American Funds American Balanced 529A (CLBAX) N-CSR Certified annual shareholder report (management investment company)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-CSR

Certified Shareholder Report of

Registered Management Investment Companies

Investment Company Act File Number: 811-00066

American Balanced Fund

(Exact Name of Registrant as Specified in Charter)

P.O. Box 7650, One Market, Steuart Tower

San Francisco, California 94120

(Address of Principal Executive Offices)

Registrant's telephone number, including area code: (415) 421-9360

Date of fiscal year end: December 31

Date of reporting period: December 31, 2010

Patrick F. Quan

Capital Research and Management Company

P.O. Box 7650, One Market, Steuart Tower

San Francisco, California 94120

(Name and Address of Agent for Service)

Copies to:

Michael Glazer

Bingham McCutchen LLP

355 South Grand Avenue, Suite 4400

Los Angeles, California 90071

(Counsel for the Registrant)

ITEM 1 – Reports to Stockholders

   

American Balanced Fund®

[photo of a road with trees on both sides]

Special feature

How American Balanced Fund is managed

„ See page 6

Annual report for the year ended December 31, 2010

American Balanced Fund seeks conservation of capital, current income and long-term growth of both capital and income by investing in common stocks and fixed-income securities. The fund approaches the management of its investments as if they constituted the complete investment program of the prudent investor.

This fund is one of the 33 American Funds. American Funds is one of the nation’s largest mutual fund families. For nearly 80 years, Capital Research and Management Company,SM the American Funds adviser, has invested with a long-term focus based on thorough research and attention to risk.

Fund results shown in this report, unless otherwise indicated, are for Class A shares at net asset value. If a sales charge (maximum 5.75%) had been deducted, the results would have been lower. Results are for past periods and are not predictive of results for future periods. Current and future results may be lower or higher than those shown. Share prices and returns will vary, so investors may lose money. Investing for short periods makes losses more likely. Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value. For current information and month-end results, visit americanfunds.com.

See page 5 for Class A share results with relevant sales charges deducted. Results for other share classes can be found on page 29.

Investment results assume all distributions are reinvested and reflect applicable fees and expenses. The fund’s investment adviser waived a portion of its management fees from September 1, 2004, through December 31, 2008. Applicable fund results shown reflect the waiver, without which they would have been lower. See the Financial Highlights table on pages 26 and 27 for details.

The fund’s 30-day yield for Class A shares as of January 31, 2011, calculated in accordance with the Securities and Exchange Commission formula, was 1.62%. The fund’s distribution rate for Class A shares as of that date was 1.85%. Both reflect the 5.75% maximum sales charge. The SEC yield reflects the rate at which the fund is earning income on its current portfolio of securities while the distribution rate reflects the fund’s past dividends paid to shareholders. Accordingly, the fund’s SEC yield and distribution rate may differ.

Equity investments are subject to market fluctuations. The return of principal for bond funds and for funds with significant underlying bond holdings is not guaranteed. Fund shares are subject to the same interest rate, inflation and credit risks associated with the underlying bond holdings. See the prospectus and the Risk Factors section of this report for more information on these and other risks associated with investing in the fund.

[Begin Sidebar]

American Balanced Fund results*
(yearly returns through December 31)
	Value of			Income			Total
	principal			return			return†
1975 (from July 26)		2.4	%		3.2	%		5.6	%
1976		20.0			6.0			26.0
1977		–4.5			5.2			0.7
1978		0.6			5.6			6.2
1979		1.6			6.0			7.6
1980		7.1			7.3			14.4
1981		–3.5			7.9			4.4
1982		20.8			8.6			29.4
1983		8.4			7.7			16.1
1984		2.2			7.2			9.4
1985		22.3			6.8			29.1
1986		10.9			6.0			16.9
1987		–2.3			6.3			4.0
1988		6.6			6.3			12.9
1989		14.9			6.6			21.5
1990		–7.3			5.7			–1.6
1991		18.6			6.1			24.7
1992		4.4			5.1			9.5
1993		6.3			5.0			11.3
1994		–4.2			4.5			0.3
1995		22.4			4.7			27.1
1996		9.2			4.0			13.2
1997		17.1			3.9			21.0
1998		7.5			3.6			11.1
1999		–0.1			3.6			3.5
2000		12.0			3.9			15.9
2001		4.5			3.7			8.2
2002		–9.0			2.7			–6.3
2003		20.2			2.6			22.8
2004		6.8			2.1			8.9
2005		0.9			2.2			3.1
2006		9.1			2.7			11.8
2007		3.8			2.8			6.6
2008		–28.5			2.8			–25.7
2009		18.1			3.0			21.1
2010		10.8			2.2			13.0
Average annual total return:								10.8	%
*Capital Research and Management Company became the fund’s investment adviser on July 26, 1975.
† Total return measures capital appreciation and income return, assuming reinvestment of dividends and capital gain distributions.

[End Sidebar]

Fellow shareholders:

The rally that began in early 2009 continued in 2010. Stocks and bonds both produced favorable returns.

Stocks, as measured by Standard & Poor’s 500 Composite Index, rose 15.1%. Investment-grade bonds, as measured by Barclays Capital U.S. Aggregate Index, gained 6.5%. American Balanced Fund (AMBAL) increased 13.0%, compared with an 11.9% return of the Lipper Balanced Funds Index. The 60%/40% S&P/BC Index had a total return of 11.7%. The S&P 500, Barclays Capital and 60%/40% S&P/BC indexes are unmanaged.

While it was a good year for stocks, the two halves of the year were quite different. As we mentioned in our semi-annual report, the year started strong but then faded. Concerns about sovereign debt in Europe and the response to those developments led to a sharp decline in the late spring. From that point, however, the market rallied sharply and rose 24% from the low reached on July 2. The fourth quarter of the year was especially strong.

One of the key determinants of the market’s strength has been corporate earnings. In the sharp decline in economic activity in 2008, corporations cut costs to the bone. Labor costs have been sharply restrained. Consequently, as demand recovered, earnings increased quite dramatically.

In addition, Federal Reserve policy has been highly stimulative. The federal funds rate has been held at virtually zero for two years. In addition, the Fed has undertaken two rounds of so-called “quantitative easing” whose intent has been to hold rates on long-term debt at low levels. The two-year extension of the tax cuts should also help economic activity as well as the after-tax return on investment.

As always, one can find things to worry about in the coming years. Commodity prices have been extremely strong. For example, wheat prices rose 47% during the year; cotton, 92%; and crude oil, 15%. To date, these price increases have not affected consumer price inflation, which remains extremely low. In addition, unemployment remains stubbornly high at this point in the cycle. While one would expect some improvement, the significant pressures on state and local governments are likely to restrain overall employment growth.

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[Begin Sidebar]

In this report
	Special feature
6	How American Balanced Fund is managed
	Contents
1	Letter to shareholders
4	The value of a long-term perspective
12	Summary investment portfolio
17	Financial statements
35	Board of trustees and other officers

[End Sidebar]

One of the reasons for the fund’s excellent year was its larger-than-typical position in equities. We began the year at 65% in stocks and increased the position throughout the year, ending at 68%. In addition, our positions in material and energy stocks were quite helpful to results given the strength in commodity prices. Some financial and technology stocks also did well. On the other hand, more defensive stocks such as telecommunications, utilities and health care were weak.

During the year, we significantly increased our position in financial stocks with a view that the worst is now behind them. Financials are now the largest position in the portfolio, replacing technology where we still have significant holdings. We are especially struck by the favorable valuations among large-cap, high-quality stocks. We have significant holdings in this area, and our good year was achieved in spite of this exposure. As always, we don’t buy a class of stocks, but assess their individual prospects and valuation.

During the last 12 months, the bond portion of AMBAL’s portfolio produced positive results. At the end of the 2010 year, the fixed-income portfolio had 44% in government obligations, 31% in mortgage- and asset-backed bonds and 25% in corporate bonds. The fund decreased U.S. Treasury securities and increased both corporate bonds and mortgage-backed securities during 2010. Ten-year U.S Treasury yields fell from 3.85% to 3.30% during the year but were much lower at the end of September and then rose during the fourth quarter.

Our report feature, which begins on page 6, takes an in-depth look at how the fund is managed. We hope you will find it informative.

It is AMBAL’s policy to have between 50% and 75% invested in stocks at all times. At year-end we had 68% in stocks, 29% in bonds and 3% in cash. This is the largest percentage in stocks relative to bonds that the fund has had in some time.

As has been true since its inception, the fund approaches the management of its investments as if they constituted the complete investment program of the prudent investor. We thank our shareholders for placing their confidence in us.

Cordially,

/s/ Robert G. O’Donnell

Robert G. O’Donnell

Vice Chairman of the Board

and Principal Executive Officer

/s/ Gregory D. Johnson

Gregory D. Johnson

President

February 7, 2011

For current information about the fund, visit americanfunds.com.

History of American Balanced Fund

A historical view of the comparative total returns of stocks, bonds, the 60%/40% S&P/BC Index, the Lipper Balanced Funds Index and AMBAL.

Stocks, bonds and balance (July 26, 1975, to December 31, 2010)

										Lipper			American
Total	U.S.			U.S.				60%/40%		Balanced			Balanced
returns (through December 31)	stocks			bonds			S&P/BC Index			Funds Index			Fund
1975 (from July 26)		3.1	%		5.6	%		4.1	%		3.4	%		5.6	%
1976		23.9			15.6			20.6			26.0			26.0
1977		–7.2			3.0			–3.1			–0.7			0.7
1978		6.6			1.4			4.5			4.8			6.2
1979		18.6			1.9			11.9			14.7			7.6
1980		32.5			2.7			20.6			19.7			14.4
1981		–4.9			6.2			–0.5			1.9			4.4
1982		21.5			32.6			25.9			30.6			29.4
1983		22.6			8.4			16.9			17.4			16.1
1984		6.3			15.1			9.8			7.5			9.4
1985	��	31.7			22.1			27.9			29.8			29.1
1986		18.7			15.3			17.3			18.4			16.9
1987		5.3			2.8			4.3			4.1			4.0
1988		16.6			7.9			13.1			11.2			12.9
1989		31.6			14.5			24.8			19.7			21.5
1990		–3.1			9.0			1.7			0.7			–1.6
1991		30.4			16.0			24.6			25.8			24.7
1992		7.6			7.4			7.5			7.5			9.5
1993		10.1			9.7			9.9			12.0			11.3
1994		1.3			–2.9			–0.4			–2.0			0.3
1995		37.5			18.5			29.9			24.9			27.1
1996		22.9			3.6			15.2			13.1			13.2
1997		33.4			9.7			23.9			20.3			21.0
1998		28.6			8.7			20.6			15.1			11.1
1999		21.0			–0.8			12.3			9.0			3.5
2000		–9.1			11.6			–0.8			2.4			15.9
2001		–11.9			8.4			–3.8			–3.2			8.2
2002		–22.1			10.3			–9.1			–10.7			–6.3
2003		28.7			4.1			18.9			19.9			22.8
2004		10.9			4.3			8.3			9.0			8.9
2005		4.9			2.4			3.9			5.2			3.1
2006		15.8			4.3			11.2			11.6			11.8
2007		5.5			7.0			6.1			6.5			6.6
2008		–37.0			5.2			–20.1			–26.2			–25.7
2009		26.5			5.9			18.3			23.4			21.1
2010		15.1			6.5			11.7			11.9			13.0
Average annual total returns		11.1	%		8.4	%		10.3	%		10.2	%		10.8	%
Volatility		15.3			5.7			11.9			10.4			9.9

Figures assume reinvestment of all distributions.

Sources: Stocks — S&P 500; Bonds — Barclays Capital U.S. Aggregate Index. Barclays Capital U.S. Aggregate Index represents the U.S. investment-grade fixed-rate bond market. For the period July 31, 1975, to December 31, 1975, Barclays Capital Government/Credit Bond Index was used.

The 60%/40% S&P/BC Index blends the S&P 500 with the Barclays Capital U.S. Aggregate Index by weighting their total returns at 60% and 40%, respectively.

The market indexes are unmanaged and their results include reinvested distributions but do not reflect the effect of sales charges, commissions, account fees, expenses or taxes.

The Lipper Balanced Funds Index is an equally weighted index of the 30 largest U.S. balanced funds.

Capital Research and Management Company became the fund’s investment adviser on July 26, 1975.

Volatility is calculated using annualized standard deviation (based on monthly returns), a measure of how returns over time have varied from the mean; a lower number signifies lower volatility.

The value of a long-term perspective

How a $10,000 investment has grown

This chart shows how a hypothetical $10,000 investment in American Balanced Fund grew from July 26, 1975 — when Capital Research and Management Company became the fund’s investment adviser — to December 31, 2010.

Fund results shown are for Class A shares and reflect deduction of the maximum sales charge of 5.75% on the $10,000 investment.1 Thus, the net amount invested was $9,425.2 Results are for past periods and are not predictive of results for future periods. Current and future results may be lower or higher than those shown. Share prices and returns will vary, so investors may lose money. For current information and month-end results, visit americanfunds.com.

As you can see, the investment grew to $359,216 with all distributions reinvested. The fund’s year-by-year results appear under the chart. You can use this table to estimate how the value of your own holdings has grown.

Average annual total returns based on a $1,000 investment
(for periods ended December 31, 2010)*
	1 year			5 years			10 years
Class A shares		6.51	%		2.68	%		4.80	%
*Assumes reinvestment of all distributions and payment of the maximum 5.75% sales charge.

The total annual fund operating expense ratio was 0.63% for Class A shares as of the most recent fiscal year-end.

Investment results assume all distributions are reinvested and reflect applicable fees and expenses. The fund’s investment adviser waived a portion of its management fees from September 1, 2004, through December 31, 2008. Applicable fund results shown reflect the waiver, without which they would have been lower. See the Financial Highlights table on pages 26 and 27 for details.

[begin mountain chart]

DATE	American Balanced Fund with dividends reinvested		S&P 500 with dividends  reinvested3		Barclays Capital U.S. Aggregate Index3,5		Lipper Balanced Funds Index4
Initial (7/25/75)		9,425		10,000		10,000		10,000
12/31/1975		9,948		10,314		10,558		10,340
12/31/1976		12,533		12,782		12,205		13,031
12/31/1977		12,620		11,867		12,576		12,938
12/31/1978		13,404		12,647		12,751		13,558
12/31/1979		14,427		15,001		12,997		15,548
12/31/1980		16,498		19,869		13,348		18,611
12/31/1981		17,224		18,891		14,182		18,957
12/31/1982		22,280		22,961		18,809		24,763
12/31/1983		25,869		28,140		20,381		29,081
12/31/1984		28,291		29,905		23,468		31,251
12/31/1985		36,527		39,393		28,655		40,574
12/31/1986		42,690		46,746		33,029		48,050
12/31/1987		44,406		49,200		33,940		50,033
12/31/1988		50,123		57,349		36,616		55,627
12/31/1989		60,915		75,489		41,936		66,584
12/31/1990		59,959		73,142		45,694		67,020
12/31/1991		74,765		95,378		53,006		84,330
12/31/1992		81,853		102,634		56,930		90,620
12/31/1993		91,080		112,956		62,480		101,451
12/31/1994		91,386		114,442		60,658		99,375
12/31/1995		116,179		157,396		71,864		124,107
12/31/1996		131,474		193,510		74,473		140,306
12/31/1997		159,131		258,048		81,662		168,784
12/31/1998		176,846		331,786		88,756		194,248
12/31/1999		182,974		401,589		88,027		211,685
12/31/2000		211,985		365,037		98,261		216,741
12/31/2001		229,339		321,685		106,558		209,726
12/31/2002		214,967		250,617		117,485		187,310
12/31/2003		264,029		322,463		122,307		224,652
12/31/2004		287,587		357,528		127,614		244,841
12/31/2005		296,549		375,070		130,713		257,566
12/31/2006		331,559		434,261		136,378		287,442
12/31/2007		353,427		458,102		145,879		306,204
12/31/2008		262,497		288,647		153,523		226,055
12/31/2009		317,839		365,056		162,628		278,844
12/31/2010		359,216		420,124		173,267		312,027

[end mountain chart]

Year ended Dec. 31		1975	6	1976		1977	1978			1979		1980	1981	1982
Total value (dollars in thousands)
Dividends reinvested	$	.3		.6		.7	.7			.8		1.1	1.3	1.5
Value at year-end1	$	9.9		12.5		12.6	13.4			14.4		16.5	17.2	22.3
AMBAL total return		(0.5	)%	26.0		0.7	6.2			7.6		14.4	4.4	29.4
Year ended Dec. 31		1983		1984		1985	1986			1987		1988	1989	1990
Total value (dollars in thousands)
Dividends reinvested		1.7		1.9		1.9	2.2			2.7		2.8	3.3	3.5
Value at year-end1		25.9		28.3		36.5	42.7			44.4		50.1	60.9	60.0
AMBAL total return		16.1		9.4		29.1	16.9			4.0		12.9	21.5	(1.6	)
Year ended Dec. 31		1991		1992		1993	1994			1995		1996	1997	1998
Total value (dollars in thousands)
Dividends reinvested		3.7		3.8		4.1	4.1			4.3		4.7	5.2	5.8
Value at year-end1		74.8		81.9		91.1	91.4			116.2		131.5	159.1	176.8
AMBAL total return		24.7		9.5		11.3	0.3			27.1		13.2	21.0	11.1
Year ended Dec. 31		1999		2000		2001	2002			2003		2004	2005	2006
Total value (dollars in thousands)
Dividends reinvested		6.4		7.2		7.8	6.3			5.6		5.5	6.4	7.9
Value at year-end1		183.0		212.0		229.3	215.0			264.0		287.6	296.5	331.6
AMBAL total return		3.5		15.9		8.2	(6.3	)		22.8		8.9	3.1	11.8
Year ended Dec. 31		2007		2008		2009	2010
Total value (dollars in thousands)									Average
Dividends reinvested		9.2		10.1		7.9	7.1		annual
Value at year-end1		353.4		262.5		317.8	359.2		total returns:
AMBAL total return		6.6		(25.7	)	21.1	13.0			10.6	%

1As outlined in the prospectus, the sales charge is reduced for accounts (and aggregated investments) of $25,000 or more and is eliminated for purchases of $1 million or more. There is no sales charge on dividends or capital gain distributions that are reinvested in additional shares.

2The maximum initial sales charge was 8.5% prior to July 1, 1988.

3The market indexes are unmanaged and their results do not reflect the effect of sales charges, commissions, account fees, expenses or taxes.

4Results of the Lipper Balanced Funds Index reflect fund expenses but do not reflect the effect of any applicable account fees, taxes or front-end sales charges. If any applicable front-end sales charges were included, results of the index would be lower.

5Barclays Capital U.S. Aggregate Index represents the U.S. investment-grade fixed-rate bond market. For the period July 31, 1975, to December 31, 1975, Barclays Capital Government/Credit Bond Index was used.

6For the period July 26, 1975 (when Capital Research and Management Company became the fund’s investment adviser) through December 31, 1975.

The results shown are before taxes on fund distributions and sale of fund shares.

How American Balanced Fund is managed

[photo of rows of trees]

[Begin Photo Caption]

[photo of Robert G. O’Donnell]

Robert G. O’Donnell

[End Photo Caption]

[Begin Photo Caption]

[photo of Gregory D. Johnson]

Gregory D. Johnson

[End Photo Caption]

[photo of a row of trees]

The first year of the new decade has been a successful one for American Balanced Fund. Both stocks and bonds produced favorable returns in 2010. It seems a good time to take a close look at how the fund is managed.

To gain perspective about our approach, we met with three portfolio counselors for AMBAL — Robert G. O’Donnell, vice chairman and principal executive officer; Gregory D. Johnson, president; and James R. Mulally, senior vice president. Bob and Greg manage equities and Jim manages bonds.

How American Balanced Fund works

Q: Bob, let’s begin with the basics. Why should investors consider a balanced fund as part of their investment program?

Bob: The purpose of a balanced fund is to combine fixed-income securities with a stock portfolio to dampen the volatility one would have with an all-stock portfolio, but still allow the investor to participate in the long-term growth prospects of equities. American Balanced Fund is managed as if it were the complete portfolio of the prudent investor. We are not saying that this is the only investment that one should have, but we manage it as though it were. We realize that this may not be the case for every investor but we really mean this and it imposes a healthy discipline on the management of the fund. While the fund’s policy is to have between 50% and 75% of its assets in common stocks, under normal circumstances, our range is typically much narrower than that. This allows us some flexibility, but provides assurance that we don’t make dramatic allocation changes in an attempt to capture short-term returns.

AMBAL’s stock selection strategy

Q: What kind of stocks do we want for American Balanced Fund?

Greg: We’re looking for stocks that meet a certain quality standard. Our stocks tend to be companies with earnings or clear prospects of earnings. We don’t invest in untested companies. We seldom buy initial public offerings unless they are spin-offs from a proven, large company. No more than 10% of the fund will be invested in the stocks of non-dividend paying companies. In addition, we will not have more than 15% of the fund invested outside the United States.

[photo of  James R. Mulally]

[photo of rows of small trees]

[Begin Pull Quote]

“As the bonds in the portfolio mature, we are able to purchase newer, higher yielding bonds when interest rates rise.”   

James R. Mulally

[End Pull Quote]

Q: How do you keep the portfolio in a balanced position?

Bob: We rebalance. It means increasing our equity position when the outlook is uncertain and stocks may have done poorly. It means reducing equities and increasing our bond exposure when stocks have done very well and seem richly valued.

Q: Do investors, in general, rebalance their portfolios enough?

Greg: The answer is no. There is more talk about rebalancing than there is actual rebalancing. That’s because most people want to wait until the situation becomes clear. The problem is that by the time the situation is clear, prices are likely to be higher. If a store announced that all its merchandise had just been marked up 20%, you wouldn’t expect people to rush in to buy, but in stock markets they do.

AMBAL’s bond selection strategy

Q: Let’s look at AMBAL’s bond holdings today. Interest rates may eventually rise more sharply than they have so far. When interest rates rise, bond prices fall. How could that affect AMBAL shareholders?

Jim: Unlike individual bonds, bond funds hold a variety of fixed-income securities that mature at different times. In AMBAL, for example, the bond portfolio consisted of 44% in government obligations, 31% in mortgage- and asset-backed bonds and 25% in corporate bonds at the end of 2010. When rates rise, we can take actions to help protect investors. We can shorten bond maturities to help soften the impact of rising rates. As the bonds in the portfolio mature, we are able to purchase newer, higher yielding bonds when interest rates rise.

Q: Are you concerned about a “bond bubble”?

Jim: I don’t think there’s a bubble in the bond market. A bubble has three components: The first is a significant increase in asset values without a strong fundamental basis for the rise. That hasn’t happened. The second is an atmosphere of mania. But how many people think they are going to get rich by investing in bonds these days? The third component, in almost every instance, is over-leveraging. The housing bubble in 2006 is the most obvious example. People were taking out second mortgages and buying second homes they couldn’t afford. The bond market isn’t very similar to past financial bubbles.

Managing the portfolio

Q: How does the multiple portfolio counselor system help to accomplish the goal of managing AMBAL?

Greg: The multiple portfolio counselor system blends teamwork with accountability and has provided AMBAL with a sustainable method of achieving our fund’s objectives. For example, the portfolio is so diverse that I don’t believe one manager could do it successfully. You need a mix of portfolio counselors with different investment styles, industry experience and backgrounds. The AMBAL portfolio is currently divided among seven portfolio counselors. Four of the portfolio counselors invest in stocks, two invest in bonds and the seventh has a balanced role and invests in both. In addition, an eighth portion of the portfolio is assigned to a group of investment analysts. We spend a lot of time making sure that we have the right lineup of counselors in th e fund and in the research portfolio.

Q: What are the investment benefits of the multiple portfolio counselor system?

Bob: The strength of the system is that it allows each of us to follow our own best ideas. Investment professionals are able to buy those stocks and bonds that they believe are most likely to succeed. These holdings, blended with those of their fellow portfolio counselors, create a broadly diversified portfolio of high conviction ideas.

Q: How diverse are the investment styles of the portfolio counselors?

Greg: They vary widely. I’m a growth-oriented investor who tends to invest in large-cap global companies that have a good balance sheet, cash flow and are well-positioned in their industries. Before I became a portfolio counselor, my background as an investment analyst was in the consumer discretionary sector. I covered retail companies and restaurant chains.

[Begin Sidebar]

American Balanced Fund’s portfolio counselors

American Balanced Fund’s seven portfolio counselors have an average 28 years of investment experience.* The knowledge and wisdom they have accumulated over the years have helped them manage your fund through many stock market cycles.

[photo of a small tree in front of a larger tree]

	Years of
	investment
Portfolio counselor	experience*
Hilda L. Applbaum	24
Alan N. Berro	24
Gregory D. Johnson	17
James R. Mulally	35
Robert G. O’Donnell	38
Dina N. Perry	33
John H. Smet	28
*Years of experience as of July 30, 2010.

[End Sidebar]

[Begin Sidebar]

Fund results shown are for Class A shares at net asset value. If a sales charge (maximum 5.75%) had been deducted, the results would have been lower. Results are for past periods and are not predictive of results for future periods. Current and future results may be lower or higher than those shown. Share prices and returns will vary, so investors may lose money. For current information and month-end results, visit americanfunds.com.

Above-average returns with less volatility

The table below recaps AMBAL’s history since 1975 under CRMC’s management. As you can see, the fund has had a higher average annual total return than both the 60%/40% S&P/BC Index and the Lipper Balanced Funds Index with lower volatility. Further, its annualized return was within 0.3% of the S&P 500 with about two-thirds of the market’s volatility. The detail of all these data points may be found on page 3.

For the period July 26, 1975, to December 31, 2010

[begin scatter graph]

Average annual total return	S&P 500  Index			Barclays Capital U.S. Aggregate Index			Lipper Balanced Fund Index			American  Balanced  Fund			60%/40%  S&P/BC Index
1975 (from 7/26)		3.1	%		5.6	%		3.4	%		5.6	%		4.1	%
1976		23.9	%		15.6	%		26.0	%		26.0	%		20.6	%
1977		-7.2	%		3.0	%		-0.7	%		0.7	%		-3.1	%
1978		6.6	%		1.4	%		4.8	%		6.2	%		4.5	%
1979		18.6	%		1.9	%		14.7	%		7.6	%		11.9	%
1980		32.5	%		2.7	%		19.7	%		14.4	%		20.6	%
1981		-4.9	%		6.2	%		1.9	%		4.4	%		-0.5	%
1982		21.5	%		32.6	%		30.6	%		29.4	%		25.9	%
1983		22.6	%		8.4	%		17.4	%		16.1	%		16.9	%
1984		6.3	%		15.1	%		7.5	%		9.4	%		9.8	%
1985		31.7	%		22.1	%		29.8	%		29.1	%		27.9	%
1986		18.7	%		15.3	%		18.4	%		16.9	%		17.3	%
1987		5.3	%		2.8	%		4.1	%		4.0	%		4.3	%
1988		16.6	%		7.9	%		11.2	%		12.9	%		13.1	%
1989		31.6	%		14.5	%		19.7	%		21.5	%		24.8	%
1990		-3.1	%		9.0	%		0.7	%		-1.6	%		1.7	%
1991		30.4	%		16.0	%		25.8	%		24.7	%		24.6	%
1992		7.6	%		7.4	%		7.5	%		9.5	%		7.5	%
1993		10.1	%		9.7	%		12.0	%		11.3	%		9.9	%
1994		1.3	%		-2.9	%		-2.0	%		0.3	%		-0.4	%
1995		37.5	%		18.5	%		24.9	%		27.1	%		29.9	%
1996		22.9	%		3.6	%		13.1	%		13.2	%		15.2	%
1997		33.4	%		9.7	%		20.3	%		21.0	%		23.9	%
1998		28.6	%		8.7	%		15.1	%		11.1	%		20.6	%
1999		21.0	%		-0.8	%		9.0	%		3.5	%		12.3	%
2000		-9.1	%		11.6	%		2.4	%		15.9	%		-0.8	%
2001		-11.9	%		8.4	%		-3.2	%		8.2	%		-3.8	%
2002		-22.1	%		10.3	%		-10.7	%		-6.3	%		-9.1	%
2003		28.7	%		4.1	%		19.9	%		22.8	%		18.9	%
2004		10.9	%		4.3	%		9.0	%		8.9	%		8.3	%
2005		4.9	%		2.4	%		5.2	%		3.1	%		3.9	%
2006		15.8	%		4.3	%		11.6	%		11.8	%		11.2	%
2007		5.5	%		7.0	%		6.5	%		6.6	%		6.1	%
2008		-37.0	%		5.2	%		-26.2	%		-25.7	%		-20.1	%
2009		26.5	%		5.9	%		23.4	%		21.1	%		18.3	%
2010		15.1	%		6.5	%		11.9	%		13.0	%		11.7	%
Avg. Annual Compound Returns (7/26/75 - 12/31/09		11.1	%		8.4	%		10.2	%		10.8	%		10.3	%
Volatility (7/26/75-12/31/09		15.3			5.7			10.4			9.9			10.0

[end scatter graph]

Sources: Stocks — S&P 500; Bonds — Barclays Capital U.S. Aggregate Index. Barclays Capital U.S. Aggregate Index represents the U.S. investment-grade fixed-rate bond market. For the period July 31, 1975, to December 31, 1975, Barclays Capital Government/Credit Bond Index was used.

The 60%/40% S&P/BC Index blends the S&P 500 with the Barclays Capital U.S. Aggregate Index by weighting their total returns at 60% and 40%, respectively.

The market indexes are unmanaged and their results include reinvested distributions but do not reflect the effect of sales charges, commissions, account fees, expenses or taxes.

The Lipper Balanced Funds Index is an equally weighted index of the 30 largest U.S. balanced funds.

Capital Research and Management Company became the fund’s investment adviser on July 26, 1975.

Volatility is calculated using annualized standard deviation (based on monthly returns), a measure of how returns over time have varied from the mean; a lower number signifies lower volatility.

[End Sidebar]

[Begin Pull Quote]

“The strength of the multiple portfolio counselor system is that it allows each of us to follow our own best ideas.”

Robert G. O’Donnell

[End Pull Quote]

[photo of a grass path - trees on both sides]

[photo of a couple walking along a dirt path - trees all around]

Bob: When you have a diversification of styles among different counselors, you don’t have the volatility you have when one manager with a specific style is managing a fund. This may reduce our ability to lead the pack in any one year, but has resulted in excellent results over a long period of time. That is what we seek to do for our shareholders. It’s important to remember, however, that this is not a committee. It is a group of individuals each managing their own portfolio within the overall mandate of the fund.

Q: Why does AMBAL have a research portfolio?

Greg: The investment analysts in the research portfolio study individual industries and companies in depth. Portfolio counselors invest broadly in several industries and tap the knowledge of an analyst when making an invesment decision on a company. Investment analysts are the field researchers who visit companies in person and meet with company executives and employees, suppliers, customers and competitors. I develop many of my own investment ideas and rely on investment analysts to tell me what they are seeing on a micro-level and to see whether my thesis works. I also like to hear any of the analysts’ original ideas.

Looking forward

Q: What are the biggest opportunities for AMBAL’s stock holdings in the years ahead?

Greg: Tremendous numbers of people in the world are moving from being poor to being middle class. It is a trend that should continue to benefit many companies and yet this is not recognized in current valuations. There is a lot going on and the world will probably be a much better place 10 years from now than it is today. Look at the world’s gross domestic product today compared to 10 years ago. It has experienced a huge increase that shows every prospect of continuing.

Q: What lessons did you learn from the recent recession?

Bob: It is a fool��s game to try to predict how future events might unfold. That said, the economy is more resilient than people generally believe. Every year, new companies start up and successful businesses expand.

Q: What advice would you give shareholders today?  

Bob: Amid all the noise, focus on the long term. Investors can do great harm to their wealth by trying to anticipate short-term changes. One typically does best by setting out a long-term strategy and staying with it. n

Summary investment portfolio, December 31, 2010

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]

	Percent
	of net
Investment mix by security type	assets
Common stocks		68	%
Fixed-income securities		29
Short-term securities & other assets less liabilities		3

[end pie chart]

							Percent
				Value			of net
Common stocks  - 67.98%	Shares				(000	)	assets
Financials  - 11.23%
Wells Fargo & Co.		43,100,000		$	1,335,669			2.64	%
Goldman Sachs Group, Inc.		4,430,000			744,949			1.48
Berkshire Hathaway Inc., Class A (1)		5,576			671,629			1.33
American Express Co.		15,000,000			643,800			1.28
U.S. Bancorp		14,110,000			380,547			.75
JPMorgan Chase & Co.		7,410,000			314,332			.62
Other securities					1,582,839			3.13
					5,673,765			11.23
Information technology  - 9.19%
Microsoft Corp.		28,870,000			806,050			1.59
Oracle Corp.		21,285,991			666,251			1.32
International Business Machines Corp.		3,400,000			498,984			.99
Texas Instruments Inc.		13,000,000			422,500			.84
Cisco Systems, Inc. (1)		18,800,000			380,324			.75
Google Inc., Class A (1)		535,000			317,774			.63
Other securities					1,553,067			3.07
					4,644,950			9.19
Industrials  - 8.20%
Boeing Co.		7,860,000			512,944			1.02
Deere & Co.		5,640,000			468,402			.93
Lockheed Martin Corp.		6,600,000			461,406			.91
Union Pacific Corp.		4,000,000			370,640			.73
United Technologies Corp.		4,190,000			329,837			.65
General Electric Co.		17,500,000			320,075			.63
Other securities					1,681,477			3.33
					4,144,781			8.20
Energy  - 8.10%
Chevron Corp.		14,672,000			1,338,820			2.65
Royal Dutch Shell PLC, Class B (ADR)		11,533,000			768,905			1.52
Schlumberger Ltd.		6,800,000			567,800			1.13
ConocoPhillips		5,200,000			354,120			.70
Other securities					1,062,591			2.10
					4,092,236			8.10
Health care  - 7.64%
Merck & Co., Inc.		19,000,000			684,760			1.36
Bristol-Myers Squibb Co.		18,500,000			489,880			.97
Pfizer Inc		26,659,500			466,808			.92
UnitedHealth Group Inc.		9,650,000			348,462			.69
Other securities					1,869,843			3.70
					3,859,753			7.64
Consumer discretionary  - 7.06%
Home Depot, Inc.		23,095,000			809,711			1.60
Amazon.com, Inc. (1)		3,400,000			612,000			1.21
Time Warner Inc.		10,333,334			332,423			.66
Comcast Corp., Class A		14,545,000			319,553			.63
Other securities					1,494,454			2.96
					3,568,141			7.06
Consumer staples  - 5.89%
Philip Morris International Inc.		15,750,000			921,848			1.83
Costco Wholesale Corp.		7,935,000			572,986			1.13
Kraft Foods Inc., Class A		10,170,000			320,457			.64
Other securities					1,158,790			2.29
					2,974,081			5.89
Materials  - 5.69%
Dow Chemical Co.		16,685,000			569,626			1.13
Potash Corp. of Saskatchewan Inc.		3,450,000			534,164			1.06
Monsanto Co.		6,400,000			445,696			.88
E.I. du Pont de Nemours and Co.		8,250,000			411,510			.81
Other securities					913,992			1.81
					2,874,988			5.69
Telecommunication services  - 1.68%
AT&T Inc.		17,362,500			510,110			1.01
Verizon Communications Inc.		9,400,000			336,332			.67
					846,442			1.68
Utilities - 1.21%
Other securities					613,816			1.21
Miscellaneous -  2.09%
Other common stocks in initial period of acquisition					1,056,067			2.09
Total common stocks (cost: $27,091,794,000)					34,349,020			67.98
							Percent
				Value			of net
Preferred stocks  - 0.15%					(000	)	assets
Financials - 0.15%
Other securities					76,487			.15
Total preferred stocks (cost: $77,381,000)					76,487			.15
	Principal						Percent
	amount			Value			of net
Bonds & notes  - 28.44%		(000	)		(000	)	assets
Bonds & notes of U.S. government & government agencies  - 12.29%
U.S. Treasury 4.625% 2011	$	531,000			553,525
U.S. Treasury 1.50% 2013		300,000			304,347
U.S. Treasury 2.75% 2013		296,500			311,719
U.S. Treasury 3.375% 2013		583,750			622,745
U.S. Treasury 3.50% 2018		744,500			783,385
U.S. Treasury 6.25% 2023		581,500			731,312
U.S. Treasury 4.50% 2036		346,300			358,729
U.S. Treasury 3.50% 2039		377,000			324,989
U.S. Treasury 1.625%-8.875% 2012-2040 (2)		1,736,332			1,916,219			11.69
Fannie Mae 6.25% 2029		20,000			24,163			.05
Other securities					277,904			.55
					6,209,037			12.29
Mortgage-backed obligations (3) - 8.39%
Fannie Mae 0%-11.71% 2011-2047 (4)		2,447,618			2,536,375			5.02
Government National Mortgage Assn. 4.00% 2041		415,560			418,482
Government National Mortgage Assn.4.50%-10.00% 2021-2040		117,301			126,833			1.08
Freddie Mac 0%-7.299% 2023-2038 (4)		305,727			322,949			.64
Other securities					834,129			1.65
					4,238,768			8.39
Corporate bonds & notes - 7.12%
Financials  - 2.33%
American Express Co. 6.15% 2017		22,800			25,736
American Express Bank 5.50% 2013		21,300			22,969			.10
Goldman Sachs Group, Inc. 3.70% 2015		12,965			13,224			.02
Wells Fargo & Co. 4.375% 2013		6,920			7,327			.01
Other securities					1,109,776			2.20
					1,179,032			2.33
Telecommunication services  - 0.91%
SBC Communications Inc. 5.10%-6.45% 2011-2034		114,300			124,411
BellSouth Capital Funding Corp. 7.875% 2030		51,500			62,216
AT&T Inc. 4.95%-5.35% 2013-2040 (5)		27,706			28,239
AT&T Wireless Services, Inc. 8.125% 2012		5,230			5,715			.44
Other securities					240,460			.47
					461,041			.91
Energy  - 0.51%
Shell International Finance BV 1.30%-1.875% 2011-2013		32,750			33,116			.07
Other securities					224,959			.44
					258,075			.51
Materials  - 0.36%
Dow Chemical Co. 7.60% 2014		18,250			21,065
Rohm and Haas Co. 6.00% 2017		17,445			19,119			.08
Other securities					139,623			.28
					179,807			.36
Information technology  - 0.09%
International Business Machines Corp. 2.00% 2016		17,000			16,642			.03
Other securities					31,313			.06
					47,955			.09
Other corporate bonds & notes - 2.92%
Other securities					1,473,407			2.92
Total corporate bonds & notes					3,599,317			7.12
Other - 0.61%
Other securities					308,256			.61
Miscellaneous -  0.03%
Other bonds & notes in initial period of acquisition					15,424			.03
Total bonds & notes (cost: $13,821,901,000)					14,370,802			28.44
	Principal						Percent
	amount			Value			of net
Short-term securities  - 4.01%		(000	)		(000	)	assets
Freddie Mac 0.15%-0.25% due 1/3-5/27/2011	$	559,800			559,586			1.10
U.S. Treasury Bills 0.173%-0.257% due 4/21-11/17/2011		464,700			464,202			.92
Fannie Mae 0.14%-0.20% due 2/1-3/1/2011		181,900			181,866			.36
Variable Funding Capital Company LLC 0.26% due 1/27/2011 (5)		50,000			49,990			.10
NetJets Inc. 0.17% due 1/20/2011 (5)		30,800			30,797			.06
Other securities					742,451			1.47
Total short-term securities (cost: $2,028,756,000)					2,028,892			4.01
Total investment securities (cost: $43,019,832,000)					50,825,201			100.58
Other assets less liabilities					(293,684	)		(.58	)
Net assets				$	50,531,517			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, including securities which were valued under fair value procedures adopted by authority of the board of trustees. The total value of all such securities was $20,390,000, which represented .04% of the net assets of the fund.

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

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

(4) Coupon rate may change periodically.

(5) Acquired 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 $1,618,345,000, which represented 3.20% 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, 2010	(dollars in thousands)
Assets:
Investment securities, at value (cost: $43,019,832)			$	50,825,201
Cash				12,715
Receivables for:
Sales of investments	$	159,877
Sales of fund's shares		223,964
Dividends and interest		182,033		565,874
				51,403,790
Liabilities:
Payables for:
Purchases of investments		477,541
Repurchases of fund's shares		359,434
Investment advisory services		10,236
Services provided by related parties		21,831
Trustees' deferred compensation		2,573
Other		658		872,273
Net assets at December 31, 2010			$	50,531,517
Net assets consist of:
Capital paid in on shares of beneficial interest			$	47,624,202
Undistributed net investment income				155,196
Accumulated net realized loss				(5,053,250	)
Net unrealized appreciation				7,805,369
Net assets at December 31, 2010			$	50,531,517

(dollars and shares in thousands, except per-share amounts)
Shares of beneficial interest issued and outstanding (no stated par value) - unlimited shares authorized (2,821,266 total shares outstanding)
	Net assets		Shares  outstanding		Net asset value  per share
Class A	$	31,408,866		1,751,942	$	17.93
Class B		2,572,907		143,971		17.87
Class C		4,575,733		256,351		17.85
Class F-1		895,326		49,950		17.92
Class F-2		227,830		12,711		17.92
Class 529-A		1,588,812		88,721		17.91
Class 529-B		244,031		13,629		17.90
Class 529-C		582,732		32,551		17.90
Class 529-E		92,488		5,167		17.90
Class 529-F-1		57,451		3,210		17.90
Class R-1		135,288		7,586		17.83
Class R-2		1,127,789		63,198		17.85
Class R-3		2,407,572		134,799		17.86
Class R-4		2,007,197		112,093		17.91
Class R-5		1,544,998		86,129		17.94
Class R-6		1,062,497		59,258		17.93
See Notes to Financial Statements

Statement of operations
for the year ended December 31, 2010	(dollars in thousands)
Investment income:
Income:
Dividends (net of non-U.S. taxes of $4,155)	$	881,116
Interest		583,420		$	1,464,536
Fees and expenses*:
Investment advisory services		116,289
Distribution services		182,973
Transfer agent services		42,521
Administrative services		27,799
Reports to shareholders		2,393
Registration statement and prospectus		989
Trustees' compensation		585
Auditing and legal		112
Custodian		322
Other		2,319			376,302
Net investment income					1,088,234
Net realized gain and unrealized appreciation
on investments and currency:
Net realized gain (loss) on:
Investments		902,534
Currency transactions		(658	)		901,876
Net unrealized appreciation on:
Investments		3,853,811
Currency translations		38			3,853,849
Net realized gain and unrealized appreciation on investments and currency					4,755,725
Net increase in net assets resulting from operations				$	5,843,959
(*) 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
		2010			2009
Operations:
Net investment income	$	1,088,234		$	1,144,302
Net realized gain (loss) on investments and currency transactions		901,876			(4,284,312	)
Net unrealized appreciation on investments and currency translations		3,853,849			11,456,276
Net increase in net assets resulting from operations		5,843,959			8,316,266
Dividends paid to shareholders from net investment income		(959,212	)		(1,166,741	)
Net capital share transactions		(2,173,629	)		(2,382,577	)
Total increase in net assets		2,711,118			4,766,948
Net assets:
Beginning of year		47,820,399			43,053,451
End of year (including undistributed net investment income: $155,196 and $17,510, respectively)	$	50,531,517		$	47,820,399
See Notes to Financial Statements

Notes to financial statements

1.   Organization

American Balanced Fund (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. Effective March 1, 2010, the fund reorganized from a Maryland corporation to a Delaware statutory trust in accordance with a proposal approved by shareholders on November 24, 2009.

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

*Class B and 529-B shares of the fund are not available for purchase.

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.

2.   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 fund follows the significant accounting policies described below, as well as the valuation policies described in the next section on valuation.

Security transactions and related investment income – Security transactions are recorded by the fund as of the date the trades are executed with brokers. Realized gains and losses from security transactions are determined based on the specific identified cost of the securities.In the event a security is purchased with a delayed payment date, the fund will segregate liquid assets sufficient to meet its payment obligations. Dividend income is recognized on the ex-dividend date and interest income is 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.

3.   Valuation

The fund’s investments are reported at fair value as defined by accounting principles generally accepted in the United States of America. 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.

Methods and inputs – The fund uses the following methods and inputs to establish the fair value of its assets and liabilities. Use of particular methods and inputs may vary over time based on availability and relevance as market and economic conditions evolve.

Equity securities 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.

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 3:00 p.m. New York time from one or more pricing vendors. Vendors value such securities based on one or more of the inputs described in the following table. The table provides examples of inputs that are commonly relevant for valuing particular classes of fixed-income securities in which the fund is authorized to invest. However, these classifications are not exclusive, and any of the inputs may be used to value any other class of fixed-income security.

Fixed-income class	Examples of standard inputs
All	Benchmark yields, transactions, bids, offers, quotations from dealers and trading systems, new issues, 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, financial or collateral performance and other reference data (collectively referred to as “standard inputs”)
Corporate bonds & notes; convertible securities	Standard inputs and underlying equity of the issuer
Bonds & notes of governments & government agencies	Standard inputs and interest rate volatilities
Mortgage-backed; asset-backed obligations	Standard inputs and cash flows, prepayment information, default rates, delinquency and loss assumptions, collateral characteristics, credit enhancements and specific deal information
Municipal securities	Standard inputs and, for certain distressed securities, cash flows or liquidation values using a net present value calculation based on inputs that include, but are not limited to, financial statements and debt contracts

Where the investment adviser deems it appropriate to do so (such as when vendor prices are unavailable or not deemed to be representative), fixed-income 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, 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. Short-term securities purchased within 60 days to maturity are valued at amortized cost, which approximates fair 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.

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 trustees. Market quotations may be considered unreliable if events occur that materially affect the value of securities (particularly equity securities trading 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 inputs may be reviewed in order to make a good faith determination of a security’s fair value. These inputs include, but are not limited to, the type and cost of the security; contractua l 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.

Classifications - The fund classifies its assets and liabilities into three levels based on the inputs 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 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 presentsthe fund’s valuation levels as of December 31, 2010 (dollars in thousands):

Investment securities:	Level 1		Level 2		Level 3		Total
Common stocks:
Financials	$	5,673,765	$	-	$	-	$	5,673,765
Information technology		4,644,950		-		-		4,644,950
Industrials		4,144,781		-		-		4,144,781
Energy		4,092,236		-		-		4,092,236
Health care		3,859,753		-		-		3,859,753
Consumer discretionary		3,568,141		-		-		3,568,141
Consumer staples		2,974,081		-		-		2,974,081
Materials		2,874,988		-		-		2,874,988
Telecommunication services		846,442		-		-		846,442
Utilities		613,816		-		-		613,816
Miscellaneous		1,056,067		-		-		1,056,067
Preferred stocks		-		76,487		-		76,487
Bonds & notes:
Bonds & notes of U.S. government & government agencies		-		6,209,037		-		6,209,037
Mortgage-backed obligations		-		4,218,378		20,390		4,238,768
Corporate bonds & notes		-		3,599,317		-		3,599,317
Other		-		308,256		-		308,256
Miscellaneous		-		15,424		-		15,424
Short-term securities		-		2,028,892		-		2,028,892
Total	$	34,349,020	$	16,455,791	$	20,390	$	50,825,201

The following table reconciles the valuation of the fund's Level 3 investment securities and related transactions for the year ended December 31, 2010 (dollars in thousands):
	Beginning value  at 1/1/2010		Net unrealized appreciation (*)		Net  sales			Net transfers into Level 3(†)		Ending value at 12/31/2010
Investment securities	$	7,378	$	1,857	$	(8,795	)	$	19,950	$	20,390
Net unrealized appreciation during the period on Level 3 investment securities held at December 31, 2010 (dollars in thousands) (*):										$	1,890
(*) Net unrealized appreciation is included in the related amounts on investments in the statement of operations.
(†) Transfers into or out of Level 3 are based on the beginning market value of the quarter in which they occurred.

4.   Risk factors

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

Market conditions — The prices of, and the income generated by, the common stocks, bonds and other securities held by the fund may decline due to market conditions and other factors, including those directly involving the issuers of securities held by the fund.

Investing in growth-oriented stocks — Growth-oriented stocks may involve larger price swings and greater potential for loss than other types of investments.

Investing in income-oriented stocks — Income provided by the fund may be reduced by changes in the dividend policies of, and the capital resources available at, the companies in which the fund invests.

Investing in bonds — Rising interest rates will generally cause the prices of bonds and other debt securities to 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 may be subject to greater price fluctuations than shorter maturity debt securities. Bonds and other debt securities are subject to credit risk, wh ich 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.

Investing in securities backed by the U.S. government — Securities backed by the U.S. Treasury or the full faith and credit of the U.S. government are 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. The fund may also invest in debt securities and mortgage- backed securities issued by federal agencies and instrumentalities that are not backed by the full faith and credit of the U.S. government. These securities are neither issued nor guaranteed by the U.S. government.

Investing outside the U.S. — Securities of issuers domiciled outside the U.S., or with significant operations outside the U.S., may lose value because of political, social or economic developments in the country or region in which the issuer operates. These securities may also lose value due to changes in the exchange rate of the country’s currency against the U.S. dollar. Securities markets in certain countries may be more volatile and/or less liquid than those in the U.S. Investments outside the U.S. may also be subject to different settlement and accounting practicesand different regulatory, legal and reporting standards than those in the U.S. These risks may be height ened in connection with investments in developing countries.

Management — The investment adviser to the fund actively manages the fund’s investments. Consequently, the fund is subject to the risk that the methods and analyses employed by the investment adviser in this process may not produce the desired results. This could cause the fund to lose value or its results to lag relevant benchmarks or other funds with similar objectives.

5.   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, 2010, 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 2007 and by state tax authorities for tax years before 2006.

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; deferred expenses; cost of investments sold; paydowns on fixed-income securities; and net capital losses.The fiscal year in which amounts are distributed may differ from the year in which the net investment income and net real ized gains are recorded by the fund for financial reporting purposes

During the year ended December 31, 2010, the fund reclassified $8,811,000 from accumulated net realized loss to undistributed net investment income and $147,000 from undistributed net investment income to capital paid in on shares of beneficial interest to align financial reporting with tax reporting.

As of December 31, 2010, the tax basis components of distributable earnings, unrealized appreciation (depreciation) and cost of investment securities were as follows:

	(dollars in thousands)
Undistributed ordinary income				$	157,689
Capital loss carryforwards*:
Expiring 2016	$	(283,970	)
Expiring 2017		(4,681,346	)		(4,965,316	)
Gross unrealized appreciation on investment securities					9,021,545
Gross unrealized depreciation on investment securities					(1,304,218	)
Net unrealized appreciation on investment securities					7,717,327
Cost of investment securities					43,107,874
*Reflects the utilization of capital loss carryforwards of $896,523,000. 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.

Under the Regulated Investment Company Modernization Act of 2010 (the “Act”), net capital losses recognized after December 31, 2010, may be carried forward indefinitely, and their character is retained as short-term and/or long-term losses. Under the law in effect prior to the Act, pre-enactment net capital losses were carried forward for eight years and treated as short-term losses. As a transition rule, the Act requires that post-enactment net capital losses be used before pre-enactment net capital losses.

Tax-basis distributions paid to shareholders from ordinary income were as follows (dollars in thousands):

Share class	Year ended December 31
	2010		2009
Class A	$	642,622	$	770,289
Class B		38,561		68,568
Class C		59,537		84,863
Class F-1		18,620		24,945
Class F-2		4,485		2,935
Class 529-A		29,590		31,071
Class 529-B		3,310		5,161
Class 529-C		7,021		8,928
Class 529-E		1,526		1,746
Class 529-F-1		1,146		1,031
Class R-1		1,783		2,168
Class R-2		14,920		18,873
Class R-3		42,027		53,008
Class R-4		41,065		46,044
Class R-5		34,233		37,936
Class R-6*		18,766		9,175
Total	$	959,212	$	1,166,741
*Class R-6 was offered beginning May 1, 2009.

6.   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 series of decreasing 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, 2010, the investment advisory services fee was $116,289,000, which was equivalent to an annualized rate of 0.242% of average dailynet 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 trustees 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 trustees 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 trustees 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, 2010, 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 for all share classes, except Classes A and B, to provide certain services, including transfer agent and recordkeeping services; coordinating, monitoring, assisting and overseeing third-party service providers; and educating advisers and shareholders about the impact of market-related events, tax laws affecting investments, retirement plan restrictions, exchange limitations and other related matters. 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 series of decreasing 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 Commonw ealth of Virginia is not considered a related party.

Expenses under the agreements described above for the year ended December 31, 2010, were as follows (dollars in thousands):

					Administrative services
Share class	Distribution services		Transfer agent services		CRMC administrative services		Transfer agent services		Commonwealth of Virginia administrative services
Class A	$	71,534	$	38,990	Not applicable		Not applicable		Not applicable
Class B		28,397		3,531	Not applicable		Not applicable		Not applicable
Class C		43,987	Included in administrative services		$	6,603	$	1,003	Not applicable
Class F-1		2,167				1,059		63	Not applicable
Class F-2	Not applicable					274		10	Not applicable
Class 529-A		3,033				1,397		243	$	1,404
Class 529-B		2,618				260		76		263
Class 529-C		5,313				531		134		534
Class 529-E		418				83		15		84
Class 529-F-1		-				49		8		49
Class R-1		1,273				161		33	Not applicable
Class R-2		8,047				1,589		2,705	Not applicable
Class R-3		11,393				3,388		1,138	Not applicable
Class R-4		4,793				2,824		43	Not applicable
Class R-5	Not applicable					1,390		11	Not applicable
Class R-6	Not applicable					372		3	Not applicable
Total	$	182,973	$	42,521	$	19,980	$	5,485	$	2,334

Trustees’ deferred compensation – Trustees who are unaffiliated with CRMCmay 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. Trustees’ compensation of $585,000, shown on the accompanying financial statements, includes $378,000 in current fees (either paid in cash or deferred) and a net increase of $207,000 in the value of the deferred amounts.

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

7.   Capital share transactions

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

	Sales(*)				Reinvestments of dividends				Repurchases(*)						Net (decrease) increase
Share class	Amount		Shares		Amount		Shares		Amount			Shares			Amount			Shares
Year ended December 31, 2010
Class A	$	4,166,008		249,273	$	619,160		37,146	$	(6,092,729	)		(364,893	)	$	(1,307,561	)		(78,474	)
Class B		65,367		3,927		37,144		2,243		(1,107,951	)		(66,736	)		(1,005,440	)		(60,566	)
Class C		516,589		31,043		56,464		3,405		(870,586	)		(52,496	)		(297,533	)		(18,048	)
Class F-1		198,682		11,915		17,458		1,048		(293,849	)		(17,642	)		(77,709	)		(4,679	)
Class F-2		101,541		6,079		3,737		224		(62,044	)		(3,736	)		43,234			2,567
Class 529-A		294,964		17,634		29,578		1,774		(173,539	)		(10,403	)		151,003			9,005
Class 529-B		8,942		538		3,309		199		(78,240	)		(4,683	)		(65,989	)		(3,946	)
Class 529-C		104,832		6,282		7,018		422		(91,127	)		(5,477	)		20,723			1,227
Class 529-E		15,354		917		1,526		92		(12,903	)		(775	)		3,977			234
Class 529-F-1		15,751		941		1,145		69		(7,015	)		(420	)		9,881			590
Class R-1		37,708		2,271		1,779		107		(36,988	)		(2,216	)		2,499			162
Class R-2		286,839		17,281		14,908		899		(336,868	)		(20,271	)		(35,121	)		(2,091	)
Class R-3		519,370		31,278		42,007		2,530		(712,888	)		(42,990	)		(151,511	)		(9,182	)
Class R-4		590,296		35,449		41,059		2,466		(557,696	)		(33,050	)		73,659			4,865
Class R-5		378,814		22,620		34,230		2,052		(341,409	)		(20,656	)		71,635			4,016
Class R-6		524,170		31,091		18,756		1,121		(152,302	)		(9,314	)		390,624			22,898
Total net increase
(decrease)	$	7,825,227		468,539	$	929,278		55,797	$	(10,928,134	)		(655,758	)	$	(2,173,629	)		(131,422	)
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(†)		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	)
(*)Includes exchanges between share classes of the fund.
(†)Class R-6 was offered beginning May 1, 2009.

8.   Investment transactions

The fund made purchases and sales of investment securities, excluding short-term securities and U.S. government obligations, if any, of $14,529,964,000 and $15,942,590,000, respectively, during the year ended December 31, 2010.

Financial highlights(1)

			Income (loss) from investment operations(2)								Dividends and distributions
	Net asset value, beginning of period		Net investment income(3)		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(4) (5)			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(5)			Ratio of net income to average net assets(3) (5)
Class A:
Year ended 12/31/2010	$	16.21	$	.40	$	1.68		$	2.08		$	(.36	)	$	-		$	(.36	)	$	17.93		13.02	%	$	31,409		.63	%		.63	%		2.42	%
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
Class B:
Year ended 12/31/2010		16.16		.28		1.66			1.94			(.23	)		-			(.23	)		17.87		12.12			2,573		1.38			1.38			1.66
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
Class C:
Year ended 12/31/2010		16.14		.27		1.67			1.94			(.23	)		-			(.23	)		17.85		12.11			4,576		1.43			1.43			1.61
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
Class F-1:
Year ended 12/31/2010		16.21		.40		1.67			2.07			(.36	)		-			(.36	)		17.92		12.95			895		.63			.63			2.41
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
Class F-2:
Year ended 12/31/2010		16.21		.44		1.67			2.11			(.40	)		-			(.40	)		17.92		13.21			228		.40			.40			2.63
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 12/31/2010		16.19		.39		1.68			2.07			(.35	)		-			(.35	)		17.91		12.97			1,589		.69			.69			2.35
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
Class 529-B:
Year ended 12/31/2010		16.19		.26		1.66			1.92			(.21	)		-			(.21	)		17.90		11.99			244		1.48			1.48			1.56
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
Class 529-C:
Year ended 12/31/2010		16.19		.26		1.67			1.93			(.22	)		-			(.22	)		17.90		12.03			583		1.48			1.48			1.57
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
Class 529-E:
Year ended 12/31/2010		16.19		.35		1.66			2.01			(.30	)		-			(.30	)		17.90		12.59			92		.97			.97			2.07
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
Class 529-F-1:
Year ended 12/31/2010	$	16.19	$	.43	$	1.67		$	2.10		$	(.39	)	$	-		$	(.39	)	$	17.90		13.15	%	$	57		.47	%		.47	%		2.57	%
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
Class R-1:
Year ended 12/31/2010		16.13		.27		1.66			1.93			(.23	)		-			(.23	)		17.83		12.10			135		1.40			1.40			1.65
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
Class R-2:
Year ended 12/31/2010		16.14		.27		1.67			1.94			(.23	)		-			(.23	)		17.85		12.14			1,128		1.40			1.40			1.64
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
Class R-3:
Year ended 12/31/2010		16.15		.35		1.67			2.02			(.31	)		-			(.31	)		17.86		12.64			2,408		.94			.94			2.10
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
Class R-4:
Year ended 12/31/2010		16.19		.40		1.68			2.08			(.36	)		-			(.36	)		17.91		13.01			2,007		.65			.65			2.39
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
Class R-5:
Year ended 12/31/2010		16.22		.45		1.68			2.13			(.41	)		-			(.41	)		17.94		13.32			1,545		.35			.35			2.69
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
Class R-6:
Year ended 12/31/2010		16.21		.46		1.67			2.13			(.41	)		-			(.41	)		17.93		13.38			1,063		.30			.30			2.75
Period from 5/1/2009 to 12/31/2009		13.64		.30		2.61			2.91			(.34	)		-			(.34	)		16.21		21.52			590		.33	(6)		.33	(6)		2.94	(6)

	Year ended December 31
	2010			2009			2008			2007			2006
Portfolio turnover rate for all share classes		37	%		46	%		41	%		35	%		34	%

(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)For the year ended December 31, 2010, this column reflects the impact of a corporate action event that resulted in a one-time increase to net investment income. If the corporate action event had not occurred, the Class A net investment income per share and ratio of net income to average net assets would have been lower by $.04 and .25 percentage points, respectively. The impact to the other share classes would have been similar.

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

(5)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.

(6)Annualized.

See Notes to Financial Statements

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Trustees of American Balanced Fund:

We have audited the accompanying statement of assets and liabilities, including the summary investment portfolio, of American Balanced Fund (the “Fund”), as of December 31, 2010, 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, 2010, 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 as of December 31, 2010, 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 7, 2011

Other share class results

unaudited

Classes B, C, F and 529

Fund results shown are for past periods and are not predictive of results for future periods. Current and future results may be lower or higher than those shown. Share prices and returns will vary, so investors may lose money. For current information and month-end results, visit americanfunds.com.

Average annual total returns for periods ended December 31, 2010:
							10 years1/
	1 year			5 years			Life of class
Class B shares2
Reflecting applicable contingent deferred sales charge
(CDSC), maximum of 5%, payable only if shares are
sold within six years of purchase		7.12	%		2.77	%		4.77	%
Not reflecting CDSC		12.12			3.12			4.77
Class C shares — first sold 3/15/01
Reflecting CDSC, maximum of 1%, payable only
if shares are sold within one year of purchase		11.11			3.08			4.54
Not reflecting CDSC		12.11			3.08			4.54
Class F-1 shares3 — first sold 3/15/01
Not reflecting annual asset-based fee charged
by sponsoring firm		12.95			3.91			5.37
Class F-2 shares3 — first sold 8/5/08
Not reflecting annual asset-based fee charged
by sponsoring firm		13.21			—			4.29
Class 529-A shares4 — first sold 2/15/02
Reflecting 5.75% maximum sales charge		6.46			2.61			4.45
Not reflecting maximum sales charge		12.97			3.84			5.15
Class 529-B shares2,4 — first sold 2/15/02
Reflecting applicable CDSC, maximum of 5%, payable
only if shares are sold within six years of purchase		6.99			2.65			4.36
Not reflecting CDSC		11.99			3.01			4.36
Class 529-C shares4 — first sold 2/19/02
Reflecting CDSC, maximum of 1%, payable only
if shares are sold within one year of purchase		11.03			3.01			4.45
Not reflecting CDSC		12.03			3.01			4.45
Class 529-E shares3,4 — first sold 3/5/02		12.59			3.54			4.51
Class 529-F-1 shares3,4 — first sold 9/17/02
Not reflecting annual asset-based fee charged
by sponsoring firm		13.15			4.06			6.75

1Applicable to Class B shares only. All other share classes reflect results for the life of the class.

2These shares are not available for purchase.

3These shares are sold without any initial or contingent deferred sales charge.

4Results shown do not reflect the $10 account setup fee and an annual $10 account maintenance fee.

Investment results assume all distributions are reinvested and reflect applicable fees and expenses. The fund’s investment adviser waived a portion of its management fees from September 1, 2004, through December 31, 2008. Applicable fund results shown reflect the waiver, without which they would have been lower. See the Financial Highlights table on pages 26 and 27 for details that include expense ratios for all share classes.

For information regarding the differences among the various share classes, refer to the fund’s prospectus.

Expense example                                                                                                                        0;                           

  unaudited

As a shareholder of the fund, you incur two types of costs: (1) transaction costs, such as initial sales charges on purchase payments and contingent deferred sales charges on redemptions (loads), and (2) ongoing costs, including management fees, distribution and service (12b-1) fees, and other expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the fund so you can compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period (July 1, 2010, through December 31, 2010).

Actual expenses:

The first line of each share class in the table on the next page provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses paid during period" to estimate the expenses you paid on your account during this period.

Hypothetical example for comparison purposes:

The second line of each share class in the table on the next page provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio for the share class and an assumed rate of return of 5.00% per year before expenses, which is not the actual return of the share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the fund and other funds. To do so, compare this 5.00% hypothetical example with the 5.00% hypothetical examples that appear in the shareholder reports of the other funds.

Notes:

There are some account fees that are charged to certain types of accounts, such as individual retirement accounts and 529 college savings plan accounts (generally, a $10 fee is charged to set up the account and an additional $10 fee is charged to the account annually), that would increase the amount of expenses paid on your account. In addition, retirement plan participants may be subject to certain fees charged by the plan sponsor, and Class F-1, F-2 and 529-F-1 shareholders may be subject to fees charged by financial intermediaries, typically ranging from 0.75% to 1.50% of assets annually depending on services offered. You can estimate the impact of these fees by adding the amount of the fees to the total estimated expenses you paid on your account during the period as calculated above. In additi on, your ending account value would be lower by the amount of these fees.

Note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads). Therefore, the second line of each share class in the table is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

	Beginning account value 7/1/2010		Ending account value 12/31/2010		Expenses paid during period*		Annualized expense ratio
Class A -- actual return	$	1,000.00	$	1,164.37	$	3.38		.62	%
Class A -- assumed 5% return		1,000.00		1,022.08		3.16		.62
Class B -- actual return		1,000.00		1,159.76		7.46		1.37
Class B -- assumed 5% return		1,000.00		1,018.30		6.97		1.37
Class C -- actual return		1,000.00		1,159.80		7.78		1.43
Class C -- assumed 5% return		1,000.00		1,018.00		7.27		1.43
Class F-1 -- actual return		1,000.00		1,163.64		3.44		.63
Class F-1 -- assumed 5% return		1,000.00		1,022.03		3.21		.63
Class F-2 -- actual return		1,000.00		1,164.98		2.18		.40
Class F-2 -- assumed 5% return		1,000.00		1,023.19		2.04		.40
Class 529-A -- actual return		1,000.00		1,164.24		3.76		.69
Class 529-A -- assumed 5% return		1,000.00		1,021.73		3.52		.69
Class 529-B -- actual return		1,000.00		1,158.79		8.05		1.48
Class 529-B -- assumed 5% return		1,000.00		1,017.74		7.53		1.48
Class 529-C -- actual return		1,000.00		1,159.03		8.00		1.47
Class 529-C -- assumed 5% return		1,000.00		1,017.80		7.48		1.47
Class 529-E -- actual return		1,000.00		1,161.92		5.29		.97
Class 529-E -- assumed 5% return		1,000.00		1,020.32		4.94		.97
Class 529-F-1 -- actual return		1,000.00		1,165.58		2.57		.47
Class 529-F-1 -- assumed 5% return		1,000.00		1,022.84		2.40		.47
Class R-1 -- actual return		1,000.00		1,159.41		7.62		1.40
Class R-1 -- assumed 5% return		1,000.00		1,018.15		7.12		1.40
Class R-2 -- actual return		1,000.00		1,160.05		7.51		1.38
Class R-2 -- assumed 5% return		1,000.00		1,018.25		7.02		1.38
Class R-3 -- actual return		1,000.00		1,162.53		5.12		.94
Class R-3 -- assumed 5% return		1,000.00		1,020.47		4.79		.94
Class R-4 -- actual return		1,000.00		1,164.40		3.55		.65
Class R-4 -- assumed 5% return		1,000.00		1,021.93		3.31		.65
Class R-5 -- actual return		1,000.00		1,165.81		1.91		.35
Class R-5 -- assumed 5% return		1,000.00		1,023.44		1.79		.35
Class R-6 -- actual return		1,000.00		1,166.22		1.64		.30
Class R-6 -- assumed 5% return		1,000.00		1,023.69		1.53		.30
*The “expenses paid during period” are equal to the “annualized expense ratio,” multiplied by the average account value over the period, multiplied by the number of days in the period, and divided by 365(to reflect the one-half year period).

Tax information                                                                                                                     

          unaudited

We are required to advise you within 60 days of the fund’s fiscal year-end regarding the federal tax status of certain distributions received by shareholders during such fiscal year. The fund hereby designates the following amounts for the fund’s fiscal year ended December 31, 2010:

Qualified dividend income	$	888,231,000
Corporate dividends received deduction	$	671,189,000
U.S. government income that may be exempt from state taxation	$	146,911,000

Individual shareholders should refer to their Form 1099 or other tax information, which was mailed in January 2011, to determine the calendar year amounts to be included on their 2010 tax returns. Shareholders should consult their tax advisers.

Approval of Investment Advisory and Service Agreement

The fund’s board has approved the fund’s Investment Advisory and Service Agreement (the “agreement”) with Capital Research and Management Company (“CRMC”) for an additional one-year term through December 31, 2011. The board approved the agreement following the recommendation of the fund’s Contracts Committee (the “committee”), which is composed of all of the fund’s independent board members. The board and the committee determined that the fund’s advisory fee structure was fair and reasonable in relation to the services provided and that approving the agreement was in the best interests of the fund and its shareholders.

In reaching this decision, the board and the committee took into account information furnished to them throughout the year, as well as information prepared specifically in connection with their review of the agreement and were advised by their independent counsel. They considered the factors discussed below, among others, but did not identify any single issue or particular piece of information that, in isolation, was the controlling factor.

1. Nature, extent and quality of services

The board and the committee considered the depth and quality of CRMC’s investment management process, including its global research capabilities; the experience, capability and integrity of its senior management and other personnel; the low turnover rates of its key personnel; the overall financial strength and stability of its organization; and the ongoing evolution of CRMC’s organizational structure designed to maintain and strengthen these qualities. The board and the committee considered, among other things, the impact of current market conditions on the fund and CRMC. The board and the committee also considered the nature, extent and quality of administrative, compliance and shareholder services provided by CRMC to the fund under the agreement and other agreements as well as the ben efits to fund shareholders from investing in a fund that is part of a large family of funds. The board and the committee concluded that the nature, extent and quality of the services provided by CRMC have benefited and should continue to benefit the fund and its shareholders.

2. Investment results

The board and the committee considered the investment results of the fund in light of its objectives of providing conservation of capital, current income and long-term growth of capital and income. They compared the fund’s total returns with those of other relevant funds (including the other funds that are the basis of the Lipper index for the category in which the fund is included) and market data such as relevant market indexes, in each case as available at the time of the related board and committee meetings. This report, including the letter to shareholders and related disclosures, contains certain information about the fund’s investment results. The board and the committee concluded that the fund’s long-term results have been satisfactory and that CRMC’s record in managi ng the fund indicated that its continued management should benefit the fund and its shareholders.

3. Advisory fees and total expenses

The board and the committee compared the advisory fees and total expense levels of the fund to those of other relevant funds. They observed that the fund’s advisory fees and expenses remain significantly below those of most other relevant funds. The board and the committee also noted the breakpoint discounts in the fund’s advisory fee structure that reduce the level of fees charged by CRMC to the fund as fund assets increase. In addition, they reviewed information regarding the advisory fees paid by clients of an affiliate of CRMC. They noted that, to the extent there were differences between the advisory fees paid by the fund and the advisory fees paid by those clients, the differences appropriately reflected the investment, operational and regulatory differences between advising the fu nd and the other clients. The board and the committee concluded that the fund’s cost structure was fair and reasonable in relation to the services provided, and that the shareholders receive reasonable value in return for the advisory fees and other amounts paid to CRMC by the fund.

4. Ancillary benefits

The board and the committee considered a variety of other benefits received by CRMC and its affiliates as a result of CRMC’s relationship with the fund and the other American Funds, including fees for administrative services provided to certain share classes; fees paid to CRMC’s affiliated transfer agent; sales charges and distribution fees received and retained by the fund’s principal underwriter, an affiliate of CRMC; and possible ancillary benefits to CRMC’s institutional management affiliates. The board and the committee reviewed CRMC’s portfolio trading practices, noting that while CRMC receives the benefit of research provided by broker-dealers executing portfolio transactions on behalf of the fund, it does not obtain third-party research or other services in retu rn for allocating brokerage to such broker-dealers. The board and the committee took these ancillary benefits into account in evaluating the reasonableness of the advisory fees and other amounts paid to CRMC by the fund.

5. Adviser financial information

The board and the committee reviewed information regarding CRMC’s costs of providing services to the American Funds, including personnel, systems and resources of investment, compliance, trading, accounting and other administrative operations. They considered CRMC’s costs and willingness to invest in technology, infrastructure and staff to maintain and expand services and capabilities, respond to industry and regulatory developments and attract and retain qualified personnel. They noted information regarding the compensation structure for CRMC’s investment professionals. The board and the committee also compared CRMC’s profitability to the reported results of several large, publicly held investment management companies. The board and the committee noted the competitiveness an d cyclicality of both the mutual fund industry and the capital markets, and the importance in that environment of CRMC’s long-term profitability for maintaining its independence, company culture and management continuity. They further considered the breakpoint discounts in the fund’s advisory fee structure and the termination of CRMC’s 10% advisory fee waiver effective December 31, 2008. The board and the committee concluded that the fund’s advisory fee structure reflected a reasonable sharing of benefits between CRMC and the fund’s shareholders.

Board of trustees and other officers

“Independent” trustees1
	Year first
	elected a
	trustee of
Name and age	the fund2	Principal occupation(s) during past five years
Mary Jane Elmore, 56	2008	Managing Director and General Partner, Institutional
		Venture Partners
Robert A. Fox, 73	1976–1978	Managing General Partner, Fox Investments LP;
Chairman of the Board	1982	corporate director
(Independent and
Non-Executive)
Leonade D. Jones, 63	1993	Retired; former Treasurer, The WashingtonPost
		Company
William D. Jones, 55	2008	Real estate developer/owner, President and CEO,
		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, 74	2003	Business consultant
John G. McDonald, 73	1975–1978	Stanford Investors Professor, Graduate School of
	1988	Business, Stanford University
James J. Postl, 65	2007	Retired; former President and CEO, Pennzoil-Quaker
		State Company (automotive products and services)
Isaac Stein, 64	2004	President, Waverley Associates (private investment
		fund); Chairman Emeritus of the Board of Trustees,
		Stanford University
“Independent” trustees1
	Number of
	portfolios
	in fund
	complex3
	overseen by
Name and age	trustee	Other directorships4 held by trustee
Mary Jane Elmore, 56	3	None
Robert A. Fox, 73	9	None
Chairman of the Board
(Independent and
Non-Executive)
Leonade D. Jones, 63	9	None
William D. Jones, 55	7	Sempra Energy
John M. Lillie, 74	3	None
John G. McDonald, 73	13	iStar Financial, Inc.; Plum Creek Timber Co.;
		QuinStreet, Inc.; Scholastic Corporation
James J. Postl, 65	3	Cooper Industries; Pulte, Inc.
Isaac Stein, 64	3	Alexza Pharmaceuticals, Inc.; Maxygen, Inc.

Henry E. Riggs retired from the board in December 2010. The trustees thank Mr. Riggs for his dedication and long service to the fund.

“Interested” trustees5
	Year first
	elected a
	trustee or	Principal occupation(s) during past five years and
Name, age and	officer of	positions held with affiliated entities or the
position with fund	the fund2	principal underwriter of the fund
Robert G. O’Donnell, 66	1990	Senior Vice President — Capital World Investors,
Vice Chairman of the Board		Capital Research and Management Company;
		Director, Capital Research and Management
		Company
Gregory D. Johnson, 47	2003	Senior Vice President — Capital World Investors,
President		Capital Research and Management Company
“Interested” trustees5
	Number of
	portfolios
	in fund
	complex3
Name, age and	overseen by
position with fund	trustee	Other directorships4 held by trustee
Robert G. O’Donnell, 66	2	None
Vice Chairman of the Board
Gregory D. Johnson, 47	1	None
President

The fund’s statement of additional information includes further details about fund trustees and is available without charge upon request by calling American Funds Service Company at 800/421-0180 or by visiting the American Funds website at americanfunds.com. The address for all trustees and officers of the fund is 333 South Hope Street, Los Angeles, CA 90071, Attention: Secretary.

Other officers6
	Year first
	elected	Principal occupation(s) during past five years
Name, age and	an officer	and positions held with affiliated entities or the
position with fund	of the fund2	principal underwriter of the fund
Hilda L. Applbaum, 50	1999	Senior Vice President — Capital World Investors,
Senior Vice President		Capital Research and Management Company
Jeffrey T. Lager, 42	2002	Senior Vice President — Capital World Investors,
Senior Vice President		Capital Research Company7
James R. Mulally, 58	2009	Senior Vice President — Fixed Income, Capital
Senior Vice President		Research and Management Company
Paul F. Roye, 57	2007	Senior Vice President — Fund Business Management
Senior Vice President		Group, Capital Research and Management Company;
		Director, American Funds Service Company;7 former
		Director, Division of Investment Management, United
		States Securities and Exchange Commission
John H. Smet, 54	2000	Senior Vice President — Fixed Income, Capital
Senior Vice President		Research and Management Company; Director,
		The Capital Group Companies, Inc.7
Alan N. Berro, 50	2010	Senior Vice President, Capital World Investors,
Vice President		Capital Research and Management Company
Patrick F. Quan, 52	1986	Vice President — Fund Business Management
Secretary		Group, Capital Research and Management Company
Jennifer M. Buchheim, 37	2005	Vice President — Fund Business Management
Treasurer		Group, Capital Research and Management Company
Julie E. Lawton, 37	2009	Associate — Capital Research and Management
Assistant Secretary		Company

1The term “independent” trustee refers to a trustee who is not an “interested person” of the fund within the meaning of the Investment Company Act of 1940.

2Trustees and officers of the fund serve until their resignation, removal or retirement.

3Capital Research and Management Company manages the American Funds, consisting of 33 funds. Capital Research and Management Company also manages American Funds Insurance Series,® which is composed of 16 funds and serves as the underlying investment vehicle for certain variable insurance contracts; American Funds Target Date Retirement Series,® which is composed of 10 funds and is available through tax-deferred retirement plans and IRAs; and Endowments,SM which is available to certain nonprofit organizations.

4This 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” within the meaning of the Investment Company Act of 1940, 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).

6All 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.

7Company affiliated with Capital Research and Management Company.

Office of the fund

One Market

Steuart Tower, Suite 2000

Mailing address: P.O. Box 7650

San Francisco, CA 94120-7650

Investment adviser

Capital Research and Management Company

333 South Hope Street

Los Angeles, CA 90071-1406

6455 Irvine Center Drive

Irvine, CA 92618

Custodian of assets

JPMorgan Chase Bank

270 Park Avenue

New York, NY 10017-2070

Transfer agent for shareholder accounts

American Funds Service Company

(Write to the address near you.)

P.O. Box 6007

Indianapolis, IN 46206-6007

P.O. Box 2280

Norfolk, VA 23501-2280

Counsel

Bingham McCutchen LLP

355 South Grand Avenue, Suite 4400

Los Angeles, CA 90071-3106

Independent registered public accounting firm

Deloitte & Touche LLP

695 Town Center Drive

Suite 1200

Costa Mesa, CA 92626-7188

Principal underwriter

American Funds Distributors, Inc.

333 South Hope Street

Los Angeles, CA 90071-1406

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 prospectus and summary 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.

“American Funds Proxy Voting Procedures and Principles” — which describes how we vote proxies relating to portfolio securities — is available on the American Funds website or upon request by calling AFS. The fund files its proxy voting record with the U.S. Securities and Exchange Commission (SEC) for the 12 months ended June 30 by August 31. The proxy voting record is available free of charge on the SEC website at sec.gov and on the American Funds website.

A complete December 31, 2010, portfolio of American Balanced Fund’s investments is available free of charge by calling AFS or visiting the SEC website (where it is part of Form N-CSR).

American Balanced Fund files a complete list of its portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. This filing is available free of charge on the SEC website. You may also review or, for a fee, copy this filing at the SEC’s Public Reference Room in Washington, D.C. Additional information regarding the operation of the Public Reference Room may be obtained by calling the SEC’s Office of Investor Education and Advocacy at 800/SEC-0330. Additionally, the list of portfolio holdings is available by calling AFS.

This report is for the information of shareholders of American Balanced Fund, but it also may be used as sales literature when preceded or accompanied by the current prospectus or summary prospectus, which gives details about charges, expenses, investment objectives and operating policies of the fund. If used as sales material after March 31, 2011, this report must be accompanied by an American Funds statistical update for the most recently completed calendar quarter.

   

What makes American Funds different?

For nearly 80 years, we have followed a consistent philosophy to benefit our investors. Our 33 carefully conceived, broadly diversified funds, in addition to the target date retirement series, offer opportunities that have attracted over 50 million shareholder accounts.

Our unique combination of strengths includes these five factors:

•A long-term, value-oriented approach

We seek to buy securities at reasonable prices relative to their prospects and hold them for the long term.

•An extensive global research effort

Our investment professionals travel the world to find the best investment opportunities and gain a comprehensive understanding of companies and markets.

•The multiple portfolio counselor system

Our unique approach to portfolio management, developed more than 50 years ago, blends teamwork with individual accountability and has provided American Funds with a sustainable method of achieving fund objectives.

•Experienced investment professionals

American Funds portfolio counselors have an average of 26 years of investment experience, providing a depth of knowledge and broad perspective that few organizations have.

•A commitment to low management fees

The American Funds provide exceptional value for shareholders, with management fees that are among the lowest in the mutual fund industry.

American Funds span a range of investment objectives

•Growth funds

Emphasis on long-term growth through stocks

AMCAP Fund®

EuroPacific Growth Fund®

The Growth Fund of America®

The New Economy Fund®

New Perspective Fund®

New World Fund®

SMALLCAP World Fund®

•Growth-and-income funds

Emphasis on long-term growth and dividends through stocks

American Mutual Fund®

Capital World Growth and Income FundSM

Fundamental InvestorsSM

International Growth and Income FundSM

The Investment Company of America®

Washington Mutual Investors FundSM

•Equity-income funds

Emphasis on above-average income and growth through stocks and/or bonds

Capital Income Builder®

The Income Fund of America®

•Balanced funds

Emphasis on long-term growth and current income through stocks and bonds

>American Balanced Fund®

American Funds Global Balanced FundSM

•Bond funds

Emphasis on current income through bonds

American Funds Mortgage FundSM

American High-Income TrustSM

The Bond Fund of AmericaSM

Capital World Bond Fund®

Intermediate Bond Fund of America®

Short-Term Bond Fund of AmericaSM

U.S. Government Securities FundSM

•Tax-exempt bond funds

Emphasis on tax-exempt current income through municipal bonds

American Funds Short-Term Tax-Exempt Bond FundSM

American High-Income Municipal Bond Fund®

Limited Term Tax-Exempt Bond Fund of AmericaSM

The Tax-Exempt Bond Fund of America®

State-specific tax-exempt funds

American Funds Tax-Exempt Fund of New YorkSM

The Tax-Exempt Fund of California®

The Tax-Exempt Fund of Maryland®

The Tax-Exempt Fund of Virginia®

•Money market fund

American Funds Money Market Fund®

•American Funds Target Date Retirement Series®

The Capital Group Companies

American FundsCapital Research and ManagementCapital InternationalCapital GuardianCapital Bank and Trust

Lit. No. MFGEAR-911-0211P

Litho in USA AGD/RRD/8050-S26198

Printed on paper containing 10% post-consumer waste

Printed with inks containing soy and/or vegetable oil

ITEM 2 – Code of Ethics

The Registrant has adopted a Code of Ethics that applies to its Principal Executive Officer and Principal Financial Officer.  The Registrant undertakes to provide to any person without charge, upon request, a copy of the Code of Ethics.  Such request can be made to American Funds Service Company at 800/421-0180 or to the Secretary of the Registrant, One Market, Steuart Tower, Suite 2000, San Francisco, California 94105.

ITEM 3 – Audit Committee Financial Expert

The Registrant’s board has determined that Isaac Stein, a member of the Registrant’s audit committee, is an “audit committee financial expert” and "independent," as such terms are defined in this Item. This designation will not increase the designee’s duties, obligations or liability as compared to his or her duties, obligations and liability as a member of the audit committee and of the board, nor will it reduce the responsibility of the other audit committee members.  There may be other individuals who, through education or experience, would qualify as "audit committee financial experts" if the board had designated them as such.  Most importantly, the board believes each member of the audit committee contributes significantly to the effective oversight of the Registrant’s financial statem ents and condition.

ITEM 4 – Principal Accountant Fees and Services

Registrant:
	a)  Audit Fees:
		2009	$75,000
		2010	$71,000
	b)  Audit-Related Fees:
		2009	$13,000
		2010	$15,000
		The audit-related fees consist of assurance and related services relating to the examination of the Registrant’s investment adviser conducted in accordance with Statement on Auditing Standards Number 70 issued by the American Institute of Certified Public Accountants.
	c)  Tax Fees:
		2009	$7,000
		2010	$7,000
		The tax fees consist of professional services relating to the preparation of the Registrant’s tax returns.
	d)  All Other Fees:
		2009	None
		2010	None
Adviser and affiliates (includes only fees for non-audit services billed to the adviser and affiliates for engagements that relate directly to the operations and financial reporting of the Registrant and were subject to the pre-approval policies described below):
	a)  Audit Fees:
		Not Applicable
	b)  Audit-Related Fees:
		2009	$1,029,000
		2010	$1,092,000
		The audit-related fees consist of assurance and related services relating to the examination of the Registrant’s transfer agent, principal underwriter and investment adviser conducted in accordance with Statement on Auditing Standards Number 70 issued by the American Institute of Certified Public Accountants.
	c)  Tax Fees:
		2009	None
		2010	$15,000
		The tax fees consist of consulting services relating to the Registrant’s investments.
	d)  All Other Fees:
		2009	$2,000
		2010	$2,000
		The other fees consist of subscription services related to an accounting research tool.

All audit and permissible non-audit services that the Registrant’s audit committee considers compatible with maintaining the independent registered public accounting firm’s independence are required to be pre-approved by the committee.  The pre-approval requirement will extend to all non-audit services provided to the Registrant, the investment adviser, and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the Registrant, if the engagement relates directly to the operations and financial reporting of the Registrant. The committee will not delegate its responsibility to pre-approve these services to the investment adviser. The committee may delegate to one or more committee members the authority to review and pre-approve audit and permissible non-audi t services.  Actions taken under any such delegation will be reported to the full committee at its next meeting. The pre-approval requirement is waived with respect to non-audit services if certain conditions are met. The pre-approval requirement was not waived for any of the non-audit services listed above provided to the Registrant, adviser and affiliates.

Aggregate non-audit fees paid to the Registrant’s auditors, including fees for all services billed to the Registrant, adviser and affiliates that provide ongoing services to the Registrant, were $1,481,000 for fiscal year 2009 and $1,556,000 for fiscal year 2010. The non-audit services represented by these amounts were brought to the attention of the committee and considered to be compatible with maintaining the auditors’ independence.

ITEM 5 – Audit Committee of Listed Registrants

Not applicable to this Registrant, insofar as the Registrant is not a listed issuer as defined in Rule 10A-3 under the Securities Exchange Act of 1934.

ITEM 6 – Schedule of Investments

American Balanced Fund®

Investment portfolio

December 31, 2010

Common stocks — 67.98%	Shares			Value (000)
FINANCIALS — 11.23%
Wells Fargo & Co.		43,100,000		$	1,335,669
Goldman Sachs Group, Inc.		4,430,000			744,949
Berkshire Hathaway Inc., Class A1		5,576			671,629
American Express Co.		15,000,000			643,800
U.S. Bancorp		14,110,000			380,547
JPMorgan Chase & Co.		7,410,000			314,332
ACE Ltd.		4,470,000			278,257
Citigroup Inc.1		58,000,000			274,340
Allstate Corp.		7,400,000			235,912
SunTrust Banks, Inc.		7,479,100			220,708
Weyerhaeuser Co.		11,215,242			212,305
Lincoln National Corp.		3,300,000			91,773
Chubb Corp.		1,300,000			77,532
Aon Corp.		1,466,500			67,474
Bank of America Corp.		5,000,000			66,700
BB&T Corp.		2,200,000			57,838
					5,673,765
INFORMATION TECHNOLOGY — 9.19%
Microsoft Corp.		28,870,000			806,050
Oracle Corp.		21,285,991			666,251
International Business Machines Corp.		3,400,000			498,984
Texas Instruments Inc.		13,000,000			422,500
Cisco Systems, Inc.1		18,800,000			380,324
Google Inc., Class A1		535,000			317,774
Corning Inc.		13,965,000			269,804
Maxim Integrated Products, Inc.		9,670,000			228,405
Apple Inc.1		655,000			211,277
EMC Corp.1		7,700,000			176,330
Tyco Electronics Ltd.		4,360,000			154,344
Yahoo! Inc.1		8,906,000			148,107
Automatic Data Processing, Inc.		3,200,000			148,096
Hewlett-Packard Co.		2,800,000			117,880
Paychex, Inc.		2,727,000			84,292
Intel Corp.		691,000			14,532
					4,644,950
INDUSTRIALS — 8.20%
Boeing Co.		7,860,000			512,944
Deere & Co.		5,640,000			468,402
Lockheed Martin Corp.		6,600,000			461,406
Union Pacific Corp.		4,000,000			370,640
United Technologies Corp.		4,190,000			329,837
General Electric Co.		17,500,000			320,075
Tyco International Ltd.		6,260,000			259,414
Parker Hannifin Corp.		3,000,000			258,900
Northrop Grumman Corp.		3,015,000			195,312
Honeywell International Inc.		3,250,000			172,770
Illinois Tool Works Inc.		3,000,000			160,200
United Parcel Service, Inc., Class B		2,000,000			145,160
Emerson Electric Co.		2,350,000			134,349
European Aeronautic Defence and Space Co. EADS NV1		5,500,000			128,178
General Dynamics Corp.		1,545,000			109,633
FedEx Corp.		900,000			83,709
Pitney Bowes Inc.		1,400,000			33,852
					4,144,781
ENERGY — 8.10%
Chevron Corp.		14,672,000			1,338,820
Royal Dutch Shell PLC, Class B (ADR)		11,533,000			768,905
Schlumberger Ltd.		6,800,000			567,800
ConocoPhillips		5,200,000			354,120
Baker Hughes Inc.		4,500,000			257,265
Petróleo Brasileiro SA — Petrobras, ordinary nominative (ADR)		5,825,000			220,418
Exxon Mobil Corp.		3,000,000			219,360
Occidental Petroleum Corp.		1,900,000			186,390
TOTAL SA (ADR)		3,350,000			179,158
					4,092,236
HEALTH CARE — 7.64%
Merck & Co., Inc.		19,000,000			684,760
Bristol-Myers Squibb Co.		18,500,000			489,880
Pfizer Inc		26,659,500			466,808
UnitedHealth Group Inc.		9,650,000			348,462
Johnson & Johnson		4,050,000			250,492
Eli Lilly and Co.		6,950,000			243,528
Cardinal Health, Inc.		6,315,000			241,928
Amgen Inc.1		3,850,000			211,365
Medtronic, Inc.		4,500,000			166,905
Abbott Laboratories		3,250,000			155,707
Baxter International Inc.		2,800,000			141,736
Aetna Inc.		4,550,000			138,820
Stryker Corp.		2,350,000			126,195
Roche Holding AG		700,000			102,567
Gilead Sciences, Inc.1		2,500,000			90,600
					3,859,753
CONSUMER DISCRETIONARY — 7.06%
Home Depot, Inc.		23,095,000			809,711
Amazon.com, Inc.1		3,400,000			612,000
Time Warner Inc.		10,333,334			332,423
Comcast Corp., Class A		14,545,000			319,553
Lowe’s Companies, Inc.		12,000,000			300,960
Walt Disney Co.		8,000,000			300,080
McGraw-Hill Companies, Inc.		8,000,000			291,280
McDonald’s Corp.		2,880,000			221,069
DIRECTV, Class A1		4,175,000			166,708
Best Buy Co., Inc.		3,300,000			113,157
Macy's, Inc.		4,000,000			101,200
					3,568,141
CONSUMER STAPLES — 5.89%
Philip Morris International Inc.		15,750,000			921,848
Costco Wholesale Corp.		7,935,000			572,986
Kraft Foods Inc., Class A		10,170,000			320,457
Procter & Gamble Co.		4,500,000			289,485
Estée Lauder Companies Inc., Class A		2,300,000			185,610
Coca-Cola Co.		2,600,000			171,002
Colgate-Palmolive Co.		2,100,000			168,777
Unilever NV (New York registered)		4,500,000			141,300
Avon Products, Inc.		3,825,000			111,154
PepsiCo, Inc.		1,400,000			91,462
					2,974,081
MATERIALS — 5.69%
Dow Chemical Co.		16,685,000			569,626
Potash Corp. of Saskatchewan Inc.		3,450,000			534,164
Monsanto Co.		6,400,000			445,696
E.I. du Pont de Nemours and Co.		8,250,000			411,510
Alcoa Inc.		19,000,000			292,410
Nucor Corp.		4,250,000			186,235
Air Products and Chemicals, Inc.		2,000,000			181,900
Mosaic Co.		1,415,100			108,057
Praxair, Inc.		1,000,000			95,470
Sigma-Aldrich Corp.		750,000			49,920
					2,874,988
TELECOMMUNICATION SERVICES — 1.68%
AT&T Inc.		17,362,500			510,110
Verizon Communications Inc.		9,400,000			336,332
					846,442
UTILITIES — 1.21%
PG&E Corp.		4,800,000			229,632
Exelon Corp.		3,900,000			162,396
GDF SUEZ		3,400,000			121,991
Southern Co.		1,400,000			53,522
FirstEnergy Corp.		1,250,000			46,275
					613,816
MISCELLANEOUS — 2.09%
Other common stocks in initial period of acquisition					1,056,067
Total common stocks (cost: $27,091,794,000)					34,349,020
Preferred stocks — 0.15%
FINANCIALS — 0.15%
QBE Capital Funding II LP 6.797%2,3		24,470,000			21,335
AXA SA, Series B, 6.379%2,3		20,680,000			18,896
Catlin Insurance Ltd. 7.249%2,3		16,135,000			14,279
XL Capital Ltd., Series E, 6.50%3		13,170,000			11,458
BNP Paribas 7.195%2,3		10,900,000			10,519
Total preferred stocks (cost: $77,381,000)					76,487
	Principal amount
Bonds & notes — 28.44%		(000	)
BONDS & NOTES OF U.S. GOVERNMENT & GOVERNMENT AGENCIES — 12.29%
U.S. Treasury 4.625% 2011	$	531,000			553,525
U.S. Treasury 4.25% 2012		211,600			225,453
U.S. Treasury 4.875% 2012		145,000			152,283
U.S. Treasury 1.50% 2013		300,000			304,347
U.S. Treasury 1.875% 20134		133,366			142,366
U.S. Treasury 2.75% 2013		296,500			311,719
U.S. Treasury 3.375% 2013		583,750			622,745
U.S. Treasury 3.50% 2013		2,000			2,133
U.S. Treasury 3.625% 2013		20,000			21,385
U.S. Treasury 4.25% 2013		245,335			267,165
U.S. Treasury 1.875% 2014		234,000			239,366
U.S. Treasury 1.875% 20154		123,120			133,557
U.S. Treasury 4.125% 2015		70,000			77,099
U.S. Treasury 7.50% 2016		64,000			82,285
U.S. Treasury 8.875% 2017		25,500			35,433
U.S. Treasury 1.625% 20184		22,967			24,605
U.S. Treasury 3.50% 2018		744,500			783,385
U.S. Treasury 2.125% 20194		50,932			56,448
U.S. Treasury 7.875% 2021		28,000			39,081
U.S. Treasury 6.25% 2023		581,500			731,312
U.S. Treasury 2.375% 20254		58,012			64,721
U.S. Treasury 6.875% 2025		123,750			165,477
U.S. Treasury 5.25% 2029		15,000			17,204
U.S. Treasury 4.50% 2036		346,300			358,729
U.S. Treasury 4.375% 2038		39,000			39,430
U.S. Treasury 3.50% 2039		377,000			324,989
U.S. Treasury 4.625% 2040		124,750			130,728
Federal Agricultural Mortgage Corp. 4.875% 20112		40,000			40,057
Federal Agricultural Mortgage Corp. 5.50% 20112		7,000			7,178
CoBank ACB 7.875% 20182		20,000			22,262
CoBank ACB 0.902% 20222,3		23,425			18,575
United States Government Agency-Guaranteed (FDIC insured), Regions Bank 3.25% 2011		33,000			33,877
United States Government Agency-Guaranteed (FDIC insured), Bank of America Corp., Series L, 3.125% 2012		30,000			31,082
United States Government Agency-Guaranteed (FDIC insured), Citigroup Inc. 2.875% 2011		30,000			30,714
Federal Home Loan Bank, Series 467, 5.25% 2014		25,875			29,277
United States Government Agency-Guaranteed (FDIC insured), General Electric Capital Corp., Series G, 2.20% 2012		27,500			28,032
Fannie Mae 6.25% 2029		20,000			24,163
United States Government Agency-Guaranteed (FDIC insured), Sovereign Bancorp, Inc. 2.75% 2012		22,000			22,504
United States Government Agency-Guaranteed (FDIC insured), PNC Funding Corp. 2.30% 2012		14,000			14,346
					6,209,037
MORTGAGE-BACKED OBLIGATIONS5 — 8.39%
Fannie Mae, Series 2001-T11, Class B, 5.503% 2011		45,000			46,338
Fannie Mae, Series 2003-T1, Class B, 4.491% 2012		16,000			16,973
Fannie Mae 4.89% 2012		30,000			30,670
Fannie Mae 4.00% 2015		8,590			8,856
Fannie Mae 5.00% 2018		1,733			1,853
Fannie Mae 5.00% 2018		920			984
Fannie Mae 11.00% 2018		269			310
Fannie Mae 5.50% 2019		1,604			1,730
Fannie Mae 5.50% 2020		25,503			27,530
Fannie Mae, Series 2003-48, Class TJ, 4.50% 2022		6,247			6,477
Fannie Mae 3.50% 2024		1,843			1,859
Fannie Mae 4.00% 2024		127,372			131,412
Fannie Mae 4.00% 2024		102,452			105,582
Fannie Mae 4.00% 2024		34,084			35,165
Fannie Mae 4.00% 2024		24,065			24,828
Fannie Mae 4.00% 2024		21,790			22,481
Fannie Mae 4.00% 2024		20,911			21,574
Fannie Mae 4.00% 2024		19,465			20,082
Fannie Mae 4.00% 2024		18,006			18,578
Fannie Mae 4.00% 2024		8,520			8,790
Fannie Mae 4.00% 2024		6,771			6,986
Fannie Mae 4.00% 2024		4,612			4,758
Fannie Mae 4.50% 2024		31,121			32,648
Fannie Mae 4.50% 2024		9,065			9,510
Fannie Mae 3.00% 2025		2,661			2,611
Fannie Mae 3.00% 2025		1,459			1,432
Fannie Mae 3.00% 2025		760			746
Fannie Mae 3.00% 2025		328			322
Fannie Mae 3.00% 2025		42			41
Fannie Mae 3.50% 2025		68,000			68,648
Fannie Mae 3.50% 2025		57,000			57,543
Fannie Mae 3.50% 2025		35,250			35,586
Fannie Mae 3.50% 2025		31,631			31,905
Fannie Mae 3.50% 2025		23,000			23,219
Fannie Mae 3.50% 2025		15,820			15,970
Fannie Mae 3.50% 2025		11,764			11,876
Fannie Mae 3.50% 2025		9,914			10,008
Fannie Mae 3.50% 2025		7,944			8,020
Fannie Mae 3.50% 2025		7,022			7,089
Fannie Mae 3.50% 2025		7,000			7,067
Fannie Mae 3.50% 2025		6,734			6,799
Fannie Mae 3.50% 2025		1,981			2,000
Fannie Mae 3.50% 2025		990			1,000
Fannie Mae 3.50% 2025		653			659
Fannie Mae 3.50% 2025		338			342
Fannie Mae 4.00% 2025		15,017			15,528
Fannie Mae 4.50% 2025		134,568			141,423
Fannie Mae 4.50% 2025		54,503			57,279
Fannie Mae 4.50% 2025		21,872			22,986
Fannie Mae 4.50% 2025		21,845			22,958
Fannie Mae 4.50% 2025		21,435			22,527
Fannie Mae 4.50% 2025		15,543			16,335
Fannie Mae 4.50% 2025		12,320			12,947
Fannie Mae, Series 2001-4, Class NA, 11.71% 20253		165			186
Fannie Mae 3.00% 2026		60,000			58,837
Fannie Mae 3.50% 2026		30,000			30,260
Fannie Mae, Series 2001-20, Class D, 11.039% 20313		58			68
Fannie Mae 5.50% 2033		19,129			20,578
Fannie Mae 5.50% 2033		15,146			16,288
Fannie Mae 5.50% 2033		1,961			2,110
Fannie Mae 5.50% 2035		8,418			9,048
Fannie Mae 5.50% 2035		5,590			6,007
Fannie Mae 6.50% 2035		10,419			11,759
Fannie Mae, Series 2006-43, Class JO, principal only, 0% 2036		4,943			4,190
Fannie Mae 5.50% 2036		2,206			2,370
Fannie Mae 5.50% 2036		1,821			1,956
Fannie Mae, Series 2006-49, Class PA, 6.00% 2036		12,256			13,516
Fannie Mae 6.00% 2036		4,174			4,543
Fannie Mae 5.532% 20373		12,910			13,508
Fannie Mae 6.00% 2037		67,736			73,944
Fannie Mae 6.00% 2037		27,529			29,901
Fannie Mae 6.00% 2037		14,213			15,431
Fannie Mae 6.00% 2037		10,672			11,586
Fannie Mae 6.00% 2037		8,169			8,890
Fannie Mae 6.00% 2037		2,687			2,919
Fannie Mae 6.50% 2037		22,650			25,138
Fannie Mae 6.50% 2037		18,903			20,979
Fannie Mae 6.50% 2037		17,404			19,098
Fannie Mae 6.50% 2037		9,662			10,603
Fannie Mae 7.00% 2037		4,365			4,802
Fannie Mae 7.00% 2037		3,667			4,034
Fannie Mae 7.00% 2037		2,171			2,389
Fannie Mae 5.50% 2038		6,297			6,743
Fannie Mae 6.00% 2038		48,858			53,173
Fannie Mae 6.00% 2038		26,316			28,554
Fannie Mae 6.00% 2038		11,912			12,964
Fannie Mae 6.00% 2038		7,165			7,774
Fannie Mae 6.50% 2038		22,820			25,327
Fannie Mae 4.50% 2039		136,515			140,320
Fannie Mae 4.50% 2039		56,857			58,442
Fannie Mae 4.50% 2039		32,843			33,758
Fannie Mae 6.00% 2039		26,142			28,526
Fannie Mae 6.00% 2039		13,625			14,784
Fannie Mae 6.00% 2039		12,086			13,121
Fannie Mae 3.50% 2040		34,500			32,993
Fannie Mae 4.00% 2040		168,155			167,501
Fannie Mae 4.00% 2040		28,785			28,670
Fannie Mae 4.00% 2040		22,737			22,648
Fannie Mae 4.00% 2040		11,950			11,904
Fannie Mae 4.50% 2040		48,490			49,835
Fannie Mae 4.50% 2040		43,546			44,753
Fannie Mae 4.50% 2040		22,502			23,125
Fannie Mae 5.00% 2040		30,067			31,636
Fannie Mae 6.00% 2040		13,270			14,397
Fannie Mae 3.50% 2041		50,000			47,766
Fannie Mae, Series 2001-T10, Class A-1, 7.00% 2041		552			636
Fannie Mae, Series 2001-50, Class BA, 7.00% 2041		450			498
Fannie Mae, Series 2002-W3, Class A-5, 7.50% 2041		741			861
Fannie Mae, Series 2002-W1, Class 2A, 7.365% 20423		683			788
Fannie Mae 6.50% 2047		3,667			4,017
Fannie Mae 6.50% 2047		1,649			1,807
Fannie Mae 6.50% 2047		1,438			1,576
Fannie Mae 6.50% 2047		585			641
Fannie Mae 7.00% 2047		2,049			2,254
Fannie Mae 7.00% 2047		1,982			2,180
Fannie Mae 7.00% 2047		1,637			1,800
Fannie Mae 7.00% 2047		1,515			1,666
Fannie Mae 7.00% 2047		814			896
Fannie Mae 7.00% 2047		803			884
Fannie Mae 7.00% 2047		753			829
Fannie Mae 7.00% 2047		272			299
Fannie Mae 7.00% 2047		128			139
Fannie Mae 7.00% 2047		101			112
Government National Mortgage Assn. 10.00% 2021		366			429
Government National Mortgage Assn. 6.00% 2038		57,754			63,031
Government National Mortgage Assn. 6.50% 2038		26,157			29,032
Government National Mortgage Assn. 4.50% 2040		33,024			34,341
Government National Mortgage Assn. 4.00% 2041		415,560			418,482
Freddie Mac 5.00% 2023		22,032			23,310
Freddie Mac 5.00% 2023		15,666			16,575
Freddie Mac 5.00% 2023		13,454			14,234
Freddie Mac 5.00% 2023		5,092			5,388
Freddie Mac 5.00% 2023		4,473			4,733
Freddie Mac 5.00% 2023		3,818			4,039
Freddie Mac 5.50% 2023		8,959			9,609
Freddie Mac 5.00% 2024		30,849			32,594
Freddie Mac 5.50% 2024		16,740			17,964
Freddie Mac 6.00% 2026		10,004			10,881
Freddie Mac 6.00% 2026		7,329			7,972
Freddie Mac 6.00% 2026		6,344			6,900
Freddie Mac 6.50% 2027		2,526			2,816
Freddie Mac 6.50% 2027		928			1,035
Freddie Mac 6.50% 2027		509			567
Freddie Mac 6.50% 2028		1,897			2,115
Freddie Mac, Series T-041, Class 3-A, 7.299% 20323		2,819			3,288
Freddie Mac, Series 3061, Class PN, 5.50% 2035		11,236			12,355
Freddie Mac, Series 3156, Class PO, principal only, 0% 2036		14,373			12,622
Freddie Mac, Series 3146, Class PO, principal only, 0% 2036		10,479			8,900
Freddie Mac, Series 3233, Class PA, 6.00% 2036		24,699			26,790
Freddie Mac 5.196% 20373		407			423
Freddie Mac, Series 3318, Class JT, 5.50% 2037		25,855			27,492
Freddie Mac, Series 3312, Class PA, 5.50% 2037		19,072			20,283
Freddie Mac, Series 3272, Class PA, 6.00% 2037		18,859			20,242
Freddie Mac 6.00% 2038		15,242			16,530
Freddie Mac 6.00% 2038		2,378			2,571
Freddie Mac 6.50% 2038		9,688			10,721
CS First Boston Mortgage Securities Corp., Series 2002-34, Class I-A-1, 7.50% 2032		1,104			1,120
CS First Boston Mortgage Securities Corp., Series 2002-30, Class I-A-1, 7.50% 2032		795			777
CS First Boston Mortgage Securities Corp., Series 2003-21, Class V-A-1, 6.50% 2033		1,080			1,086
CS First Boston Mortgage Securities Corp., Series 2003-29, Class V-A-1, 7.00% 2033		1,906			1,921
CS First Boston Mortgage Securities Corp., Series 2001-CKN5, Class A-4, 5.435% 2034		15,534			15,805
CS First Boston Mortgage Securities Corp., Series 2004-5, Class IV-A-1, 6.00% 2034		5,772			5,963
CS First Boston Mortgage Securities Corp., Series 2001-CP4, Class A-4, 6.18% 2035		20,224			20,479
CS First Boston Mortgage Securities Corp., Series 2003-CK2, Class A-4, 4.801% 2036		17,585			18,640
CS First Boston Mortgage Securities Corp., Series 2001-CK6, Class A-3, 6.387% 2036		17,440			17,952
CS First Boston Mortgage Securities Corp., Series 2002-CKN2, Class A-3, 6.133% 2037		16,045			16,715
CS First Boston Mortgage Securities Corp., Series 2005-C6, Class A-3, 5.23% 20403		30,875			32,703
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2002-CIBC5, Class A-1, 4.372% 2037		2,743			2,784
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2005-CIBC12, Class A-2, 4.739% 2037		1,461			1,459
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2005-CIBC12, Class A-3B, 5.318% 20373		63,000			64,400
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2002-C1, Class A-3, 5.376% 2037		10,680			11,092
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2003-ML1, Class A-1, 3.972% 2039		4,924			5,036
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2005-LDP4, Class A-SB, 4.824% 2042		22,096			23,172
American Tower Trust I, Series 2007-1A, Class A-FX, 5.42% 20372		18,300			19,636
American Tower Trust I, Series 2007-1A, Class B, 5.537% 20372		20,000			21,086
American Tower Trust I, Series 2007-1A, Class D, 5.957% 20372		32,200			33,949
Citigroup-Deutsche Bank Commercial Mortgage Trust, Series 2005-CD1, Class A-4, 5.222% 20443		9,250			9,966
Citigroup-Deutsche Bank Commercial Mortgage Trust, Series 2006-CD3, Class A-5, 5.617% 2048		35,550			38,225
Bank of America 5.50% 20122		44,500			46,842
Commercial Mortgage Trust, Series 2000-C1, Class E, 8.015% 20333		2,927			2,940
Commercial Mortgage Trust, Series 2003-LNB1, Class A-2, 4.084% 2038		39,825			41,400
Nationwide Building Society, Series 2007-2, 5.50% 20122		32,500			34,445
GS Mortgage Securities Corp. II, Series 2001-ROCK, Class D, 6.878% 20182		15,000			15,085
GS Mortgage Securities Corp. II, Series 2006-GG8, Class A-4, 5.56% 2039		11,880			12,543
Wachovia Bank Commercial Mortgage Trust, Series 2005-C16, Class A-PB, 4.692% 2041		26,282			27,465
GE Commercial Mortgage Corp., Series 2004-C1, Class A-2, 3.915% 2038		325			325
GE Commercial Mortgage Corp., Series 2005-C4, Class A-3A, 5.315% 20453		25,000			26,281
Residential Accredit Loans, Inc., Series 2005-QR1, Class A, 6.00% 2034		24,210			24,634
Wells Fargo Mortgage-backed Securities Trust, Series 2005-AR10, Class II-A-6, 2.844% 20353		24,000			23,720
Banc of America Commercial Mortgage Inc., Series 2002-PB2, Class A-4, 6.186% 2035		4,140			4,272
Banc of America Commercial Mortgage Inc., Series 2001-1, Class A-2, 6.503% 2036		18,533			18,596
Ally Financial Inc., Series 2001-C1, Class A-2, 6.465% 2034		21,523			21,591
Ally Financial Inc., Series 2002-C2, Class A-2, 5.389% 2038		694			701
Bear Stearns Commercial Mortgage Securities Inc., Series 2002-PBW1, Class A-1, 3.97% 2035		1,140			1,147
Bear Stearns Commercial Mortgage Securities Inc., Series 2001-TOP2, Class A-2, 6.48% 2035		778			780
Bear Stearns Commercial Mortgage Securities Inc., Series 2005-PW10, Class AM, 5.449% 20403		20,000			20,213
Salomon Brothers Commercial Mortgage Trust, Series 2001-C1, Class A-3, 6.428% 2035		20,857			20,933
L.A. Arena Funding, LLC, Series 1, Class A, 7.656% 20262,6		19,692			20,390
Bank of Montreal 2.85% 20152		17,000			17,286
Countrywide Alternative Loan Trust, Series 2004-36CB, Class 1-A-1, 6.00% 2035		15,890			15,209
Washington Mutual Mortgage, WMALT Series 2005-1, Class 5-A-1, 6.00% 2035		14,615			13,992
LB-UBS Commercial Mortgage Trust, Series 2002-C1, Class A-4, 6.462% 2031		12,916			13,468
GE Capital Commercial Mortgage Corp., Series 2002-2, Class A-3, 5.349% 2036		10,000			10,446
GE Capital Commercial Mortgage Corp., Series 2002-3, Class A-1, 4.229% 2037		2,941			2,967
American General Mortgage Loan Trust, Series 2010-1A, Class A-1, 5.15% 20582,3		8,214			8,558
First Union National Bank Commercial Mortgage Trust, Series 2002-C1, Class A-2, 6.141% 2034		7,954			8,247
Prudential Mortgage Capital Funding, LLC, Series ROCK 2001-C1, Class A-2, 6.605% 2034		4,775			4,800
GSR Mortgage Loan Trust, Series 2004-15F, Class 5A-1, 5.50% 2020		4,361			4,433
CHL Mortgage Pass-Through Trust, Series 2003-56, Class 6-A-1, 2.949% 20333		4,745			4,272
Merrill Lynch Mortgage Trust, Series 2005-LC1, Class A-2, 5.202% 20443		2,081			2,080
Morgan Stanley Dean Witter Capital I Trust, Series 2003-TOP9, Class A-1, 3.98% 2036		102			102
					4,238,768
CORPORATE BONDS & NOTES — 7.12%
FINANCIALS — 2.33%
Westfield Capital Corp. Ltd., WT Finance (Australia) Pty Ltd. and WEA Finance LLC 5.125% 20142		4,445			4,727
Westfield Group 5.75% 20152		16,250			17,622
Westfield Group 5.70% 20162		30,520			32,983
Westfield Group 7.125% 20182		21,280			24,515
ProLogis 5.50% 2012		15,000			15,488
ProLogis 5.625% 2015		10,425			10,952
ProLogis 6.625% 2018		15,500			16,482
ProLogis 7.375% 2019		27,000			29,540
Liberty Mutual Group Inc. 6.50% 20352		17,435			15,491
Liberty Mutual Group Inc. 7.50% 20362		20,625			20,564
Liberty Mutual Group Inc. 7.697% 20972		22,180			19,722
Kimco Realty Corp. 6.00% 2012		2,750			2,950
Kimco Realty Corp., Series C, 4.82% 2014		13,000			13,722
Kimco Realty Corp., Series C, 5.783% 2016		14,000			15,251
Kimco Realty Corp. 5.70% 2017		21,180			22,778
Société Générale 2.50% 20142		22,000			21,994
Société Générale 3.10% 20152		16,000			15,653
Société Générale 3.50% 20162		17,000			16,764
Royal Bank of Scotland PLC 3.40% 2013		16,500			16,678
Royal Bank of Scotland PLC 3.95% 2015		16,000			15,745
Royal Bank of Scotland PLC 4.875% 2015		20,000			20,478
American Express Bank 5.50% 2013		21,300			22,969
American Express Co. 6.15% 2017		22,800			25,736
CNA Financial Corp. 5.85% 2014		25,000			26,400
CNA Financial Corp. 6.50% 2016		16,000			17,155
JPMorgan Chase & Co. 2.60% 2016		29,500			28,656
JPMorgan Chase & Co. 4.25% 2020		13,250			12,966
Monumental Global Funding 5.50% 20132		12,000			12,848
Monumental Global Funding III 0.489% 20142,3		29,000			27,876
ERP Operating LP 5.375% 2016		25,000			27,367
ERP Operating LP 4.75% 2020		12,000			12,117
HBOS PLC 6.75% 20182		41,050			38,491
Simon Property Group, LP 6.75% 2014		8,495			9,570
Simon Property Group, LP 5.875% 2017		15,165			16,668
Simon Property Group, LP 6.125% 2018		8,160			9,185
UBS AG 5.875% 2017		32,125			35,383
Citigroup Inc. 4.587% 2015		17,000			17,742
Citigroup Inc. 4.75% 2015		16,500			17,294
ACE INA Holdings Inc. 5.875% 2014		20,000			22,443
ACE INA Holdings Inc. 2.60% 2015		12,665			12,482
Bank of America Corp. 3.70% 2015		16,500			16,375
Bank of America Corp. 5.75% 2017		13,650			14,225
Hospitality Properties Trust 6.75% 2013		7,215			7,625
Hospitality Properties Trust 6.70% 2018		21,025			22,075
Abbey National Treasury Services PLC 3.875% 20142		13,500			13,390
Sovereign Bancorp, Inc. 8.75% 2018		4,000			4,386
Santander Issuances, SA Unipersonal 6.50% 20192,3		11,500			11,120
MetLife Global Funding I 5.125% 20132		12,000			12,928
MetLife Global Funding I 2.50% 20152		16,000			15,785
Household Finance Corp. 6.375% 2012		13,000			14,101
HSBC Bank PLC 3.50% 20152		13,250			13,597
Barclays Bank PLC 2.50% 2013		8,500			8,642
Barclays Bank PLC 5.125% 2020		18,000			18,416
Morgan Stanley, Series F, 6.625% 2018		20,000			21,727
Westpac Banking Corp. 3.00% 2015		17,000			16,987
Bank of New York Mellon Corp., Series G, 2.50% 2016		17,000			16,823
Principal Life Insurance Co. 5.30% 2013		15,500			16,783
Toyota Motor Credit Corp. 1.375% 2013		16,500			16,578
ANZ National (International) Ltd. 3.125% 20152		16,500			16,429
New York Life Global Funding 5.25% 20122		15,000			16,145
Bank of Tokyo-Mitsubishi, Ltd. 2.45% 20152		16,000			15,717
Allstate Life Global Funding Trust, Series 2008-4, 5.375% 2013		13,000			14,164
Prudential Holdings, LLC, Series C, 8.695% 20232,5		11,500			13,730
Goldman Sachs Group, Inc. 3.70% 2015		12,965			13,224
Standard Chartered PLC 3.85% 20152		12,500			12,882
Boston Properties, Inc. 5.875% 2019		10,000			10,863
Lincoln National Corp. 5.65% 2012		10,000			10,641
Nationwide Financial Services, Inc. 6.75% 20673		10,000			9,240
Nationwide Mutual Insurance Co. 5.81% 20242,3		8,150			7,495
Wells Fargo & Co. 4.375% 2013		6,920			7,327
UDR, Inc. 5.00% 2012		6,000			6,165
					1,179,032
TELECOMMUNICATION SERVICES — 0.91%
SBC Communications Inc. 6.25% 2011		10,000			10,112
AT&T Wireless Services, Inc. 8.125% 2012		5,230			5,715
AT&T Inc. 4.95% 2013		16,250			17,426
SBC Communications Inc. 5.10% 2014		15,000			16,425
SBC Communications Inc. 5.625% 2016		49,300			55,344
BellSouth Capital Funding Corp. 7.875% 2030		51,500			62,216
SBC Communications Inc. 6.45% 2034		40,000			42,530
AT&T Inc. 5.35% 20402		11,456			10,813
Verizon Communications Inc. 3.75% 2011		29,250			29,611
Verizon Communications Inc. 5.55% 2014		12,440			13,728
Verizon Communications Inc. 5.50% 2017		13,975			15,464
Verizon Communications Inc. 6.35% 2019		15,600			18,034
Verizon Communications Inc. 5.85% 2035		6,000			6,227
Verizon Communications Inc. 6.25% 2037		40,000			42,824
Telecom Italia Capital SA 5.25% 2015		43,605			44,692
Telecom Italia Capital SA 6.999% 2018		2,575			2,730
Deutsche Telekom International Finance BV 5.875% 2013		12,500			13,776
Deutsche Telekom International Finance BV 4.875% 2014		15,500			16,672
Telefónica Emisiones, SAU 3.729% 2015		4,175			4,146
Telefónica Emisiones, SAU 5.134% 2020		11,825			11,405
France Télécom 4.375% 2014		10,000			10,694
American Tower Corp. 4.625% 2015		10,000			10,457
					461,041
INDUSTRIALS — 0.61%
General Electric Capital Corp., Series A, 2.25% 2015		21,500			20,693
General Electric Co. 5.25% 2017		24,250			26,230
Continental Airlines, Inc., Series 1997-1, Class A, 7.461% 20165		14,156			14,820
Continental Airlines, Inc., Series 1998-1, Class A, 6.648% 20195		8,418			8,802
Continental Airlines, Inc., Series 1997-4, Class A, 6.90% 20195		4,504			4,800
Continental Airlines, Inc., Series 1999-1, Class A, 6.545% 20205		7,763			8,258
Continental Airlines, Inc., Series 2001-1, Class A-1, 6.703% 20225		6,541			6,966
Union Pacific Corp. 5.75% 2017		4,325			4,863
Union Pacific Corp. 5.70% 2018		29,150			32,771
Burlington Northern Santa Fe Corp. 7.00% 2014		31,850			36,423
Koninklijke Philips Electronics NV 5.75% 2018		23,500			26,390
Volvo Treasury AB 5.95% 20152		22,500			24,462
BAE Systems 2001 Asset Trust, Series 2001, Class B, 7.156% 20112,5		4,572			4,714
BAE Systems 2001 Asset Trust, Series 2001, Class G, MBIA insured, 6.664% 20132,5		12,136			13,126
United Technologies Corp. 5.70% 2040		14,000			15,319
CSX Corp. 5.75% 2013		7,670			8,367
CSX Corp. 6.25% 2015		5,990			6,814
Atlas Copco AB 5.60% 20172		14,000			15,104
American Airlines, Inc., Series 2001-2, Class A-2, 7.858% 20135		13,650			14,111
Norfolk Southern Corp. 5.75% 2016		7,615			8,566
Canadian National Railway Co. 4.95% 2014		6,000			6,526
					308,125
CONSUMER DISCRETIONARY — 0.61%
Comcast Corp. 5.30% 2014		15,000			16,352
Comcast Corp. 6.30% 2017		16,750			19,205
Comcast Corp. 6.45% 2037		15,000			16,079
Comcast Corp. 6.95% 2037		24,250			27,517
Time Warner Cable Inc. 6.75% 2018		45,370			52,966
Time Warner Cable Inc. 5.00% 2020		25,000			25,775
Thomson Reuters Corp. 5.95% 2013		8,140			9,042
Thomson Reuters Corp. 6.50% 2018		20,815			24,304
Time Warner Inc. 5.875% 2016		14,210			16,059
AOL Time Warner Inc. 7.625% 2031		13,565			16,537
Cox Communications, Inc. 5.45% 2014		15,500			17,079
Volkswagen International Finance NV 1.625% 20132		16,000			16,002
NBC Universal, Inc. 2.875% 20162		16,000			15,650
News America Inc. 5.30% 2014		4,750			5,254
News America Inc. 6.90% 2019		3,250			3,900
News America Inc. 6.15% 2037		5,000			5,230
Nordstrom, Inc. 6.75% 2014		10,000			11,342
Seminole Tribe of Florida 5.798% 20132,5		7,175			7,225
					305,518
CONSUMER STAPLES — 0.58%
Anheuser-Busch InBev NV 3.625% 2015		36,500			37,712
Anheuser-Busch InBev NV 4.125% 2015		16,500			17,394
Anheuser-Busch InBev NV 7.75% 20192		20,000			24,926
Kraft Foods Inc. 2.625% 2013		12,000			12,348
Kraft Foods Inc. 6.75% 2014		16,180			18,457
Kraft Foods Inc. 6.50% 2040		20,000			22,490
Altria Group, Inc. 9.25% 2019		15,000			19,607
Altria Group, Inc. 9.95% 2038		13,500			19,079
PepsiCo, Inc. 3.10% 2015		17,000			17,750
PepsiCo, Inc. 7.90% 2018		15,000			19,329
CVS Caremark Corp. 6.036% 20285		7,058			7,259
CVS Caremark Corp. 6.943% 20305		12,193			13,291
Coca-Cola Co. 1.50% 2015		18,970			18,229
British American Tobacco International Finance PLC 9.50% 20182		13,580			17,897
Kroger Co. 3.90% 2015		16,250			17,093
Wal-Mart Stores, Inc. 2.875% 2015		11,700			12,014
					294,875
HEALTH CARE — 0.58%
Cardinal Health, Inc. 4.00% 2015		44,100			45,724
Cardinal Health, Inc. 5.80% 2016		17,500			19,660
Cardinal Health, Inc. 4.625% 2020		20,000			19,995
UnitedHealth Group Inc. 6.00% 2017		22,170			24,757
UnitedHealth Group Inc. 6.00% 2018		35,000			39,788
GlaxoSmithKline Capital Inc. 4.85% 2013		33,700			36,612
Novartis Capital Corp. 2.90% 2015		30,000			30,850
Abbott Laboratories 2.70% 2015		12,000			12,247
Abbott Laboratories 5.125% 2019		8,600			9,485
Biogen Idec Inc. 6.00% 2013		13,500			14,589
Medco Health Solutions, Inc. 2.75% 2015		13,335			13,245
Coventry Health Care, Inc. 6.30% 2014		11,955			12,634
Pfizer Inc 4.45% 2012		10,000			10,438
					290,024
UTILITIES — 0.54%
National Rural Utilities Cooperative Finance Corp. 5.50% 2013		55,500			60,803
National Rural Utilities Cooperative Finance Corp. 10.375% 2018		8,450			11,673
MidAmerican Energy Holdings Co., Series D, 5.00% 2014		18,000			19,363
PacifiCorp., First Mortgage Bonds, 5.65% 2018		2,465			2,826
MidAmerican Energy Holdings Co. 5.75% 2018		23,360			26,363
MidAmerican Energy Holdings Co. 5.95% 2037		6,125			6,483
E.ON International Finance BV 5.80% 20182		24,450			27,668
Alabama Power Co., Series FF, 5.20% 2016		16,000			17,784
Alabama Power Co. 6.00% 2039		7,500			8,350
San Diego Gas & Electric Co., Series CCC, 5.30% 2015		15,000			16,870
Electricité de France SA 6.95% 20392		12,000			14,247
Virginia Electric and Power Co., Series B, 5.95% 2017		10,000			11,511
Iberdrola Finance Ireland 3.80% 20142		11,000			10,960
Niagara Mohawk Power 3.553% 20142		10,000			10,400
Appalachian Power Co., Series M, 5.55% 2011		7,800			7,889
Veolia Environnement 5.25% 2013		6,500			7,026
PG&E Corp. 5.75% 2014		5,750			6,298
Kern River Funding Corp. 4.893% 20182,5		4,282			4,425
Tri-State Generation and Transmission Assn. Inc., Pass Through Trust, Series 2003-A, 6.04% 20182,5		3,700			3,926
					274,865
ENERGY — 0.51%
Kinder Morgan Energy Partners LP 6.00% 2017		41,610			45,999
Shell International Finance BV 1.30% 2011		16,250			16,358
Shell International Finance BV 1.875% 2013		16,500			16,758
StatoilHydro ASA 2.90% 2014		13,285			13,749
Statoil ASA 3.125% 2017		16,500			16,363
Enbridge Energy Partners, LP, Series B, 6.50% 2018		12,250			14,018
Enbridge Energy Partners, LP, Series B, 7.50% 2038		12,250			14,745
Total Capital SA 3.00% 2015		17,000			17,375
Cenovus Energy Inc. 4.50% 2014		15,000			16,087
Rockies Express Pipeline LLC 6.85% 20182		14,750			15,752
Sunoco, Inc. 4.875% 2014		15,000			15,647
Canadian Natural Resources Ltd. 5.70% 2017		11,925			13,615
Williams Partners L.P. 4.125% 2020		13,500			12,812
Enbridge Inc. 5.60% 2017		10,000			11,270
Husky Energy Inc. 6.80% 2037		9,375			10,385
BG Energy Capital PLC 2.50% 20152		7,200			7,142
					258,075
MATERIALS — 0.36%
ArcelorMittal 3.75% 2015		16,500			16,655
ArcelorMittal 5.25% 2020		20,000			19,809
ArcelorMittal 7.00% 2039		25,000			26,027
Dow Chemical Co. 7.60% 2014		18,250			21,065
Rohm and Haas Co. 6.00% 2017		17,445			19,119
International Paper Co. 7.40% 2014		23,250			26,398
International Paper Co. 7.30% 2039		10,500			12,003
Anglo American Capital PLC 2.15% 20132		27,355			27,608
Rio Tinto Finance (USA) Ltd. 8.95% 2014		9,180			11,123
					179,807
INFORMATION TECHNOLOGY — 0.09%
KLA-Tencor Corp. 6.90% 2018		19,000			20,931
International Business Machines Corp. 2.00% 2016		17,000			16,642
Cisco Systems, Inc. 2.90% 2014		10,000			10,382
					47,955
Total corporate bonds & notes					3,599,317
ASSET-BACKED OBLIGATIONS5 — 0.36%
AmeriCredit Automobile Receivables Trust, Series 2006-B-G, Class A-4, FGIC insured, 5.21% 2013		10,041			10,230
AmeriCredit Automobile Receivables Trust, Series 2007-D-F, Class A-4-A, FSA insured, 5.56% 2014		12,206			12,789
Chase Issuance Trust, Series 2008-4, Class A, 4.65% 2015		17,000			18,275
PG&E Energy Recovery Funding LLC, Series 2005-2, Class A-3, 5.12% 2014		16,076			17,174
Chase Credit Card Owner Trust, Series 2003-4, Class B, 0.91% 20163		14,000			13,926
USAA Auto Owner Trust, Series 2007-1, Class A-4, 5.55% 2013		12,868			12,974
Citibank Credit Card Issuance Trust, Series 2008, Class A5, 4.85% 2015		12,000			12,963
Morgan Stanley ABS Capital I Inc., Series 2004-NC3, Class M-1, 1.056% 20343		13,923			10,633
RAMP Trust, Series 2003-RZ4, Class A-7, 4.79% 20333		5,159			4,974
RAMP Trust, Series 2003-RS11, Class A-I-7, 4.828% 2033		6,338			5,643
Prestige Auto Receivables Trust, Series 2007-1, Class A-3, FSA insured, 5.58% 20142		9,172			9,440
Hertz Vehicle Financing LLC, Rental Car Asset-backed Notes, Series 2009-2A, Class A-1, 4.26% 20142		9,000			9,422
Residential Asset Securities Corp. Trust, Series 2001-KS3, Class A-I-6, 5.96% 2031		4,162			4,035
Residential Asset Securities Corp. Trust, Series 2003-KS6, Class A-2, 0.861% 20333		92			79
Residential Asset Securities Corp. Trust, Series 2003-KS8, Class A-I-6, 4.83% 2033		5,566			5,189
GE SeaCo Finance SRL, Series 2004-1, Class A, AMBAC insured, 0.561% 20192,3		7,217			6,938
UPFC Auto Receivables Trust, Series 2007-B, Class A-3, AMBAC insured, 6.15% 2014		6,328			6,404
Home Equity Asset Trust, Series 2004-2, Class M-1, 1.056% 20343		7,984			6,103
CPS Auto Receivables Trust, Series 2006-A, Class 1-A-4, FSA insured, 5.33% 20122		1,842			1,845
CPS Auto Receivables Trust, Series 2007-TFC, Class A-2, XLCA insured, 5.25% 20132		3,402			3,433
Cendant Timeshare Receivables Funding, LLC, Series 2005-1, Class A-1, FGIC insured, 4.67% 20172		3,844			3,837
CWABS, Inc., Series 2004-BC1, Class M-1, 1.011% 20343		4,439			3,682
Impac CMB Grantor Trust, Series 2004-6, Class 1-A-1, 1.061% 20343		1,147			905
Impac CMB Grantor Trust, Series 2004-6, Class M-2, 1.161% 20343		1,124			642
					181,535
BONDS & NOTES OF GOVERNMENTS & GOVERNMENT AGENCIES OUTSIDE THE U.S. — 0.18%
Polish Government 5.25% 2014		2,500			2,673
Polish Government 6.375% 2019		14,350			16,147
Croatian Government 6.75% 20192		17,000			17,821
Province of Ontario, Series 1, 1.875% 2012		16,750			17,080
Australia and New Zealand Government Agency-Guaranteed, Australia and New Zealand Banking Group Ltd. 3.25% 20122		13,000			13,341
Hungarian Government 6.25% 2020		12,250			11,893
France Government Agency-Guaranteed, Société Finance 2.875% 20142		10,460			10,800
					89,755
MUNICIPALS — 0.07%
State of Maryland, Howard Hughes Medical Institute, Taxable Bonds, 3.45% 2014		15,475			16,348
State of South Dakota, Educational Enhancement Funding Corp., Tobacco Settlement Asset-backed Bonds,
Series 2002-A, Class A, 6.72% 2025		12,233			10,712
State of California, Various Purpose General Obligation Bonds (Federally Taxable), 7.95% 2036		9,500			9,906
					36,966
MISCELLANEOUS — 0.03%
Other bonds & notes in initial period of acquisition					15,424
Total bonds & notes (cost: $13,821,901,000)					14,370,802
	Principal amount
Short-term securities — 4.01%		(000	)
Freddie Mac 0.15%–0.25% due 1/3–5/27/2011	$	559,800			559,586
U.S. Treasury Bills 0.173%–0.257% due 4/21–11/17/2011		464,700			464,202
Federal Home Loan Bank 0.16%–0.29% due 1/4–11/14/2011		199,084			198,874
Fannie Mae 0.14%–0.20% due 2/1–3/1/2011		181,900			181,866
Straight-A Funding LLC 0.25% due 1/6–2/16/20112		108,659			108,637
General Electric Capital Services, Inc. 0.25% due 2/16/2011		91,500			91,475
Jupiter Securitization Co., LLC 0.25%–0.27% due 1/4–1/18/20112		75,000			74,994
Coca-Cola Co. 0.19% due 2/28/20112		69,500			69,478
Variable Funding Capital Company LLC 0.26% due 1/27/20112		50,000			49,990
Walt Disney Co. 0.17% due 2/17/20112		49,800			49,789
Abbott Laboratories 0.20% due 1/24/20112		45,900			45,894
Johnson & Johnson 0.22% due 1/20/20112		31,100			31,096
NetJets Inc. 0.17% due 1/20/20112		30,800			30,797
Paccar Financial Corp. 0.23% due 1/28/2011		27,350			27,344
Federal Farm Credit Banks 0.25% due 7/8/2011		25,000			24,970
Procter & Gamble Co. 0.22% due 1/4/20112		19,900			19,900
Total short-term securities (cost: $2,028,756,000)					2,028,892
Total investment securities (cost: $43,019,832,000)					50,825,201
Other assets less liabilities					(293,684	)
Net assets				$	50,531,517

"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.

2Acquired 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 $1,618,345,000, which represented 3.20% of the net assets of the fund.

3Coupon rate may change periodically.

4Index-linked bond whose principal amount moves with a government retail price index.

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

6Valued under fair value procedures adopted by authority of the board of trustees. The total value of all such securities, was $20,390,000, which represented .04% of the net assets of the fund.

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 they may lose value.

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 prospectus and summary 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-911-0211O-S25558

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INVESTMENT PORTFOLIO

To the Shareholders and Board of Trustees of

American Balanced Fund:

We have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the financial statements of American Balanced Fund (the “Fund”) as of December 31, 2010, and for the year then ended and have issued our report thereon dated February 7, 2011, which report and financial statements are included in Item 1 of this Certified Shareholder Report on Form N-CSR.  Our audit also included the Fund’s investment portfolio (the “Schedule”) as of December 31, 2010, appearing in Item 6 of this Form N-CSR.  This Schedule is the responsibility of the Fund’s management.  Our responsibility is to express an opinion based on our audit.  In our opinion, the Schedule referred to above, when consider ed in relation to the basic financial statements taken as a whole of the Fund referred to above, presents fairly, in all material respects, the information set forth therein.

DELOITTE & TOUCHE LLP

Costa Mesa, California

February 7, 2011

ITEM 7 – Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies

Not applicable to this Registrant, insofar as the Registrant is not a closed-end management investment company.

ITEM 8 – Portfolio Managers of Closed-End Management Investment Companies

Not applicable to this Registrant, insofar as the Registrant is not a closed-end management investment company.

ITEM 9 – Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers

Not applicable to this Registrant, insofar as the Registrant is not a closed-end management investment company.

ITEM 10 – Submission of Matters to a Vote of Security Holders

There have been no material changes to the procedures by which shareholders may recommend nominees to the Registrant’s board of trustees since the Registrant last submitted a proxy statement to its shareholders.  The procedures are as follows.  The Registrant has a nominating and governance committee comprised solely of persons who are not considered ‘‘interested persons’’ of the Registrant within the meaning of the Investment Company Act of 1940, as amended. 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. While the committee normally is able to identify from its own resources an ample number of qualified candidates, it will c onsider 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 Registrant, c/o the Registrant’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 nominating and governance committee.

ITEM 11 – Controls and Procedures

(a)	The Registrant’s Principal Executive Officer and Principal Financial Officer have concluded, based on their evaluation of the Registrant’s disclosure controls and procedures (as such term is defined in Rule 30a-3 under the Investment Company Act of 1940), that such controls and procedures are adequate and reasonably designed to achieve the purposes described in paragraph (c) of such rule.
(b)	There were no changes in the Registrant’s internal controls over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) that occurred during the Registrant’s second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting.

ITEM 12 – Exhibits

(a)(1)	The Code of Ethics that is the subject of the disclosure required by Item 2 is attached as an exhibit hereto.
(a)(2)	The certifications required by Rule 30a-2 of the Investment Company Act of 1940 and Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 are attached as exhibits hereto.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

AMERICAN BALANCED FUND

By /s/ Robert G. O'Donnell

Robert G. O'Donnell, Vice Chairman and

Principal Executive Officer

Date: February 28, 2011

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

By /s/ Robert G. O'Donnell

Robert G. O'Donnell, Vice Chairman and

Principal Executive Officer

Date: February 28, 2011

By /s/ Jennifer M. Buchheim

Jennifer M. Buchheim, Treasurer and

Principal Financial Officer

Date: February 28, 2011