continental Airlines, Inc., Series 1999-1, Class A, 6.545% 20205		12,181			9,745
Continental Airlines, Inc., Series 1999-2, Class A-1, 7.256% 20215		1,573			1,212
Continental Airlines, Inc., Series 2001-1, Class A-1, 6.703% 20225		7,943			5,958
Continental Airlines, Inc., Series 2007-1, Class B, 6.903% 20225		9,045			4,788
Continental Airlines, Inc., Series 2000-2, Class A-1, 7.707% 20225		14,466			11,283
General Electric Co. 5.00% 2013		20,000			20,244
General Electric Co. 5.25% 2017		24,250			24,219
Burlington Northern Santa Fe Corp. 7.00% 2014		31,850			33,273
BNSF Funding Trust I 6.613% 20554		6,175			3,898
BAE SYSTEMS 2001 Asset Trust, Series 2001, Class B, 7.156% 20112,3,5		22,288			19,416
BAE SYSTEMS 2001 Asset Trust, Series 2001, Class G, MBIA insured, 6.664% 20133,5		15,581			14,908
Delta Air Lines, Inc., Series 2002-1, Class G-2, MBIA insured, 6.417% 20145		29,550			21,394
Delta Air Lines, Inc., Series 2002-1, Class G-1, MBIA insured, 6.718% 20245		19,152			12,066
Union Pacific Corp. 5.75% 2017		4,325			4,108
Union Pacific Corp. 5.70% 2018		29,150			28,115
CSX Corp. 5.75% 2013		7,670			7,213
CSX Corp. 6.25% 2015		5,990			5,887
CSX Corp. 6.15% 2037		17,645			14,161
Caterpillar Financial Services Corp., Series F, 6.20% 2013		23,940			24,705
Koninklijke Philips Electronics NV 5.75% 2018		23,500			21,689
American Airlines, Inc., Series 2003-1, Class G, AMBAC insured, 3.857% 20125		5,131			4,509
American Airlines, Inc., Series 2001-2, Class A-1, 6.978% 20125		3,702			3,291
American Airlines, Inc., Series 2001-2, Class B, 8.608% 20125		3,000			2,078
American Airlines, Inc., Series 2001-2, Class A-2, 7.858% 20135		13,650			11,005
Norfolk Southern Corp. 5.75% 2018		15,500			15,109
Atlas Copco AB 5.60% 20173		14,000			13,173
John Deere Capital Corp., Series D, 3.75% 2009		12,000			12,003
Hutchison Whampoa International Ltd. 6.50% 20133		10,000			9,824
United Air Lines, Inc., Series 2001-1, Class A-2, 6.201% 20105		238			222
United Air Lines, Inc., Series 2001-1, Class A-3, 6.602% 20155		704			658
United Air Lines, Inc., Series 2007-1, Class A, 6.636% 20245		14,453			8,554
Canadian National Railway Co. 4.95% 2014		6,000			5,887
Southern Capital Corp. Pass Through Trust, Series 2002-1, Class G, MBIA insured, 5.70% 20233,5		1,261			1,265
					406,885


UTILITIES — 0.80%
National Rural Utilities Cooperative Finance Corp. 5.50% 2013		65,500			63,548
National Rural Utilities Cooperative Finance Corp., Collateral Trust Bonds, 10.375% 2018		8,450			9,906
MidAmerican Energy Holdings Co., Series D, 5.00% 2014		18,000			17,047
MidAmerican Energy Holdings Co. 5.75% 2018		30,925			30,219
MidAmerican Energy Holdings Co. 6.125% 2036		9,750			9,095
MidAmerican Energy Holdings Co. 6.50% 2037		5,000			4,896
Pacific Gas and Electric Co., First Mortgage Bonds, 3.60% 2009		9,500			9,474
Pacific Gas and Electric Co., First Mortgage Bonds, 6.05% 2034		20,000			21,312
PSEG Power LLC 3.75% 2009		14,700			14,664
Public Service Electric and Gas Co., Series E, 5.30% 2018		8,500			8,271
E.ON International Finance BV 5.80% 20183		24,450			22,900
Abu Dhabi National Energy Co. PJSC (TAQA) 5.875% 20163		15,350			12,578
Abu Dhabi National Energy Co. PJSC (TAQA) 6.50% 20363		14,000			10,028
Exelon Corp. 4.45% 2010		20,000			19,314
Southern California Edison Co., First and Refunding Mortgage Bonds, Series 2005-A, 5.00% 2016		16,000			16,213
Alabama Power Co., Series FF, 5.20% 2016		16,000			15,700
San Diego Gas & Electric Co., Series CCC, 5.30% 2015		15,000			15,411
Veolia Environnement 5.25% 2013		16,500			15,316
Virginia Electric and Power Co., Series 2003-B, 4.50% 2010		3,500			3,456
Virginia Electric and Power Co., Series B, 5.95% 2017		10,000			10,083
Appalachian Power Co., Series M, 5.55% 2011		7,800			7,731
Tri-State Generation and Transmission Assn. Inc., Pass Through Trust, Series 2003-A, 6.04% 20183,5		4,453			4,272
Kern River Funding Corp. 4.893% 20183,5		5,096			4,011
					345,445


ENERGY — 0.75%
Kinder Morgan Energy Partners LP 6.00% 2017		41,610			36,180
Kinder Morgan Energy Partners LP 6.50% 2037		10,000			7,656
TransCanada PipeLines Ltd. 6.50% 2018		15,000			14,742
TransCanada PipeLines Ltd. 6.35% 20674		44,785			20,044
Gaz Capital SA 8.146% 20183		7,000			4,970
Gaz Capital SA 6.51% 20223		27,495			16,428
Gaz Capital SA, Series 9, 6.51% 2022		20,000			11,950
Ras Laffan Liquefied Natural Gas Co. Ltd. 3.437% 20093,5		3,321			3,131
Ras Laffan Liquefied Natural Gas II 5.298% 20203,5		22,000			15,705
Ras Laffan Liquefied Natural Gas III 5.838% 20272,3,5		20,000			13,700
Enterprise Products Operating LLC 6.30% 2017		13,000			11,020
Enterprise Products Operating LP 6.875% 2033		25,000			19,212
Enbridge Energy Partners, LP, Series B, 6.50% 2018		12,250			10,097
Enbridge Energy Partners, LP, Series B, 7.50% 2038		12,250			9,583
Enbridge Energy Partners, LP 8.05% 20674		17,520			8,539
Rockies Express Pipeline LLC 6.85% 20183		28,750			26,583
Williams Companies, Inc. 7.875% 2021		15,850			12,147
Williams Companies, Inc. 8.75% 2032		6,025			4,498
XTO Energy Inc. 6.25% 2017		14,500			13,947
Sunoco, Inc. 4.875% 2014		15,000			12,632
Canadian Natural Resources Ltd. 5.70% 2017		11,925			10,417
Devon Financing Corp. ULC 7.875% 2031		9,305			10,274
Enbridge Inc. 5.60% 2017		10,000			8,504
Husky Energy Inc. 6.80% 2037		9,375			7,833
Polar Tankers, Inc. 5.951% 20373,5		6,685			5,763
Petroleum Export Ltd., Class A-2, XLCA insured, 4.633% 20103,5		3,833			3,774
Marathon Oil Corp. 6.00% 2017		3,890			3,322
					322,651


HEALTH CARE — 0.69%
Cardinal Health, Inc. 4.323% 20094		23,000			21,824
Cardinal Health, Inc. 4.00% 2015		44,100			37,022
Cardinal Health, Inc. 5.80% 2016		27,500			24,916
Cardinal Health, Inc. 5.85% 2017		3,575			3,229
GlaxoSmithKline Capital Inc. 4.85% 2013		33,700			33,836
GlaxoSmithKline Capital Inc. 6.375% 2038		16,500			18,708
UnitedHealth Group 6.00% 2017		22,170			19,994
UnitedHealth Group Inc. 6.00% 2018		35,000			32,347
AstraZeneca PLC 5.40% 2012		15,250			16,119
AstraZeneca PLC 5.90% 2017		25,000			26,614
Hospira, Inc. 1.948% 20104		10,000			9,759
Hospira, Inc. 5.55% 2012		14,120			13,388
Hospira, Inc. 6.05% 2017		6,700			5,450
Biogen Idec Inc. 6.00% 2013		13,500			13,365
Humana Inc. 6.45% 2016		14,200			11,243
Coventry Health Care, Inc. 6.30% 2014		16,500			10,107
					297,921


INFORMATION TECHNOLOGY — 0.33%
Hewlett-Packard Co. 4.50% 2013		20,000			20,321
Electronic Data Systems Corp., Series B, 6.00% 20134		32,500			33,711
Electronic Data Systems Corp. 7.45% 2029		16,594			18,026
KLA-Tencor Corp. 6.90% 2018		39,750			30,111
Oracle Corp. 5.75% 2018		15,500			16,242
Cisco Systems, Inc. 5.25% 2011		13,000			13,502
Western Union Co. 5.93% 2016		10,000			8,559
					140,472


MATERIALS — 0.26%
ArcelorMittal 5.375% 2013		15,250			11,511
ArcelorMittal 6.125% 2018		29,425			20,181
Rio Tinto Finance (USA) Ltd. 5.875% 2013		28,500			22,722
International Paper Co. 7.40% 2014		23,250			19,079
Rohm and Haas Co. 6.00% 2017		17,445			15,903
Stora Enso Oyj 7.25% 20363		20,800			10,981
C8 Capital (SPV) Ltd. 6.64% (undated)3,4		10,975			5,575
SCA Coordination Center NV 4.50% 20153		6,750			4,706
					110,658


CONSUMER STAPLES — 0.25%
British American Tobacco International Finance PLC 9.50% 20183		26,395			29,389
Kraft Foods Inc. 6.75% 2014		6,180			6,420
Kraft Foods Inc. 6.875% 2038		13,000			13,032
PepsiCo, Inc. 7.90% 2018		15,000			18,418
Kroger Co. 6.40% 2017		15,150			15,303
Altria Group, Inc. 9.95% 2038		13,500			14,736
CVS Corp. 6.036% 20282,3,5		7,472			4,202
CVS Caremark Corp. 6.943% 20303,5		12,768			8,045
					109,545


Total corporate bonds & notes					4,120,095



BONDS & NOTES OF U.S. GOVERNMENT & GOVERNMENT AGENCIES — 7.62%
U.S. Treasury 3.625% 2009	$	12,375		$	12,597
U.S. Treasury 0.875% 20102,6		22,871			21,520
U.S. Treasury 4.625% 2011		263,000			291,273
U.S. Treasury 5.00% 2011		25,000			27,337
U.S. Treasury 4.25% 2012		376,600			420,689
U.S. Treasury 4.875% 2012		20,000			22,489
U.S. Treasury 3.625% 2013		20,000			21,986
U.S. Treasury 4.25% 2013		527,835			600,433
U.S. Treasury 1.875% 20152,6		100,242			94,300
U.S. Treasury 9.25% 2016		25,000			36,479
U.S. Treasury 8.875% 2017		37,125			55,280
U.S. Treasury 1.625% 20182,6		43,433			41,110
U.S. Treasury 3.50% 2018		75,000			83,048
U.S. Treasury 7.875% 2021		69,000			102,589
U.S. Treasury 6.25% 2023		88,500			120,803
U.S. Treasury 2.375% 20252,6		57,467			55,517
U.S. Treasury 6.875% 2025		104,750			159,351
U.S. Treasury 6.00% 2026		42,000			58,656
U.S. Treasury 5.50% 2028		80,000			108,200
U.S. Treasury 5.25% 2029		15,000			19,905
U.S. Treasury 4.50% 2036		88,800			118,062
U.S. Treasury 4.375% 20382		43,000			58,796
Fannie Mae 6.25% 2011		28,375			29,940
Fannie Mae 5.25% 2012		105,000			107,925
Fannie Mae 6.25% 2029		75,000			102,065
Federal Home Loan Bank 5.625% 2016		144,800			152,960
Freddie Mac 5.25% 2011		101,000			110,015
Freddie Mac 5.00% 2018		20,000			19,530
Federal Agricultural Mortgage Corp. 4.875% 20113		40,000			42,630
Federal Agricultural Mortgage Corp. 5.50% 20113		7,000			7,516
CoBank ACB 7.875% 20183		20,000			20,237
CoBank ACB 2.596% 20223,4		23,425			16,516
United States Government Agency-Guaranteed (FDIC insured), Regions Bank 3.25% 2011		33,000			34,385
United States Government Agency-Guaranteed (FDIC insured), Bank of America Corp., Series L, 3.125% 2012		30,000			31,247
United States Government Agency-Guaranteed (FDIC insured), Citigroup Inc. 2.875% 2011		30,000			31,018
United States Government Agency-Guaranteed (FDIC insured), Sovereign Bancorp, Inc. 2.75% 2012		22,000			22,599
United States Government Agency-Guaranteed (FDIC insured), PNC Funding Corp. 2.30% 2012		14,000			14,152
United States Government-Guaranteed Certificates of Participation, Overseas Private Investment Corp.,
Series 2000-044-A, 3.74% 20155		6,539			6,942
					3,280,097


ASSET-BACKED OBLIGATIONS5 — 1.53%
World Omni Auto Receivables Trust, Series 2006-B, Class A-4, 5.12% 2012		62,000			60,073
Drive Auto Receivables Trust, Series 2005-3, Class A-4, FSA insured, 5.09% 20132,3		32,021			29,219
Drive Auto Receivables Trust, Series 2006-2, Class A-3, MBIA insured, 5.33% 20143		18,750			16,116
AmeriCredit Automobile Receivables Trust, Series 2006-B-G, Class A-4, FGIC insured, 5.21% 2013		20,880			16,162
AmeriCredit Automobile Receivables Trust, Series 2007-C-M, Class A-4-A, MBIA insured, 5.55% 2014		14,225			9,784
AmeriCredit Automobile Receivables Trust, Series 2007-D-F, Class A-4-A, FSA insured, 5.56% 2014		15,000			9,928
Hertz Vehicle Financing LLC, Rental Car Asset-backed Notes, Series 2005-1, Class A-5, MBIA insured, 5.08% 20113		29,550			25,102
CPS Auto Receivables Trust, Series 2004-B, Class A-2, XLCA insured, 3.56% 20113		1,527			1,409
CPS Auto Receivables Trust, Series 2006-A, Class 1-A-4, FSA insured, 5.33% 20123		8,049			7,363
CPS Auto Receivables Trust, Series 2007-A, Class A-4, MBIA insured, 5.05% 20133		9,000			6,640
CPS Auto Receivables Trust, Series 2007-TFC, Class A-2, XLCA insured, 5.25% 20132,3		10,996			8,797
Susquehanna Auto Lease Trust, Series 2007-1, Class A-3, 5.25% 20103		24,111			23,972
Nissan Auto Lease Trust, Series 2008-A, Class A-3a, 5.14% 2011		25,750			23,062
USAA Auto Owner Trust, Series 2007-1, Class A-4, 5.55% 2013		24,000			21,926
Residential Asset Securities Corp. Trust, Series 2001-KS3, Class A-I-6, 5.96% 2031		5,886			4,833
Residential Asset Securities Corp. Trust, Series 2004-KS9, Class A-I-4, FGIC insured, 4.61% 20322		8,665			7,148
Residential Asset Securities Corp. Trust, Series 2003-KS6, Class A-2, 1.071% 20334		124			108
Residential Asset Securities Corp. Trust, Series 2003-KS8, Class A-I-6, 4.83% 2033		7,177			6,548
Rental Car Finance Corp., Series 2005-1, Class A-2, XLCA insured, 4.59% 20112,3		24,730			18,483
Washington Mutual Master Note Trust, Series 2007-A4A, Class A-4, 5.20% 20143		25,000			18,305
Ameriquest Mortgage Securities Inc., Series 2004-R4, Class M-1, 1.021% 20344		21,811			18,278
ARG Funding Corp., Series 2005-2, Class A-4, AMBAC insured, 4.84% 20113		24,500			17,885
PG&E Energy Recovery Funding LLC, Series 2005-1, Class A-2, 3.87% 2011		1,940			1,942
PG&E Energy Recovery Funding LLC, Series 2005-2, Class A-3, 5.12% 2014		16,076			15,858
American Express Credit Account Master Trust, Series 2005-5, Class A, 1.235% 20134		19,500			17,797
CarMax Auto Owner Trust, Series 2007-2, Class A-3, 5.23% 2011		17,192			16,346
Chase Issuance Trust, Series 2008-4, Class A, 4.65% 2015		17,000			15,069
Long Beach Acceptance Auto Receivables Trust, Series 2004-C, Class A-4, FSA insured, 3.777% 2011		5,968			5,417
Long Beach Acceptance Auto Receivables Trust, Series 2005-B, Class A-4, FSA insured, 4.522% 2012		9,576			9,497
Prestige Auto Receivables Trust, Series 2007-1, Class A-3, FSA insured, 5.58% 20143		17,000			13,587
RAMP Trust, Series 2003-RZ4, Class A-7, 4.79% 20334		7,032			6,851
RAMP Trust, Series 2003-RS11, Class A-I-7, 4.828% 2033		8,200			6,421
UPFC Auto Receivables Trust, Series 2007-B, Class A-3, AMBAC insured, 6.15% 20142		16,750			13,152
West Penn Funding LLC, Transition Bonds, Series 2005-A, Class A-1, 4.46% 20103		12,498			12,426
Triad Automobile Receivables Trust, Series 2006-C, Class A-3, AMBAC insured, 5.26% 2011		11,814			11,692
Honda Auto Receivables Owner Trust, Series 2005-4, Class A-4, 4.60% 2010		11,581			11,505
Santander Drive Auto Receivables Trust, Series 2007-1, Class A-4, FGIC insured, 1.245% 20144		15,000			11,032
Citibank Credit Card Issuance Trust, Series 2008, Class A5, 4.85% 2015		12,000			10,556
Securitized Asset-backed Receivables LLC Trust, Series 2006-HE2, Class A-2C, 0.621% 20362,4		20,000			5,900
Securitized Asset-backed Receivables LLC Trust, Series 2006-NC3, Class A-2B, 0.621% 20364		10,000			4,250
New Century Home Equity Loan Trust, Series 2006-2, Class A-2-b, 0.631% 20364		19,000			9,532
Chase Credit Card Owner Trust, Series 2003-4, Class B, 1.845% 20164		14,000			8,376
Residential Funding Mortgage Securities II, Inc., Series 2007-HSA2, Class A-1F, MBIA insured, 8.47% 20374		8,605			8,268
Option One Mortgage Loan Trust, Series 2006-3, Class II-A-2, 0.571% 20374		10,000			8,242
Morgan Stanley ABS Capital I Inc., Series 2004-NC3, Class M-1, 1.266% 20344		14,117			7,743
Cendant Timeshare Receivables Funding, LLC, Series 2005-1, Class A-1, FGIC insured, 4.67% 20173		9,013			7,530
MBNA Credit Card Master Note Trust, Series 2002-1, Class C, 6.80% 2014		12,500			6,652
World Financial Network Credit Card Master Note Trust, Series 2004-A, Class B, 1.695% 20134		7,000			6,523
GE SeaCo Finance SRL, Series 2004-1, Class A, AMBAC insured, 1.261% 20192,3,4		11,547			6,351
Credit-Based Asset Servicing and Securitization LLC, Series 2007-CB1, Class AF-2, 5.721% 20374		18,000			6,300
Structured Asset Securities Corp., Series 2007-BC3, Class 2-A2, 0.611% 20474		10,800			5,662
CWHEQ Home Equity Loan Trust, Series 2006-S4, Class A-6, AMBAC insured, 5.834% 20344		9,894			5,310
Drivetime Auto Owner Trust, Series 2005-C, Class A-3, MBIA insured, 5.506% 20113,4		5,299			5,242
GMAC Mortgage Loan Trust, Series 2006-HE3, Class A-5, FGIC insured, 5.809% 20364		13,000			4,870
GSAA Home Equity Trust, Series 2006-7, Class AF-5A, 6.205% 20464		5,125			4,796
Home Equity Asset Trust, Series 2004-2, Class M-1, 1.266% 20344		7,984			4,371
First Investors Auto Owner Trust, Series 2005-A, Class A-2, MBIA insured, 4.23% 20123		4,056			3,808
CWHEQ Revolving Home Equity Loan Trust, Series 2007-C, Class A, FGIC insured, 1.345% 20374		10,844			3,463
CWABS, Inc., Series 2004-BC1, Class M-1, 0.971% 20344		5,581			3,419
MASTR Asset-backed Securities Trust, Series 2006-AB1, Class A-4, 5.719% 20364		3,000			2,316
Impac CMB Grantor Trust, Series 2004-6, Class 1-A-1, 1.271% 20344		1,592			630
Impac CMB Grantor Trust, Series 2004-6, Class M-2, 1.371% 20344		1,560			591
Vanderbilt Acquisition Loan Trust, Series 2002-1, Class A-3, 5.70% 2023		856			846
					661,280


MUNICIPALS — 0.03%
State of South Dakota, Educational Enhancement Funding Corp., Tobacco Settlement Asset-backed Bonds,
Series 2002-A, Class A, 6.72% 2025		16,448			12,218
State of Louisiana, Tobacco Settlement Financing Corp., Tobacco Settlement Asset-backed Bonds,
Series 2001-A, Class A, 6.36% 2025		2,185			1,870
					14,088



Total bonds & notes (cost: $14,261,036,000)					12,861,436



	Principal amount			Value
Short-term securities — 6.93%		(000	)		(000	)

Federal Home Loan Bank 0.95%–3.10% due 1/5–4/30/2009	$	377,900		$	377,628
U.S. Treasury Bills 0.21%–1.94% due 2/12–4/29/2009		349,100			349,047
Hewlett-Packard Co. 0.50%–1.75% due 1/2–3/2/20093		328,800			328,598
Fannie Mae 0.40%–0.84% due 2/3–7/6/2009		295,343			294,790
Freddie Mac 0.45%–1.30% due 2/17–7/7/2009		249,113			248,705
Procter & Gamble International Funding S.C.A. 0.25%–1.85% due 1/28–4/23/20093		245,300			245,122
CAFCO, LLC 0.50%–3.85% due 1/5–1/21/20093		105,800			105,761
Jupiter Securitization Co., LLC 0.45%–1.00% due 2/3–2/11/20093		95,000			94,827
Enterprise Funding Co. LLC 1.45% due 1/12/20093		50,000			49,976
Ranger Funding Co. LLC 0.50% due 1/23/20093		35,637			35,626
Private Export Funding Corp. 0.70%–1.00% due 2/5–3/20/20093		80,000			79,895
United Parcel Service Inc. 0.15%–0.50% due 2/20/20093		74,900			74,879
AT&T Inc. 0.90%–1.15% due 1/30–2/9/20093		73,300			73,236
Eli Lilly and Co. 1.40% due 2/27–3/2/20093		72,200			72,175
Pfizer Inc 1.85% due 1/6/20093		70,500			70,483
International Bank for Reconstruction and Development 0.22%–2.10% due 1/6–3/11/2009		65,300			65,283
Walt Disney Co. 1.10% due 2/3/2009		54,100			54,031
E.I. duPont de Nemours and Co. 2.40% due 1/16/20093		50,000			49,952
Honeywell International Inc. 0.75% due 3/11/20093		45,579			45,546
Johnson & Johnson 0.55% due 2/5/20093		45,000			44,958
Chevron Corp. 1.15% due 2/3/2009		45,000			44,952
Yale University 1.52% due 3/2/2009		42,500			42,426
Brown-Forman Corp. 0.85% due 3/12/20093		30,000			29,978
John Deere Capital Corp. 2.50% due 1/15/20093		25,700			25,684
Wal-Mart Stores Inc. 0.25% due 6/16/20093		24,800			24,771
Walgreen & Co. 0.25% due 1/27/20093		22,600			22,596
Emerson Electric Co. 1.00% due 3/13/20093		17,000			16,990
Coca-Cola Co. 1.20%–2.15% due 1/16–1/21/20093		11,400			11,393
Genentech, Inc. 0.45% due 1/16/20093		5,000			4,999


Total short-term securities (cost: $2,981,281,000)					2,984,307


Total investment securities (cost: $50,676,785,000)					43,172,175
Other assets less liabilities					(118,724	)

Net assets				$	43,053,451

“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 $1,212,275,000, which represented 2.82% of the net assets of the fund.

Purchased in a transaction exempt from registration under the Securities Act of 1933. May be resold in the U.S. in transactions exempt from registration, normally to qualified institutional buyers. The total value of all such securities was $3,074,516,000, which represented 7.14% of the net assets of the fund.

4	Coupon rate may change periodically.

5	Principal payments may be made periodically. Therefore, the effective maturity date may be earlier than the stated maturity date.

6	Index-linked bond whose principal amount moves with a government retail price index.

Key to abbreviation

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-911-0209O-S15817

Statement of assets and liabilities
at December 31, 2008	(dollars in thousands)

Assets:
Investment securities, at value (cost: $50,676,785)			$	43,172,175
Cash				7,122
Receivables for:
Sales of investments	$	95,565
Sales of fund's shares		161,416
Dividends and interest		209,191		466,172
				43,645,469
Liabilities:
Payables for:
Purchases of investments		310,853
Repurchases of fund's shares		251,434
Investment advisory services		7,828
Services provided by affiliates		19,844
Directors' deferred compensation		1,574
Other		485		592,018
Net assets at December 31, 2008			$	43,053,451

Net assets consist of:
Capital paid in on shares of capital stock			$	52,179,738
Undistributed net investment income				38,570
Accumulated net realized loss				(1,660,101	)
Net unrealized depreciation				(7,504,756	)
Net assets at December 31, 2008			$	43,053,451

(dollars and shares in thousands, except per-share amounts)
Total authorized capital stock - 5,500,000 shares, $.001 par value (3,127,606 total shares outstanding)
	Net assets		Shares outstanding		Net asset value per share*
Class A	$	26,971,940		1,957,411	$	13.78
Class B		3,455,609		251,612		13.73
Class C		4,128,439		300,866		13.72
Class F-1		945,693		68,643		13.78
Class F-2		39,028		2,833		13.78
Class 529-A		1,030,298		74,838		13.77
Class 529-B		251,180		18,255		13.76
Class 529-C		420,156		30,531		13.76
Class 529-E		64,658		4,699		13.76
Class 529-F-1		30,849		2,242		13.76
Class R-1		89,107		6,498		13.71
Class R-2		854,909		62,316		13.72
Class R-3		1,958,907		142,672		13.73
Class R-4		1,394,923		101,362		13.76
Class R-5		1,417,755		102,828		13.79

(*) Maximum offering price and redemption price per share were equal to the net asset value per share for all share classes, except for Classes A and 529-A, for which the maximum offering prices per share were $14.62 and $14.61, respectively.


See Notes to Financial Statements

Statement of operations
for the year ended December 31, 2008	(dollars in thousands)

Investment income:
Income:
Interest	$	1,039,606
Dividends (net of non-U.S. taxes of $10,009)		852,794		$	1,892,400

Fees and expenses*:
Investment advisory services		127,758
Distribution services		214,178
Transfer agent services		46,956
Administrative services		26,594
Reports to shareholders		3,659
Registration statement and prospectus		1,676
Postage, stationery and supplies		4,586
Directors' compensation		(96	)
Auditing and legal		142
Custodian		504
Other		141
Total fees and expenses before waiver		426,098
Less investment advisory services waiver		12,776
Total fees and expenses after waiver					413,322
Net investment income					1,479,078

Netrealized loss andunrealized depreciation on investments and currency:
Net realized (loss) gain on:
Investments		(1,649,300	)
Currency transactions		532			(1,648,768	)
Net unrealized depreciation on:
Investments		(15,316,105	)
Currency translations		(274	)		(15,316,379	)
Net realized loss and unrealized depreciation on investments and currency					(16,965,147	)
Net decrease in net assets resulting from operations				$	(15,486,069	)

(*) 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
	2008			2007
Operations:
Net investment income	$	1,479,078		$	1,475,279
Net realized (loss) gain on investments and currency transactions		(1,648,768	)		1,907,721
Net unrealized (depreciation) appreciation on investments and currency translations		(15,316,379	)		224,752
Net (decrease) increase in net assets resulting from operations		(15,486,069	)		3,607,752

Dividends and distributions paid to shareholders:
Dividends from net investment income		(1,602,469	)		(1,451,530	)
Distributions from net realized gain on investments		(440,268	)		(1,345,066	)
Total dividends and distributions paid to shareholders		(2,042,737	)		(2,796,596	)


Net capital share transactions		(6,705	)		3,578,270

Total (decrease) increase in net assets		(17,535,511	)		4,389,426

Net assets:
Beginning of year		60,588,962			56,199,536
End of year (including undistributed net investment income: $38,570 and $160,822, respectively)	$	43,053,451		$	60,588,962


See Notes to Financial Statements

(dollars in thousands)
Undistributed ordinary income	$	38,622
Post-October currency loss deferrals (realized during the period November 1, 2008, through December 31, 2008)*		(370	)
Capital loss carryforward expiring in 2016†		(1,180,492	)
Post-October capital loss deferrals (realized during the period November 1, 2008, through December 31, 2008)*		(478,695	)
Gross unrealized appreciation on investment securities		2,183,551
Gross unrealized depreciation on investment securities		(9,691,259	)
Net unrealized depreciation on investment securities		(7,507,708	)
Cost of investment securities		50,679,883

*These deferrals are considered incurred in the subsequent year.
†The capital loss carryforward will be used to offset any capital gains realized by the fund in future years through the expiration date. The fund will not make distributions from capital gains while a capital loss carryforward remains.

	Year ended December 31, 2008						Year ended December 31, 2007
Share class	Ordinary income		Long-term capital gains		Total distributions paid		Ordinary income		Long-term capital gains		Total distributions paid

Class A	$	1,061,925	$	275,039	$	1,336,964	$	980,332	$	841,541	$	1,821,873
Class B		109,514		38,718		148,232		103,910		120,134		224,044
Class C		125,087		44,051		169,138		111,310		135,314		246,624
Class F-1		37,856		9,931		47,787		35,297		30,506		65,803
Class F-2*		396		-		396		-		-		-
Class 529-A		38,098		9,715		47,813		32,076		29,147		61,223
Class 529-B		7,115		2,495		9,610		5,949		7,601		13,550
Class 529-C		11,922		4,147		16,069		9,777		12,566		22,343
Class 529-E		2,171		615		2,786		1,829		1,853		3,682
Class 529-F-1		1,175		263		1,438		905		788		1,693
Class R-1		2,541		805		3,346		1,808		2,316		4,124
Class R-2		24,881		8,441		33,322		21,104		25,958		47,062
Class R-3		77,781		23,940		101,721		76,178		73,791		149,969
Class R-4		54,862		14,212		69,074		49,609		42,800		92,409
Class R-5		47,145		7,896		55,041		21,446		20,751		42,197
Total	$	1,602,469	$	440,268	$	2,042,737	$	1,451,530	$	1,345,066	$	2,796,596


*Class F-2 was offered beginning August 1, 2008.

Share class	Initial sales charge	Contingent deferred sales charge upon redemption	Conversion feature
Classes 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
Classes B and 529-B	None	Declines from 5% to 0% for redemptions within six years of purchase	Classes B and 529-B convert to Classes 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-1 after 10 years
Class 529-C	None	1% for redemptions within one year of purchase	None
Class 529-E	None	None	None
Classes F-1, F-2 and 529-F-1	None	None	None
Classes R-1, R-2, R-3, R-4 and R-5	None	None	None

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

	Investment securities
Level 1 – Quoted prices	$	26,418,803
Level 2 – Other significant observable inputs		16,503,913	*
Level 3 – Significant unobservable inputs		249,459
Total	$	43,172,175

Beginning value at 1/1/2008	$	190,135
Net sales		(5,138	)
Net realized loss†		(2,012	)
Net unrealized depreciation†		(8,160	)
Net transfers into Level 3		74,634
Ending value at 12/31/2008	$	249,459

	Sales(*)				Reinvestments of dividends and distributions				Repurchases(*)						Net (decrease) increase
Share class	Amount		Shares		Amount		Shares		Amount			Shares			Amount			Shares

Year ended December 31, 2008
Class A	$	6,541,339		403,813	$	1,281,245		75,631	$	(7,906,651	)		(489,944	)	$	(84,067	)		(10,500	)
Class B		344,946		20,857		141,278		8,319		(938,608	)		(57,678	)		(452,384	)		(28,502	)
Class C		941,452		58,091		159,387		9,407		(1,328,803	)		(82,689	)		(227,964	)		(15,191	)
Class F-1		438,016		27,259		41,463		2,445		(519,372	)		(32,224	)		(39,893	)		(2,520	)
Class F-2†		45,470		3,072		325		24		(3,610	)		(263	)		42,185			2,833
Class 529-A		213,417		12,731		47,803		2,832		(151,699	)		(9,307	)		109,521			6,256
Class 529-B		32,652		1,942		9,610		567		(32,678	)		(2,012	)		9,584			497
Class 529-C		100,257		5,971		16,065		949		(95,171	)		(5,803	)		21,151			1,117
Class 529-E		14,289		856		2,786		165		(10,967	)		(666	)		6,108			355
Class 529-F-1		11,907		696		1,438		85		(6,688	)		(407	)		6,657			374
Class R-1		50,484		2,997		3,321		198		(34,670	)		(2,104	)		19,135			1,091
Class R-2		349,023		20,926		33,287		1,970		(353,485	)		(21,301	)		28,825			1,595
Class R-3		719,096		42,334		101,705		5,976		(1,297,044	)		(77,190	)		(476,243	)		(28,880	)
Class R-4		662,301		38,924		69,066		4,086		(627,999	)		(38,331	)		103,368			4,679
Class R-5		1,160,744		67,166		54,918		3,317		(288,350	)		(17,190	)		927,312			53,293
Total net increase
(decrease)	$	11,625,393		707,635	$	1,963,697		115,971	$	(13,595,795	)		(837,109	)	$	(6,705	)		(13,503	)

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-1		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-1		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

*Includes exchanges between share classes of the fund.
†Class F-2 was offered beginning August 1, 2008.

		(Loss) income from investment operations(2)				Dividends and distributions
	Net asset value, beginning of period	Net investment income		Net (losses) 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 period	Total return (3) (4)	Net assets, end of period (in millions)	Ratio of expenses to average net assets before reimbursements /waivers	Ratio of expenses to average net assets after reimbursements /waivers (4)	Ratio of net income to average net assets (4)
Class A:
Year ended 12/31/2008	$19.31	$.50	$	(5.35)	$(4.85)	$(.54)	$(.14)	$(.68)	$13.78	(25.73)%	$26,972	.61%	.59%	2.96%
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
Class B:
Year ended 12/31/2008	19.25	.37		(5.34)	(4.97)	(.41)	(.14)	(.55)	13.73	(26.33)	3,455	1.38	1.35	2.18
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
Class C:
Year ended 12/31/2008	19.23	.36		(5.33)	(4.97)	(.40)	(.14)	(.54)	13.72	(26.33)	4,128	1.42	1.40	2.14
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
Class F-1:
Year ended 12/31/2008	19.31	.50		(5.35)	(4.85)	(.54)	(.14)	(.68)	13.78	(25.73)	946	.61	.58	2.96
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
Class F-2:
Period from 8/5/2008 to 12/31/2008	17.44	.21		(3.59)	(3.38)	(.28)	-	(.28)	13.78	(19.51)	39	.17	.16	1.45
Class 529-A:
Year ended 12/31/2008	19.29	.49		(5.34)	(4.85)	(.53)	(.14)	(.67)	13.77	(25.76)	1,030	.68	.65	2.90
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
Class 529-B:
Year ended 12/31/2008	19.28	.35		(5.34)	(4.99)	(.39)	(.14)	(.53)	13.76	(26.36)	251	1.48	1.46	2.09
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
Class 529-C:
Year ended 12/31/2008	19.29	.35		(5.35)	(5.00)	(.39)	(.14)	(.53)	13.76	(26.40)	420	1.48	1.45	2.09
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
Class 529-E:
Year ended 12/31/2008	19.28	.44		(5.34)	(4.90)	(.48)	(.14)	(.62)	13.76	(25.99)	65	.97	.95	2.60
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

Class 529-F-1:
Year ended 12/31/2008	$19.28	$.52	$	(5.34)	$(4.82)	$(.56)	$(.14)	$(.70)	$13.76	(25.61)%	$31	.47%	.45%	3.11%
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
Class R-1:
Year ended 12/31/2008	19.22	.37		(5.33)	(4.96)	(.41)	(.14)	(.55)	13.71	(26.30)	89	1.38	1.35	2.21
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
Class R-2:
Year ended 12/31/2008	19.23	.36		(5.33)	(4.97)	(.40)	(.14)	(.54)	13.72	(26.33)	855	1.42	1.39	2.15
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
Class R-3:
Year ended 12/31/2008	19.24	.45		(5.33)	(4.88)	(.49)	(.14)	(.63)	13.73	(25.94)	1,959	.90	.87	2.65
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
Class R-4:
Year ended 12/31/2008	19.28	.49		(5.34)	(4.85)	(.53)	(.14)	(.67)	13.76	(25.75)	1,395	.65	.62	2.92
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
Class R-5:
Year ended 12/31/2008	19.32	.54		(5.35)	(4.81)	(.58)	(.14)	(.72)	13.79	(25.52)	1,418	.35	.33	3.28
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 December 31
	2008			2007			2006			2005			2004

Portfolio turnover rate for all classes of shares		41	%		35	%		34	%		35	%		25	%

Long-term capital gains	$	440,275,000
Qualified dividend income	$	899,624,000
Corporate dividends received deduction	$	814,212,000
U.S. government income that may be exempt from state taxation	$	138,934,000