....

<PAGE>


                             AMERICAN BALANCED FUND

                                     Part B
                      Statement of Additional Information

                                 March 1, 2010

                        (as supplemented May 27, 2010)

This document is not a prospectus but should be read in conjunction with the
current prospectus or retirement plan prospectus of American Balanced Fund (the
"fund" or "AMBAL") dated March 1, 2010. You may obtain a prospectus from your
financial adviser or by writing to the fund at the following address:

                             American Balanced Fund
                              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.




Class A      ABALX        Class 529-A          CLBAX    Class R-1          RLBAX
Class B      BALBX        Class 529-B          CLBBX    Class R-2          RLBBX
Class C      BALCX        Class 529-C          CLBCX    Class R-3          RLBCX
Class F-1    BALFX        Class 529-E          CLBEX    Class R-4          RLBEX
Class F-2    AMBFX        Class 529-F-1        CLBFX    Class R-5          RLBFX
                                                        Class R-6          RLBGX




                               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
<PAGE>


                 CERTAIN INVESTMENT LIMITATIONS AND GUIDELINES

The following limitations and guidelines are considered at the time of purchase,
under normal circumstances, and are based on a percentage of the fund's net
assets unless otherwise noted. This summary is not intended to reflect all of
the fund's investment limitations.


EQUITY SECURITIES

.    The fund will invest at least 50% of the value of its assets in common
     stocks.

DEBT SECURITIES

.    The fund will invest at least 25% of the value of its assets in debt
     securities (including money market instruments) generally rated Baa3 or
     better by Moody's Investors Service or BBB- or better by Standard & Poor's
     Corporation, or in unrated securities determined by the investment adviser
     to be of equivalent quality.

.    Although the fund is not normally required to dispose of a security in the
     event its rating is reduced below the current minimum rating for its
     purchase (or if unrated, its quality becomes equivalent to such a rating),
     if, as a result of a downgrade or otherwise, the fund holds more than 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.

                        *     *     *     *     *     *

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


                        American Balanced Fund -- Page 2
<PAGE>


          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.

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


                        American Balanced Fund -- Page 3
<PAGE>


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.

     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 Asso-


                        American Balanced Fund -- Page 4
<PAGE>


     ciation (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.

     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 sen-


                        American Balanced Fund -- Page 5
<PAGE>


     sitivities 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 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.


                        American Balanced Fund -- Page 6
<PAGE>


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.

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's securities are listed, where the company is
legally organized, maintains principal corporate offices and/or conducts its
principal operations.


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


                        American Balanced Fund -- Page 7
<PAGE>


association and savings bank obligations (for example, bank notes and
certificates of deposit issued by savings banks or savings associations), (d)
securities of the U.S. government, its agencies or instrumentalities that
mature, or may be redeemed, in one year or less, and (e) corporate bonds and
notes that mature, or that may be redeemed, in one year or less.

REPURCHASE AGREEMENTS -- The fund may enter into repurchase agreements under
which the fund buys a security and obtains a simultaneous commitment from the
seller to repurchase the security at a specified time and price. Because the
security purchased constitutes collateral for the repurchase obligation, a
repurchase agreement may be considered a loan that is collateralized by the
security purchased. 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


                        American Balanced Fund -- Page 8
<PAGE>


expense and a considerable period may elapse between the time it decides to seek
registration and the time it may be permitted to sell a security under an
effective registration statement. Difficulty in selling such securities may
result in a loss to the fund or cause it to incur additional administrative
costs.


Securities (including restricted securities) not actively traded will be
considered illiquid unless they have been specifically determined to be liquid
under procedures adopted by the fund's board of trustees, 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.


MATURITY -- There are no restrictions on the maturity composition of the
portfolio, although it is anticipated that the fund normally will be invested
substantially in securities with maturities between two and 10 years. Under
normal market conditions, longer term securities yield more than shorter term
securities, but are subject to greater price fluctuations.

                        *     *     *     *     *     *

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. It may
also result in the realization of net capital gains, which are taxable when
distributed to shareholders, unless the shareholder is exempt from taxation.


The fund's portfolio turnover rates for the fiscal years ended December 31, 2009
and 2008 were 46% and 41%, 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
<PAGE>


                                 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. In managing the
fund, the fund's investment adviser may apply more restrictive policies than
those listed below.


FUNDAMENTAL POLICIES -- The fund has adopted the following policies, which may
not be changed without approval by holders of a majority of its outstanding
shares. Such majority is currently 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.   Except as permitted by (i) the 1940 Act and the rules and regulations
thereunder, or other successor law governing the regulation of registered
investment companies, or interpretations or modifications thereof by the SEC,
SEC staff or other authority of competent jurisdiction, or (ii) exemptive or
other relief or permission from the SEC, SEC staff or other authority of
competent jurisdiction, the fund may not:

          a.  Borrow money;

          b.  Issue senior securities;

          c.  Underwrite the securities of other issuers;

          d.  Purchase or sell real estate or commodities;

          e.  Make loans; or

          f. Purchase the securities of any issuer if, as a result of such
          purchase, the fund's investments would be concentrated in any
          particular industry.

2.   The fund may not invest in companies for the purpose of exercising control
or management.

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


The fund may not 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.


                       American Balanced Fund -- Page 10
<PAGE>


ADDITIONAL INFORMATION ABOUT FUNDAMENTAL POLICIES -- The information below is
not part of the fund's fundamental policies. This information is intended to
provide a summary of what is currently required or permitted by the 1940 Act and
the rules and regulations thereunder, or by the interpretive guidance thereof by
the SEC or SEC staff, for particular fundamental policies of the fund.


For purposes of fundamental policy 1a, the fund may borrow money in amounts of
up to 33-1/3% of its total assets from banks for any purpose, and may borrow up
to 5% of its total assets from banks or other lender for temporary purposes.


For purposes of fundamental policy 1e, the fund may not lend more than 33-1/3%
of its total assets, except through the purchase of debt obligations.

For purposes of fundamental policy 1f, the fund may not invest 25% or more of
its total assets in the securities of issuers in the same industry, unless the
fund has adopted a policy allowing for such investments.


                       American Balanced Fund -- Page 11
<PAGE>

                             MANAGEMENT OF THE FUND

BOARD OF TRUSTEES AND OFFICERS


"INDEPENDENT" TRUSTEES/1/

 NAME, AGE AND                                                NUMBER OF
 POSITION WITH FUND                                         PORTFOLIOS/3/
 (YEAR FIRST ELECTED  AS A      PRINCIPAL OCCUPATION(S)       OVERSEEN        OTHER DIRECTORSHIPS/4/ HELD
 TRUSTEE/2/)                    DURING PAST FIVE YEARS       BY TRUSTEE                BY TRUSTEE
------------------------------------------------------------------------------------------------------------
 Mary Jane Elmore, 56         Managing Director and               3         None
 Trustee (2008)               General Partner,
                              Institutional Venture
                              Partners; former Product
                              Marketing Manager, Intel
                              Corporation's Development
                              Systems Division
------------------------------------------------------------------------------------------------------------
 Robert A. Fox, 73            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
 Trustee (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;
 Trustee (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, 73           Former CEO, American                3         None
 Trustee (2003)               President Companies
                              (container shipping and
                              transportation services);
                              former CEO, Lucky Stores;
                              former CEO, Leslie Salt
------------------------------------------------------------------------------------------------------------




                       American Balanced Fund -- Page 12
<PAGE>

 NAME, AGE AND                                                NUMBER OF
 POSITION WITH FUND                                         PORTFOLIOS/3/
 (YEAR FIRST ELECTED  AS A      PRINCIPAL OCCUPATION(S)       OVERSEEN        OTHER DIRECTORSHIPS/4/ HELD
 TRUSTEE/2/)                    DURING PAST FIVE YEARS       BY TRUSTEE                BY TRUSTEE
------------------------------------------------------------------------------------------------------------
 John G. McDonald, 73         Stanford Investors                 12         iStar Financial, Inc.;
 Trustee (1975-1978; 1988)    Professor, Graduate School                    Plum Creek Timber Co.;
                              of Business, Stanford                         QuinStreet, Inc.;
                              University                                    Scholastic Corporation
------------------------------------------------------------------------------------------------------------
 James J. Postl, 64           Former President and CEO,           3         Cooper Industries;
 Trustee (2007)               Pennzoil-Quaker State                         Pulte, Inc.
                              Company (automotive
                              products and services)
------------------------------------------------------------------------------------------------------------
 Henry E. Riggs, 75           President Emeritus, Keck            5         None
 Trustee (1989)               Graduate Institute of
                              Applied Life Sciences
------------------------------------------------------------------------------------------------------------
 Isaac Stein, 63              President, Waverley                 3         Alexza Pharmaceuticals, Inc.;
 Trustee (2004)               Associates (private                           Maxygen, Inc.
                              investment fund); Chairman
                              Emeritus of the Board of
                              Trustees, Stanford
                              University
------------------------------------------------------------------------------------------------------------





"INTERESTED" TRUSTEES/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
 TRUSTEE/OFFICER/2/)                   OF THE FUND            BY TRUSTEE              BY TRUSTEE
----------------------------------------------------------------------------------------------------------
 Robert G. O'Donnell, 66       Senior Vice President -             2         None
 Vice Chairman of the Board    Capital World Investors,
 (1990)                        Capital Research and
                               Management Company;
                               Director, Capital Research
                               and Management Company
----------------------------------------------------------------------------------------------------------
 Gregory D. Johnson, 47        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, 49    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
 (2009)
-------------------------------------------------------------------------------
 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,    Vice President - Fund Business Management Group,
 36                       Capital Research and Management Company
 Treasurer (2005)
-------------------------------------------------------------------------------
 Julie E. Lawton, 36      Associate - Capital Research and Management Company
 Assistant Secretary
 (2009)
-------------------------------------------------------------------------------
 Bryan K. Nielsen, 37     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" trustee refers to a trustee who is not an "interested
   person" of the fund within the meaning of the 1940 Act.
2  Trustees 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 10 funds and is available through tax-deferred retirement
   plans and IRAs; and Endowments, which 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 trustee 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 TRUSTEES 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 TRUSTEES AS OF DECEMBER 31, 2009:

                                                                            AGGREGATE
                                                                             DOLLAR
                                                                           RANGE/1/ OF
                                                                           INDEPENDENT
                                         AGGREGATE                          TRUSTEES
                                      DOLLAR RANGE/1/      DOLLAR           DEFERRED
                                         OF SHARES       RANGE/1 /OF     COMPENSATION/2/
                                         OWNED IN        INDEPENDENT      ALLOCATED TO
                                         ALL FUNDS        TRUSTEES          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 TRUSTEE         TO FUND         BY TRUSTEE
-----------------------------------------------------------------------------------------
 "INDEPENDENT" TRUSTEES
-----------------------------------------------------------------------------------------
 Mary Jane Elmore       $50,001 -      Over $100,000      $50,001 -       Over $100,000
                        $100,000                          $100,000
-----------------------------------------------------------------------------------------
 Robert A. Fox        Over $100,000    Over $100,000    Over $100,000     Over $100,000

-----------------------------------------------------------------------------------------
 Leonade D. Jones     Over $100,000    Over $100,000    Over $100,000     Over $100,000

-----------------------------------------------------------------------------------------
 William D. Jones       $10,001 -      Over $100,000      $10,001 -       Over $100,000
                         $50,000                           $50,000
-----------------------------------------------------------------------------------------
 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      $50,001 -       Over $100,000
                                                          $100,000
-----------------------------------------------------------------------------------------
 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 TRUSTEE
------------------------------------------------------------------------------
 "INTERESTED" TRUSTEES
------------------------------------------------------------------------------
 Robert G.                  Over $100,000                Over $100,000
 O'Donnell
------------------------------------------------------------------------------
 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" trustees include shares owned through The Capital Group
   Companies, Inc. retirement plan and 401(k) plan.
2  Eligible trustees 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 trustee.


TRUSTEE COMPENSATION -- No compensation is paid by the fund to any officer or
trustee 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 trustee an annual
fee, which ranges from $9,000 to $20,000, based primarily on the total number of
board clusters on which that independent trustee serves.


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


Independent trustees 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 trustee each pay an equal portion of these attendance fees.


No pension or retirement benefits are accrued as part of fund expenses.
Independent trustees 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 trustees.


                       American Balanced Fund -- Page 16
<PAGE>

TRUSTEE COMPENSATION EARNED DURING THE FISCAL YEAR ENDED DECEMBER 31, 2009

                                                        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/             $34,333                          $103,000
------------------------------------------------------------------------------------------
 Robert A. Fox/3/                 37,413                           310,667
------------------------------------------------------------------------------------------
 Leonade D. Jones/3/              54,024                           360,667
------------------------------------------------------------------------------------------
 William D. Jones/3/              37,250                           216,000
------------------------------------------------------------------------------------------
 John M. Lillie                   48,166                           144,500
------------------------------------------------------------------------------------------
 John G. McDonald/3/              39,833                           400,250
------------------------------------------------------------------------------------------
 James J. Postl/3/                39,333                           118,000
------------------------------------------------------------------------------------------
 Henry E. Riggs/3/                49,617                           293,416
------------------------------------------------------------------------------------------
 Isaac Stein                      46,833                           133,000
------------------------------------------------------------------------------------------

1  Amounts may be deferred by eligible trustees 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 trustees. Compensation shown in this table for the fiscal
   year ended December 31, 2009 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 10 funds and is available through tax-deferred retirement
   plans and IRAs; and Endowments, which 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 2009
   fiscal year for participating trustees is as follows: Mary Jane Elmore
   ($68,799), Robert A. Fox ($639,046), Leonade D. Jones ($152,527), William D.
   Jones ($20,928), John G. McDonald ($583,274), James J. Postl ($116,726) and
   Henry E. Riggs ($351,281). Amounts deferred and accumulated earnings thereon
   are not funded and are general unsecured liabilities of the fund until paid to
   the trustees.

As of May 1, 2010, the officers and trustees 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 TRUSTEES -- The fund, an open-end,
diversified management investment company, was organized as a Delaware
corporation on September 6, 1932, reorganized in Maryland on February 2, 1990
and was reorganized as a Delaware statutory trust on March 1, 2010. All fund
operations are supervised by the fund's board of trustees which meets
periodically and performs duties required by applicable state and federal laws.


Delaware law charges trustees with the duty of managing the business affairs of
the trust. Trustees are considered to be fiduciaries of the trust and owe duties
of care and loyalty to the trust and its shareholders.


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.


                       American Balanced Fund -- Page 17
<PAGE>


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 trustees 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 the fund's Class 529 shares. In addition, the trustees have the
authority to establish new series and classes of shares, and to split or combine
outstanding shares into a greater or lesser number, without shareholder
approval.


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.


The fund's declaration of trust and by-laws as well as separate indemnification
agreements that the fund has entered into with independent trustees provide in
effect that, subject to certain conditions, the fund will indemnify its officers
and trustees against liabilities or expenses actually and reasonably incurred by
them relating to their service to the fund. However, trustees 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.


REMOVAL OF TRUSTEES BY SHAREHOLDERS -- At any meeting of shareholders, duly
called and at which a quorum is present, shareholders may, by the affirmative
vote of the holders of two-thirds of the votes entitled to be cast, remove any
trustee from office and may elect a successor or successors to fill any
resulting vacancies for the unexpired terms of removed trustees. In addition,
the trustees of the fund will promptly call a meeting of shareholders for the
purpose of voting upon the removal of any trustees when requested in writing to
do so by the record holders of at least 10% of the outstanding shares.


COMMITTEES OF THE BOARD OF TRUSTEES -- 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 trustees. Four audit committee meetings were held during
the 2009 fiscal year.


The fund has a contracts committee comprised of Mary Jane Elmore, Robert A. Fox,
Leonade D. Jones, William D. Jones, John M. Lillie, John G. McDonald, James J.
Postl, Henry E. Riggs, 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


                       American Balanced Fund -- Page 18
<PAGE>


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 trustees on these matters.
One contracts committee meeting was held during the 2009 fiscal year.


The fund has a nominating and governance 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 trustees.
The committee also evaluates, selects and nominates independent trustee
candidates to the full board of trustees. 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 and governance 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.
Four nominating committee meetings were held during the 2009 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, 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.


                       American Balanced Fund -- Page 19
<PAGE>


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.

     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.


                       American Balanced Fund -- Page 20
<PAGE>


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 May 1, 2010. 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        20.21%
 Omnibus Account                                        Class B         8.99
 Maryland Heights, MO
-------------------------------------------------------------------------------
 First Clearing, LLC                        Record      Class A         6.97
 Custody Account                                        Class B         9.14
 St. Louis, MO                                          Class C        10.76
                                                        Class F-1       7.21
-------------------------------------------------------------------------------
 Pershing, LLC                              Record      Class A         6.45
 Jersey City, NJ                                        Class B         9.01
                                                        Class C         7.52
                                                        Class F-1      19.55
                                                        Class F-2       8.05
-------------------------------------------------------------------------------
 Merrill Lynch                              Record      Class C        12.59
 Omnibus Account                                        Class F-2      37.37
 Jacksonville, FL                                       Class R-5       5.91
-------------------------------------------------------------------------------
 Citigroup Global Markets, Inc.             Record      Class C         8.58
 Omnibus Account                                        Class F-1       9.25
 New York, NY
-------------------------------------------------------------------------------
 Charles Schwab & Co., Inc.                 Record      Class F-1       9.58
 Custody Account                                        Class F-2       5.67
 San Francisco, CA                                      Class R-4       5.59
-------------------------------------------------------------------------------
 LPL Financial                              Record      Class F-1       6.92
 Omnibus Account                                        Class F-2      10.46
 San Diego, CA
-------------------------------------------------------------------------------
 Hartford Life Insurance Co. Separate       Record      Class R-1      33.24
 Account                                    Beneficial  Class R-3       8.34
 401K Plan
 Hartford, CT
-------------------------------------------------------------------------------
 ING Life Insurance & Annuity               Record      Class R-3      14.49
 Hartford, CT                                           Class R-4       5.51
-------------------------------------------------------------------------------
 Trader Joe's Company                       Record      Class R-4       7.05
 Retirement Plan                            Beneficial
 Englewood, CO
-------------------------------------------------------------------------------
 NFS, LLC FEBO                              Record      Class R-4       5.72
 401K Plans                                 Beneficial  Class R-5      10.92
 Covington, KY                                          Class R-6      14.04
-------------------------------------------------------------------------------
 John Hancock Life Insurance Co. USA        Record      Class R-5      33.47
 Omnibus Account
 Boston, MA
-------------------------------------------------------------------------------




                       American Balanced Fund -- Page 21
<PAGE>

            NAME AND ADDRESS                OWNERSHIP   OWNERSHIP PERCENTAGE
-------------------------------------------------------------------------------
 American Funds 2020 Target Date            Record      Class R-6      15.09
 Retirement Fund
 Los Angeles, CA
-------------------------------------------------------------------------------
 American Funds 2030 Target Date            Record      Class R-6      12.27
 Retirement Fund
 Los Angeles, CA
-------------------------------------------------------------------------------
 American Funds 2025 Target Date            Record      Class R-6      12.24
 Retirement Fund
 Los Angeles, CA
-------------------------------------------------------------------------------
 American Funds 2015 Target Date            Record      Class R-6      12.09
 Retirement Fund
 Los Angeles, CA
-------------------------------------------------------------------------------
 American Funds 2010 Target Date            Record      Class R-6       7.54
 Retirement Fund
 Los Angeles, CA
-------------------------------------------------------------------------------


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; Lipper General U.S.
Government 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, 2009:

                                         NUMBER             NUMBER
                                        OF OTHER           OF OTHER           NUMBER
                                       REGISTERED           POOLED           OF OTHER
                                       INVESTMENT         INVESTMENT         ACCOUNTS
                                    COMPANIES (RICS)    VEHICLES (PIVS)      FOR WHICH
                                        FOR WHICH          FOR WHICH         PORTFOLIO
                                        PORTFOLIO          PORTFOLIO         COUNSELOR
                      DOLLAR RANGE      COUNSELOR          COUNSELOR       IS A MANAGER
                        OF FUND       IS A MANAGER       IS A MANAGER       (ASSETS OF
     PORTFOLIO           SHARES      (ASSETS OF RICS    (ASSETS OF PIVS   OTHER ACCOUNTS
     COUNSELOR          OWNED/1/     IN BILLIONS)/2/    IN BILLIONS)/3/   IN BILLIONS)/4/
-------------------------------------------------------------------------------------------
 Robert G.                Over         2      $ 50.3         None               None
 O'Donnell             $1,000,000
--------------------------------------------------------------------------------------------
 Gregory D. Johnson    $100,001 -      3      $150.4         None               None
                        $500,000
--------------------------------------------------------------------------------------------
 Hilda L. Applbaum     $100,001 -      2      $ 65.1         None               None
                        $500,000
--------------------------------------------------------------------------------------------
 James R. Mulally         Over         3      $175.9      1       $0.03         None
                       $1,000,000
--------------------------------------------------------------------------------------------
 John H. Smet          $100,001 -      7      $226.2         None               None
                        $500,000
--------------------------------------------------------------------------------------------
 Alan N. Berro         $500,001 -      3      $156.5         None               None
                       $1,000,000
--------------------------------------------------------------------------------------------
 Dina N. Perry         $100,001 -      3      $153.9      1       $0.94         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.


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 trustees, 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 trustees 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


                       American Balanced Fund -- Page 24
<PAGE>


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 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 trustees; 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, 2009, 2008 and 2007, the investment
adviser was entitled to receive from the fund management fees of $105,924,000,
$127,758,000 and $140,741,000, 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) and $126,667,000 (a
reduction of $14,074,000) for the fiscal years ended December 31, 2008 and 2007,
respectively.


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


                       American Balanced Fund -- Page 25
<PAGE>


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 trustees 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 trustees. 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 2009 fiscal year, administrative services fees, gross of any payments
made by the investment adviser, were:

                                             ADMINISTRATIVE SERVICES FEE
------------------------------------------------------------------------------
               CLASS C                               $7,145,000
------------------------------------------------------------------------------
              CLASS F-1                               1,074,000
------------------------------------------------------------------------------
              CLASS F-2                                 137,000
------------------------------------------------------------------------------
             CLASS 529-A                              1,511,000
------------------------------------------------------------------------------
             CLASS 529-B                                383,000
------------------------------------------------------------------------------
             CLASS 529-C                                644,000
------------------------------------------------------------------------------
             CLASS 529-E                                 94,000
------------------------------------------------------------------------------
            CLASS 529-F-1                                47,000
------------------------------------------------------------------------------
              CLASS R-1                                 164,000
------------------------------------------------------------------------------
              CLASS R-2                               4,094,000
------------------------------------------------------------------------------
              CLASS R-3                               4,130,000
------------------------------------------------------------------------------
              CLASS R-4                               2,587,000
------------------------------------------------------------------------------
              CLASS R-5                               1,110,000
------------------------------------------------------------------------------
             CLASS R-6*                                 144,000
------------------------------------------------------------------------------

* Class R-6 was first offered for sale on May 1, 2009.


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                          2009            $10,132,000         $46,807,000
                                                  2008             16,528,000          73,711,000
                                                  2007             21,903,000          96,943,000
-----------------------------------------------------------------------------------------------------
                 CLASS B                          2009                343,000           1,844,000
                                                  2008              1,213,000           9,219,000
                                                  2007              1,933,000          12,547,000
-----------------------------------------------------------------------------------------------------
                 CLASS C                          2009                623,000           3,651,000
                                                  2008              1,676,000           6,112,000
                                                  2007                 76,000           8,685,000
-----------------------------------------------------------------------------------------------------
               CLASS 529-A                        2009                951,000           4,582,000
                                                  2008              1,064,000           5,028,000
                                                  2007              1,253,000           5,898,000
-----------------------------------------------------------------------------------------------------
               CLASS 529-B                        2009                 50,000             214,000
                                                  2008                127,000           1,007,000
                                                  2007                166,000           1,116,000
-----------------------------------------------------------------------------------------------------
               CLASS 529-C                        2009                     --             671,000
                                                  2008                 38,000             793,000
                                                  2007                     --             988,000
-----------------------------------------------------------------------------------------------------




                       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 trustees 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
       trustees 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 trustees.


During the 2009 fiscal year, 12b-1 expenses accrued and paid, and if applicable,
unpaid, were:

                                                      12B-1 UNPAID LIABILITY
                               12B-1 EXPENSES              OUTSTANDING
------------------------------------------------------------------------------
        CLASS A                 $64,659,000                 $5,751,000
------------------------------------------------------------------------------
        CLASS B                  32,516,000                  2,864,000
------------------------------------------------------------------------------
        CLASS C                  40,657,000                  3,851,000
------------------------------------------------------------------------------
       CLASS F-1                  2,089,000                    232,000
------------------------------------------------------------------------------
      CLASS 529-A                 2,384,000                    225,000
------------------------------------------------------------------------------
      CLASS 529-B                 2,574,000                    253,000
------------------------------------------------------------------------------
      CLASS 529-C                 4,427,000                    492,000
------------------------------------------------------------------------------
      CLASS 529-E                   347,000                     36,000
------------------------------------------------------------------------------
     CLASS 529-F-1                       --                         --
------------------------------------------------------------------------------
       CLASS R-1                  1,015,000                    109,000
------------------------------------------------------------------------------
       CLASS R-2                  6,848,000                    699,000
------------------------------------------------------------------------------
       CLASS R-3                 10,316,000                  1,122,000
------------------------------------------------------------------------------
       CLASS R-4                  4,320,000                    390,000
------------------------------------------------------------------------------




                       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 trustees and separately by a majority of the independent trustees
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 trustees of the fund are committed to the
discretion of the independent trustees 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
trustees and the Plans must be renewed annually by the board of trustees.


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


                       American Balanced Fund -- Page 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.


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


                       American Balanced Fund -- Page 34
<PAGE>


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 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


                       American Balanced Fund -- Page 35
<PAGE>


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, 2009, 2008 and 2007 amounted to $19,712,000, $19,284,000 and
$12,090,000, respectively. The increase in brokerage commissions paid since 2007
is attributable to the increase in the volume of trading activity, resulting in
the 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
Morgan Stanley. As of the fund's most recent fiscal year-end, the fund held
equity securities of Citigroup Inc. in the amount of $148,950,000. The fund held
debt securities of Citigroup Inc. in the amount of $50,493,000, Goldman Sachs
Group, Inc. in the amount of $27,605,000 and Morgan Stanley in the amount of
$21,525,000.


                       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 trustees 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 by the fund or the
Transfer Agent provided that your request contains all information and legal
documentation necessary to process the transaction. The Transfer Agent may
accept written orders for the sale of fund shares on a future date. These orders
are subject to the Transfer Agent's policies, which generally allow shareholders
to provide a written request to sell shares at the net asset value on a
specified date no more than five business days after receipt of the order by the
Transfer Agent. Any request to sell shares on a future date will be rejected if
the request is not in writing, if the requested transaction date is more than
five business days after the Transfer Agent receives the request or if the
request does not contain all information and legal documentation necessary to
process the transaction.


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/(R)/) 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 generally 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.


                       American Balanced Fund -- Page 39
<PAGE>


Fixed-income securities, including short-term securities purchased with more
than 60 days left to maturity, are generally valued at prices obtained as of
approximately 3 p.m. from one or more independent pricing vendors. The pricing
vendors base bond prices on, among other things, benchmark yields, transactions,
bids, offers, quotations from dealers and trading systems, new issues,
underlying equity of the issuer, interest rate volatilities, spreads and other
relationships observed in the markets among comparable securities and
proprietary pricing models such as yield measures calculated using factors such
as cash flows, prepayment information, default rates, delinquency and loss
assumptions, financial or collateral characteristics or performance, credit
enhancements, liquidation value calculations, specific deal information and
other reference data. The fund's investment adviser performs certain checks on
these prices prior to calculation of the fund's net asset value. 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.


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
generally 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 other assets for which representative market quotations are not
readily available or are considered unreliable by the investment adviser 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


                       American Balanced Fund -- Page 40
<PAGE>


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).


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.


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


                       American Balanced Fund -- Page 42
<PAGE>


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.


     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.


                       American Balanced Fund -- Page 43
<PAGE>


     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 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


                       American Balanced Fund -- Page 44
<PAGE>


     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).


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.


                       American Balanced Fund -- Page 45
<PAGE>


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 and other registered investment companies approved by
the fund.


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 Capital Group Private
          Client Services division.

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).


CONVERSION -- Currently, Class C shares of the fund automatically convert to
Class F-1 shares in the month of the 10-year anniversary of the purchase date.
The board of trustees of the fund reserves the right at any time, without
shareholder approval, to amend the conversion feature of the Class C shares,
including without limitation, converting into a different share class or not
converting. In making its decision, the board of trustees will consider, among
other things, the effect of any such amendment on shareholders.


                       American Balanced Fund -- Page 49
<PAGE>


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
where the entity maintaining the shareholder account is able to identify the
transaction as a systematic redemption or purchase. 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. Generally,
purchases and redemptions will not be considered "systematic" unless the
transaction is pre-scheduled for a specific date.


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. Notwithstanding
     the previous sentence, you can exchange Class F shares received in a
     conversion from Class C shares for Class A shares at any time without
     paying an initial Class A sales charge if you notify American Funds Service
     Company of the conversion when you make your request. If you have already
     redeemed your Class F shares, the


                       American Balanced Fund -- Page 50
<PAGE>


     foregoing requirements apply and you must purchase Class A shares within 90
     days after redeeming your Class F shares to receive the Class A shares
     without paying an initial Class A sales charge.

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

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

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

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

     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


                       American Balanced Fund -- Page 52
<PAGE>


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

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

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

     (5)  insurance company separate accounts;

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

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

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

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

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

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

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


                       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. Your accumulated holdings (as
     described in the paragraph titled "Rights of accumulation") eligible to be
     aggregated 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


                       American Balanced Fund -- Page 55
<PAGE>


     plans will be deemed completed and will terminate. In addition, effective
     May 1, 2009, the 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 American
     Funds Money Market Fund 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.

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).

     .    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


                       American Balanced Fund -- Page 58
<PAGE>


          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 your investment in the applicable
class of 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 declaration of trust permits the fund to
direct the Transfer Agent to redeem the shares of any shareholder for their then
current net asset value per share if at such time the shareholder of record owns
shares having an aggregate net asset value of less than the minimum initial
investment amount required of new shareholders as set forth in the fund's
current registration statement under the 1940 Act, and subject to such further
terms and conditions as the board of trustees of the fund may from time to time
adopt.


While payment of redemptions normally will be in cash, the fund's declaration of
trust permits 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 trustees. 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. The fund's board may
determine if the fund issues share certificates.


                       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 $41,549,000 for Class A shares and $4,799,000 for
Class B shares for the 2009 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
trustees.


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 trustees in their capacities as
such. Counsel does not provide legal services to the fund's investment adviser
or any of its affiliated companies or control persons. A determination with
respect to the independence of the fund's counsel will be made at least annually
by the independent trustees 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 fund's current prospectus at
no cost by calling 800/421-0180 or by sending an e-mail request to


                       American Balanced Fund -- Page 64
<PAGE>


prospectus@americanfunds.com. Shareholders may also access the fund's current
summary prospectus, prospectus, statement of additional information and
shareholder reports at americanfunds.com/prospectus. 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, 2009


Net asset value and redemption price per share
  (Net assets divided by shares outstanding). .                     $16.21
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). . . . . . . . . . . . . . . .                      $17.20



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.


                       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 FUND
American Funds Money Market
Fund/(R)/ . . . . . . . . .     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 FUND
American Funds Money Market Fund .   2159   2259   2359   2459   2559    2659





                       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 2055 Target
Date Retirement Fund/SM/      082    2182   2282   2382   2482   2582    2682
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, 2009

Common stocks — 65.00%	Shares			Value (000)
INFORMATION TECHNOLOGY — 11.56%
Microsoft Corp.		43,820,000		$	1,336,072
Oracle Corp.		32,136,391			788,627
Cisco Systems, Inc.1		28,300,000			677,502
International Business Machines Corp.		3,400,000			445,060
Hewlett-Packard Co.		7,850,000			404,354
QUALCOMM Inc.		6,470,000			299,302
Google Inc., Class A1		390,000			241,792
Corning Inc.		10,250,000			197,928
SAP AG (ADR)		3,000,000			140,430
Apple Inc.1		655,000			138,113
Automatic Data Processing, Inc.		3,200,000			137,024
EMC Corp.1		7,700,000			134,519
Yahoo! Inc.1		7,906,000			132,663
Intel Corp.		5,000,000			102,000
Paychex, Inc.		2,802,200			85,859
Tyco Electronics Ltd.		3,360,000			82,488
Nokia Corp. (ADR)		5,500,000			70,675
Applied Materials, Inc.		4,415,000			61,545
Texas Instruments Inc.		2,000,000			52,120
					5,528,073
FINANCIALS — 8.66%
Wells Fargo & Co.		34,122,500			920,966
Berkshire Hathaway Inc., Class A1		8,080			801,536
U.S. Bancorp		23,510,000			529,210
American Express Co.		9,300,000			376,836
JPMorgan Chase & Co.		7,145,000			297,732
ACE Ltd.		4,400,000			221,760
Allstate Corp.		6,500,000			195,260
SunTrust Banks, Inc.		8,005,000			162,422
Citigroup Inc.		45,000,000			148,950
Bank of America Corp.		9,150,000			137,799
Chubb Corp.		2,200,000			108,196
Lincoln National Corp.		3,300,000			82,104
Comerica Inc.		2,700,000			79,839
PNC Financial Services Group, Inc.		1,500,000			79,185
					4,141,795
INDUSTRIALS — 8.31%
Boeing Co.		10,660,000			577,026
Deere & Co.		8,240,000			445,701
United Technologies Corp.		5,030,000			349,132
Lockheed Martin Corp.		4,393,772			331,071
Emerson Electric Co.		6,350,000			270,510
Tyco International Ltd.		6,260,000			223,357
Burlington Northern Santa Fe Corp.		2,250,000			221,895
Northrop Grumman Corp.		3,935,000			219,770
General Electric Co.		14,500,000			219,385
Honeywell International Inc.		4,900,000			192,080
Union Pacific Corp.		3,000,000			191,700
Parker Hannifin Corp.		3,000,000			161,640
United Parcel Service, Inc., Class B		2,500,000			143,425
General Dynamics Corp.		2,100,000			143,157
European Aeronautic Defence and Space Co. EADS NV2		5,500,000			109,785
Illinois Tool Works Inc.		2,000,000			95,980
FedEx Corp.		900,000			75,105
					3,970,719
HEALTH CARE — 7.45%
Merck & Co., Inc.		14,077,200			514,381
Bristol-Myers Squibb Co.		17,000,000			429,250
UnitedHealth Group Inc.		13,950,000			425,196
Pfizer Inc		21,622,000			393,304
Eli Lilly and Co.		10,352,000			369,670
Abbott Laboratories		6,600,000			356,334
Medtronic, Inc.		8,000,000			351,840
Johnson & Johnson		3,250,000			209,332
Cardinal Health, Inc.		5,815,000			187,476
Aetna Inc.		4,550,000			144,235
Stryker Corp.		2,000,000			100,740
Amgen Inc.1		1,400,000			79,198
					3,560,956
ENERGY — 7.27%
Chevron Corp.		12,772,000			983,316
Royal Dutch Shell PLC, Class B (ADR)		12,083,000			702,385
ConocoPhillips		11,250,000			574,537
Exxon Mobil Corp.		4,750,000			323,902
Baker Hughes Inc.		7,000,000			283,360
Schlumberger Ltd.		3,450,000			224,561
TOTAL SA (ADR)		3,295,000			211,012
Occidental Petroleum Corp.		1,000,000			81,350
Smith International, Inc.		2,250,000			61,133
EnCana Corp.		1,000,000			32,588
					3,478,144
CONSUMER STAPLES — 6.19%
Coca-Cola Co.		14,570,000			830,490
Philip Morris International Inc.		14,400,000			693,936
Wal-Mart Stores, Inc.		7,537,800			402,895
Kraft Foods Inc., Class A		6,550,000			178,029
Unilever NV (New York registered)		4,500,000			145,485
Estée Lauder Companies Inc., Class A		3,000,000			145,080
Procter & Gamble Co.		2,350,000			142,481
H.J. Heinz Co.		3,250,000			138,970
Avon Products, Inc.		4,250,000			133,875
PepsiCo, Inc.		1,250,000			76,000
Hershey Co.		1,985,000			71,043
					2,958,284
CONSUMER DISCRETIONARY — 3.94%
Home Depot, Inc.		19,400,000			561,242
Time Warner Inc.		13,583,333			395,818
McDonald’s Corp.		4,070,000			254,131
News Corp., Class A		15,000,000			205,350
Comcast Corp., Class A		8,425,000			142,046
Nordstrom, Inc.		2,400,000			90,192
Magna International Inc., Class A		1,750,000			88,515
Macy’s, Inc.		4,500,000			75,420
Best Buy Co., Inc.		1,750,000			69,055
					1,881,769
MATERIALS — 3.72%
Monsanto Co.		5,955,000			486,821
E.I. du Pont de Nemours and Co.		9,300,000			313,131
BHP Billiton Ltd.2		7,000,000			268,041
Dow Chemical Co.		9,000,000			248,670
Weyerhaeuser Co.		4,590,000			198,013
Alcoa Inc.		11,500,000			185,380
Praxair, Inc.		1,000,000			80,310
					1,780,366
TELECOMMUNICATION SERVICES — 2.53%
AT&T Inc.		26,000,000			728,780
Verizon Communications Inc.		12,800,000			424,064
Vodafone Group PLC2		25,000,000			57,968
					1,210,812
UTILITIES — 2.14%
PG&E Corp.		7,100,000			317,015
Exelon Corp.		5,700,000			278,559
Southern Co.		5,000,000			166,600
GDF Suez2		3,644,005			157,975
Edison International		3,000,000			104,340
					1,024,489
MISCELLANEOUS — 3.23%
Other common stocks in initial period of acquisition					1,545,948
Total common stocks (cost: $27,304,826,000)					31,081,355
Preferred stocks — 0.32%
FINANCIALS — 0.28%
BNP Paribas 7.195%3,4		57,200,000			53,196
Barclays Bank PLC 7.434%3,4		30,400,000			28,120
AXA SA, Series B, 6.379%3,4		26,000,000			21,060
QBE Capital Funding II LP 6.797%3,4		24,470,000			20,951
XL Capital Ltd., Series E, 6.50%4		16,160,000			12,362
					135,689
MISCELLANEOUS — 0.04%
Other preferred stocks in initial period of acquisition					19,203
Total preferred stocks (cost: $166,748,000)					154,892
	Principal amount			Value
Bonds & notes — 31.65%		(000	)		(000	)
BONDS & NOTES OF U.S. GOVERNMENT & GOVERNMENT AGENCIES — 14.18%
U.S. Treasury 0.875% 20102,5	$	59,336		$	59,544
U.S. Treasury 4.625% 2011		1,023,000			1,093,168
U.S. Treasury 3.00% 20122,5		197,024			212,322
U.S. Treasury 4.25% 2012		211,600			227,106
U.S. Treasury 2.75% 2013		167,000			171,065
U.S. Treasury 3.375% 2013		732,000			768,483
U.S. Treasury 3.50% 2013		463,000			487,993
U.S. Treasury 3.625% 2013		20,000			21,180
U.S. Treasury 4.25% 2013		245,335			264,810
U.S. Treasury 1.875% 2014		234,000			229,229
U.S. Treasury 1.875% 20152,5		121,694			128,445
U.S. Treasury 2.625% 2016		40,250			39,011
U.S. Treasury 4.75% 2017		74,750			81,130
U.S. Treasury 8.875% 2017		91,625			124,954
U.S. Treasury 1.625% 20182,5		105,250			107,926
U.S. Treasury 3.50% 2018		1,124,250			1,115,245
U.S. Treasury 2.125% 20192,5		50,343			53,530
U.S. Treasury 7.875% 2021		38,750			52,107
U.S. Treasury 6.25% 2023		519,500			620,802
U.S. Treasury 2.375% 20252,5		57,341			60,816
U.S. Treasury 6.875% 2025		79,500			100,959
U.S. Treasury 2.00% 20262,5		3,812			3,849
U.S. Treasury 5.50% 2028		17,125			19,094
U.S. Treasury 5.25% 2029		15,000			16,261
U.S. Treasury 4.50% 2036		151,800			149,617
U.S. Treasury 4.375% 2038		48,000			46,110
U.S. Treasury 3.50% 2039		274,000			224,595
Federal Agricultural Mortgage Corp. 4.875% 20113		40,000			41,841
Federal Agricultural Mortgage Corp. 5.50% 20113		7,000			7,416
CoBank ACB 7.875% 20183		20,000			21,704
CoBank ACB 0.854% 20223,4		23,425			17,447
United States Government Agency-Guaranteed (FDIC insured), Regions Bank 3.25% 2011		33,000			34,154
United States Government Agency-Guaranteed (FDIC insured), Bank of America Corp., Series L, 3.125% 2012		30,000			31,046
United States Government Agency-Guaranteed (FDIC insured), Citigroup Inc. 2.875% 2011		30,000			30,856
Federal Home Loan Bank 5.25% 2014		25,875			28,632
United States Government Agency-Guaranteed (FDIC insured), General Electric Capital Corp., Series G, 2.20% 2012		27,500			27,857
Fannie Mae 6.25% 2029		20,000			22,928
United States Government Agency-Guaranteed (FDIC insured), Sovereign Bancorp, Inc. 2.75% 2012		22,000			22,565
United States Government Agency-Guaranteed (FDIC insured), PNC Funding Corp. 2.30% 2012		14,000			14,221
					6,780,018
MORTGAGE-BACKED OBLIGATIONS6 — 8.55%
Fannie Mae, Series 2000-T5, Class B, 7.30% 2010		52,930			54,055
Fannie Mae, Series 2001-T11, Class B, 5.503% 2011		45,000			47,769
Fannie Mae, Series 2003-T1, Class B, 4.491% 2012		16,000			16,627
Fannie Mae 4.89% 2012		30,000			31,514
Fannie Mae 4.00% 2015		12,841			13,227
Fannie Mae 5.00% 2018		2,433			2,566
Fannie Mae 5.00% 2018		1,233			1,301
Fannie Mae 11.00% 2018		339			391
Fannie Mae 5.50% 2019		2,181			2,330
Fannie Mae 5.50% 2020		32,667			34,867
Fannie Mae, Series 2003-48, Class TJ, 4.50% 2022		10,280			10,649
Fannie Mae 4.50% 2023		35,602			36,708
Fannie Mae 4.50% 2023		34,935			36,020
Fannie Mae 4.00% 2024		151,663			152,817
Fannie Mae 4.00% 2024		128,357			129,364
Fannie Mae 4.00% 2024		42,648			42,973
Fannie Mae 4.00% 2024		29,458			29,682
Fannie Mae 4.00% 2024		26,602			26,805
Fannie Mae 4.00% 2024		23,944			24,127
Fannie Mae 4.00% 2024		22,416			22,587
Fannie Mae 4.00% 2024		21,801			21,966
Fannie Mae 4.00% 2024		10,601			10,682
Fannie Mae 4.00% 2024		7,913			7,973
Fannie Mae 4.00% 2024		5,498			5,540
Fannie Mae 4.50% 2024		55,134			56,794
Fannie Mae 4.50% 2024		55,125			56,785
Fannie Mae 4.50% 2024		40,749			41,976
Fannie Mae 4.50% 2024		12,220			12,588
Fannie Mae 4.50% 2024		12,105			12,469
Fannie Mae 4.50% 2024		9,805			10,101
Fannie Mae 4.50% 2024		8,891			9,159
Fannie Mae 4.50% 2024		8,381			8,634
Fannie Mae, Series 2001-4, Class NA, 11.829% 20254		243			274
Fannie Mae 6.00% 2027		12,303			13,115
Fannie Mae 8.50% 2027		32			37
Fannie Mae, Series 2001-20, Class D, 11.044% 20314		72			83
Fannie Mae 5.50% 2033		25,439			26,750
Fannie Mae 5.50% 2033		19,603			20,614
Fannie Mae 5.50% 2033		2,844			2,991
Fannie Mae 5.50% 2035		11,367			11,953
Fannie Mae 5.50% 2035		7,176			7,564
Fannie Mae 6.50% 2035		14,039			15,166
Fannie Mae, Series 2006-43, Class JO, principal only, 0% 2036		5,712			4,540
Fannie Mae 5.50% 2036		3,001			3,154
Fannie Mae 5.50% 2036		2,595			2,727
Fannie Mae, Series 2006-49, Class PA, 6.00% 2036		14,312			15,334
Fannie Mae 6.00% 2036		6,492			6,907
Fannie Mae 5.616% 20374		25,293			26,658
Fannie Mae 6.00% 2037		92,475			98,677
Fannie Mae 6.00% 2037		47,015			49,926
Fannie Mae 6.00% 2037		22,123			23,479
Fannie Mae 6.00% 2037		16,562			17,572
Fannie Mae 6.00% 2037		3,997			4,242
Fannie Mae 6.50% 2037		45,382			48,441
Fannie Mae 6.50% 2037		36,849			39,529
Fannie Mae 6.50% 2037		30,826			33,068
Fannie Mae 6.50% 2037		18,731			19,994
Fannie Mae 7.00% 2037		35,305			38,740
Fannie Mae 7.00% 2037		12,839			13,992
Fannie Mae 7.00% 2037		9,715			10,587
Fannie Mae 7.00% 2037		6,788			7,398
Fannie Mae 4.50% 2038		28,525			28,508
Fannie Mae 4.50% 2038		8,903			8,899
Fannie Mae 5.50% 2038		58,765			61,590
Fannie Mae 5.50% 2038		9,626			10,089
Fannie Mae 6.00% 2038		38,257			40,578
Fannie Mae 6.00% 2038		17,778			18,862
Fannie Mae 6.00% 2038		11,366			12,055
Fannie Mae 6.50% 2038		43,992			47,206
Fannie Mae 4.50% 2039		159,487			159,404
Fannie Mae 4.50% 2039		62,101			62,069
Fannie Mae 4.50% 2039		48,520			48,490
Fannie Mae 4.50% 2039		36,563			36,544
Fannie Mae 4.50% 2039		8,325			8,320
Fannie Mae 6.00% 2039		21,002			22,289
Fannie Mae, Series 2001-T10, Class A-1, 7.00% 2041		605			673
Fannie Mae, Series 2001-50, Class BA, 7.00% 2041		557			604
Fannie Mae, Series 2002-W3, Class A-5, 7.50% 2041		816			920
Fannie Mae, Series 2002-W1, Class 2A, 7.50% 2042		763			861
Fannie Mae 6.50% 2047		8,010			8,530
Fannie Mae 6.50% 2047		4,229			4,504
Fannie Mae 6.50% 2047		3,713			3,954
Fannie Mae 6.50% 2047		2,745			2,924
Fannie Mae 6.50% 2047		2,411			2,568
Fannie Mae 6.50% 2047		2,256			2,402
Fannie Mae 6.50% 2047		1,138			1,211
Fannie Mae 7.00% 2047		6,791			7,400
Fannie Mae 7.00% 2047		3,680			4,011
Fannie Mae 7.00% 2047		3,220			3,509
Fannie Mae 7.00% 2047		2,367			2,580
Fannie Mae 7.00% 2047		2,191			2,387
Fannie Mae 7.00% 2047		2,066			2,251
Fannie Mae 7.00% 2047		1,308			1,425
Fannie Mae 7.00% 2047		990			1,079
Fannie Mae 7.00% 2047		655			713
Fannie Mae 7.00% 2047		346			377
Freddie Mac 5.00% 2023		33,524			35,123
Freddie Mac 5.00% 2023		23,841			24,978
Freddie Mac 5.00% 2023		19,840			20,786
Freddie Mac 5.00% 2023		7,643			8,007
Freddie Mac 5.00% 2023		6,860			7,187
Freddie Mac 5.00% 2023		5,741			6,015
Freddie Mac 5.00% 2023		4,659			4,881
Freddie Mac 5.00% 2023		393			411
Freddie Mac 5.50% 2023		13,227			14,012
Freddie Mac 5.00% 2024		49,125			51,442
Freddie Mac 5.50% 2024		25,277			26,832
Freddie Mac 6.00% 2026		15,525			16,571
Freddie Mac 6.00% 2026		11,310			12,072
Freddie Mac 6.00% 2026		9,004			9,610
Freddie Mac 6.50% 2027		3,518			3,776
Freddie Mac 6.50% 2027		1,220			1,309
Freddie Mac 6.50% 2027		1,212			1,300
Freddie Mac 6.50% 2028		2,706			2,904
Freddie Mac, Series T-041, Class 3-A, 7.50% 2032		3,101			3,479
Freddie Mac, Series 3061, Class PN, 5.50% 2035		13,109			13,838
Freddie Mac, Series 3156, Class PO, principal only, 0% 2036		16,523			13,902
Freddie Mac, Series 3146, Class PO, principal only, 0% 2036		11,883			9,199
Freddie Mac, Series 3233, Class PA, 6.00% 2036		28,825			30,910
Freddie Mac, Series 3318, Class JT, 5.50% 2037		29,435			30,997
Freddie Mac, Series 3312, Class PA, 5.50% 2037		21,737			22,906
Freddie Mac 5.525% 20374		2,765			2,890
Freddie Mac, Series 3272, Class PA, 6.00% 2037		22,273			23,782
Freddie Mac 6.00% 2038		178,437			189,412
Freddie Mac 6.00% 2038		3,795			4,028
CS First Boston Mortgage Securities Corp., Series 2002-34, Class I-A-1, 7.50% 2032		1,232			1,141
CS First Boston Mortgage Securities Corp., Series 2002-30, Class I-A-1, 7.50% 2032		916			908
CS First Boston Mortgage Securities Corp., Series 2003-21, Class V-A-1, 6.50% 2033		1,195			1,127
CS First Boston Mortgage Securities Corp., Series 2003-29, Class V-A-1, 7.00% 2033		2,254			2,226
CS First Boston Mortgage Securities Corp., Series 2001-CKN5, Class A-4, 5.435% 2034		21,420			21,950
CS First Boston Mortgage Securities Corp., Series 2004-5, Class IV-A-1, 6.00% 2034		6,296			5,736
CS First Boston Mortgage Securities Corp., Series 2001-CP4, Class A-4, 6.18% 2035		34,303			35,658
CS First Boston Mortgage Securities Corp., Series 2005-5, Class IV-A-1, 6.25% 2035		14,156			12,895
CS First Boston Mortgage Securities Corp., Series 2001-CK1, Class A-3, 6.38% 2035		33,692			34,569
CS First Boston Mortgage Securities Corp., Series 2003-CK2, Class A-4, 4.801% 2036		17,585			17,569
CS First Boston Mortgage Securities Corp., Series 2001-CK6, Class A-3, 6.387% 2036		20,021			20,856
CS First Boston Mortgage Securities Corp., Series 2002-CKN2, Class A-3, 6.133% 2037		16,045			16,894
CS First Boston Mortgage Securities Corp., Series 2005-C6, Class A-3, 5.23% 20404		30,875			30,468
Government National Mortgage Assn. 10.00% 2021		413			481
Government National Mortgage Assn. 6.00% 2038		88,740			94,279
Government National Mortgage Assn. 6.50% 2038		40,674			43,489
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2002-CIBC5, Class A-1, 4.372% 2037		3,951			4,023
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2005-CIBC12, Class A-2, 4.739% 2037		1,778			1,783
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2005-CIBC12, Class A-3B, 5.316% 20374		63,000			63,442
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2002-C1, Class A-3, 5.376% 2037		10,680			11,023
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2003-ML1, Class A-1, 3.972% 2039		6,119			6,204
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2005-LDP4, Class A-SB, 4.824% 2042		25,000			25,452
GMAC Commercial Mortgage Securities, Inc., Series 2001-C1, Class A-2, 6.465% 2034		78,870			81,208
GMAC Commercial Mortgage Securities, Inc., Series 2002-C2, Class A-2, 5.389% 2038		1,989			2,030
American Tower Trust I, Series 2007-1A, Class A-FX, 5.42% 20373		18,300			18,484
American Tower Trust I, Series 2007-1A, Class B, 5.537% 20373		20,000			20,566
American Tower Trust I, Series 2007-1A, Class D, 5.957% 20373		32,200			33,112
Wells Fargo Mortgage-backed Securities Trust, Series 2006-1, Class A-3, 5.00% 2021		12,545			11,866
Wells Fargo Mortgage-backed Securities Trust, Series 2005-AR10, Class II-A-6, 3.239% 20354		28,732			24,946
Wells Fargo Mortgage-backed Securities Trust, Series 2006-AR19, Class A-6, 5.622% 20364		22,000			15,321
Residential Accredit Loans, Inc., Series 2004-QS6, Class A-1, 5.00% 2019		11,240			11,083
Residential Accredit Loans, Inc., Series 2004-QS16, Class 1-A-1, 5.50% 2034		16,838			15,634
Residential Accredit Loans, Inc., Series 2005-QR1, Class A, 6.00% 2034		27,236			23,424
Salomon Brothers Commercial Mortgage Trust, Series 2001-C1, Class A-3, 6.428% 2035		46,162			47,696
Bank of America 5.50% 20123		44,500			47,502
Commercial Mortgage Trust, Series 2000-C1, Class E, 8.132% 2033		4,000			4,017
Commercial Mortgage Trust, Series 2003-LNB1, Class A-2, 4.084% 2038		39,825			39,064
Banc of America Commercial Mortgage Inc., Series 2002-PB2, Class A-4, 6.186% 2035		4,350			4,542
Banc of America Commercial Mortgage Inc., Series 2001-1, Class A-2, 6.503% 2036		35,372			36,549
Nationwide Building Society, Series 2007-2, 5.50% 20123		32,500			34,870
Wachovia Bank Commercial Mortgage Trust, Series 2005-C16, Class A-PB, 4.692% 2041		32,750			33,191
Structured Adjustable Rate Mortgage Loan Trust, Series 2006-4, Class 5-A-1, 5.852% 20364		22,989			16,900
Structured Adjustable Rate Mortgage Loan Trust, Series 2006-4, Class 6-A, 5.905% 20364		20,423			14,525
Bear Stearns Asset-backed Securities I Trust, Series 2005-AC3, Class II-A-1, 5.25% 2020		31,715			28,846
SBA CMBS Trust, Series 2006-1A, Class A, 5.314% 20363		27,350			27,613
GE Commercial Mortgage Corp., Series 2004-C1, Class A-2, 3.915% 2038		1,283			1,278
GE Commercial Mortgage Corp., Series 2005-C4, Class A-3A, 5.334% 20454		25,000			25,481
GS Mortgage Securities Corp. II, Series 2001-ROCK, Class D, 6.878% 20183		15,000			15,987
GS Mortgage Securities Corp. II, Series 2006-GG8, Class A-4, 5.56% 2039		11,880			10,477
Countrywide Alternative Loan Trust, Series 2005-6CB, Class 2-A-1, 5.00% 2020		2,614			2,264
Countrywide Alternative Loan Trust, Series 2004-5CB, Class 1-A-1, 6.00% 2034		8,637			6,872
Countrywide Alternative Loan Trust, Series 2004-36CB, Class 1-A-1, 6.00% 2035		17,392			15,168
Bear Stearns Commercial Mortgage Securities Inc., Series 2002-PBW1, Class A-1, 3.97% 2035		2,147			2,176
Bear Stearns Commercial Mortgage Securities Inc., Series 2001-TOP2, Class A-2, 6.48% 2035		1,725			1,786
Bear Stearns Commercial Mortgage Securities Inc., Series 2005-PW10, Class AM, 5.449% 20404		20,000			17,534
GE Capital Commercial Mortgage Corp., Series 2002-2, Class A-3, 5.349% 2036		10,000			10,205
GE Capital Commercial Mortgage Corp., Series 2002-3, Class A-1, 4.229% 2037		10,969			11,087
L.A. Arena Funding, LLC, Series 1, Class A, 7.656% 20263		21,114			20,045
Citigroup-Deutsche Bank Commercial Mortgage Trust, Series 2006-CD3, Class A-5, 5.617% 2048		21,550			19,831
Prudential Mortgage Capital Funding, LLC, Series ROCK 2001-C1, Class A-2, 6.605% 2034		14,831			15,398
Bear Stearns ARM Trust, Series 2005-10, Class A-3, 4.462% 20354		20,000			15,320
LB-UBS Commercial Mortgage Trust, Series 2000-C3, Class A-2, 7.95% 2025		499			500
LB-UBS Commercial Mortgage Trust, Series 2002-C1, Class A-4, 6.462% 2031		13,185			13,867
Four Times Square Trust, Series 2000-4TS, Class C, 7.86% 20153		14,000			14,279
Washington Mutual Mortgage, WMALT Series 2005-1, Class 5-A-1, 6.00% 2035		15,756			12,782
GSR Mortgage Loan Trust, Series 2004-2F, Class XIIIA-1, 5.00% 2019		5,132			5,050
GSR Mortgage Loan Trust, Series 2004-15F, Class 5A-1, 5.50% 2020		5,514			5,487
First Union National Bank Commercial Mortgage Trust, Series 2002-C1, Class A-2, 6.141% 2034		8,486			8,879
Structured Products Asset Return Certificates Trust, Series 2001-CF1, Class A, 6.36% 20332		7,344			7,378
Banc of America Alternative Loan Trust, Series 2005-2, Class 3-A-1, 5.00% 2020		7,785			7,309
Merrill Lynch Mortgage Trust, Series 2005-LC1, Class A-2, 5.202% 20444		6,810			6,938
Chase Commercial Mortgage Securities Corp., Series 2000-1, Class A-2, 7.757% 2032		4,968			4,963
Structured Asset Securities Corp., Series 2004-3, Class 3-A-1, 5.50% 2019		3,949			3,825
Structured Asset Securities Corp., Series 1998-RF2, Class A, 8.245% 20273,4		878			791
Residential Funding Corp., Series 2003-RM2, Class A-II, 5.00% 2018		4,468			4,441
CHL Mortgage Pass-Through Trust, Series 2003-56, Class 6-A-1, 3.461% 20334		5,243			4,327
MASTR Alternative Loan Trust, Series 2005-3, Class 1-A-1, 5.50% 2035		3,152			2,638
Hilton Hotel Pool Trust, Series 2000-HLTA, Class A-1, 7.055% 20153		1,602			1,651
Morgan Stanley Dean Witter Capital I Trust, Series 2003-TOP9, Class A-1, 3.98% 2036		1,135			1,143
					4,089,222
CORPORATE BONDS & NOTES — 7.88%
FINANCIALS — 2.25%
Liberty Mutual Group Inc. 6.50% 20353		19,845			15,979
Liberty Mutual Group Inc. 7.50% 20363		25,350			23,272
Liberty Mutual Group Inc., Series C, 10.75% 20883,4		13,795			14,761
Liberty Mutual Group Inc. 7.697% 20973		22,180			19,040
Westfield Group 5.40% 20123		495			525
Westfield Group 5.75% 20153		16,250			17,155
Westfield Group 5.70% 20163		27,495			28,316
Westfield Group 7.125% 20183		15,750			17,247
ProLogis 5.50% 2012		15,000			15,193
ProLogis 5.625% 2015		10,425			9,925
ProLogis 6.625% 2018		15,500			14,723
ProLogis 7.375% 2019		20,000			19,762
Abbey National Treasury Services PLC 3.875% 20143		14,000			14,065
Santander Issuances, SA Unipersonal 5.805% 20163,4		20,000			19,826
Sovereign Bancorp, Inc. 8.75% 2018		4,000			4,620
Santander Issuances, SA Unipersonal 6.50% 20193,4		11,500			11,941
Kimco Realty Corp. 6.00% 2012		2,750			2,902
Kimco Realty Corp., Series C, 4.82% 2014		13,000			12,751
Kimco Realty Corp., Series C, 5.783% 2016		14,000			13,840
Kimco Realty Corp. 5.70% 2017		21,180			20,433
UniCredito Italiano SpA 5.584% 20173,4		40,000			38,129
UniCredito Italiano SpA 6.00% 20173		10,000			9,927
American Express Bank 5.50% 2013		21,300			22,721
American Express Co. 6.15% 2017		22,800			23,865
CNA Financial Corp. 5.85% 2014		25,000			24,667
CNA Financial Corp. 6.50% 2016		16,000			15,748
Simon Property Group, LP 6.75% 2014		8,495			9,062
Simon Property Group, LP 5.875% 2017		15,165			15,208
Simon Property Group, LP 6.125% 2018		15,160			15,428
Monumental Global Funding 5.50% 20133		12,000			12,356
Monumental Global Funding III 0.484% 20143,4		29,000			26,237
PRICOA Global Funding I 4.20% 20103		11,000			11,000
Prudential Financial, Inc., Series D, 5.50% 2016		14,000			14,037
Prudential Holdings, LLC, Series C, 8.695% 20233,6		11,500			12,336
HBOS PLC 6.75% 20183		39,062			36,302
Goldman Sachs Group, Inc. 6.15% 2018		25,745			27,605
Hospitality Properties Trust 6.75% 2013		7,215			7,322
Hospitality Properties Trust 6.70% 2018		21,025			19,268
Bank of America Corp. 5.75% 2017		25,275			25,923
JPMorgan Chase & Co. 4.891% 20154		20,000			20,045
JPMorgan Chase & Co. 6.30% 2019		5,000			5,510
ERP Operating LP 5.375% 2016		25,000			24,613
ACE INA Holdings Inc. 5.875% 2014		20,000			21,713
Morgan Stanley 6.00% 2014		20,000			21,525
American Honda Finance Corp. 5.125% 20103		20,500			21,172
Barclays Bank PLC 2.50% 2013		8,500			8,496
Barclays Bank PLC 5.00% 2016		12,250			12,535
Citigroup Inc. 6.125% 2018		19,500			19,637
Fifth Third Bancorp 8.25% 2038		9,000			8,580
Fifth Third Capital Trust IV 6.50% 20674		14,500			10,658
Nationwide Financial Services, Inc. 6.75% 20674		21,950			17,159
Nordea Bank 3.70% 20143		16,750			16,736
Boston Properties, Inc. 5.875% 2019		16,500			16,582
Principal Life Insurance Co. 5.30% 2013		15,500			16,379
New York Life Global Funding 5.25% 20123		15,000			16,097
Household Finance Corp. 6.375% 2012		13,000			14,167
Catlin Insurance Ltd. 7.249% (undated)3,4		19,135			14,160
Allstate Life Global Funding Trust, Series 2008-4, 5.375% 2013		13,000			13,888
Loews Corp. 6.00% 2035		14,000			13,448
Resona Bank, Ltd. 5.85% (undated)3,4		15,000			13,108
Assurant, Inc. 5.625% 2014		12,665			12,997
Metropolitan Life Global Funding I, 5.125% 20133		12,000			12,722
Standard Chartered Bank 6.40% 20173		10,800			11,185
Developers Diversified Realty Corp. 4.625% 2010		10,755			10,689
Lincoln National Corp. 5.65% 2012		10,250			10,615
Federal Realty Investment Trust 4.50% 2011		8,500			8,555
Nationwide Mutual Insurance Co. 5.81% 20243,4		10,000			7,908
Wells Fargo & Co. 4.375% 2013		6,920			7,193
United Dominion Realty Trust, Inc. 5.00% 2012		6,000			6,079
					1,077,568
TELECOMMUNICATION SERVICES — 1.09%
SBC Communications Inc. 6.25% 2011		10,000			10,593
AT&T Wireless Services, Inc. 7.875% 2011		12,170			13,079
AT&T Wireless Services, Inc. 8.125% 2012		5,230			5,913
AT&T Inc. 4.95% 2013		16,250			17,349
SBC Communications Inc. 5.10% 2014		15,000			16,152
SBC Communications Inc. 5.625% 2016		49,300			53,032
BellSouth Capital Funding Corp. 7.875% 2030		51,500			58,961
AT&T Corp. 8.00% 20314		10,000			12,240
SBC Communications Inc. 6.45% 2034		40,000			40,912
Verizon Communications Inc. 3.75% 2011		29,250			30,172
Verizon Communications Inc. 5.55% 2014		12,440			13,513
Verizon Communications Inc. 5.50% 2017		13,975			14,769
Verizon Communications Inc. 5.50% 2018		25,500			26,654
Verizon Communications Inc. 6.10% 2018		21,250			23,135
Verizon Communications Inc. 6.35% 2019		15,600			17,241
Verizon Communications Inc. 6.25% 2037		50,000			50,877
Verizon Communications Inc. 6.90% 2038		4,500			5,004
Telecom Italia Capital SA 5.25% 2015		44,721			46,816
Telecom Italia Capital SA 7.721% 2038		12,500			14,437
Deutsche Telekom International Finance BV 5.875% 2013		12,500			13,537
Deutsche Telekom International Finance BV 4.875% 2014		15,500			16,270
France Télécom 4.375% 2014		10,000			10,460
American Tower Corp. 4.625% 20153		10,000			10,126
					521,242
INDUSTRIALS — 0.87%
Burlington Northern Santa Fe Corp. 7.00% 2014		31,850			36,179
Burlington Northern Santa Fe Corp. 4.70% 2019		16,250			16,130
BNSF Funding Trust I 6.613% 20554		6,175			5,943
Continental Airlines, Inc., Series 1997-1, Class A, 7.461% 20166		17,608			16,854
Continental Airlines, Inc., Series 1998-1, Class A, 6.648% 20196		8,874			8,508
Continental Airlines, Inc., Series 1997-4, Class A, 6.90% 20196		4,718			4,662
Continental Airlines, Inc., Series 1999-1, Class A, 6.545% 20206		9,782			9,672
Continental Airlines, Inc., Series 2001-1, Class A-1, 6.703% 20226		7,263			6,805
Continental Airlines, Inc., Series 2007-1, Class B, 6.903% 20226		9,045			8,231
Delta Air Lines, Inc., Series 2002-1, Class G-2, MBIA insured, 6.417% 20146		29,550			28,294
Delta Air Lines, Inc., Series 2002-1, Class G-1, MBIA insured, 6.718% 20246		17,506			15,580
Union Pacific Corp. 5.75% 2017		4,325			4,570
Union Pacific Corp. 5.70% 2018		29,150			30,586
CSX Corp. 5.75% 2013		7,670			8,304
CSX Corp. 6.25% 2015		5,990			6,605
CSX Corp. 6.15% 2037		17,645			17,937
Caterpillar Financial Services Corp., Series F, 6.20% 2013		23,940			26,700
Koninklijke Philips Electronics NV 5.75% 2018		23,500			25,046
General Electric Co. 5.25% 2017		24,250			24,820
Norfolk Southern Corp. 5.75% 2016		7,615			8,112
Norfolk Southern Corp. 5.75% 2018		15,500			16,423
BAE SYSTEMS 2001 Asset Trust, Series 2001, Class B, 7.156% 20113,6		9,807			10,203
BAE SYSTEMS 2001 Asset Trust, Series 2001, Class G, MBIA insured, 6.664% 20133,6		13,321			13,593
Volvo Treasury AB 5.95% 20153		18,000			18,595
Atlas Copco AB 5.60% 20173		14,000			14,135
American Airlines, Inc., Series 2001-2, Class A-2, 7.858% 20136		13,650			13,705
United Air Lines, Inc., Series 2007-1, Class A, 6.636% 20246		13,827			11,891
Canadian National Railway Co. 4.95% 2014		6,000			6,413
					414,496
CONSUMER DISCRETIONARY — 0.79%
AOL Time Warner Inc. 6.875% 2012		40,000			43,813
Time Warner Inc. 5.875% 2016		14,210			15,362
AOL Time Warner Inc. 7.625% 2031		25,315			29,489
Time Warner Cable Inc. 6.75% 2018		45,370			49,923
Time Warner Cable Inc. 5.00% 2020		25,000			24,291
Comcast Corp. 5.30% 2014		15,000			16,024
Comcast Corp. 6.95% 2037		34,250			37,449
Comcast Corp. 6.40% 2038		13,425			13,860
Cox Communications, Inc. 4.625% 2010		25,000			25,021
Cox Communications, Inc. 7.75% 2010		15,000			15,706
Cox Communications, Inc. 5.45% 2014		15,500			16,624
Thomson Reuters Corp. 5.95% 2013		8,140			8,918
Thomson Reuters Corp. 6.50% 2018		20,815			23,565
Toll Brothers, Inc. 4.95% 2014		20,000			19,500
News America Inc. 5.30% 2014		8,750			9,468
News America Inc. 6.90% 2019		3,250			3,668
News America Inc. 6.15% 2037		5,000			4,991
Nordstrom, Inc. 6.75% 2014		10,000			11,179
Seminole Tribe of Florida 5.798% 20133,6		9,320			8,974
					377,825
UTILITIES — 0.72%
National Rural Utilities Cooperative Finance Corp. 5.50% 2013		55,500			60,121
National Rural Utilities Cooperative Finance Corp. 10.375% 2018		8,450			11,214
MidAmerican Energy Holdings Co., Series D, 5.00% 2014		18,000			18,906
MidAmerican Energy Holdings Co. 5.75% 2018		25,925			27,369
MidAmerican Energy Holdings Co. 6.50% 2037		5,000			5,395
PG&E Corp. 5.75% 2014		5,750			6,204
Pacific Gas and Electric Co., First Mortgage Bonds, 6.05% 2034		20,000			20,948
E.ON International Finance BV 5.80% 20183		24,450			26,303
Alabama Power Co., Series FF, 5.20% 2016		16,000			16,527
Alabama Power Co. 6.00% 2039		7,500			7,932
Exelon Corp. 4.45% 2010		20,000			20,333
Southern California Edison Co., First and Refunding Mortgage Bonds, Series 2005-A, 5.00% 2016		16,000			16,703
San Diego Gas & Electric Co., Series CCC, 5.30% 2015		15,000			16,445
Virginia Electric and Power Co., Series 2003-B, 4.50% 2010		3,500			3,600
Virginia Electric and Power Co., Series B, 5.95% 2017		10,000			10,853
Electricité de France SA 6.95% 20393		12,000			14,241
Iberdrola Finance Ireland 3.80% 20143		11,000			11,062
Niagara Mohawk Power 3.553% 20143		10,000			9,980
Abu Dhabi National Energy Co. PJSC (TAQA) 6.50% 20363		10,610			9,696
Public Service Electric and Gas Co., Series E, 5.30% 2018		8,500			8,938
Appalachian Power Co., Series M, 5.55% 2011		7,800			8,114
Veolia Environnement 5.25% 2013		6,500			6,880
Kern River Funding Corp. 4.893% 20183,6		4,687			4,683
Tri-State Generation and Transmission Assn. Inc., Pass Through Trust, Series 2003-A, 6.04% 20183,6		4,089			4,101
					346,548
ENERGY — 0.65%
Kinder Morgan Energy Partners LP 6.00% 2017		41,610			43,750
Kinder Morgan Energy Partners LP 6.50% 2037		10,000			10,108
Enbridge Energy Partners, LP, Series B, 6.50% 2018		12,250			13,123
Enbridge Energy Partners, LP, Series B, 7.50% 2038		12,250			13,989
Enbridge Energy Partners, LP 8.05% 20774		17,520			16,310
BP Capital Markets PLC 3.625% 20143		15,000			15,360
BP Capital Markets PLC 3.875% 2015		20,000			20,572
TransCanada PipeLines Ltd. 6.35% 20674		26,110			24,533
Rockies Express Pipeline LLC 6.85% 20183		14,750			16,328
Shell International Finance 1.30% 2011		16,250			16,299
Gaz Capital SA 6.51% 20223		17,495			16,095
Sunoco, Inc. 4.875% 2014		15,000			15,132
Enterprise Products Operating LLC 6.30% 2017		13,000			14,016
StatoilHydro ASA 2.90% 2014		13,285			13,245
Canadian Natural Resources Ltd. 5.70% 2017		11,925			12,760
Ras Laffan Liquefied Natural Gas II 5.298% 20203,6		12,000			12,118
Enbridge Inc. 5.60% 2017		10,000			10,410
Husky Energy Inc. 6.80% 2037		9,375			9,964
Williams Companies, Inc. 8.75% 2032		6,025			7,229
Polar Tankers, Inc. 5.951% 20373,6		6,685			6,513
Petroleum Export Ltd., Class A-2, XLCA insured, 4.633% 20103,6		1,278			1,259
					309,113
HEALTH CARE — 0.62%
Cardinal Health, Inc. 4.00% 2015		44,100			43,321
Cardinal Health, Inc. 5.80% 2016		17,500			17,627
UnitedHealth Group Inc. 6.00% 2017		22,170			23,237
UnitedHealth Group Inc. 6.00% 2018		35,000			36,211
GlaxoSmithKline Capital Inc. 4.85% 2013		33,700			36,203
AstraZeneca PLC 5.90% 2017		25,000			27,823
Pfizer Inc. 4.45% 2012		25,000			26,455
Roche Holdings Inc. 4.50% 20123		20,000			21,073
Hospira, Inc. 5.55% 2012		14,120			15,058
Biogen Idec Inc. 6.00% 2013		13,500			14,349
Coventry Health Care, Inc. 6.30% 2014		11,955			11,705
Merck & Co., Inc. 5.00% 2019		8,925			9,294
Abbott Laboratories 5.125% 2019		8,600			9,012
Humana Inc. 6.45% 2016		7,187			7,274
					298,642
CONSUMER STAPLES — 0.35%
Anheuser-Busch InBev NV 4.125% 20153		16,500			16,772
Anheuser-Busch InBev NV 7.75% 20193		20,000			23,455
Altria Group, Inc. 9.25% 2019		15,000			18,310
Altria Group, Inc. 9.95% 2038		13,500			17,647
CVS Caremark Corp. 6.036% 20286		7,271			6,900
CVS Caremark Corp. 6.943% 20306		12,490			12,590
PepsiCo, Inc. 7.90% 2018		15,000			18,439
Kraft Foods Inc. 6.75% 2014		16,180			17,909
British American Tobacco International Finance PLC 9.50% 20183		13,580			17,272
Kroger Co. 3.90% 2015		16,250			16,360
					165,654
MATERIALS — 0.30%
Rio Tinto Finance (USA) Ltd. 5.875% 2013		28,500			30,777
Rio Tinto Finance (USA) Ltd. 8.95% 2014		9,180			11,011
Dow Chemical Co. 7.60% 2014		18,250			20,786
Rohm and Haas Co. 6.00% 2017		17,445			18,030
International Paper Co. 7.40% 2014		23,250			25,921
International Paper Co. 7.30% 2039		10,500			11,174
Yara International ASA 7.875% 20193		17,250			19,729
BHP Billiton Finance (USA) Ltd. 5.50% 2014		4,690			5,149
					142,577
INFORMATION TECHNOLOGY — 0.24%
Hewlett-Packard Co. 4.50% 2013		20,000			21,219
Electronic Data Systems Corp., Series B, 6.00% 20134		32,500			35,955
KLA-Tencor Corp. 6.90% 2018		30,250			31,878
Oracle Corp. 3.75% 2014		15,750			16,268
Cisco Systems, Inc. 2.90% 2014		10,000			9,993
					115,313
Total corporate bonds & notes					3,768,978
ASSET-BACKED OBLIGATIONS6 — 0.83%
AmeriCredit Automobile Receivables Trust, Series 2006-B-G, Class A-4, FGIC insured, 5.21% 2013		18,631			19,146
AmeriCredit Automobile Receivables Trust, Series 2007-C-M, Class A-4-A, MBIA insured, 5.55% 2014		14,225			14,654
AmeriCredit Automobile Receivables Trust, Series 2007-D-F, Class A-4-A, FSA insured, 5.56% 2014		15,000			15,408
World Omni Auto Receivables Trust, Series 2006-B, Class A-4, 5.12% 2012		43,983			45,115
Hertz Vehicle Financing LLC, Rental Car Asset-backed Notes, Series 2005-1, Class A-5, MBIA insured, 5.08% 20113		29,550			30,070
Hertz Vehicle Financing LLC, Rental Car Asset-backed Notes, Series 2009-2A, Class A-1, 4.26% 20143		9,000			8,977
Nissan Auto Lease Trust, Series 2008-A, Class A-3a, 5.14% 2011		25,750			26,344
USAA Auto Owner Trust, Series 2007-1, Class A-4, 5.55% 2013		24,000			24,946
Chase Issuance Trust, Series 2008-4, Class A, 4.65% 2015		17,000			18,052
PG&E Energy Recovery Funding LLC, Series 2005-2, Class A-3, 5.12% 2014		16,076			17,289
Prestige Auto Receivables Trust, Series 2007-1, Class A-3, FSA insured, 5.58% 20143		15,629			16,110
Residential Asset Securities Corp. Trust, Series 2001-KS3, Class A-I-6, 5.96% 2031		4,914			4,190
Residential Asset Securities Corp. Trust, Series 2004-KS9, Class A-I-4, FGIC insured, 4.61% 2032		5,701			4,606
Residential Asset Securities Corp. Trust, Series 2003-KS6, Class A-2, 0.831% 20334		110			83
Residential Asset Securities Corp. Trust, Series 2003-KS8, Class A-I-6, 4.83% 2033		6,378			5,418
Ameriquest Mortgage Securities Inc., Series 2004-R4, Class M-1, 0.781% 20344		20,434			14,257
UPFC Auto Receivables Trust, Series 2007-B, Class A-3, AMBAC insured, 6.15% 2014		13,581			14,040
Chase Credit Card Owner Trust, Series 2003-4, Class B, 0.883% 20164		14,000			13,307
Citibank Credit Card Issuance Trust, Series 2008, Class A5, 4.85% 2015		12,000			12,748
CPS Auto Receivables Trust, Series 2004-B, Class A-2, XLCA insured, 3.56% 20113		308			310
CPS Auto Receivables Trust, Series 2006-A, Class 1-A-4, FSA insured, 5.33% 20123		4,565			4,648
CPS Auto Receivables Trust, Series 2007-TFC, Class A-2, XLCA insured, 5.25% 20133		6,707			6,873
Drive Auto Receivables Trust, Series 2006-2, Class A-3, MBIA insured, 5.33% 20143		11,379			11,654
RAMP Trust, Series 2003-RZ4, Class A-7, 4.79% 20334		6,063			5,084
RAMP Trust, Series 2003-RS11, Class A-I-7, 4.828% 2033		7,055			5,987
Morgan Stanley ABS Capital I Inc., Series 2004-NC3, Class M-1, 1.026% 20344		14,117			8,990
GE SeaCo Finance SRL, Series 2004-1, Class A, AMBAC insured, 0.533% 20193,4		9,382			7,758
CarMax Auto Owner Trust, Series 2007-2, Class A-3, 5.23% 2011		6,794			6,902
Long Beach Acceptance Auto Receivables Trust, Series 2004-C, Class A-4, FSA insured, 3.777% 2011		2,012			2,026
Long Beach Acceptance Auto Receivables Trust, Series 2005-B, Class A-4, FSA insured, 4.522% 2012		4,748			4,820
GMAC Mortgage Loan Trust, Series 2006-HE3, Class A-5, FGIC insured, 5.809% 20364		12,512			6,043
Home Equity Asset Trust, Series 2004-2, Class M-1, 1.026% 20344		7,984			5,377
Cendant Timeshare Receivables Funding, LLC, Series 2005-1, Class A-1, FGIC insured, 4.67% 20173		5,993			5,156
CWABS, Inc., Series 2004-BC1, Class M-1, 0.731% 20344		5,304			4,453
West Penn Funding LLC, Transition Bonds, Series 2005-A, Class A-1, 4.46% 20103		2,092			2,111
Impac CMB Grantor Trust, Series 2004-6, Class 1-A-1, 1.031% 20344		1,289			788
Impac CMB Grantor Trust, Series 2004-6, Class M-2, 1.131% 20344		1,277			426
Triad Automobile Receivables Trust, Series 2006-C, Class A-3, AMBAC insured, 5.26% 2011		1,128			1,129
Vanderbilt Acquisition Loan Trust, Series 2002-1, Class A-3, 5.70% 2023		60			60
					395,355
BONDS & NOTES OF GOVERNMENTS & GOVERNMENT AGENCIES OUTSIDE THE U.S. — 0.16%
Croatian Government 6.75% 20193		17,000			18,343
Province of Ontario 1.875% 2012		16,750			16,595
Polish Government 6.375% 2019		14,350			15,680
Australia and New Zealand Government Agency-Guaranteed, Australia and
New Zealand Banking Group Ltd. 3.25% 20123		13,000			13,391
France Government Agency-Guaranteed, Société Finance 2.875% 20143		10,460			10,376
					74,385
MUNICIPALS — 0.02%
State of South Dakota, Educational Enhancement Funding Corp., Tobacco Settlement Asset-backed Bonds,
Series 2002-A, Class A, 6.72% 2025		14,041			11,230
State of Louisiana, Tobacco Settlement Financing Corp., Tobacco Settlement Asset-backed Bonds,
Series 2001-A, Class A, 6.36% 2025		553			461
					11,691
MISCELLANEOUS — 0.03%
Other bonds & notes in initial period of acquisition					15,697
Total bonds & notes (cost: $14,948,747,000)					15,135,346
	Principal amount			Value
Short-term securities — 2.92%		(000	)		(000	)
Freddie Mac 0.11%–0.245% due 1/27–5/4/2010	$	434,100		$	434,014
U.S. Treasury Bills 0.055%–0.34% due 3/11–8/26/2010		350,200			349,841
Coca-Cola Co. 0.15%–0.20% due 2/17–5/11/20103		101,600			101,555
Straight-A Funding LLC 0.15%–0.18% due 2/2–3/10/20103		80,183			80,164
Paccar Financial Corp. 0.17%–0.19% due 1/26–3/18/2010		75,600			75,581
Fannie Mae 0.11%–0.25% due 3/24–8/16/2010		53,300			53,261
Medtronic Inc. 0.13% due 2/23/20103		50,600			50,586
General Electric Capital Services, Inc. 0.17% due 2/18/2010		30,000			29,991
General Electric Capital Corp. 0.01% due 1/4/2010		8,600			8,600
Bank of America Corp. 0.31% due 2/23/2010		33,100			33,089
Jupiter Securitization Co., LLC 0.15% due 1/12/20103		15,891			15,890
JPMorgan Chase & Co. 0.15% due 1/19/2010		15,600			15,599
Harvard University 0.14% due 2/11/2010		30,600			30,594
Federal Home Loan Bank 0.065%–0.122% due 1/13–2/19/2010		28,400			28,399
Walt Disney Co. 0.12% due 2/24/20103		25,000			24,991
Private Export Funding Corp. 0.22% due 3/29/20103		25,000			24,991
Johnson & Johnson 0.12% due 3/18/20103		23,700			23,692
NetJets Inc. 0.11% due 1/14/20103		14,400			14,399
Total short-term securities (cost: $1,394,951,000)					1,395,237
Total investment securities (cost: $43,815,272,000)					47,766,830
Other assets less liabilities					53,569
Net assets				$	47,820,399

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

1Security did not produce income during the last 12 months.

2Valued under fair value procedures adopted by authority of the board of directors. The total value of all such securities, including those in “Miscellaneous,” was $1,311,013,000, which represented 2.74% of the net assets of the fund. This amount includes $677,203,000 related to certain securities trading outside the U.S. whose values were adjusted as a result of significant market movements following the close of local trading.

3Purchased 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 $1,681,848,000, which represented 3.52% of the net assets of the fund.

4Coupon rate may change periodically.

5Index-linked bond whose principal amount moves with a government retail price index.

6Principal payments may be made periodically. Therefore, the effective maturity date may be earlier than the stated maturity date.

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 the fund’s summary prospectus and prospectus, which can be obtained from your financial professional and should be read carefully before investing. You may also call American Funds Service Company (AFS) at 800/421-0180 or visit the American Funds website at americanfunds.com.

MFGEFP-911-0210O-S21488

Summary investment portfolio, December 31, 2009

The following summary investment portfolio is designed to streamline the report and help investors better focus on a fund’s principal holdings.  See the inside back cover for details on how to obtain a complete schedule of portfolio holdings.

[begin pie chart]

Investment mix by security type (percent of net assets)
Common stocks	65	%
Fixed-income securities	32
Short-term securities & other assets less liabilities	3

[end pie chart]

						Percent
			Value			of net
Common stocks - 65.00%	Shares			(000	)	assets
Information technology - 11.56%
Microsoft Corp.		43,820,000	$	1,336,072			2.79	%
Oracle Corp.		32,136,391		788,627			1.65
Cisco Systems, Inc. (1)		28,300,000		677,502			1.42
International Business Machines Corp.		3,400,000		445,060			.93
Hewlett-Packard Co.		7,850,000		404,354			.84
QUALCOMM Inc.		6,470,000		299,302			.63
Other securities				1,577,156			3.30
				5,528,073			11.56
Financials - 8.66%
Wells Fargo & Co.		34,122,500		920,966			1.92
Berkshire Hathaway Inc., Class A (1)		8,080		801,536			1.68
U.S. Bancorp		23,510,000		529,210			1.11
American Express Co.		9,300,000		376,836			.79
JPMorgan Chase & Co.		7,145,000		297,732			.62
Other securities				1,215,515			2.54
				4,141,795			8.66
Industrials - 8.31%
Boeing Co.		10,660,000		577,026			1.21
Deere & Co.		8,240,000		445,701			.93
United Technologies Corp.		5,030,000		349,132			.73
Lockheed Martin Corp.		4,393,772		331,071			.69
Emerson Electric Co.		6,350,000		270,510			.57
Other securities				1,997,279			4.18
				3,970,719			8.31
Health care - 7.45%
Merck & Co., Inc.		14,077,200		514,381			1.08
Bristol-Myers Squibb Co.		17,000,000		429,250			.90
UnitedHealth Group Inc.		13,950,000		425,196			.89
Pfizer Inc		21,622,000		393,304			.82
Eli Lilly and Co.		10,352,000		369,670			.77
Abbott Laboratories		6,600,000		356,334			.74
Medtronic, Inc.		8,000,000		351,840			.74
Other securities				720,981			1.51
				3,560,956			7.45
Energy - 7.27%
Chevron Corp.		12,772,000		983,316			2.05
Royal Dutch Shell PLC, Class B (ADR)		12,083,000		702,385			1.47
ConocoPhillips		11,250,000		574,537			1.20
Exxon Mobil Corp.		4,750,000		323,902			.68
Baker Hughes Inc.		7,000,000		283,360			.59
Other securities				610,644			1.28
				3,478,144			7.27
Consumer staples - 6.19%
Coca-Cola Co.		14,570,000		830,490			1.74
Philip Morris International Inc.		14,400,000		693,936			1.45
Wal-Mart Stores, Inc.		7,537,800		402,895			.84
Other securities				1,030,963			2.16
				2,958,284			6.19
Consumer discretionary - 3.94%
Home Depot, Inc.		19,400,000		561,242			1.17
Time Warner Inc.		13,583,333		395,818			.83
McDonald's Corp.		4,070,000		254,131			.53
Other securities				670,578			1.41
				1,881,769			3.94
Materials - 3.72%
Monsanto Co.		5,955,000		486,821			1.02
E.I. du Pont de Nemours and Co.		9,300,000		313,131			.65
BHP Billiton Ltd. (2)		7,000,000		268,041			.56
Other securities				712,373			1.49
				1,780,366			3.72
Telecommunication services - 2.53%
AT&T Inc.		26,000,000		728,780			1.52
Verizon Communications Inc.		12,800,000		424,064			.89
Other securities				57,968			.12
				1,210,812			2.53
Utilities - 2.14%
PG&E Corp.		7,100,000		317,015			.66
Exelon Corp.		5,700,000		278,559			.58
Other securities				428,915			.90
				1,024,489			2.14
Miscellaneous - 3.23%
Other common stocks in initial period of acquisition				1,545,948			3.23
Total common stocks (cost: $27,304,826,000)				31,081,355			65.00
Preferred stocks - 0.32%
Financials - 0.28%
Other securities				135,689			.28
Miscellaneous - 0.04%
Other preferred stocks in initial period of acquisition				19,203			.04
Total preferred stocks (cost: $166,748,000)				154,892			.32
	Principal amount
Bonds & notes - 31.65%	(000)
Bonds & notes of U.S. government & government agencies - 14.18%
U.S. Treasury:
4.625% 2011	$	1,023,000		1,093,168
3.375% 2013		732,000		768,483
3.50% 2013		463,000		487,993
4.25% 2013		245,335		264,810
3.50% 2018		1,124,250		1,115,245
6.25% 2023		519,500		620,802
0.875%-8.875% 2010-2039 (2) (3)		2,058,200		2,128,850			13.55
Fannie Mae 6.25% 2029		20,000		22,928			.05
Other securities				277,739			.58
				6,780,018			14.18
Mortgage-backed obligations (4) - 8.55%
Fannie Mae 0%-11.829% 2010-2047 (5)		2,082,949		2,154,344			4.51
Freddie Mac 0%-7.50% 2023-2038		566,508		592,559			1.24
Other securities				1,342,319			2.80
				4,089,222			8.55
Corporate bonds & notes - 7.88%
Financials - 2.25%
Wells Fargo & Co. 4.375% 2013		6,920		7,193			.02
Other securities				1,070,375			2.23
				1,077,568			2.25
Telecommunication services - 1.09%
SBC Communications Inc. 5.10%-6.45% 2011-2034		114,300		120,689
BellSouth Capital Funding Corp. 7.875% 2030		51,500		58,961
AT&T Wireless Services, Inc. 7.875%-8.125% 2011-2012		17,400		18,992
AT&T Inc. 4.95% 2013		16,250		17,349
AT&T Corp. 8.00% 2031 (5)		10,000		12,240			.48
Verizon Communications Inc. 3.75%-6.90% 2011-2038		172,515		181,365			.38
Other securities				111,646			.23
				521,242			1.09
Consumer discretionary - 0.79%
AOL Time Warner Inc. 6.875%-7.625% 2012-2031		65,315		73,302
Time Warner Inc. 5.875% 2016		14,210		15,362			.19
Other securities				289,161			.60
				377,825			.79
Energy - 0.65%
Shell International Finance 1.30% 2011		16,250		16,299			.03
Polar Tankers, Inc. 5.951% 2037 (4) (6)		6,685		6,513			.01
Other securities				286,301			.61
				309,113			.65
Health care - 0.62%
UnitedHealth Group Inc. 6.00% 2017-2018		57,170		59,448			.12
Merck & Co., Inc. 5.00% 2019		8,925		9,294			.02
Other securities				229,900			.48
				298,642			.62
Information technology - 0.24%
Oracle Corp. 3.75% 2014		15,750		16,268			.03
Cisco Systems, Inc. 2.90% 2014		10,000		9,993			.02
Other securities				89,052			.19
				115,313			.24
Other corporate bonds & notes- 2.24%
Other securities				1,069,275			2.24
Total corporate bonds & notes				3,768,978			7.88
Other - 1.01%
Other securities				481,431			1.01
Miscellaneous - 0.03%
Other bonds & notes in initial period of acquisition				15,697			.03
Total bonds & notes (cost: $14,948,747,000)				15,135,346			31.65
Short-term securities - 2.92%
Freddie Mac 0.11%-0.245% due 1/27-5/4/2010		434,100		434,014			.91
U.S. Treasury Bills 0.055%-0.34% due 3/11-8/26/2010		350,200		349,841			.73
Coca-Cola Co. 0.15%-0.20% due 2/17-5/11/2010 (6)		101,600		101,555			.21
Fannie Mae 0.11%-0.25% due 3/24-8/16/2010		53,300		53,261			.11
NetJets Inc. 0.11% due 1/14/2010 (6)		14,400		14,399			.03
Other securities				442,167			.93
Total short-term securities (cost: $1,394,951,000)				1,395,237			2.92
Total investment securities (cost: $43,815,272,000)				47,766,830			99.89
Other assets less liabilities				53,569			.11
Net assets			$	47,820,399			100.00	%

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

 "Other securities" includes all issues that are not disclosed separately in the summary investment portfolio.

The following footnotes apply to either the individual securities noted or one or more of the securities aggregated and listed as a single line item.

(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, including those in "Miscellaneous" and "Other securities," was $1,311,013,000, which represented 2.74% of the net assets of the fund. This amount includes $677,203,000 related to certain securities trading outside the U.S. whose values were adjusted as a result of significant market movements following the close of local trading.

(3) Index-linked bond whose principal amount moves with a government retail price index.

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

(5) Coupon rate may change periodically.

(6) 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, including those in "Other securities," was $1,681,848,000, which represented 3.52% of the net assets of the fund.

Key to abbreviation

ADR = American Depositary Receipts

See Notes to Financial Statements

Financial statements

Statement of assets and liabilities
at December 31, 2009	(dollars in thousands)
Assets:
Investment securities, at value (cost: $43,815,272)			$	47,766,830
Cash denominated in currencies other than U.S. dollars (cost: $340)				344
Cash				65
Receivables for:
Sales of investments	$	40,437
Sales of fund's shares		69,433
Dividends and interest		194,293		304,163
				48,071,402
Liabilities:
Payables for:
Purchases of investments		63,531
Repurchases of fund's shares		148,640
Investment advisory services		9,858
Services provided by affiliates		22,504
Directors' deferred compensation		2,177
Other		4,293		251,003
Net assets at December 31, 2009			$	47,820,399
Net assets consist of:
Capital paid in on shares of capital stock			$	49,797,684
Undistributed net investment income				17,510
Accumulated net realized loss				(5,946,315	)
Net unrealized appreciation				3,951,520
Net assets at December 31, 2009			$	47,820,399

	(dollars and shares in thousands, except per-share amounts)
Total authorized capital stock - 5,500,000 shares, $.001 par value (2,952,688 total shares outstanding)
	Net assets		Shares  outstanding		Net asset value  per share*
Class A	$	29,674,582		1,830,416	$	16.21
Class B		3,304,865		204,537		16.16
Class C		4,429,372		274,399		16.14
Class F-1		885,466		54,629		16.21
Class F-2		164,418		10,144		16.21
Class 529-A		1,290,954		79,716		16.19
Class 529-B		284,510		17,575		16.19
Class 529-C		507,131		31,324		16.19
Class 529-E		79,859		4,933		16.19
Class 529-F-1		42,400		2,620		16.19
Class R-1		119,741		7,424		16.13
Class R-2		1,053,670		65,289		16.14
Class R-3		2,325,574		143,981		16.15
Class R-4		1,736,379		107,228		16.19
Class R-5		1,331,948		82,113		16.22
Class R-6		589,530		36,360		16.21
*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 $17.20 and $17.18, respectively.
See Notes to Financial Statements

Statement of operations
for the year ended December 31, 2009				(dollars in thousands)
Investment income:
Income:
Dividends (net of non-U.S. taxes of $11,280)	$	813,755
Interest		695,292		$	1,509,047
Fees and expenses*:
Investment advisory services		105,924
Distribution services		172,152
Transfer agent services		46,348
Administrative services		25,182
Reports to shareholders		2,802
Registration statement and prospectus		8,162
Directors' compensation		797
Auditing and legal		117
Custodian		449
Other		2,812			364,745
Net investment income					1,144,302
Net realized loss and unrealized appreciation on investments and currency:
Net realized loss on:
Investments		(4,282,850	)
Currency transactions		(1,462	)		(4,284,312	)
Net unrealized appreciation on:
Investments		11,456,168
Currency translations		108			11,456,276
Net realized loss and unrealized appreciation on investments and currency					7,171,964
Net increase in net assets resulting from operations				$	8,316,266
*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
		2009			2008
Operations:
Net investment income	$	1,144,302		$	1,479,078
Net realized loss on investments and currency transactions		(4,284,312	)		(1,648,768	)
Net unrealized appreciation (depreciation) on investments and currency translations		11,456,276			(15,316,379	)
Net increase (decrease) in net assets resulting from operations		8,316,266			(15,486,069	)
Dividends and distributions paid to shareholders:
Dividends from net investment income		(1,166,741	)		(1,602,469	)
Distributions from net realized gain on investments		-			(440,268	)
Total dividends and distributions paid to shareholders		(1,166,741	)		(2,042,737	)
Net capital share transactions		(2,382,577	)		(6,705	)
Total increase (decrease) in net assets		4,766,948			(17,535,511	)
Net assets:
Beginning of year		43,053,451			60,588,962
End of year (including undistributed
net investment income: $17,510 and $38,570, respectively)	$	47,820,399		$	43,053,451
See Notes to Financial Statements

Notes to financial statements

1.   Organization and significant accounting policies

Organization – American Balanced Fund, Inc. (the "fund") is registered under the Investment Company Act of 1940 as an open-end, diversified management investment company. The fund seeks conservation of capital, current income and long-term growth of both capital and income by investing in common stocks and fixed-income securities.

On November 24, 2009, shareholders approved a proposal to reorganize the fund from a Maryland corporation to a Delaware statutory trust. The reorganization is expected to be completed in 2010; however, the fund reserves the right to delay the implementation. Shareholders also approved amendments to the fund’s Investment Advisory and Service Agreement and amendments to and elimination of certain fundamental investment policies of the fund.

The fund has 16 share classes consisting of five retail share classes, five 529 college savings plan share classes and six retirement plan share classes. The 529 college savings plan share classes (529-A, 529-B, 529-C, 529-E and 529-F-1) can be used to save for college education. The six retirement plan share classes (R-1, R-2, R-3, R-4, R-5 and R-6) are generally offered only through eligible employer-sponsored retirement plans. The fund’s share classes are described below:

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,  R-5 and R-6	None	None	None

*Effective April 21, 2009, Class B and 529-B shares of the fund are not available for purchase.

On May 1, 2009, the fund made an additional retirement plan share class (Class R-6) available for sale pursuant to an amendment to its registration statement filed with the Securities and Exchange Commission (“SEC”). Refer to the fund’s retirement plan prospectus for more details.

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

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

Net asset value – The fund generally determines its net asset value as of approximately 4:00 p.m. New York time each day the New York Stock Exchange is open.

Security valuation – Equity securities are valued at the official closing price of, or the last reported sale price on, the exchange or market on which such securities are traded, as of the close of business on the day the securities are being valued or, lacking any sales, at the last available bid price. Prices for each security are taken from the principal exchange or market in which the security trades. Fixed-income securities, including short-term securities purchased with more than 60 days left to maturity, are valued at prices obtained from one or more independent pricing vendors when such prices are available. However, 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. Vendors base bond prices on, among other things, valuation matrices that incorporate dealer-supplied valuations, proprietary pricing models and evaluations of the yield curve as of approximately 3:00 p.m. New York time. Securities with both fixed-income and equity characteristics, or equity securities traded principally among fixed-income dealers, are valued in the manner described above for either equity or fixed-income securities, depending on which method is deemed most appropriate by the investment adviser. Short-term securities purchased within 60 days to maturity are valued at amortized cost, which approximates market value. The value of short-term securities originally purchased with maturities greater than 60 days is determined based on an amortized value to par when they reach 60 days or less remaining to maturity.

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

Security transactions and related investment income – Security transactions are recorded by the fund as of the date the trades are executed with brokers. Realized gains and losses from security transactions are determined based on the specific identified cost of the securities. Dividend income is recognized on the ex-dividend date and interest income is recognizedon an accrual basis. Market discounts, premiums and original issue discounts on fixed-income securities are amortized daily over the expected life of the security.

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

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

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

2.   Risk factors

Investing in the fund may involve certain risks including, but not limited to, those described below.

The prices of, and the income generated by, the common stocks, bonds and other securities held by the fund may decline in response to certain events taking place around the world, including those directly involving the issuers whose securities are owned by the fund; conditions affecting the general economy; overall market changes; local, regional or global political, social or economic instability; governmental or governmental agency responses to economic conditions; and currency, interest rate and commodity price fluctuations.

The prices of, and the income generated by, most debt securities held by the fund may be affected by changing interest rates and by changes in the effective maturities and credit ratings of these securities. For example, the prices of debt securities in the fund's portfolio generally will decline when interest rates rise and increase when interest rates fall. In addition, falling interest rates may cause an issuer to redeem, "call" or refinance a security before its stated maturity, which may result in the fund having to reinvest the proceeds in lower yielding securities. Longer maturity debt securities generally have higher rates of interest and may be subject to greater price fluctuations than shorter maturity debt securities. Debt securities are also subject to credit risk, which is the possibility that the credit strength of an issuer will weaken and/or an issuer of a debt security will fail to make timely payments of principal or interest and the security will go into default. A security backed by the U.S. Treasury or the full faith and credit of the U.S. government is guaranteed only as to the timely payment of interest and principal when held to maturity. Accordingly, the current market values for these securities will fluctuate with changes in interest rates.

Investments in securities issued by entities based outside the U.S. may be subject to the risks described above to a greater extent. These investments may also be affected by currency fluctuations and controls; different accounting, auditing, financial reporting, disclosure, regulatory and legal standards and practices; 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. Investments in securities issued by entities domiciled in the U.S may also be subject to many of these risks.

 3. Taxation and distributions                                                      

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

As of and during the period ended December 31, 2009, the fund did not have a liability for any unrecognized tax benefits. The fund recognizes interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the statement of operations. During the period, the fund did not incur any interest or penalties.

The fund is not subject to examination by U.S. federal tax authorities for tax years before 2006 and by state tax authorities for tax years before 2005.

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

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

During the year ended December 31, 2009, the fund reclassified $1,902,000 from accumulated net realized loss to undistributed net investment income and $523,000 from undistributed net investment income to capital paid in on shares of capital stock to align financial reporting with tax reporting.

As of December 31, 2009, the tax basis components of distributable earnings, unrealized appreciation (depreciation) and cost of investment securities were as follows:

	(dollars in thousands)
Undistributed ordinary income				$	19,868
Post-October currency loss deferrals (realized during the period November 1, 2009, through December 31, 2009)*					(119	)
Capital loss carryforwards†:
Expiring 2016	$	(1,180,492	)
Expiring 2017		(4,681,347	)		(5,861,839	)
Post-October capital loss deferrals (realized during the period November 1, 2009, through December 31, 2009)*					(3,758	)
Gross unrealized appreciation on investment securities					6,080,584
Gross unrealized depreciation on investment securities					(2,210,177	)
Net unrealized appreciation on investment securities					3,870,407
Cost of investment securities					43,896,423
*These deferrals are considered incurred in the subsequent year. †The capital loss carryforwards will be used to offset any capital gains realized by the fund in future years through the expiration dates. The fund will not make distributions from capital gains while capital loss carryforwards remain.

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

	Year ended December 31, 2009						Year ended December 31, 2008
Share class	Ordinary income		Long-term capital gains		Total distributions paid		Ordinary income		Long-term capital gains		Total distributions paid
Class A	$	770,289	$	-	$	770,289	$	1,061,925	$	275,039	$	1,336,964
Class B		68,568		-		68,568		109,514		38,718		148,232
Class C		84,863		-		84,863		125,087		44,051		169,138
Class F-1		24,945		-		24,945		37,856		9,931		47,787
Class F-2*		2,935		-		2,935		396		-		396
Class 529-A		31,071		-		31,071		38,098		9,715		47,813
Class 529-B		5,161		-		5,161		7,115		2,495		9,610
Class 529-C		8,928		-		8,928		11,922		4,147		16,069
Class 529-E		1,746		-		1,746		2,171		615		2,786
Class 529-F-1		1,031		-		1,031		1,175		263		1,438
Class R-1		2,168		-		2,168		2,541		805		3,346
Class R-2		18,873		-		18,873		24,881		8,441		33,322
Class R-3		53,008		-		53,008		77,781		23,940		101,721
Class R-4		46,044		-		46,044		54,862		14,212		69,074
Class R-5		37,936		-		37,936		47,145		7,896		55,041
Class R-6†		9,175		-		9,175		-		-		-
Total	$	1,166,741	$	-	$	1,166,741	$	1,602,469	$	440,268	$	2,042,737
*Class F-2 was offered beginning August 1, 2008.
†Class R-6 was offered beginning May 1, 2009.

4. Fees and transactions with related parties

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

Investment advisory services - The Investment Advisory and Service Agreement with CRMC providesfor monthly fees accrued daily. These fees are based on a declining series of annual rates beginning with 0.420% on the first $500 million of daily net assets and decreasing to 0.210% on such assets in excess of $71 billion. For the year ended December 31, 2009, the investment advisory services fee was $105,924,000, which was equivalent to an annualized rate of 0.244% of average daily net assets.

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

Distribution services – The fund has adopted plans of distribution for all share classes, except Classes F-2, R-5 and R-6. Under the plans, the board of directors approves certain categories of expenses that are used to finance activities primarily intended to sell fund shares and service existing accounts. The plans provide for payments, based on an annualized percentage of average daily net assets, ranging from 0.25% to 1.00% as noted on the following page. In some cases, the board of directors has limited the amounts that may be paid to less than the maximum allowed by the plans.All share classes with a plan may use up to 0.25%of average daily net assets to pay service fees, or to compensate AFD for paying service fees, to firms that have entered into agreements with AFD to provide certain shareholder services. The remaining amounts available to be paid under each plan are paid to dealers to compensate them for their sales activities.

For Classes A and 529-A, the board of directors has also approved the reimbursement of dealer and wholesaler commissions paid by AFD for certain shares sold without a sales charge. These classes reimburse AFD for amounts billed within the prior 15 months but only to the extent that the overall annual expense limit of 0.25% is not exceeded. As of December 31, 2009, there were no unreimbursed expenses subject to reimbursement for Classes A or 529-A.

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

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

Administrative services – The fund has an administrative services agreement with CRMC to provide transfer agent and other related shareholder services for all share classes other than Classes A and B. Each relevant share class pays CRMC annual fees up to 0.15% (0.10% for Class R-5 and 0.05% for Class R-6) based on its respective average daily net assets. Each relevant share class also pays AFS additional amounts for certain transfer agent services. CRMC and AFS may use these fees to compensate third parties for performing these services. Each 529 share class is subject to an additional administrative services fee payable to the Commonwealth of Virginia for the maintenance of the 529 college savings plan.The quarterly fee is based on a declining series of annual rates beginning with 0.10% on the first $30 billion of the net assets invested in Class 529 shares of the American Funds and decreasing to 0.06% on such assets between $120 billion and $150 billion. The fee for any given calendar quarter is accrued and calculated on the basis of the average net assets of Class 529 shares of the American Funds for the last month of the prior calendar quarter. Although these amounts are included with administrative services fees on the accompanying financial statements, the Commonwealth of Virginia is not considered a related party.

Expenses under the agreements described above for the year ended December 31, 2009, were as follows (dollars in thousands):

Share class	Distribution services	Transfer agent services	Administrative services
			CRMC administrative services	Transfer agent services	Commonwealth of Virginia administrative services
Class A	$64,659	$41,549	Not applicable	Not applicable	Not applicable
Class B	32,516	4,799	Not applicable	Not applicable	Not applicable
Class C	40,657	Included in administrative services	$6,105	$1,040	Not applicable
Class F-1	2,089		990	84	Not applicable
Class F-2	Not applicable		131	6	Not applicable
Class 529-A	2,384		1,297	214	$1,111
Class 529-B	2,574		302	81	258
Class 529-C	4,427		520	124	446
Class 529-E	347		81	13	69
Class 529-F-1	-		40	7	34
Class R-1	1,015		129	35	Not applicable
Class R-2	6,848		1,351	2,743	Not applicable
Class R-3	10,316		3,021	1,109	Not applicable
Class R-4	4,320		2,546	41	Not applicable
Class R-5	Not applicable		1,099	11	Not applicable
Class R-6*	Not applicable		144	-†	Not applicable
Total	$172,152	$46,348	$17,756	$5,508	$1,918

*Class R-6 was offered beginning May 1, 2009.

†Amount less than one thousand.

Directors’ deferred compensation – Since the adoption of the deferred compensation plan in 1993, directors who are unaffiliated with CRMC may elect to defer the cash payment of part or all of their compensation. These deferred amounts, which remain as liabilities of the fund, are treated as if invested in shares of the fund or other American Funds. These amounts represent general, unsecured liabilities of the fund and vary according to the total returns of the selected funds. Directors’ compensation of $797,000, shown on the accompanying financial statements, includes $447,000 in current fees (either paid in cash or deferred) and a net increase of $350,000 in the value of the deferred amounts.

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

5. Disclosure of fair value measurements

The fund classifies its assets and liabilities into three levels based on the method used to value the assets or liabilities.Level 1 values are based on quoted prices in active markets for identical securities. Level 2 values are based on significant observable market inputs, such as quoted prices for similar securities and quoted prices in inactive markets. Level 3 values are based on significant unobservable inputs that reflect the fund’s determination of assumptions that market participants might reasonably use in valuing the securities. The valuation levels are not necessarily an indication of the risk or liquidity associated with the underlying investment. For example, U.S. government securities are generally high-quality and liquid; however, they are reflected as Level 2 because the inputs used to determine fair value may not always be quoted prices in an active market.The following table presents the fund’s valuation levels as of December 31, 2009 (dollars in thousands):

Investment securities:	Level 1		Level 2			Level 3		Total
Common stocks:
Information technology	$	5,528,073	$	-		$	-	$	5,528,073
Financials		4,141,795		-			-		4,141,795
Industrials		3,860,934		109,785	*		-		3,970,719
Health care		3,560,956		-			-		3,560,956
Energy		3,478,144		-			-		3,478,144
Consumer staples		2,958,284		-			-		2,958,284
Consumer discretionary		1,881,769		-			-		1,881,769
Materials		1,512,325		268,041	*		-		1,780,366
Telecommunication services		1,152,844		57,968	*		-		1,210,812
Utilities		866,514		157,975	*		-		1,024,489
Miscellaneous		1,462,514		83,434	*		-		1,545,948
Preferred stocks		-		154,892			-		154,892
Bonds & notes:
Bonds & notes of U.S. government & government agencies		-		6,780,018			-		6,780,018
Mortgage-backed obligations		-		4,081,844			7,378		4,089,222
Corporate bonds & notes		-		3,768,978			-		3,768,978
Other		-		481,431			-		481,431
Miscellaneous		-		15,697			-		15,697
Short-term securities		-		1,395,237			-		1,395,237
Total	$	30,404,152	$	17,355,300		$	7,378	$	47,766,830

The following table reconciles the valuation of the fund's Level 3 investment securities and related transactions for the year ended December 31, 2009 (dollars in thousands):
	Beginning					Net					Net transfers			Ending
	value		Net			realized			Net unrealized		out of			value
	at 1/1/2009		sales			loss(†)			appreciation(†)		Level 3			at 12/31/2009
Investment securities	$	249,459	$	(77,387	)	$	(4,285	)	$	10,924	$	(171,333	)	$	7,378
Net unrealized appreciation during the period on Level 3 investment securities held at December 31, 2009 (dollars in thousands)(†):														$	1,718
(*)Includes certain securities trading outside the U.S. whose values were adjusted as a result of significant market movements following the close of local trading; therefore, $677,203,000 of investment securities were classified as Level 2 instead of Level 1.
(†)Net realized loss and unrealized appreciation are included in the related amounts on investments in the statement of operations.

6. Capital share transactions

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

Share class	Sales(1)				Reinvestments of dividends and distributions				Repurchases(1)						Net (decrease) increase
	Amount		Shares		Amount		Shares		Amount			Shares			Amount			Shares
Year ended December 31, 2009
Class A	$	3,984,498		281,046	$	735,362		52,120	$	(6,442,246	)		(460,161	)	$	(1,722,386	)		(126,995	)
Class B		124,701		9,210		64,867		4,657		(859,714	)		(60,942	)		(670,146	)		(47,075	)
Class C		506,259		35,802		79,663		5,706		(943,549	)		(67,975	)		(357,627	)		(26,467	)
Class F-1		192,838		13,525		21,856		1,557		(407,438	)		(29,096	)		(192,744	)		(14,014	)
Class F-2		147,881		10,358		2,350		159		(45,603	)		(3,206	)		104,628			7,311
Class 529-A		199,325		13,873		31,054		2,197		(159,311	)		(11,192	)		71,068			4,878
Class 529-B		14,113		1,031		5,158		368		(29,191	)		(2,079	)		(9,920	)		(680	)
Class 529-C		92,432		6,472		8,920		635		(90,028	)		(6,314	)		11,324			793
Class 529-E		12,870		897		1,744		124		(11,301	)		(787	)		3,313			234
Class 529-F-1		12,991		885		1,031		73		(8,415	)		(580	)		5,607			378
Class R-1		47,011		3,344		2,158		154		(35,812	)		(2,572	)		13,357			926
Class R-2		302,257		21,389		18,856		1,344		(278,490	)		(19,760	)		42,623			2,973
Class R-3		520,157		36,705		52,991		3,768		(557,874	)		(39,164	)		15,274			1,309
Class R-4		951,360		67,344		46,023		3,248		(972,110	)		(64,726	)		25,273			5,866
Class R-5		780,790		51,914		37,866		2,716		(1,058,663	)		(75,345	)		(240,007	)		(20,715	)
Class R-6(2)		517,645		36,331		9,175		605		(9,034	)		(576	)		517,786			36,360
Total net increase
(decrease)	$	8,407,128		590,126	$	1,119,074		79,431	$	(11,908,779	)		(844,475	)	$	(2,382,577	)		(174,918	)
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(3)		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	)
(1)Includes exchanges between share classes of the fund.
(2)Class R-6 was offered beginning May 1, 2009.
(3)Class F-2 was offered beginning August 1, 2008.

7. Investment transactions

The fund made purchases and sales of investment securities, excluding short-term securities and U.S. government obligations, if any, of $12,943,273,000 and $17,870,746,000, respectively, during the year ended December 31, 2009.

8. Subsequent events

As of February 8, 2010, the date the financial statements were available to be issued, no subsequent events or transactions had occurred that would have materially impacted the financial statements as presented.

Financial highlights(1)

			Income (loss) from investment operations(2)								Dividends and distributions
	Net asset value, beginning of period		Net investment income		Net gains (losses) 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 12/31/2009	$	13.78	$	.40	$	2.44		$	2.84		$	(.41	)	$	-		$	(.41	)	$	16.21		21.08	%	$	29,675		.67	%		.67	%		2.80	%
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
Class B:
Year ended 12/31/2009		13.73		.29		2.44			2.73			(.30	)		-			(.30	)		16.16		20.24			3,305		1.43			1.43			2.06
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
Class C:
Year ended 12/31/2009		13.72		.29		2.43			2.72			(.30	)		-			(.30	)		16.14		20.16			4,429		1.45			1.45			2.02
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
Class F-1:
Year ended 12/31/2009		13.78		.41		2.44			2.85			(.42	)		-			(.42	)		16.21		21.13			885		.64			.64			2.85
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
Class F-2:
Year ended 12/31/2009		13.78		.43		2.45			2.88			(.45	)		-			(.45	)		16.21		21.41			164		.41			.41			2.87
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 12/31/2009		13.77		.39		2.43			2.82			(.40	)		-			(.40	)		16.19		20.97			1,291		.73			.73			2.73
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
Class 529-B:
Year ended 12/31/2009		13.76		.28		2.44			2.72			(.29	)		-			(.29	)		16.19		20.09			284		1.53			1.53			1.95
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
Class 529-C:
Year ended 12/31/2009		13.76		.28		2.44			2.72			(.29	)		-			(.29	)		16.19		20.10			507		1.52			1.52			1.94
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
Class 529-E:
Year ended 12/31/2009		13.76		.35		2.44			2.79			(.36	)		-			(.36	)		16.19		20.71			80		1.02			1.02			2.45
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
Class 529-F-1:
Year ended 12/31/2009	$	13.76	$	.42	$	2.44		$	2.86		$	(.43	)	$	-		$	(.43	)	$	16.19		21.31	%	$	42		.52	%		.52	%		2.93	%
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
Class R-1:
Year ended 12/31/2009		13.71		.29		2.43			2.72			(.30	)		-			(.30	)		16.13		20.22			120		1.43			1.43			2.03
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
Class R-2:
Year ended 12/31/2009		13.72		.29		2.43			2.72			(.30	)		-			(.30	)		16.14		20.14			1,054		1.47			1.47			1.99
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
Class R-3:
Year ended 12/31/2009		13.73		.36		2.43			2.79			(.37	)		-			(.37	)		16.15		20.73			2,326		.97			.97			2.49
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
Class R-4:
Year ended 12/31/2009		13.76		.40		2.44			2.84			(.41	)		-			(.41	)		16.19		21.09			1,736		.67			.67			2.75
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
Class R-5:
Year ended 12/31/2009		13.79		.45		2.43			2.88			(.45	)		-			(.45	)		16.22		21.44			1,332		.37			.37			3.19
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
Class R-6:
Period from 5/1/2009 to 12/31/2009		13.64		.30		2.61			2.91			(.34	)		-			(.34	)		16.21		21.52			590		.33	(5)		.33	(5)		2.94	(5)

	Year ended December 31
	2009			2008			2007			2006			2005
Portfolio turnover rate for all classes of shares		46	%		41	%		35	%		34	%		35	%

(1)Based on operations for the periods shown (unless otherwise noted) and, accordingly, may not be representative of a full year.

(2)Based on average shares outstanding.

(3)Total returns exclude any applicable sales charges, including contingent deferred sales charges.

(4)This column reflects the impact, if any, of certain reimbursements/waivers from CRMC. During some of the periods shown, CRMC reduced fees for investment advisory services. In addition, during some of the periods shown, CRMC paid a portion of the fund's transfer agent fees for certain retirement plan share classes.

(5)Annualized.

See Notes to Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors of

American Balanced Fund, Inc.:

We have audited the accompanying statement of assets and liabilities, including the investment portfolio and the summary investment portfolio, of American Balanced Fund, Inc. (the “Fund”), as of December 31, 2009, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods presented.  These financial statements and financial highlights are the responsibility of the Fund's management.  Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement.  The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  Our procedures included confirmation of securities owned as of December 31, 2009, by correspondence with the custodian and brokers; where replies were not received from brokers, we performed other auditing procedures.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of American Balanced Fund, Inc. as of December 31, 2009, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the periods presented, in conformity with accounting principles generally accepted in the United States of America.

DELOITTE & TOUCHE LLP

Costa Mesa, California

February 8, 2010