Annual Report - American Balanced Fund - American Funds

We’ve made a consciouseffort to adjust the equityportion of AmericanBalanced Fund from 74%,where it started the year,to 67% to help protectgains our investors wereable to make in 2014.results of the past few years and theassociated rise in valuations argues for amore cautious equity investment position.To that end, we’ve made a consciouseffort to adjust the equity portion ofAmerican Balanced Fund from 74%,where it started the year, to 67%, andincrease the fixed-income allocation from23% to 28%. Our goal is to help ourinvestors protect gains they were able tomake during the year in 2014. (To learnmore about balanced investing, read thespecial feature beginning on page 6.)AMBAL portfolio highlightsMost sectors of the S&P 500 advanced in2014, led by a 28.98% rise in utilities.Health care and information technologyrose at notable rates, gaining 25.34%and 20.12%, respectively. But energystocks, hurt by plunging crude oil pricesin the second half of the year, lost 7.78%.AMBAL’s lower-than-index position inenergy companies proved positive forrelative results, and careful investmentselection further helped to lift returns.Similarly, having fewer investments intelecommunication services companieswas additive to the fund’s relative returns.Boeing (–4.77%). On the plus side,Lockheed Martin (+29.54%) andMicrosoft (+24.10%) buoyed results (seepages 10 and 11, respectively). Wecontinue to be enthusiastic about all fourof these securities on a long-term basis.Moving forward, the overall mix of thefund’s portfolio has been adjusted to bemore defensive. We’ve increased ourinvestment in more defensive sectorssuch as consumer staples. Fixed incomehas also been increased, so U.S.Treasury, U.S. agency and agency passthroughsecurities, as well as other highqualitymortgage and investment-gradecorporate bonds, will play an importantrole for our investors, helping to provideincome and mitigating volatility. And thefund’s level of cash is higher as well.Thank you for your supportWe welcome our many new shareholdersto the fund and assure all of our investorsthat we will continue to follow ourprudent, research-driven approach toinvesting that has characterizedAmerican Balanced Fund for almost 40years. We look forward to reporting toyou again in six months’ time.While health care companies outpacedthe broader market, AMBAL’s smallerposition dampened returns and becameone of the fund’s largest detractors. Anotable bright spot in our health careinvestment strategy was UnitedHealthGroup (+34.25%), which served as oneof the fund’s top 10 contributors for2014. (See page 11 for more informationabout UnitedHealth.)Two stocks that have helped the fundin the past but detracted from resultsin 2014 were Amazon (–22.18%) andSincerely,Gregory D. JohnsonVice Chairman of the Boardand PresidentFebruary 10, 2015For current information about the fund,visit americanfunds.com.2 American Balanced Fund