<PAGE>
[LOGO OF THE AMERICAN FUNDS GROUP(R)]
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The Tax-Exempt Bond
Fund of America(R)
Prospectus
NOVEMBER 1, 1997
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THE TAX-EXEMPT BOND FUND OF AMERICA, INC.
333 South Hope Street
Los Angeles, CA 90071
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TABLE OF CONTENTS
<TABLE>
<S> <C>
Expenses 3 Investment Results 10
................................ ................................
Financial Highlights 4 Dividends, Distributions and
Taxes 11
................................ ................................
Investment Policies and Fund Organization and
Risks 5 Management 12
................................ ................................
Securities and Investment Shareholder Services 15
Techniques 6
................................
Multiple Portfolio
Counselor System 9
</TABLE>
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The fund's investment objective is to provide investors with a high level of
current income exempt from federal income taxes, consistent with the
preservation of capital. It seeks to achieve this objective through investment
primarily in a diversified and professionally managed portfolio of tax-exempt
securities, consisting of state, municipal and public authority bonds. The
income from these securities may be subject to state and local taxes.
Investments may also be made in short-term taxable obligations when such
investments are considered advisable.
This prospectus presents information you should know before investing in the
fund. You should keep it on file for future reference.
YOU MAY LOSE MONEY BY INVESTING IN THE FUND. THE LIKELIHOOD OF LOSS IS GREATER
IF YOU INVEST FOR A SHORTER PERIOD OF TIME. YOUR INVESTMENT IN THE FUND IS NOT
A DEPOSIT OR OBLIGATION OF, OR INSURED OR GUARANTEED BY, ANY ENTITY OR PERSON
INCLUDING THE U.S. GOVERNMENT AND THE FEDERAL DEPOSIT INSURANCE CORPORATION.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
19-010-1197
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THE TAX-EXEMPT BOND FUND OF AMERICA / PROSPECTUS
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EXPENSES
The effect of the expenses described below is reflected in the fund's share
price and return.
You may pay certain shareholder transaction expenses when you buy or sell
shares of the fund. Fund operating expenses are paid out of the fund's assets
and are factored into its share price.
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge on purchases
(as a percentage of offering price) 4.75%
................................................................................
SALES CHARGES ARE REDUCED OR ELIMINATED FOR LARGER PURCHASES. There is no sales
charge on reinvested dividends, and no deferred sales charge or redemption or
exchange fees. A contingent deferred sales charge of 1% applies on certain
redemptions made within 12 months following purchases without a sales charge.
FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
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<S> <C>
Management fees 0.36%
................................................................................
12b-1 expenses 0.24%/1/
................................................................................
Other expenses 0.08%
................................................................................
Total fund operating expenses 0.68%
</TABLE>
/1/ 12b-1 expenses may not exceed 0.25% of the fund's average net assets
annually.
EXAMPLES
Assuming a hypothetical annual return of 5% and shareholder transaction and
operating expenses as described above, for every $1,000 you invested, you would
pay the following total expenses over the following periods:
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<TABLE>
<S> <C>
One year $ 54
................................................................................
Three years $ 68
................................................................................
Five years $ 84
................................................................................
Ten years $128
</TABLE>
THESE EXAMPLES ARE NOT MEANT TO REPRESENT YOUR ACTUAL INVESTMENT RESULTS OR
EXPENSES, WHICH MAY VARY. YOUR EXPENSES WILL BE LESS IF YOU QUALIFY TO PURCHASE
SHARES AT A REDUCED OR NO SALES CHARGE.
3
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THE TAX-EXEMPT BOND FUND OF AMERICA / PROSPECTUS
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FINANCIAL HIGHLIGHTS
The following information has been audited by Price Waterhouse LLP, independent
accountants. This table should be read together with the financial statements
which are included in the statement of additional information and annual
report.
SELECTED PER-SHARE DATA
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31
....................
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $11.86 $11.94 $11.65 $12.43 $11.78 $11.30 $10.78 $10.99 $10.67 $10.78
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INCOME FROM
INVESTMENT
OPERATIONS:
Net investment
income .64 .64 .68 .67 .68 .70 .71 .73 .74 .74
........................................................................................................
Net realized and
unrealized gain
(loss) on investments .45 .01 .29 (.69) .73 .48 .52 (.21) .32 (.05)
........................................................................................................
Total income from
investment
operations 1.01 .65 .97 (.02) 1.41 1.18 1.23 .52 1.06 .69
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LESS DISTRIBUTIONS:
Dividends from net
investment income (.64) (.64) (.68) (.68) (.68) (.70) (.71) (.73) (.74) (.74)
........................................................................................................
Distribution from
net realized gains (.04) (.09) -- (.08) (.08) -- -- -- -- (.06)
........................................................................................................
Total distributions (.68) (.73) (.68) (.76) (.76) (.70) (.71) (.73) (.74) (.80)
........................................................................................................
Net asset value, end of
year $12.27 $11.86 $11.94 $11.65 $12.43 $11.78 $11.30 $10.78 $10.99 $10.67
........................................................................................................
Total return /1/ 9.39% 5.51% 8.70% (.14)% 12.42% 10.80% 11.70% 4.84% 10.24% 6.72%
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RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
year (in millions) $1,593 $1,476 $1,424 $1,385 $1,327 $ 921 $ 712 $ 551 $ 450 $ 346
........................................................................................................
Ratio of expenses
to average net assets .68% .68% .66% .69% .71% .71% .72% .70% .73% .63%
........................................................................................................
Ratio of net income
to average net assets 5.27% 5.35% 5.87% 5.53% 5.62% 6.04% 6.33% 6.65% 6.78% 6.90%
........................................................................................................
Portfolio
turnover rate 14.39% 26.89% 49.28% 22.40% 15.55% 17.22% 24.73% 39.90% 55.70% 61.92%
</TABLE>
/1/ Excludes maximum sales charge of 4.75%.
4
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THE TAX-EXEMPT BOND FUND OF AMERICA / PROSPECTUS
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INVESTMENT POLICIES AND RISKS
The investment objective of the fund is to provide a high level of current
income exempt from federal income taxes, consistent with the preservation of
capital.
Under normal market conditions, the fund will invest at least 80% of its assets
in tax-exempt securities consisting primarily of state, municipal and public
authority bonds and notes. Moreover, at least 65% of the fund's assets will be
invested in tax-exempt securities consisting primarily of state, municipal and
public authority bonds and notes that are rated at the time of purchase in one
of the three highest categories by either Moody's Investors Service, Inc.
("Moody's") or Standard & Poor's Corporation ("S&P") (or unrated but determined
by the investment adviser to be of comparable quality).
Up to 35% of the fund's total assets may be invested in tax-exempt securities
rated Baa or BBB or below by Moody's or S&P (or unrated) which generally carry
a greater degree of investment risk. Securities rated Ba and BB or below or
unrated securities that are determined to be of equivalent quality are commonly
known as "high-yield, high-risk" or "junk" bonds and will be limited to no more
than 20% of the fund's assets.
The fund will not invest in those tax-exempt securities believed to pay
interest constituting an item of tax preference subject to federal alternative
minimum taxes. However, investments may be made in short-term taxable
obligations (generally, securities with original or remaining maturities of one
year or less), when, for economic reasons, these investments are considered
advisable. Limits on the fund's investment policies are determined at the time
of purchase and are based on the fund's net assets unless otherwise stated. The
fund's fundamental investment restrictions (described in the statement of
additional information) and objective may not be changed without shareholder
approval. MORE INFORMATION ON THE FUND'S INVESTMENT POLICIES IS CONTAINED IN
ITS STATEMENT OF ADDITIONAL INFORMATION.
THE FUND MAY NOT ACHIEVE ITS INVESTMENT OBJECTIVE DUE TO MARKET CONDITIONS AND
OTHER FACTORS. IN ADDITION, THE FUND MAY EXPERIENCE DIFFICULTY LIQUIDATING
CERTAIN PORTFOLIO SECURITIES DURING SIGNIFICANT MARKET DECLINES OR PERIODS OF
HEAVY REDEMPTIONS.
5
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THE TAX-EXEMPT BOND FUND OF AMERICA / PROSPECTUS
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SECURITIES AND INVESTMENT TECHNIQUES
DEBT SECURITIES
Bonds and other debt securities are used by issuers to borrow money. Issuers
pay investors interest and generally must repay the amount borrowed at
maturity. Some debt securities, such as zero coupon bonds, do not pay current
interest, but are purchased at a discount from their face values. The prices of
debt securities fluctuate depending on such factors as interest rates, credit
quality and maturity. In general, their prices decline when interest rates rise
and vice versa.
The fund may invest up to 20% of its assets in debt securities rated Ba and BB
or below by Moody's or S&P or in unrated securities that are determined to be
of equivalent quality by Capital Research and Management Company, the fund's
investment adviser. These securities are commonly known as "high-yield, high-
risk" or "junk" bonds. High-yield, high-risk bonds are described by the rating
agencies as speculative and involve greater risk of default or price changes
due to changes in the issuer's creditworthiness than higher rated bonds, or
they may already be in default. The market prices of these securities may
fluctuate more than higher quality securities and may decline significantly in
periods of general economic difficulty. It may be more difficult to dispose of,
or to determine the value of, high-yield, high-risk bonds. The fund may invest
in bonds rated as low as Ca by Moody's or CC by S&P which are described by the
rating agencies as "speculative in a high degree; often in default or [having]
other marked shortcomings." See the statement of additional information for a
complete description of the ratings.
Capital Research and Management Company attempts to reduce the risks described
above through diversification of the portfolio and by credit analysis of each
issuer as well as by monitoring broad economic trends and corporate and
legislative developments.
MUNICIPAL BONDS
Municipal bonds are debt obligations generally issued to obtain funds for
various public purposes, including the construction of public facilities. The
interest on these obligations is generally not included in gross income for
federal income tax purposes.
The two principal classifications of municipal bonds are general obligation and
limited obligation or revenue bonds. General obligation bonds are secured by
the issuer's pledge of its full faith and credit including, if available, its
taxing power for the payment of principal and interest. Issuers of general
obligation
6
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THE TAX-EXEMPT BOND FUND OF AMERICA / PROSPECTUS
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bonds include states, counties, cities, towns and various regional or special
districts. Limited obligation or revenue bonds are secured by the net revenue
derived from a particular facility or class of facilities financed thereby or,
in some cases, from the proceeds of a special tax or other special revenues.
Although the security behind these bonds varies widely, many provide additional
security in the form of a debt service reserve fund which may also be used to
make principal and interest payments on the issuer's obligations.
There are, in addition, a variety of hybrid and special types of municipal
obligations, such as zero coupon and pre-refunded bonds, as well as numerous
differences in the security of municipal bonds, both within and between the two
primary classifications described above.
The amount of information about the financial condition of an issuer of
municipal bonds may not be as extensive as that which is made available by
corporations whose equity securities are publicly traded.
PORTFOLIO COMPOSITION
The average monthly composition of the fund's portfolio as a percentage of its
average net assets based on the higher of Moody's or S&P ratings for the fiscal
year ended August 31, 1997 was as follows:
<TABLE>
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<S> <C>
Aaa/AAA 30.99%
................................................................................
Aa/AA 17.25%
................................................................................
A/A 14.47%
................................................................................
Baa/BBB 24.96%
................................................................................
Ba/BB 1.76%
................................................................................
Non-rated 5.59%
</TABLE>
Some or all of these non-rated securities were determined to be equivalent to
securities rated by Moody's or S&P as follows:
<TABLE>
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<S> <C>
A/A 0.47%
................................................................................
Baa/BBB 1.03%
................................................................................
Ba/BB 1.60%
................................................................................
B/B 2.49%
</TABLE>
Money market instruments and cash made up an average of 4.98% of the fund's
portfolio.
7
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THE TAX-EXEMPT BOND FUND OF AMERICA / PROSPECTUS
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MUNICIPAL LEASE OBLIGATIONS
The fund may invest in municipal lease revenue obligations, some of which may
be considered illiquid. The fund may purchase, without limitation, municipal
lease revenue obligations that are determined to be liquid by Capital Research
and Management Company. In determining whether these securities are liquid,
Capital Research and Management Company will consider among other things, the
credit quality and support, including strengths and weaknesses of the issuers
and lessees, the terms of the lease, the frequency and volume of trading and
the number of dealers trading the securities.
FORWARD COMMITMENTS
The fund may enter into commitments to purchase or sell securities at a future
date. When the fund agrees to purchase such securities, it assumes the risk of
any decline in value of the securities beginning on the date of the agreement.
When the fund agrees to sell such securities, it does not participate in
further gains or losses with respect to the securities. If the other party to
such a transaction fails to deliver or pay for the securities, the fund could
miss a favorable price or yield opportunity, or could experience a loss.
VARIABLE AND FLOATING RATE OBLIGATIONS
The fund may invest in variable and floating rate obligations which have
interest rates that are adjusted at designated intervals or whenever interest
rates change. The rate adjustment feature tends to limit the extent to which
the market value of the obligation will fluctuate.
MATURITY
There are no restrictions on the maturity composition of the portfolio,
although it is anticipated that the fund normally will be invested
substantially in securities with maturities in excess of three years.
8
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THE TAX-EXEMPT BOND FUND OF AMERICA / PROSPECTUS
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MULTIPLE PORTFOLIO COUNSELOR SYSTEM
The basic investment philosophy of Capital Research and Management Company is
to seek fundamental values at reasonable prices, using a system of multiple
portfolio counselors in managing mutual fund assets. Under this system the
portfolio of a fund is divided into segments which are managed by individual
counselors. Counselors decide how their respective segments will be invested
(within the limits provided by a fund's objective(s) and policies and by
Capital Research and Management Company's investment committee). In addition,
Capital Research and Management Company's research professionals may make
investment decisions with respect to a portion of a fund's portfolio. The
primary individual portfolio counselors for the fund are listed below.
<TABLE>
<CAPTION>
YEARS OF EXPERIENCE AS
INVESTMENT PROFESSIONAL
(APPROXIMATE)
.........................
YEARS OF EXPERIENCE AS
PORTFOLIO PORTFOLIO COUNSELOR WITH CAPITAL
COUNSELORS FOR RESEARCH AND
FOR THE TAX- THE TAX-EXEMPT BOND MANAGEMENT
EXEMPT BOND FUND OF AMERICA COMPANY OR
FUND OF AMERICA PRIMARY TITLE(S) (APPROXIMATE) ITS AFFILIATES TOTAL YEARS
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NEIL L. Senior Vice 18 years (since 19 years 19 years
LANGBERG President of the fund began
the fund. Vice operations)
President--
Investment
Management
Group, Capital
Research and
Management
Company
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MARK R. Vice President 3 years 3 years 12 years
MACDONALD of the fund.
Vice
President--
Investment
Management
Group, Capital
Research and
Management
Company
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REBECCA L. Vice 12 years 15 years 15 years
FORD President--
Investment
Management
Group, Capital
Research and
Management
Company
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</TABLE>
The fund began operations on October 3, 1979.
9
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THE TAX-EXEMPT BOND FUND OF AMERICA / PROSPECTUS
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INVESTMENT RESULTS
The fund may compare investment results on a taxable and tax equivalent basis
to various indices or other mutual funds. Fund results may be calculated on a
total return, yield, and/or distribution rate basis. Results calculated without
a sales charge will be higher.
[X] TOTAL RETURN is the change in value of an investment in the fund over a
given period, assuming reinvestment of any dividends and capital gain
distributions.
[X] YIELD is computed by dividing the net investment income per share earned by
the fund over a given period of time by the maximum offering price per share
on the last day of the period, according to a formula mandated by the
Securities and Exchange Commission. A yield calculated using this formula
may be different than the income actually paid to shareholders.
[X] DISTRIBUTION RATE reflects dividends that were paid by the fund. The
distribution rate is calculated by annualizing the current month's dividend
and dividing by the average price for the month.
INVESTMENT RESULTS
(FOR PERIODS ENDED SEPTEMBER 30, 1997)
<TABLE>
<CAPTION>
AVERAGE
ANNUAL THE FUND THE FUND AT
TOTAL AT NET MAXIMUM
RETURNS: ASSET VALUE/1/ SALES CHARGE/1/,/2/ LIPPER/3/ LEHMAN/4/
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<S> <C> <C> <C> <C>
One year 9.06% 3.86% 8.59% 9.02%
................................................................................
Five years 7.29% 6.24% 6.63% 7.17%
................................................................................
Ten years 8.52% 8.00% 8.45% 8.77%
................................................................................
Lifetime/5/ 8.66% 8.37% 8.20% N/A
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</TABLE>
Yield/1/,/2/: 4.25%
Distribution Rate/2/: 6.12%
/1/ These fund results were calculated according to a standard formula that is
required for all stock and bond funds.
/2/ The maximum sales charge has been deducted.
/3/ Lipper General Municipal Bond Fund Average reflects the average results of
funds that invest at least 65% of assets in municipal debt issues in the top
four rating categories.
/4/ Lehman Brothers Municipal Bond Index represents the long-term investment
grade municipal bond market. This index is unmanaged and does not reflect
sales charges, commission or expenses.
/5/ The fund began investment operations on October 3, 1979.
10
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THE TAX-EXEMPT BOND FUND OF AMERICA / PROSPECTUS
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Here are the fund's annual total returns calculated without a sales charge.
This information is being supplied on a calendar year basis.
[BAR GRAPH]
1987 0.13
1988 9.28
1989 9.49
1990 6.17
1991 11.17
1992 9.04
1993 11.72
1994 -4.82
1995 17.28
1996 4.57
[END BAR GRAPH]
Past results are not an indication of future results.
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DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
The fund declares dividends from its net investment income daily and
distributes the accrued dividends to shareholders each month. Dividends begin
accruing one day after payment for shares is received by the fund or American
Funds Service Company. Capital gains, if any, are usually distributed in
November or December. When a capital gain is distributed, the net asset value
per share is reduced by the amount of the payment.
If a shareholder has elected to receive dividends and/or capital gain
distributions in cash, and the postal or other delivery service is unable to
deliver checks to the shareholder's address of record, or the shareholder does
not respond to mailings from American Funds Service Company with regard to
uncashed distribution checks, the shareholder's distribution option will
automatically be converted to having all dividends and other distributions
reinvested in additional shares.
11
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THE TAX-EXEMPT BOND FUND OF AMERICA / PROSPECTUS
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TAXES
In any fiscal year in which the fund qualifies as a regulated investment
company and distributes to shareholders all of its net investment income and
net capital gains, the fund itself is relieved of federal income tax. The fund
is permitted to pass through to its shareholders federally tax-exempt income
subject to certain requirements. However, the fund may invest in obligations
which pay interest that is subject to state and local taxes when distributed by
the fund. Dividends
derived from taxable interest income, distributions of capital gains and
dividends on gains from the disposition of certain market discount bonds will
not be exempt from federal, state or local income tax.
Capital gains are taxable whether they are reinvested or received in cash --
unless you are exempt from taxation or entitled to tax deferral. Early each
year, you will be notified as to the amount and tax status of all income
distributions paid during the prior year. You are required by the Internal
Revenue Code to report to the federal government all fund exempt-interest
dividends (and all other tax-exempt interest).
YOU MUST PROVIDE THE FUND WITH A CERTIFIED CORRECT TAXPAYER IDENTIFICATION
NUMBER (GENERALLY YOUR SOCIAL SECURITY NUMBER) AND CERTIFY THAT YOU ARE NOT
SUBJECT TO BACKUP WITHHOLDING. IF YOU FAIL TO DO SO THE IRS CAN REQUIRE THE
FUND TO WITHHOLD 31% OF YOUR TAXABLE DISTRIBUTIONS AND REDEMPTIONS. Federal law
also requires the fund to withhold 30% or the applicable tax treaty rate from
dividends paid to certain nonresident alien, non-U.S. partnership and non-U.S.
corporation shareholder accounts.
This is a brief summary of some of the tax laws that affect your investment in
the fund. Please see the statement of additional information and your tax
adviser for further information.
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FUND ORGANIZATION AND MANAGEMENT
FUND ORGANIZATION AND VOTING RIGHTS
The fund, an open-end, diversified management investment company, was organized
as a Maryland corporation in 1979. All fund operations are supervised by the
fund's board of directors who meet periodically and perform duties required by
applicable state and federal laws. Members of the board who are not employed by
Capital Research and Management Company or its affiliates are paid certain fees
for services rendered to the fund as described in the statement of additional
information. They may elect to defer all or a portion of these fees through a
deferred compensation plan in effect for the fund. The fund does not hold
annual meetings of shareholders. However, significant matters which require
shareholder approval, such as certain elections of board members or a
12
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THE TAX-EXEMPT BOND FUND OF AMERICA / PROSPECTUS
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change in a fundamental investment policy, will be presented to shareholders at
a meeting called for such purpose. Shareholders have one vote per share owned.
At the request of the holders of at least 10% of the shares, the fund will hold
a meeting at which any member of the board could be removed by a majority vote.
THE INVESTMENT ADVISER
Capital Research and Management Company, a large and experienced investment
management organization founded in 1931, is the investment adviser to the fund
and other funds, including those in The American Funds Group. Capital Research
and Management Company, a wholly owned subsidiary of The Capital Group
Companies, Inc., is headquartered at 333 South Hope Street, Los Angeles, CA
90071. Capital Research and Management Company manages the investment portfolio
and business affairs of the fund. The management fee paid by the fund to
Capital Research and Management Company is composed of a management fee, which
may not exceed 0.30% of the fund's average net assets annually and declines at
certain asset levels, plus an amount which may not exceed 3% of the fund's
gross investment income for the preceding month and which also declines at
certain annual gross investment levels. The total management fee paid by the
fund, as a percentage of average net assets, for the previous fiscal year is
discussed above under "Expenses."
Capital Research and Management Company and its affiliated companies have
adopted a personal investing policy that is consistent with the recommendations
contained in the May 9, 1994 report issued by the Investment Company
Institute's Advisory Group on Personal Investing. This policy has also been
incorporated into the fund's code of ethics.
PLAN OF DISTRIBUTION
The fund has a Plan of Distribution or "12b-1 Plan" under which it may finance
activities primarily intended to sell shares, provided the categories of
expenses are approved in advance by the board. The 12b-1 fee paid by the fund,
as a percentage of average net assets, for the previous fiscal year is
discussed above under "Expenses."
PORTFOLIO TRANSACTIONS
Orders for the fund's portfolio securities transactions are placed by Capital
Research and Management Company, which strives to obtain the best available
prices, taking into account the costs and quality of executions. Fixed-income
securities are generally traded on a "net" basis with a dealer acting as
principal for its own account without a stated commission, although the price
of the security usually includes a profit to the dealer. In underwritten
offerings, securities are usually purchased at a fixed price which includes an
amount of
13
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THE TAX-EXEMPT BOND FUND OF AMERICA / PROSPECTUS
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compensation to the dealer, generally referred to as a concession or discount.
On occasion, securities may be purchased directly from an issuer, in which case
no commissions or discounts are paid. In the over-the-counter market, purchases
and sales are transacted directly with principal market-makers except in those
circumstances where it appears better prices and executions are available
elsewhere.
Subject to the above policy, when two or more brokers (either directly or
through their correspondent clearing agents) are in a position to offer
comparable prices and executions, preference may be given to brokers who have
sold shares of the fund or have provided investment research, statistical, and
other related services for the benefit of the fund and/or other funds served by
Capital Research and Management Company.
PRINCIPAL UNDERWRITER AND TRANSFER AGENT
American Funds Distributors, Inc. and American Funds Service Company serve as
the principal underwriter and transfer agent for the fund, respectively. They
are headquartered at 333 South Hope Street, Los Angeles, CA 90071 and 135 South
State College Boulevard, Brea, CA 92821, respectively.
AMERICAN FUNDS SERVICE COMPANY SERVICE AREAS
CALL TOLL-FREE FROM ANYWHERE IN THE U.S.
(8 a.m. to 8 p.m. ET):
800/421-0180
WESTERN SERVICE CENTER
American Funds Service Company
P.O. Box 2205
Brea, California 92822-2205
Fax: 714/671-7080
WESTERN CENTRAL SERVICE CENTER
American Funds Service Company
P.O. Box 659522
San Antonio, Texas 78265-9522
Fax: 210/530-4050
EASTERN CENTRAL SERVICE CENTER
American Funds Service Company
P.O. Box 6007
Indianapolis, Indiana 46206-6007
Fax: 317/735-6620
EASTERN SERVICE CENTER
American Funds Service Company
P.O. Box 2280
Norfolk, Virginia 23501-2280
Fax: 804/670-4773
14
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THE TAX-EXEMPT BOND FUND OF AMERICA / PROSPECTUS
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SHAREHOLDER SERVICES
The fund offers you a valuable array of services you can use to alter your
investment program as your needs and circumstances change. These services,
which are summarized below, are available only in states where they may be
legally offered and may be terminated or modified at any time upon 60 days'
written notice. A COMPLETE DESCRIPTION OF SHAREHOLDER SERVICES AND ACCOUNT
POLICIES IS CONTAINED IN THE FUND'S STATEMENT OF ADDITIONAL INFORMATION. In
addition, an easy-to-read guide to owning a fund in The American Funds Group
titled "Welcome to the Family" is sent to new shareholders and is available by
writing or calling American Funds Service Company.
THE SERVICES DESCRIBED MAY NOT BE AVAILABLE THROUGH SOME RETIREMENT PLANS OR
ACCOUNTS HELD BY INVESTMENT DEALERS. IF YOU ARE INVESTING IN SUCH A MANNER, YOU
SHOULD CONTACT YOUR PLAN ADMINISTRATOR/TRUSTEE OR DEALER ABOUT WHAT SERVICES
ARE AVAILABLE AND WITH QUESTIONS ABOUT YOUR ACCOUNT.
- --------------------------------------------------------------------------------
PURCHASING SHARES
HOW TO PURCHASE SHARES
Generally, you may open an account by contacting any investment dealer
authorized to sell the fund's shares. You may add to your account through your
dealer or directly through American Funds Service Company by mail, computer,
wire, or bank debit. You may also establish or add to your account by
exchanging shares from any of your other accounts in The American Funds Group.
The fund and American Funds Distributors reserve the right to reject any
purchase order for any reason. This includes exchange purchase orders that may
place an unfair burden on other shareholders due to their frequency.
Various purchase options are available as described below subject to certain
investment minimums and limitations described in the statement of additional
information and "Welcome to the Family."
[X] Automatic Investment Plan
You may invest monthly or quarterly through automatic withdrawals from your
bank account.
[X] Automatic Reinvestment
You may reinvest your dividends and capital gain distributions into the fund
(with no sales charge). This will be done automatically unless you elect to
have the dividends and/or capital gain distributions paid to you in cash.
15
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THE TAX-EXEMPT BOND FUND OF AMERICA / PROSPECTUS
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[X] Cross-Reinvestment
You may invest your dividends and capital gain distributions into any other
fund in The American Funds Group.
[X] Exchange Privilege
You may exchange your shares into other funds in The American Funds Group
generally with no sales charge. Exchanges of shares from the money market
funds that were initially purchased with no sales charge will generally be
subject to the appropriate sales charge. You may also elect to automatically
exchange shares among any of the funds in The American Funds Group. Exchange
requests may be made in writing, by telephone, including American
FundsLine(R), by computer using American FundsLine OnLineSM (see below), or
by fax. EXCHANGES HAVE THE SAME TAX CONSEQUENCES AS ORDINARY SALES AND
PURCHASES.
[X] Retirement Plans
Tax-exempt funds should not serve as retirement plan investments.
SHARE PRICE
The fund's share price, also called net asset value, is determined as of the
close of trading (normally 4:00 p.m., Eastern time) every day the New York
Stock Exchange is open. The fund calculates its net asset value per share,
generally using market prices, by dividing the total value of its assets after
subtracting liabilities by the number of its shares outstanding. Shares are
purchased at the offering price next determined after your investment is
received and accepted by American Funds Service Company. The offering price is
the net asset value plus a sales charge, if applicable.
SHARE CERTIFICATES
Shares are credited to your account and certificates are not issued unless you
request them by writing to American Funds Service Company.
INVESTMENT MINIMUMS
- --------------------------------------------------------------------------------
To establish an account $1,000
To add to an account $ 50
16
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THE TAX-EXEMPT BOND FUND OF AMERICA / PROSPECTUS
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SALES CHARGES
A sales charge may apply, as described below, when purchasing shares. Sales
charges may be reduced for larger purchases as indicated below.
<TABLE>
<CAPTION>
SALES CHARGE AS A
PERCENTAGE OF
..................
DEALER
NET CONCESSION AS
OFFERING AMOUNT % OF OFFERING
INVESTMENT PRICE INVESTED PRICE
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $25,000 4.75% 4.99% 4.00%
................................................................................
$25,000 but less than $50,000 4.50% 4.71% 3.75%
................................................................................
$50,000 but less than $100,000 4.00% 4.17% 3.25%
................................................................................
$100,000 but less than $250,000 3.50% 3.63% 2.75%
................................................................................
$250,000 but less than $500,000 2.50% 2.56% 2.00%
................................................................................
$500,000 but less than $1 million 2.00% 2.04% 1.60%
................................................................................
$1 million or more and certain other
investments described below see below see below see below
</TABLE>
PURCHASES NOT SUBJECT TO SALES CHARGES
Investments of $1 million or more and investments made by employer-sponsored
defined contribution-type plans with 100 or more eligible employees are sold
with no initial sales charge. A 1% CONTINGENT DEFERRED SALES CHARGE MAY BE
IMPOSED ON CERTAIN REDEMPTIONS MADE WITHIN ONE YEAR OF PURCHASE BY THESE
ACCOUNTS. Investments by retirement plans, foundations or endowments with $50
million or more in assets may be made with no sales charge and are not subject
to a contingent deferred sales charge. A dealer concession of up to 1% may be
paid by the fund from its Plan of Distribution and/or by American Funds
Distributors on all investments described above. Investments by certain
individuals and entities including employees and other associated persons of
dealers authorized to sell shares of the fund and Capital Research and
Management Company and its affiliated companies are not subject to a sales
charge.
ADDITIONAL DEALER COMPENSATION
In addition to the concessions listed, up to 0.25% of average net assets is
paid annually to qualified dealers for providing certain services pursuant to
the fund's Plan of Distribution. During the current fiscal year, American Funds
Distributors will also provide additional compensation to the top one hundred
dealers who have sold shares of funds in The American Funds Group based on the
pro rata share of a qualifying dealer's sales.
17
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THE TAX-EXEMPT BOND FUND OF AMERICA / PROSPECTUS
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REDUCING YOUR SALES CHARGE
You and your immediate family may combine investments to reduce your costs. You
must let your investment dealer or American Funds Service Company know if you
qualify for a reduction in your sales charge using one or any combination of
the methods described below.
[X] Aggregation
Investments that may be aggregated include those made by you, your spouse
and your children under the age of 21, if all parties are purchasing shares
for their own account(s), including any business account solely "controlled
by", as well as any retirement plan or trust account solely for the benefit
of, these individuals. Investments made for multiple employee benefit plans
of a single employer or "affiliated" employers may be aggregated provided
they are not also aggregated with individual accounts. Finally, investments
made by a common trust fund or other diversified pooled account not
specifically formed for the purpose of accumulating fund shares may be
aggregated.
Purchases made for nominee or street name accounts will generally not be
aggregated with those made for other accounts unless qualified as described
above.
[X] Concurrent Purchases
You may combine concurrent purchases of two or more funds in The American
Funds Group, except direct purchases of the money market funds. Shares of
the money market funds purchased through an exchange, reinvestment or cross-
reinvestment from a fund having a sales charge do qualify.
[X] Right of Accumulation
You may take into account the current value of your existing holdings in The
American Funds Group to determine your sales charge. Direct purchases of the
money market funds are excluded.
[X] Statement of Intention
You may enter into a non-binding commitment to invest a certain amount
(which at your request, may include purchases made during the previous
90 days) in non-money market fund shares over a 13-month period. A portion
of your account may be held in escrow to cover additional sales charges
which may be due if your total investments over the statement period are
insufficient to qualify for the applicable sales charge reduction.
18
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THE TAX-EXEMPT BOND FUND OF AMERICA / PROSPECTUS
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SELLING SHARES
HOW TO SELL SHARES
You may sell (redeem) shares in your account by contacting your investment
dealer or American Funds Service Company. You may also use American
FundsLine(R) or American FundsLine OnLineSM (see below). In addition, you may
sell shares in amounts of $50 or more automatically. If you sell shares through
your investment dealer you may be charged for this service. Shares held for you
in your dealer's street name must be sold through the dealer.
Shares are sold at the net asset value next determined after your request is
received in good order by American Funds Service Company. Sale requests may be
made in writing, by telephone, including American FundsLine(R), by computer
using American FundsLine OnLineSM, or by fax. Sales by telephone, computer or
fax are limited to $50,000 in accounts registered to individual(s) (including
non-retirement trust accounts). In addition, checks must be made payable to the
registered shareholder(s) and mailed to an address of record that has been used
with the account for at least 10 days.
Proceeds will not be mailed until sufficient time has passed to provide
reasonable assurance that checks or drafts (including certified or cashier's
checks) for shares purchased have cleared (which may take up to 15 calendar
days from the purchase date). Except for delays relating to clearance of checks
for share purchases or in extraordinary circumstances (and as permissible under
the Investment Company Act of 1940), sale proceeds will be paid on or before
the seventh day following receipt and acceptance of an order. Interest will not
accrue or be paid on amounts that represent uncashed distribution or redemption
checks.
The fund may, with 60 days' written notice, close your account if due to a sale
of shares the account has a value of less than the minimum required initial
investment.
Generally, written requests to sell shares must be signed by you and must
include any shares you wish to sell that are in certificate form. Your
signature must be guaranteed by a member firm of a domestic stock exchange or
the National Association of Securities Dealers, Inc. that is an eligible
guarantor institution, bank, savings association, or credit union. A signature
guarantee is not currently required for any sale of $50,000 or less provided
the check is made payable to the registered shareholder(s) and is mailed to the
address of record on the account, and provided the address has been used with
the account for at least 10 days. Additional documentation may be required for
sale of shares held in corporate, partnership or fiduciary accounts.
19
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THE TAX-EXEMPT BOND FUND OF AMERICA / PROSPECTUS
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You may reinvest proceeds from a redemption or a dividend or capital gain
distribution without a sales charge (any contingent deferred sales charge paid
will be credited to your account) in any fund in The American Funds Group
within 90 days after the date of the redemption or distribution. Redemption
proceeds of shares representing direct purchases in the money market funds are
excluded. Reinvestment will be at the next calculated net asset value after
receipt and acceptance by American Funds Service Company.
- --------------------------------------------------------------------------------
OTHER IMPORTANT THINGS TO REMEMBER
AMERICAN FUNDSLINE(R) AND AMERICAN FUNDSLINE ONLINESM
You may check your share balance, the price of your shares, or your most recent
account transactions, sell shares (up to $50,000 per shareholder each day), or
exchange shares around the clock with American FundsLine(R) or American
FundsLine OnLineSM. To use these services, call 800/325-3590 from a
TouchTone(TM) telephone or access The American Funds Web site on the Internet
at www.americanfunds.com.
TELEPHONE AND COMPUTER PURCHASES, SALES AND EXCHANGES
Unless you opt out of the telephone or computer (including American
FundsLine(R) or American FundsLine OnLineSM) or fax purchase, sale and/or
exchange options (see below), you agree to hold the fund, American Funds
Service Company, any of its affiliates or mutual funds managed by such
affiliates, and each of their respective directors, trustees, officers,
employees and agents harmless from any losses, expenses, costs or liabilities
(including attorney fees) which may be incurred in connection with the exercise
of these privileges provided American Funds Service Company employs reasonable
procedures to confirm that the instructions received from any person with
appropriate account information are genuine. If reasonable procedures are not
employed, the fund may be liable for losses due to unauthorized or fraudulent
instructions.
Generally, all shareholders are automatically eligible to use these options.
However, you may elect to opt out of these options by writing American Funds
Service Company. (You may also reinstate them at any time by writing to
American Funds Service Company.)
ACCOUNT STATEMENTS
You will receive regular confirmation statements reflecting transactions in
your account. Dividend and capital gain reinvestments and purchases through
automatic investment plans and certain retirement plans will be confirmed at
least quarterly.
20
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THE TAX-EXEMPT BOND FUND OF AMERICA / PROSPECTUS
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NOTES
21
<PAGE>
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THE TAX-EXEMPT BOND FUND OF AMERICA / PROSPECTUS
- --------------------------------------------------------------------------------
NOTES
22
<PAGE>
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THE TAX-EXEMPT BOND FUND OF AMERICA / PROSPECTUS
- --------------------------------------------------------------------------------
NOTES
23
<PAGE>
THE TAX-EXEMPT BOND FUND OF AMERICA / PROSPECTUS
<TABLE>
<CAPTION>
FOR SHAREHOLDER SERVICES FOR DEALER SERVICES
<C> <S>
American Funds American Funds
Service Company Distributors
800/421-0180 ext. 1 800/421-9900 ext. 11
FOR 24-HOUR INFORMATION
American American Funds
FundsLine(R) Internet Web site
800/325-3590 http://www.americanfunds.com
</TABLE>
Telephone conversations may be recorded or monitored for
verification, recordkeeping and quality assurance purposes.
------------------------------------------------------------
MULTIPLE TRANSLATIONS
This prospectus may be translated into other languages. In
the event of any inconsistency or ambiguity as to the
meaning of any word or phrase contained in a translation,
the English text shall prevail.
------------------------------------------------------------
OTHER FUND INFORMATION
ANNUAL/SEMI-ANNUAL REPORT TO SHAREHOLDERS
Includes financial statements, detailed performance
information, portfolio holdings, a statement from portfolio
management and the independent accountants' report (in the
annual report).
STATEMENT OF ADDITIONAL INFORMATION (SAI)
Contains more detailed information on all aspects of the
fund, including the fund's financial statements.
A current SAI has been filed with the Securities and
Exchange Commission ("SEC"). It is incorporated by
reference into this prospectus and is available along with
other related materials on the SEC's Internet Web site at
http://www.sec.gov.
CODE OF ETHICS
Includes a description of the fund's personal investing
policy.
To request a free copy of any of the documents above:
Call American Funds or Write to the Secretary
Service Company of the fund
800/421-0180 ext. 1 333 South Hope Street
Los Angeles, CA 90071
This prospectus has been printed on recycled paper.
[LOGO OF RECYCLED PAPER]
24
THE TAX-EXEMPT BOND FUND OF AMERICA, INC.
PART B
STATEMENT OF ADDITIONAL INFORMATION
NOVEMBER 1, 1997
This document is not a prospectus but should be read in conjunction with the
current prospectus dated November 1, 1997 of The Tax-Exempt Bond Fund of
America, Inc. (the "fund"). The prospectus may be obtained from your
investment dealer or financial planner or by writing to the fund at the
following address:
The Tax-Exempt Bond Fund of America, Inc.
Attention: Secretary
333 South Hope Street
Los Angeles, CA 90071
(213) 486-9200
Table of Contents
<TABLE>
<CAPTION>
<S> <C>
Item Page No.
Description of Certain Securities and Investment Techniques 1
Investment Restrictions 5
Fund Officers and Directors 8
Management 11
Dividends and Distributions 13
Additional Information Concerning Taxes 14
Purchase of Shares 17
Redeeming Shares 23
Shareholder Account Services and Privileges 24
Execution of Portfolio Transactions 26
General Information 26
Investment Results 28
Description of Ratings for Debt Securities 31
Financial Statements attached
</TABLE>
DESCRIPTION OF CERTAIN SECURITIES AND INVESTMENT TECHNIQUES
THE DESCRIPTIONS BELOW ARE INTENDED TO SUPPLEMENT THE MATERIAL IN THE
PROSPECTUS UNDER "INVESTMENT POLICIES AND RISKS."
INVESTMENT POLICIES -- Up to 35% of the fund's total assets may be invested in
tax-exempt securities that are rated below the three highest categories by
Standard & Poor's Corporation ("S&P") or by Moody's Investors Service, Inc.
("Moody's") (or equivalent securities that are not rated); however investments
in securities rated Ba and BB or below (or equivalent securities that are not
rated) will be limited to no more than 20% of the fund's assets. Bonds rated
BB and below by S&P or Ba and below by Moody's are commonly known as "junk
bonds" or high-yield, high-risk bonds. See "Description of Ratings for Debt
Securities" below.
CERTAIN RISK FACTORS RELATING TO HIGH-YIELD, HIGH-RISK BONDS
SENSITIVITY TO INTEREST RATE AND ECONOMIC CHANGES -- High-yield, high-risk
bonds can be sensitive to adverse economic changes and political and corporate
developments. During an economic downturn or substantial period of rising
interest rates, highly leveraged issuers may experience financial stress that
would adversely affect their ability to service their principal and interest
payment obligations, to meet projected business goals, and to obtain additional
financing. If the issuer of a bond defaults on its obligations to pay interest
or principal or enters into bankruptcy proceedings, the fund may incur losses
or expenses in seeking recovery of amounts owed to it. In addition, periods of
economic uncertainty and changes can be expected to result in increased
volatility of market prices and yields of high-yield, high-risk bonds.
PAYMENT EXPECTATIONS -- High-yield, high-risk bonds may contain redemption or
call provisions. If an issuer exercised these provisions in a declining
interest rate market, the fund would have to replace the security with a lower
yielding security, resulting in a decreased return for investors. Conversely,
a high-yield, high-risk bond's value will decrease in a rising interest rate
market, as will the value of the fund's assets.
LIQUIDITY AND VALUATION -- There may be little trading in the secondary market
for particular bonds, which may affect adversely the fund's ability to value
accurately or dispose of such bonds. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may decrease the
values and liquidity of high-yield, high-risk bonds, especially in a thin
market.
Subsequent to its purchase by the fund, an issue of municipal bonds or notes
may cease to be rated or its rating may be reduced below the minimum rating
required for its purchase. Neither event requires the elimination of such
obligation from the fund's portfolio, but Capital Research and Management
Company (the "Investment Adviser") will consider such an event in its
determination of whether the fund should continue to hold such obligation in
its portfolio. If, however, as a result of downgrades or otherwise, the fund
holds more than 20% of its net assets in high-yield, high-risk bonds, the fund
will dispose of the excess as expeditiously as possible.
MUNICIPAL BONDS -- Municipal bonds are debt obligations generally issued to
obtain funds for various public purposes, including the construction of public
facilitiesOpinions relating to the validity of municipal bonds and to the
exclusion from gross income for federal income tax purposes and, where
applicable, the exemption from state and local income tax are rendered by bond
counsel to the respective issuing authorities at the time of issuance.
The two principal classifications of municipal bonds are general obligation
and limited obligation, or revenue, bonds. General obligation bonds are
secured by the issuer's pledge of its full faith and credit including, if
available, its taxing power for the payment of principal and interest. Issuers
of general obligation bonds include states, counties, cities, towns and various
regional or special districts. The proceeds of these obligations are used to
fund a wide range of public facilities such as the construction or improvement
of schools, highways and roads, water and sewer systems and facilities for a
variety of other public purposes. Lease revenue bonds or certificates of
participation in leases are payable from annual lease rental payments from a
state or locality. Annual rental payments are payable to the extent such
rental payments are appropriated annually.
Typically, the only security for a limited obligation or revenue bond is the
net revenue derived from a particular facility or class of facilities financed
thereby or, in some cases, from the proceeds of a special tax or other special
revenues. Revenue bonds have been issued to fund a wide variety of
revenue-producing public capital projects including: electric, gas, water and
sewer systems; highways, bridges and tunnels; port and airport facilities;
colleges and universities; hospitals; and convention, recreational and housing
facilities. Although the security behind these bonds varies widely, many
provide additional security in the form of a debt service reserve fund which
may also be used to make principal and interest payments on the issuer's
obligations. In addition, some revenue obligations (as well as general
obligations) are insured by a bond insurance company or backed by a letter of
credit issued by a banking institution.
Revenue bonds also include, for example, pollution control, health care and
housing bonds, which, although nominally issued by municipal authorities, are
generally not secured by the taxing power of the municipality but are secured
by the revenues of the authority derived from payments by the private entity
which owns or operates the facility financed with the proceeds of the bonds.
Obligations of housing finance authorities have a wide range of security
features including reserve funds and insured or subsidized mortgages, as well
as the net revenues from housing or other public projects. Most of these bonds
do not generally constitute the pledge of the credit of the issuer of such
bonds. The credit quality of such revenue bonds is usually directly related to
the credit standing of the user of the facility being financed or of an
institution which provides a guarantee, letter of credit, or other credit
enhancement for the bond issue.
TEMPORARY INVESTMENTS -- The fund may invest in short-term municipal
obligations of up to one year in maturity during periods of temporary defensive
strategy or when such investments are considered advisable for liquidity.
Generally, the income from all such securities is exempt from federal income
tax. See "Additional Information Concerning Taxes" below. Further, a portion
of the fund's assets, which will normally be less than 20% of assets, may be
held in cash or invested in high quality taxable short-term securities of up to
one year in maturity. Such temporary investments may include: (1) obligations
of the U.S. Treasury; (2) obligations of agencies and instrumentalities of the
U.S. Government; (3) money market instruments, such as certificates of deposit
issued by domestic banks, corporate commercial paper, and bankers' acceptances;
and (4) repurchase agreements (which are described below).
MUNICIPAL INFLATION-INDEXED BONDS -- The fund may invest in inflation-indexed
bonds issued by municipalities. Interest payments are made to bondholders
semi-annually and are made up of two components: a fixed "real coupon" or
spread, and a variable coupon linked to an inflation index. Accordingly,
payments will increase or decrease each period as a result of changes in the
inflation index. In the period of deflation payments may decrease to zero, but
in any event will not be less than zero.
ZERO COUPON BONDS -- Municipalities may issue zero coupon securities which are
debt obligations that do not entitle the holder to any periodic payments of
interest prior to maturity or a specified date when the securities begin paying
current interest. They are issued and traded at a discount from their face
amount or par value, which discount varies depending on the time remaining
until cash payments begin, prevailing interest rates, liquidity of the
security, and the perceived credit quality of the issuer.
PRE-REFUNDED BONDS -- From time to time, a municipality may refund a bond that
it has already issued prior to the original bond's call date by issuing a
second bond, the proceeds of which are used to purchase securities. The
securities are placed in an escrow account pursuant to an agreement between the
municipality and an independent escrow agent. The principal and interest
payments on the securities are then used to pay off the original bondholders.
For the purposes of diversification, pre-refunded bonds will be treated as
governmental issues.
FORWARD COMMITMENTS -- The fund may enter into commitments to purchase or sell
securities at a future date. When the fund purchases such securities, it
assumes the risk of any decline in value of the securities beginning on the
date of the agreement . When the fund agrees to sell such securities, it does
not participate in further gains or losses with respect to the securities
beginning on the date of the agreement. If the other party to such transaction
fails to deliver or pay for the securities, the fund could miss a favorable
price or yield opportunity, or could experience a loss.
As the fund's aggregate commitments under these transactions increase, the
opportunity for leverage similarly increases. The fund will not use these
transactions for the purpose of leveraging and will segregate liquid assets
which will be marked to market daily in an amount sufficient to meet its
payment obligations in these transactions. Although these transactions will
not be entered into for leveraging purposes, to the extent the fund's aggregate
commitments under these transactions exceed its segregated assets the fund
temporarily could be in a leveraged position (because it may have an amount
greater than its net assets subject to market risk). Should market values of
the fund's portfolio securities decline while the fund is in a leveraged
position, greater depreciation of its net assets would likely occur than were
it not in such a position. The fund will not borrow money to settle these
transactions and, therefore, will liquidate other portfolio securities in
advance of settlement if necessary to generate additional cash to meet its
obligations thereunder.
PRIVATE PLACEMENTS -- Generally, municipal securities acquired in private
placements are subject to contractual restrictions on resale. Accordingly, all
private placements will be considered illiquid unless they have been
specifically determined to be liquid, taking into account factors such as the
frequency and volume of trading and the commitment of dealers to make markets
under procedures adopted by the fund's board of trustees.
REPURCHASE AGREEMENTS -- Although the fund has no current intention to do so
during the next 12 months, it may enter on a temporary basis into repurchase
agreements, under which it buys a security and obtains a simultaneous
commitment from the seller to repurchase the security at a specified time and
price. Repurchase agreements permit the fund to maintain liquidity and earn
income over periods of time as short as overnight. The seller must maintain
with the fund's custodian collateral equal to at least 100% of the repurchase
price including accrued interest, as monitored daily by Capital Research and
Management Company. The fund will only enter into repurchase agreements
involving securities in which it could otherwise invest and with selected banks
and securities dealers whose financial condition is monitored by the Investment
Adviser. If the seller under the repurchase agreement defaults, the fund may
incur a loss if the value of the collateral securing the repurchase agreement
has declined and may incur disposition costs in connection with liquidating the
collateral. If bankruptcy proceedings are commenced with respect to the
seller, liquidation of the collateral by the fund may be delayed or limited.
PORTFOLIO MANAGEMENT -- In seeking to achieve the fund's objective, the
Investment Adviser causes the fund to purchase securities which it believes
represent the best values then currently available in the marketplace. Such
values are a function of yield, maturity, issue classification and quality
characteristics, coupled with expectations regarding the economy, movements in
the general level and term structure of interest rates, political developments,
and variations in the supply of funds available for investment in the
tax-exempt market relative to the demand for the funds placed upon it. These
latter factors change continuously and should be met with a dynamic, responsive
approach to the investment process. Some of the more important portfolio
management techniques that are utilized by the Investment Adviser are set forth
below.
ADJUSTMENT OF MATURITIES -- The Investment Adviser seeks to anticipate
movements in interest rates and adjusts the maturity distribution of the
portfolio accordingly. Longer term securities ordinarily yield more than
shorter term securities but are subject to greater and more rapid price
fluctuation. Keeping in mind the fund's objective of producing a high level of
current income, the Investment Adviser will increase the fund's exposure to
this price volatility only when it appears likely to increase current income
without undue risk to capital.
ISSUE CLASSIFICATION -- Securities with the same general quality rating and
maturity characteristics, but which vary according to the purpose for which
they were issued, often tend to trade at different yields. These yield
differentials tend to fluctuate in response to political and economic
developments, as well as temporary imbalances in normal supply/demand
relationships. The Investment Adviser monitors these fluctuations closely, and
will attempt to adjust portfolio concentrations in various issue
classifications according to the value disparities brought about by these yield
relationship fluctuations.
QUALITY -- Securities issued for similar purposes and with the same general
maturity characteristics, but which vary according to the creditworthiness of
their respective issuers, tend to trade at different yields. These yield
differentials also tend to fluctuate in response to political, economic and
supply/demand factors. The Investment Adviser will attempt to take advantage
of these fluctuations by adjusting the concentration of portfolio securities in
any given quality category according to the value disparities produced by these
yield relationship fluctuations.
The Investment Adviser believes that, in general, the market for municipal
bonds is less liquid than that for taxable fixed-income securities.
Accordingly, the ability of the fund to make purchases and sales of securities
in the foregoing manner may, at any particular time and with respect to any
particular securities, be limited (or non-existent).
PORTFOLIO TURNOVER -- Portfolio changes will be made without regard to the
length of time particular investments may have been held. High portfolio
turnover involves correspondingly greater transaction costs in the form of
dealer spreads or brokerage commissions, and may result in the realization of
net capital gains, which are taxable when distributed to shareholders.
Fixed-income securities are generally traded on a net basis and usually neither
brokerage commissions nor transfer taxes are involved. The fund does not
anticipate its portfolio turnover will exceed 100% annually. The fund's
portfolio turnover rate would equal 100% if each security in the fund's
portfolio were replaced once per year. See "Financial Highlights" in the
prospectus for the fund's portfolio turnover for each of the last 10 years.
INVESTMENT RESTRICTIONS
FUNDAMENTAL POLICIES -- The fund has adopted certain investment restrictions
which may not be changed without a majority vote of its outstanding shares.
Such majority is defined by the Investment Company Act of 1940 (the "1940 Act")
as the vote of the lesser of (i) 67% or more of the outstanding voting
securities present at a meeting, if the holders of more than 50% of the
outstanding voting securities are present in person or by proxy, or (ii) more
than 50% of the outstanding voting securities. None of the following
investment restrictions involving a maximum percentage of assets will be
considered violated unless the excess occurs immediately after, and is caused
by, an acquisition [or encumbrance of securities or assets of, or borrowings]
by the fund. These restrictions provide that the fund may not:
1. Purchase any security (other than securities issued or guaranteed by the
U.S. government or its agencies or instrumentalities), if immediately after and
as a result of such investment more than 5% of the value of the fund's total
assets would be invested in securities of the issuer. For the purpose of this
restriction, the fund will regard each state, each political subdivision,
agency or instrumentality of such state, each multi-state agency of which such
state is a member, and each public authority which issues industrial
development bonds on behalf of a private entity as a separate issuer;
2. Enter into any repurchase agreement if, as a result, more than 10% of the
value of the fund's total assets would be subject to repurchase agreements
maturing in more than seven days;
3. Buy or sell real estate in the ordinary course of its business; however,
the fund may invest in securities secured by real estate or interests therein;
4. Acquire securities subject to restrictions on disposition, except for
repurchase obligations;
5. Make loans to others, except for the purchase of debt securities or
entering into repurchase agreements;
6. Sell securities short, except to the extent that the fund
contemporaneously owns or has the right to acquire at no additional cost
securities identical to those sold short;
7. Purchase securities on margin, except such short-term credits as may be
necessary for the clearance of purchases or sales;
8. Borrow money, except from banks for temporary or emergency purposes, not
in excess of 5% of the value of the fund's total assets, excluding the amount
borrowed. This borrowing provision is intended to facilitate the orderly sale
of portfolio securities to accommodate unusually heavy redemption requests, if
they should occur; it is not intended for investment purposes;
9. Mortgage, pledge, or hypothecate its assets, except in an amount up to 10%
of the value of its total assets, but only to secure borrowings for temporary
or emergency purposes;
10. Underwrite any issue of securities, except to the extent that the
purchase of municipal bonds directly from the issuer in accordance with the
fund's investment objective, policies and restrictions, and later resale may be
deemed to be an underwriting;
11. Invest in companies for the purpose of exercising control or management;
12. Purchase securities of other investment companies, except in connection
with a merger, consolidation, acquisition, or reorganization;
13. Buy or sell commodities or commodity contracts or oil, gas or other
mineral exploration or development programs;
14. Write, purchase or sell puts, calls, straddles, spreads or any
combination thereof;
15. Purchase or retain the securities of any issuer, if, to the knowledge
of the fund, those individual officers and directors of the fund, its
Investment Adviser, or principal underwriter, each owning beneficially more
than 1/2 of 1% of the securities of such issuer, together own more than 5% of
the securities of such issuer;
For the purpose of the fund's investment restrictions, the identification of
the "issuer" of municipal bonds that are not general obligation bonds is made
by the Investment Adviser on the basis of the characteristics of the bonds as
described, the most significant of which is the ultimate source of funds for
the payment of principal and interest on such bonds.
For purposes of Investment Restriction #4, the term "securities subject to
restrictions on disposition" includes only securities that are not readily
marketable due to contractual restrictions. Accordingly, the Fund can purchase
securities issued in private placements (including so-called 144A securities)
provided they are readily marketable.
Notwithstanding Investment Restriction #12, the fund may invest in securities
of other investment companies if deemed advisable by its officers in connection
with the administration of a deferred compensation plan adopted by the
Directors pursuant to an exemptive order granted by the Securities and Exchange
Commission.
For purposes of Investment Restriction #13, the term "oil, gas or other
mineral exploration or development programs" includes oil, gas or other mineral
exploration or development leases.
NON-FUNDAMENTAL POLICIES -- The fund has adopted the following non-fundamental
investment policies:The fund may not:
(a) invest 25% or more of its assets in municipal bonds the issuers of which
are located in the same state, unless such securities are guaranteed by the
U.S. Government, or more than 25% of its total assets in securities the
interest on which is paid from revenues of similar type projects (such as
hospitals and health facilities; turnpikes and toll roads; ports and airports;
or colleges and universities). The fund may on occasion invest more than an
aggregate of 25% of its total assets in industrial development bonds. There
could be economic, business or political developments which might affect all
municipal bonds of a similar category or type or issued by issuers within any
particular geographical area or jurisdiction;
(b) invest more than 5% of the value of the fund's total assets in securities
of any issuer with a record of less than three years continuous operation,
including predecessors, except those issued or guaranteed by the U.S.
Government or its agencies or instrumentalities, or municipal bonds rated at
least "A" by either Moody's Investors Service, Inc. or Standard & Poor's
Corporation; and
(c) invest more than 15% of its total assets in securities which are not
readily marketable.
FUND OFFICERS AND DIRECTORS
Directors and Director Compensation
<TABLE>
<CAPTION>
NAME, ADDRESS POSITION PRINCIPAL OCCUPATION(S) DURING AGGREGATE TOTAL COMPENSATION TOTAL NUMBER
AND AGE WITH PAST 5 YEARS (POSITIONS WITHIN THE COMPENSATION (INCLUDING OF FUND BOARDS
REGISTRANT ORGANIZATIONS LISTED MAY HAVE (INCLUDING VOLUNTARILY DEFERRED ON WHICH
CHANGED DURING THIS PERIOD) VOLUNTARILY DEFERRED COMPENSATION/1/) FROM ALL DIRECTOR
COMPENSATION/1/) FROM FUNDS MANAGED BY CAPITAL SERVES/2/
THE FUND DURING FISCAL RESEARCH AND
YEAR ENDED AUGUST 31, MANAGEMENT COMPANY/2/
1997 FOR THE YEAR ENDED
AUGUST 31, 1997
<S> <C> <C> <C> <C> <C>
H. Frederick Christie Director Private Investor. Former President $3,900 /3/ $163,500 18
P.O. Box 144 and Chief Executive Officer, The
Palos Verdes Estates, CA 90274 Mission Group (non-utility holding
Age 64 Company, subsidiary of Southern
California Edison Company)
+ Don R. Conlan Trustee President (Retired), The Capital none/4/ none/4/ 12
Age: 61 Group Companies, Inc.
1630 Milan Avenue
South Pasadena, CA 91030
Diane C. Creel Director CEO and President, $3,900 $43,000 12
100 W. Broadway The Earth Technology Corporation
Suite 5000 (international consulting engineering)
Long Beach, CA 90802
Age: 48
Martin Fenton, Jr. Director Chairman, Senior Resource Group $4,300 /3/ $132,600 16
4350 Executive Drive (management of senior living
Suite 101 centers)
San Diego, CA 92121-2116
Age: 62
Leonard R. Fuller Director President, Fuller & Company, Inc. $3,900/3/ $46,200 12
4337 Marina City Drive (financial management consulting
Suite 841 ETN firm)
Marina del Rey, CA 90292
Age: 51
+* Abner D. Goldstine President, Senior Vice President and Director, none/4/ none/4/ 12
Age: 67 PEO and Capital Research and Management
Director Company
+** Paul G. Haaga, Jr. Chairman of Executive Vice President and none/4/ none/4/ 14
Age: 48 the Board Director, Capital Research and
Management Company
Herbert Hoover III Director Private Investor $3,500 $68,000 14
1520 Circle Drive
San Marino, CA 91108
Age: 69
Richard G. Newman Director Chairman, President and CEO, $4,300 /3/ $98,000 13
3250 Wilshire Boulevard AECOM Technology Corporation
Los Angeles, CA 90010-1599 (architectural engineering)
Age: 62
Peter Valli Director Retired. Former Chairman and $4,300 /3/ $46,200 12
45 Sea Isle Drive CEO, BW/IP International Inc.
Long Beach, CA 90803 (industrial manufacturing)
Age: 70
</TABLE>
+ Directors who are considered "interested persons" of the fund as defined in
the Investment Company Act of 1940, as amended (the "1940 Act"), on
the basis of their affiliation with the fund's Investment Adviser, Capital
Research and Management Company.
* Address is 11100 Santa Monica Boulevard, Los Angeles, CA 90025
** Address is 333 South Hope Street, Los Angeles, CA 90071
/1/ Amounts may be deferred by eligible directors under a non-qualified
deferred compensation plan adopted by the Fund in 1994. Deferred amounts
accumulate at an earnings rate determined by the total return of one or more
funds in The American Funds Group as designated by the Director.
/2/ Capital Research and Management Company manages The American Funds Group
consisting of 28 funds: AMCAP Fund, Inc., American Balanced Fund, Inc.,
American High-Income Municipal Bond Fund, Inc., American High-Income Trust,
American Mutual Fund, Inc., The Bond Fund of America, Inc., The Cash Management
Trust of America, Capital Income Builder, Inc., Capital World Growth and Income
Fund, Inc., Capital World Bond Fund, Inc., EuroPacific Growth Fund, Fundamental
Investors, Inc., The Growth Fund of America, Inc., The Income Fund of America,
Inc., Intermediate Bond Fund of America, The Investment Company of America,
Limited Term Tax-Exempt Bond Fund of America, The New Economy Fund, New
Perspective Fund, Inc., SMALLCAP World Fund, Inc., The Tax-Exempt Bond Fund of
America, Inc., The Tax-Exempt Fund of California, The Tax-Exempt Fund of
Maryland, The Tax-Exempt Fund of Virginia, The Tax-Exempt Money Fund of
America, The U. S. Treasury Money Fund of America, U.S. Government Securities
Fund and Washington Mutual Investors Fund, Inc. Capital Research and
Management Company also manages American Variable Insurance Series and Anchor
Pathway Fund which serve as the underlying investment vehicle for certain
variable insurance contracts; and Bond Portfolio for Endowments, Inc. and
Endowments, Inc. whose shares may be owned only by tax-exempt organizations.
/3/ Since the plan's adoption, the total amount of deferred compensation
accrued by the fund (plus earnings thereon) for participating Directors is as
follows: H. Frederick Christie ($7,774), Martin Fenton, Jr. ($9,858), Leonard
R. Fuller ($3,003), Richard G. Newman ($20,779) and Peter C. Valli ($16,015).
/4/ Don R. Conlan, Paul G. Haaga, Jr. and Abner D. Goldstine are affiliated
with the Investment Adviser and, accordingly, receive no compensation from the
Fund.
OFFICERS
(with their principal occupations during the past five years)#
<TABLE>
<CAPTION>
AGE POSITION(S) HELD PRINCIPAL OCCUPATION(S) DURING
NAME AND ADDRESS WITH REGISTRANT PAST 5 YEARS
<S> <C> <C> <C>
Neil L. Langberg 44 Senior Vice Vice President - Investment Management
11100 Santa Monica Blvd. President Group, Capital Research and Management
Los Angeles, CA 90025 Company
Michael J. Downer 43 Vice President Senior Vice President - Fund Business
333 South Hope Street Management Group, Capital Research and
Los Angeles, CA 90071 Management Company
Mary C. Hall 39 Vice President Senior Vice President - Fund Business
135 South State College Blvd. Management Group, Capital Research and
Brea, CA 92821 Management Company
Mark R. Macdonald 38 Vice President Vice President - Investment Managemennt
11100 Santa Monica Blvd. Group, Capital Research and Management
Los Angeles, CA 90025 Company
Julie F. Williams 49 Secretary Vice President - Fund Business Management
333 South Hope Street Group, Capital Research and Management
Los Angeles, CA 90071 Company
Anthony W. Hynes, Jr. 34 Treasurer Vice President - Fund Business Management
135 South State College Blvd. Group, Capital Research and Management
Brea, CA 92821 Company
Kimberly S. Verdick 32 Assistant Assistant Vice President - Fund Business
333 South Hope Street Secretary Management Group, Capital Research and
Los Angeles, CA 90071 Management Company
Todd L. Miller 38 Assistant Assistant Vice President - Fund Business
135 South State College Blvd. Treasurer Management Group, Capital Research and
Brea, CA 92821 Management Company
</TABLE>
# Positions within the organizations listed may have changed during this period
No compensation is paid by the fund to any officer or Director who is a
Director or officer of the Investment Adviser. The fund pays annual fees of
$2,500 to Directors who are not affiliated with the Investment Adviser, plus
$200 for each Board of Directors meeting attended, plus $200 for each meeting
attended as a member of a committee of the Board of Directors. The Directors
may elect, on a voluntary basis, to defer all or a portion of these fees
through a deferred compensation plan in effect for the fund. The fund also
reimburses certain expenses of the Directors who are not affiliated with the
Investment Adviser. As of October 1, 1997 the officers and Directors and their
families as a group, owned beneficially or of record less than 1% of the
outstanding shares of the fund.
MANAGEMENT
INVESTMENT ADVISER -- The Investment Adviser, founded in 1931, maintains
research facilities in the U.S. and abroad, (Los Angeles, San Francisco, New
York, Washington, D.C., London, Geneva, Singapore, Hong Kong and Tokyo), with a
staff of professionals, many of whom have years of investment experience. The
Investment Adviser is located at 333 South Hope Street, Los Angeles, Ca 90071,
and at 135 South State College Boulevard, Brea, CA 92821. The Investment
Adviser's research professionals travel several million miles a year, making
more than 5,000 research visits in more than 50 countries around the world.
The Investment Adviser believes that it is able to attract and retain quality
personnel. The Investment Adviser is a wholly owned subsidiary of the Capital
Group Companies, Inc.
An affiliate of the Investment Adviser compiles indices for major stock
markets around the world and compiles and edits the Morgan Stanley Capital
International Perspective, providing financial and market information about
more than 2,400 companies around the world.
The Investment Adviser is responsible for more than $100 billion of stocks,
bonds and money market instruments and serves over five million investors of
all types throughout the world. These investors include privately owned
businesses and large corporations, as well as schools, colleges, foundations
and other non-profit and tax-exempt organizations.
INVESTMENT ADVISORY AND SERVICE AGREEMENT -- The Investment Advisory and
Service Agreement (the "Agreement") between the fund and the Investment Adviser
will continue in effect until May 31, 1998, unless sooner terminated, and may
be renewed from year to year thereafter, provided that any such renewal has
been specifically approved at least annually by (i) the Board of Directors, or
by the vote of a majority (as defined in the 1940 Act) of the outstanding
voting securities of the fund, and (ii) the vote of a majority of Directors who
are not parties to the Agreement or interested persons (as defined in the 1940
Act) of any such party, cast in person at a meeting called for the purpose of
voting on such approval. The Agreement provides that the Investment Adviser
has no liability to the fund for its acts or omissions in the performance of
its obligations to the fund not involving willful misconduct, bad faith, gross
negligence or reckless disregard of its obligations under the Agreement. The
Agreement also provides that either party has the right to terminate, without
penalty, upon 60 days' written notice to the other party and that the Agreement
automatically terminates in the event of its assignment (as defined in the 1940
Act).
The Investment Adviser receives a fee at the annual rate of 0.30% on the first
$60 million of the fund's net assets, plus 0.21% on net assets from $60 million
to $1 billion, plus 0.18% on net assets from $1 billion to $3 billion, plus
0.16% on net assets over $3 billion, plus 3% of the first $3,333,333 of the
fund's monthly gross investment income, plus 2.50% of such income over
$3,333,333 but not exceeding $8,333,333 and 2.25% of such income in excess of
$8,333,333. Assuming net assets of $1.5 billion and gross investment income
levels of 3%, 4%, 5%, 6% and 7%, management fees would be 0.29%, 0.32%, 0.34%,
0.37% and 0.39%, respectively.
For the purpose of such computations under the Agreement, the fund's gross
investment income does not reflect any net realized gains or losses on the sale
of portfolio securities but does include original-issue discount as defined for
federal income tax purposes.
The Investment Adviser, in addition to providing investment advisory services,
furnishes the services and pays the compensation and travel expenses of
qualified persons to perform the executive and related administrative, clerical
and bookkeeping functions of the fund, and provides suitable office space,
necessary small office equipment and utilities, as well as general purpose
accounting forms, supplies, and postage to be used at the offices of the fund.
The fund pays all expenses not assumed by the Investment Adviser, including,
but not limited to, custodian, stock transfer and dividend disbursing fees and
expenses; costs of designing, printing and mailing reports, prospectuses, proxy
statements, and notices to its shareholders; taxes; expenses of issuance and
redemption of shares (including stock certificates, registration and
qualification fees and expenses); legal and auditing expenses; compensation,
fees, and expenses paid to Directors unaffiliated with the Investment Adviser;
association dues; costs of stationery and forms prepared exclusively for the
fund; and costs of assembling and storing shareholder account data.
The Agreement provides that the Investment Adviser will reimburse the fund for
any expenses incurred by the fund in any fiscal year, exclusive of interest,
taxes and brokerage costs and extraordinary expenses such as litigation and
acquisitions, to the extent such expenses exceed the lesser of 25% of gross
income for the preceding year or the sum of (a) 1.5% of the average daily net
assets of the preceding year up to and including $30 million and (b) 1% of any
excess of average daily net assets of the preceding year over $30 million. The
investment advisory fee is included as an expense of the fund and is subject to
the expense limitation described in the preceding sentence.
During the fiscal years ended August 31, 1997, 1996, and 1995, the Investment
Adviser's total fees amounted to $5,567,000, $5,451,000, and $5,202,000,
respectively.
PRINCIPAL UNDERWRITER -- American Funds Distributors, Inc. (the "Principal
Underwriter") is the principal underwriter of the fund's shares. The Principal
Underwriter is located at 333 South Hope Street, Los Angeles, CA 90071, 135
South State College Boulevard, Brea, CA 92821, 8000 IH-10 West, San Antonio, TX
78230, 8332 Woodfield Crossing Boulevard, Indianapolis, IN 46240, and 5300
Robin Hood Road, Norfolk, VA 23513. The fund has adopted a Plan of
Distribution (the "Plan") pursuant to rule 12b-1 under the 1940 Act. The
Principal Underwriter receives amounts payable pursuant to the Plan (see below)
and commissions consisting of that portion of the sales charge remaining after
the discounts which it allows to investment dealers. Commissions retained by
the Principal Underwriter on sales of fund shares during the fiscal year ended
August 31, 1997 amounted to $632,000 after allowance of $2,563,000 to dealers.
During the fiscal years ended August 31, 1996 and 1995, the Principal
Underwriter retained $760,000 and $670,000, respectively.
As required by rule 12b-1, the Plan (together with the Principal Underwriting
Agreement) has been approved by a majority of the entire Board of Directors and
separately by a majority of the Directors who are not "interested persons" of
the fund and who have no direct or indirect financial interest in the operation
of the Plan or the Principal Underwriting Agreement, and the Plan has been
approved by the vote of a majority of the outstanding voting securities of the
fund. The officers and Directors who are "interested persons" of the fund due
to present or past affiliations with the Investment Adviser and related
companies may be considered to have a direct or indirect financial interest in
the operation of the Plan. Potential benefits of the Plan to the fund are
improved shareholder services, savings to the fund in transfer agency costs,
savings to the fund in advisory fees and other expenses, benefits to the
investment process from growth or stability of assets and maintenance of a
financially healthy management organization. The selection and nomination of
Directors who are not "interested persons" of the fund is committed to the
discretion of the Directors who are not "interested persons" during the
existence of the Plan. Plan expenditures are reviewed quarterly and must be
renewed annually by the Board of Directors.
Under the Plan the fund may expend up to 0.25% of its average net assets
annually to finance any activity which is primarily intended to result in the
sale of fund shares, provided the fund's Board of Directors has approved the
category of expenses for which payment is being made. These include service
fees for qualified dealers and dealer commissions and wholesaler compensation
on sales of shares exceeding $1 million (including purchases by any
employer-sponsored 403(b) plan or purchases by any defined contribution plan
qualified under Section 401(a) of the Internal Revenue Code, including a
"401(k)" plan with 200 or more eligible employees). Since these fees are paid
out of the fund's assets on an ongoing basis, over time these fees will
increase the cost of an investment and may cost the investor more than paying
other types of sales loads. During the fund's fiscal year ended August 31,
1997, the fund paid or accrued $3,718,000 under the Plan as compensation to
dealers. As of August 31, 1997 accrued and unpaid distribution expenses were
$770,000.
The Glass-Steagall Act and other applicable laws, among other things,
generally prohibit federally chartered or supervised banks from engaging in the
business of underwriting, selling or distributing securities, but permit banks
to make shares of mutual funds available to their customers and to perform
administrative and shareholder servicing functions. However, judicial or
administrative decisions or interpretations of such laws, as well as changes in
either federal or state statutes or regulations relating to the permissible
activities of banks or their subsidiaries or affiliates, could prevent a bank
from continuing to perform all or a part of its servicing activities. If a
bank were prohibited from so acting, shareholder clients of such bank would be
permitted to remain shareholders of the fund and alternate means for continuing
the servicing of such shareholders would be sought. In such event, changes in
the operation of the fund might occur and shareholders serviced by such bank
might no longer be able to avail themselves of any automatic investment or
other services then being provided by such bank. It is not expected that
shareholders would suffer adverse financial consequences as a result of any of
these occurrences.
In addition, state securities laws on this issue may differ from the
interpretations of federal law expressed herein and certain banks and financial
institutions may be required to be registered as dealers pursuant to state law.
DIVIDENDS AND DISTRIBUTIONS
The fund declares dividends from its net investment income daily and
distributes the accrued dividends to shareholders each month. The percentage
of the distribution that is tax-exempt may vary from distribution to
distribution. For the purpose of calculating dividends, daily net investment
income of the fund consists of: (a) all interest income accrued on the fund's
investments including any original issue discount or market premium ratably
amortized to the date of maturity or determined in such other manner as may be
deemed appropriate; minus (b) all liabilities accrued, including interest,
taxes and other expense items, amounts determined and declared as dividends or
distributions and reserves for contingent or undetermined liabilities, all
determined in accordance with generally accepted accounting principles.
ADDITIONAL INFORMATION CONCERNING TAXES
The following is only a summary of certain additional federal, state and local
tax considerations generally affecting the fund and its shareholders. No
attempt is made to present a detailed explanation of the tax treatment of the
fund or its shareholders, and the discussion here and in the fund's prospectus
is not intended as a substitute for careful tax planning. Investors are urged
to consult their tax advisers with specific reference to their own tax
situations.
The fund is not intended to constitute a balanced investment program and is
not designed for investors seeking capital appreciation or maximum tax-exempt
income irrespective of fluctuations in principal. Shares of the fund would
generally not be suitable for tax-exempt institutions or tax-deferred
retirement plans (E.G., plans qualified under Section 401 of the Internal
Revenue Code, Keogh-type plans and individual retirement accounts). Such
retirement plans would not gain any benefit from the tax-exempt nature of the
fund's dividends because such dividends would be ultimately taxable to
beneficiaries when distributed to them. In addition, the fund may not be an
appropriate investment for entities which are "substantial users" of facilities
financed by private activity bonds or "related persons" thereof. "Substantial
user" is defined under U.S. Treasury Regulations to include a non-exempt person
who regularly uses a part of such facilities in his trade or business and whose
gross revenues derived with respect to the facilities financed by the issuance
of bonds are more than 5% of the total revenues derived by all users of such
facilities, or who occupies more than 5% of the usable area of such facilities
or for whom such facilities or a part thereof were specifically constructed,
reconstructed or acquired. "Related persons" include certain related natural
persons, affiliated corporations, a partnership and its partners and an S
Corporation and its shareholders.
The fund intends to meet all the requirements and has elected the tax status
of a "regulated investment company" under the provisions of Subchapter M of the
Internal Revenue Code of 1986 (the "Code"). Under Subchapter M, if the fund
distributes within specified times at least 90% of its taxable and tax-exempt
net investment income, it will be taxed only on that portion, if any, which it
retains.
To qualify, the fund must (a) derive at least 90% of its gross income from
dividends, interest, payments with respect to securities loans, and gains from
the sale or other disposition of stock, securities, currencies, or other income
derived with respect to its business of investing in such stock, securities, or
currencies; and (b) diversify its holdings so that, at the end of each fiscal
quarter, (i) at least 50% of the market value of the fund's assets is
represented by cash, cash items, U.S. Government securities, securities of
other regulated investment companies, and other securities which must be
limited, in respect of any one issuer to an amount not greater than 5% of the
fund's assets and 10% of the outstanding voting securities of such issuer, and
(ii) not more than 25% of the value of its assets is invested in the securities
of any one issuer (other than U.S. Government securities or the securities of
other regulated investment companies) or in two or more issuers which the fund
controls and which are engaged in the same or similar trades or businesses or
related trades or businesses.
The percentage of total dividends paid by the fund with respect to any taxable
year which qualify for exclusion from gross income ("exempt-interest
dividends") will be the same for all shareholders receiving dividends during
such year. In order for the fund to pay exempt-interest dividends during any
taxable year, at the close of each fiscal quarter at least 50% of the aggregate
value of the fund's assets must consist of certain tax-exempt obligations. Not
later than 60 days after the close of its taxable year, the fund will notify
each shareholder in writing of the portion of the dividends paid by the fund to
the shareholder with respect to such taxable year which constitutes
exempt-interest dividends. The aggregate amount of dividends so designated
cannot, however, exceed the excess of the amount of interest excludable from
gross income from tax under Section 103 of the Code received by the fund during
the taxable year over any amounts disallowed as deductions under Sections 265
and 171(a)(2) of the Code.
Interest on indebtedness incurred by a shareholder to purchase or carry fund
shares is not deductible for federal income tax purposes if the fund
distributes exempt-interest dividends during the shareholder's taxable year.
If a shareholder receives an exempt-interest dividend with respect to any share
and such share is held for six months or less, any loss on the sale or exchange
of such share will be disallowed to the extent of the amount of such
exempt-interest dividend.
While the fund does not expect to realize substantial long-term capital gains,
any net realized long-term capital gains will be distributed annually. The
fund will have no tax liability with respect to such gains, and the
distributions will be taxable to shareholders as long-term capital gains,
regardless of how long a shareholder has held fund shares. Such distributions
will be designated as a capital gains distribution in a written notice mailed
by the fund to shareholders not later than 60 days after the close of the
fund's taxable year. If a shareholder receives a designated capital gain
distribution (treated by the shareholder as a long-term capital gain) with
respect to any fund share and such fund share is held for six months or less,
then (unless otherwise disallowed) any loss on the sale or exchange of that
fund share will be treated as long-term capital loss to the extent of the
designated capital gain distribution. The fund also may make a distribution of
net realized long-term capital gains near the end of the calendar year to
comply with certain requirements of the Code. Gain recognized on the
disposition of a debt obligation (including tax-exempt obligations purchased
after April 30, 1993) purchased by the fund at a market discount (generally, at
a price less than its principal amount) will be treated as ordinary income to
the extent of the portion of the market discount which accrued during the
period of time the fund held the debt obligation.
Similarly, while the fund does not expect to earn any significant investment
company taxable income, in the event that any taxable income is earned by the
fund it will be distributed. In general, the fund's investment company taxable
income will be its taxable income subject to certain adjustments and excluding
the excess of any net long-term capital gain for the taxable year over the net
short-term capital loss, if any, for such year. The fund would be taxed on any
undistributed investment company taxable income. Since any such income will be
distributed, it will be taxable to shareholders as ordinary income (whether
distributed in cash or additional shares).
The Code imposes limitations on the use and investment of the proceeds of
state and local governmental bonds and upon other funds of the issuers of such
bonds. These limitations must be satisfied on a continuing basis to maintain
the exclusion from gross income of interest on such bonds. These provisions of
the Code generally apply to bonds issued after August 15, 1986. Bond counsel
qualify their opinions as to the federal tax status of new issues of bonds by
making such opinions contingent on the issuer's future compliance with these
limitations. Any failure on the part of an issuer to comply could cause the
interest on its bonds to become taxable to investors retroactive to the date
the bonds were issued.
Under the Code, a nondeductible excise tax of 4% is imposed on the excess of a
regulated investment company's "required distribution" for the calendar year
ending within the regulated investment company's taxable year over the
"distributed amount" for such calendar year. The term "required distribution"
means the sum of (i) 98% of ordinary income (generally net investment income)
for the calendar year, (ii) 98% of capital gain (both long-term and short-term)
for the one-year period ending on October 31 (as though the one-year period
ending on October 31 were the regulated investment company's taxable year), and
(iii) the sum of any untaxed, undistributed net investment income and net
capital gains of the regulated investment company for prior periods. The term
"distributed amount" generally means the sum of (i) amounts actually
distributed by the fund from its current year's ordinary income and capital
gain net income and (ii) any amount on which the fund pays income tax during
the periods described above. The fund intends to distribute net investment
income and net capital gains so as to minimize or avoid the excise tax
liability.
If for any taxable year the fund does not qualify for the special tax
treatment afforded regulated investment companies, all of its taxable income
would be subject to tax at regular corporate rates (without any deduction for
distributions to its shareholders). In such event, dividend distributions
would be taxable to shareholders to the extent of earnings and profits, and
might be eligible for the dividends-received deduction for corporations. Under
normal circumstances, no part of the distributions to shareholders by the fund
is expected to qualify for the dividends-received deduction allowed to
corporate shareholders.
If a shareholder exchanges or otherwise disposes of shares of the fund within
90 days of having acquired such shares, and if, as a result of having acquired
those shares, the shareholder subsequently pays a reduced sales charge for
shares of the fund, or of a different fund, the sales charge previously
incurred in acquiring the fund's shares will not be taken into account (to the
extent such previous sales charges do not exceed the reduction in sales
charges) for the purposes of determining the amount of gain or loss on the
exchange, but will be treated as having been incurred in the acquisition of
such other funds. Also, any loss realized on a redemption or exchange of
shares of the fund will be disallowed to the extent substantially identical
shares are reacquired within the 61-day period beginning 30 days before and
ending 30 days after the shares are disposed of.
As of the date of this statement of additional information, the maximum
individual tax rate applicable to ordinary income is 39.6% (effective tax rates
may be higher for some individuals due to phase out of exemptions and
elimination of deductions); the maximum individual tax rate applicable to net
capital gains on assets held more than 18 months is 20%, and on assets held
more than one year and not more than 18 months is 28%; and the maximum
corporate tax applicable to ordinary income and net capital gains is 35%.
However, to eliminate the benefit of lower marginal corporate income tax rates,
corporations which have taxable income in excess of $100,000 for a taxable year
will be required to pay an additional amount of income tax of up to $11,750 and
corporations which have taxable income in excess of $15,000,000 for a taxable
year will be required to pay an additional amount of income tax of up to
$100,000. Naturally, the amount of tax payable by a taxpayer will be affected
by a combination of tax law rules covering, E.G., deductions, credits,
deferrals, exemptions, sources of income and other matters.
Under the Code, distributions of net investment income by the fund to a
nonresident alien individual, nonresident alien fiduciary of a trust or estate,
foreign corporation, or foreign partnership (a "foreign shareholder") will be
subject to U.S. withholding tax (at a rate of 30% or a lower treaty rate, if
applicable). Withholding will not apply if a dividend paid by the fund is
"effectively connected" with a U.S. trade or business, in which case the
reporting and withholding requirements applicable to U.S. citizens, U.S.
residents, or domestic corporations will apply.
PURCHASE OF SHARES
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METHOD INITIAL INVESTMENT ADDITIONAL INVESTMENTS
See "Investment Minimums and $50 minimum (except where a lower minimum is noted
Fund Numbers" for initial under "Investment Minimums and Fund Numbers").
investment minimums.
BY CONTACTING Visit any investment dealer who Mail directly to your investment dealer's address printed on
YOUR is registered in the state where your account statement.
INVESTMENT the purchase is made and who
DEALER has a sales agreement with
American Funds Distributors.
BY MAIL Make your check payable to the Fill out the account additions form at the bottom of a recent
fund and mail to the address account statement, make your check payable to the fund,
indicated on the account write your account number on your check, and mail the
application. Please indicate an check and form in the envelope provided with your account
investment dealer on the statement.
account application.
BY TELEPHONE Please contact your investment Complete the "Investments by Phone" section on the
dealer to open account, then account application or American FundsLink Authorization
follow the procedures for Form. Once you establish the privilege, you, your financial
additional investments. advisor or any person with your account information can
call American FundsLineR and make investments by
telephone (subject to conditions noted in "Telephone and
Computer Purchases, Redemptions and Exchanges"
below).
BY COMPUTER Please contact your investment Complete the American FundsLink Authorization Form.
dealer to open account, then Once you establish the privilege, you, your financial advisor
follow the procedures for or any person with your account information may access
additional investments. American FundsLine OnLine(SM) on the Internet and make
investments by computer (subject to conditions noted in
"Telephone and Computer Purchases, Redemptions and
Exchanges" below).
BY WIRE Call 800/421-0180 to obtain your Your bank should wire your additional investments in the
account number(s), if necessary. same manner as described under "Initial Investment."
Please indicate an investment
dealer on the account. Instruct
your bank to wire funds to:
Wells Fargo Bank
155 Fifth Street
Sixth Floor
San Francisco, CA 94106
(ABA #121000248)
For credit to the account of:
American Funds Service
Company
a/c #4600-076178
(fund name)
(your fund acct. no.)
THE FUND AND AMERICAN FUNDS DISTRIBUTORS RESERVE THE RIGHT TO REJECT ANY PURCHASE ORDER.
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INVESTMENT MINIMUMS AND FUND NUMBERS -- Here are the minimum initial
investments required by the funds in The American Funds Group along with fund
numbers for use with our automated phone line, American FundsLine(R) (see
description below):
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FUND MINIMUM FUND
INITIAL NUMBER
INVESTMENT
STOCK AND STOCK/BOND FUNDS
AMCAP Fund(R) $1,000 02
American Balanced Fund(R) 500 11
American Mutual Fund(R) 250 03
Capital Income Builder(R) 1,000 12
Capital World Growth and Income Fund(SM) 1,000 33
EuroPacific Growth Fund(R) 250 16
Fundamental Investors(SM) 250 10
The Growth Fund of America(R) 1,000 05
The Income Fund of America(R) 1,000 06
The Investment Company of America(R) 250 04
The New Economy Fund(R) 1,000 14
New Perspective Fund(R) 250 07
SMALLCAP World Fund(R) 1,000 35
Washington Mutual Investors Fund(SM) 250 01
BOND FUNDS
American High-Income Municipal Bond Fund(R) 1,000 40
American High-Income Trust(SM) 1,000 21
The Bond Fund of America(SM) 1,000 08
Capital World Bond Fund(R) 1,000 31
Intermediate Bond Fund of America(SM) 1,000 23
Limited Term Tax-Exempt Bond Fund of America(SM) 1,000 43
The Tax-Exempt Bond Fund of America(R) 1,000 19
The Tax-Exempt Fund of California(R)* 1,000 20
The Tax-Exempt Fund of Maryland(R)* 1,000 24
The Tax-Exempt Fund of Virginia(R)* 1,000 25
U.S. Government Securities Fund(SM) 1,000 22
MONEY MARKET FUNDS
The Cash Management Trust of America(R) 2,500 09
The Tax-Exempt Money Fund of America(SM) 2,500 39
The U.S. Treasury Money Fund of America(SM) 2,500 49
___________
*Available only in certain states.
</TABLE>
For retirement plan investments, the minimum is $250, except that the money
market funds have a minimum of $1,000 for individual retirement accounts
(IRAs). Minimums are reduced to $50 for purchases through "Automatic
Investment Plans" (except for the money market funds) or to $25 for purchases
by retirement plans through payroll deductions and may be reduced or waived for
shareholders of other funds in The American Funds Group. TAX-EXEMPT FUNDS
SHOULD NOT SERVE AS RETIREMENT PLAN INVESTMENTS. The minimum is $50 for
additional investments (except as noted above).
DEALER COMMISSIONS -- The sales charges you pay when purchasing the stock,
stock/bond, and bond funds of The American Funds Group are set forth below.
The money market funds of The American Funds Group are offered at net asset
value. (See "Investment Minimums and Fund Numbers" for a listing of the
funds.)
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AMOUNT OF PURCHASE SALES CHARGE AS DEALER
AT THE OFFERING PRICE PERCENTAGE OF THE: CONCESSION
AS PERCENTAGE
OF THE
OFFERING
PRICE
NET AMOUNT OFFERING
INVESTED PRICE
STOCK AND STOCK/BOND FUNDS
Less than $50,000 6.10% 5.75% 5.00%
$50,000 but less than 100,000 4.71 4.50 3.75
BOND FUNDS
Less than $25,000 4.99 4.75 4.00
$25,000 but less than $50,000 4.71 4.50 3.75
$50,000 but less than $100,000 4.17 4.00 3.25
STOCK, STOCK/BOND, AND BOND
FUNDS
$100,000 but less than $250,000 3.63 3.50 2.75
$250,000 but less than $500,000 2.56 2.50 2.00
$500,000 but less than $1,000,000 2.04 2.00 1.60
$1,000,000 or more none none (see below)
</TABLE>
Commissions of up to 1% will be paid to dealers who initiate and are
responsible for purchases of $1 million or more, for purchases by any
employer-sponsored 403(b) plan or purchases by any defined contribution plan
qualified under Section 401(a) of the Internal Revenue Code including a
"401(k)" plan with 100 or more eligible employees, and for purchases made at
net asset value by certain retirement plans of organizations with collective
retirement plan assets of $100 million or more: 1.00% on amounts of $1 million
to $2 million, 0.80% on amounts over $2 million to $3 million, 0.50% on amounts
over $3 million to $50 million, 0.25% on amounts over $50 million to $100
million, and 0.15% on amounts over $100 million. The level of dealer
commissions will be determined based on sales made over a 12-month period
commencing from the date of the first sale at net asset value.
American Funds Distributors, at its expense (from a designated percentage of
its income), will, during the current fiscal year, provide additional
compensation to dealers. Currently these payments are limited to the top one
hundred dealers who have sold shares of the fund or other funds in The American
Funds Group. These payments will be based on a pro rata share of a qualifying
dealer's sales. American Funds Distributors will, on an annual basis,
determine the advisability of continuing these payments.
Any employer-sponsored 403(b) plan or defined contribution plan qualified
under Section 401(a) of the Internal Revenue Code including a "401(k)" plan
with 100 or more eligible employees or any other purchaser investing at least
$1 million in shares of the fund (or in combination with shares of other funds
in The American Funds Group other than the money market funds) may purchase
shares at net asset value; however, a contingent deferred sales charge of 1% is
imposed on certain redemptions made within twelve months of the purchase. (See
"Redeeming Shares--Contingent Deferred Sales Charge.") Investments by
retirement plans, foundations or endowments with $50 million or more in assets
may be made with no sales charge and are not subject to a contingent deferred
sales charge.
Qualified dealers currently are paid a continuing service fee not to exceed
0.25% of average net assets (0.15% in the case of the money market funds)
annually in order to promote selling efforts and to compensate them for
providing certain services. These services include processing purchase and
redemption transactions, establishing shareholder accounts and providing
certain information and assistance with respect to the fund.
NET ASSET VALUE PURCHASES -- The stock, stock/bond and bond funds may sell
shares at net asset value to: (1) current or retired directors, trustees,
officers and advisory board members of the funds managed by Capital Research
and Management Company, employees of Washington Management Corporation,
employees and partners of The Capital Group Companies, Inc. and its affiliated
companies, certain family members of the above persons, and trusts or plans
primarily for such persons; (2) current registered representatives, retired
registered representatives with respect to accounts established while active,
or full-time employees (and their spouses, parents, and children) of dealers
who have sales agreements with American Funds Distributors (or who clear
transactions through such dealers) and plans for such persons or the dealers;
(3) companies exchanging securities with the fund through a merger, acquisition
or exchange offer; (4) trustees or other fiduciaries purchasing shares for
certain retirement plans of organizations with retirement plan assets of $50
million or more; (5) insurance company separate accounts; (6) accounts managed
by subsidiaries of The Capital Group Companies, Inc.; and (7) The Capital Group
Companies, Inc., its affiliated companies and Washington Management
Corporation. Shares are offered at net asset value to these persons and
organizations due to anticipated economies in sales effort and expense.
STATEMENT OF INTENTION -- The reduced sales charges and offering prices set
forth in the prospectus apply to purchases of $50,000 or more made within a
13-month period subject to the following statement of intention (the Statement)
terms. The Statement is not a binding obligation to purchase the indicated
amount. When a shareholder elects to utilize the Statement in order to qualify
for a reduced sales charge, shares equal to 5% of the dollar amount specified
in the Statement will be held in escrow in the shareholder's account out of the
initial purchase (or subsequent purchases, if necessary) by the Transfer Agent.
All dividends and capital gain distributions on shares held in escrow will be
credited to the shareholder's account in shares (or paid in cash, if
requested). If the intended investment is not completed within the specified
13-month period, the purchaser will remit to the Principal Underwriter the
difference between the sales charge actually paid and the sales charge which
would have been paid if the total of such purchases had been made at a single
time. If the difference is not paid within 45 days after written request by
the Principal Underwriter or the securities dealer, the appropriate number of
shares held in escrow will be redeemed to pay such difference. If the proceeds
from this redemption are inadequate, the purchaser will be liable to the
Principal Underwriter for the balance still outstanding. The Statement may be
revised upward at any time during the 13-month period, and such a revision will
be treated as a new Statement, except that the 13-month period during which the
purchase must be made will remain unchanged and there will be no retroactive
reduction of the sales charges paid on prior purchases. Existing holdings
eligible for rights of accumulation (see the prospectus and account
application) may be credited toward satisfying the Statement. During the
Statement period reinvested dividends and capital gain distributions,
investments in money market funds, and investments made under a right of
reinstatement will not be credited toward satisfying the Statement.
In the case of purchase orders by the trustees of certain retirement plans by
payroll deduction, the sales charge for the investments made during the
13-month period will be handled as follows: The regular monthly payroll
deduction investment will be multiplied by 13 and then multiplied by 1.5. The
current value of existing American Funds investments (other than money market
fund investments) and any rollovers or transfers reasonably anticipated to be
invested in non-money market American Funds during the 13-month period is added
to the figure determined above. The sum is the Statement amount and applicable
breakpoint level. On the first investment and all other investments made
pursuant to the Statement, a sales charge will be assessed according to the
sales charge breakpoint thus determined. There will be no retroactive
adjustments in sales charges on investments previously made during the 13-month
period.
Shareholders purchasing shares at a reduced sales charge under a Statement
indicate their acceptance of these terms with their first purchase.
AGGREGATION -- Sales charge discounts are available for certain aggregated
investments. Qualifying investments include those by you, your spouse and your
children under the age of 21, if all parties are purchasing shares for their
own account(s), which may include purchases through employee benefit plan(s)
such as an IRA, individual-type 403(b) plan or single-participant Keogh-type
plan or by a business solely controlled by these individuals (for example, the
individuals own the entire business) or by a trust (or other fiduciary
arrangement) solely for the benefit of these individuals. Individual purchases
by a trustee(s) or other fiduciary(ies) may also be aggregated if the
investments are (1) for a single trust estate or fiduciary account, including
an employee benefit plan other than those described above or (2) made for two
or more employee benefit plans of a single employer or of affiliated employers
as defined in the 1940 Act, again excluding employee benefit plans described
above, or (3) for a diversified common trust fund or other diversified pooled
account not specifically formed for the purpose of accumulating fund shares.
Purchases made for nominee or street name accounts (securities held in the name
of an investment dealer or another nominee such as a bank trust department
instead of the customer) may not be aggregated with those made for other
accounts and may not be aggregated with other nominee or street name accounts
unless otherwise qualified as described above.
PRICE OF SHARES -- Purchases of shares are made at the offering price next
determined after the purchase order is received by the fund or American Funds
Service Company; this offering price is effective for orders received prior to
the time of determination of the net asset value and, in the case of orders
placed with dealers, accepted by the Principal Underwriter prior to its close
of business. In the case of orders sent directly to the fund or American Funds
Service Company, an investment dealer MUST be indicated. The dealer is
responsible for promptly transmitting purchase orders to the Principal
Underwriter. Orders received by the investment dealer, the Transfer Agent, or
the fund after the time of the determination of the net asset value will be
entered at the next calculated offering price. Prices which appear in the
newspaper are not always indicative of prices at which you will be purchasing
and redeeming shares of the fund, since such prices generally reflect the
previous day's closing price whereas purchases and redemptions are made at the
next calculated price. The net asset value per share of money market funds
normally will remain constant at $1.00 based on the fund's current practice of
valuing their shares using the penny-rounding method in accordance with rules
of the Securities and Exchange Commission.
The price you pay for shares, the public offering price, is based on the net
asset value per share which is calculated once daily at the close of trading
(currently 4:00 p.m., New York time) each day the New York Stock Exchange is
open. The New York Stock Exchange is currently closed on weekends and on the
following holidays: New Year's Day, Martin Luther King, Jr.'s Birthday,
President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas Day.
All portfolio securities of funds managed by Capital Research and Management
Company are valued, and the net asset value per share is determined, as
follows:
1. Equity securities, including depositary receipts, are valued at 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. In cases where equity
securities are traded on more than one exchange, the securities are valued on
the exchange or market determined by the Investment Adviser to be the broadest
and most representative market, which may be either a securities exchange or
the over-the-counter market. Fixed-income securities are valued at prices
obtained from a pricing service, when such prices are available; however, in
circumstances where the Investment Adviser deems it appropriate to do so, such
securities will be valued at the mean quoted bid and asked prices or at prices
for securities of comparable maturity, quality and type.
Securities with original maturities of one year or less having 60 days or
less to maturity are amortized to maturity based on their cost if acquired
within 60 days of maturity or, if already held on the 60th day, based on the
value determined on the 61st day. Forward currency contracts are valued at the
mean of representative quoted bid and asked prices.
Assets or liabilities initially expressed in terms of foreign currencies are
translated prior to the next determination of the net asset value of the fund's
shares into U.S. dollars at the prevailing market rates.
Securities and assets for which representative market quotations are not
readily available are valued at fair value as determined in good faith under
policies approved by the fund's Board. The fair value of all other assets is
added to the value of securities to arrive at the total assets;
2. Liabilities, including accruals of taxes and other expense items, are
deducted from total assets; and
3. Net assets so obtained are then divided by the total number of shares
outstanding, and the result, rounded to the nearer cent, is the net asset value
per share.
Any purchase order may be rejected by the Principal Underwriter or by the
fund. The fund will not knowingly sell fund shares (other than for the
reinvestment of dividends or capital gain distributions) directly or indirectly
or through a unit investment trust to any other investment company, person or
entity, where, after the sale, such investment company, person, or entity would
own beneficially directly, indirectly, or through a unit investment trust more
than 4.5% of the outstanding shares of the fund without the consent of a
majority of the Board of Directors.
REDEEMING SHARES
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By writing to American Funds Send a letter of instruction specifying the name of the fund, the
Service Company (at the number of shares or dollar amount to be sold, your name and
appropriate address indicated account number. You should also enclose any share certificates
under "Fund Organization and you wish to redeem. For redemptions over $50,000 and for certain
Management - Principal redemptions of $50,000 or less (see below), your signature must be
Underwriter and Transfer guaranteed by a member firm of a domestic stock exchange or the
Agent" in the prospectus) National Association of Securities Dealers, Inc. that is an eligible
guarantor institution, bank, savings association, or credit union. .
You should verify with the institution that it is an eligible guarantor
prior to signing. Additional documentation may be required for
redemption of shares held in corporate, partnership or fiduciary
accounts. Notarization by a Notary Public is not an acceptable
signature guarantee.
By contacting your investment If you redeem shares through your investment dealer, you may be
dealer charged for this service. SHARES HELD FOR YOU IN YOUR INVESTMENT
DEALER'S STREET NAME MUST BE REDEEMED THROUGH THE DEALER.
You may have a redemption You may use this option, provided the account is registered in the
check sent to you by using name of an individual(s), a UGMA/UTMA custodian, or a non-
retirement plan trust. These redemptions may not exceed $50,000
American FundsLine (R) per shareholder per day per fund account and the check must be
or American FundsLine made payable to the shareholder(s) of record and be sent to the
Online(SM) or by telephoning, address of record provided the address has been used with the
faxing, or telegraphing account for at least 10 days. See "Fund Organization and
American Funds Service Management - Principal Underwriter and Transfer Agent" in the
Company (subject to the prospectus and "Exchange Privilege" below for the appropriate
conditions noted in this section telephone or fax number.
and in "Telephone and
Computer Purchases
Redemptions and Exchanges"
below)
In the case of the money Upon request (use the account application for the money market
market funds, you may have funds) you may establish telephone redemption privileges (which will
redemptions wired to your bank enable you to have a redemption sent to your bank account) and/or
by telephoning American Funds check writing privileges. If you request check writing privileges, you
Service Company ($1,000 or will be provided with checks that you may use to draw against your
more) or by writing a check account. These checks may be made payable to anyone you
($250 or more) designate and must be signed by the authorized number of
registered shareholders exactly as indicated on your checking
account signature card.
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A SIGNATURE GUARANTEE IS NOT CURRENTLY REQUIRED FOR ANY REDEMPTION OF $50,000
OR LESS PROVIDED THE REDEMPTION CHECK IS MADE PAYABLE TO THE REGISTERED
SHAREHOLDER(S) AND IS MAILED TO THE ADDRESS OF RECORD, AND PROVIDED THE ADDRESS
HAS BEEN USED WITH THE ACCOUNT FOR AT LEAST 10 DAYS.
CONTINGENT DEFERRED SALES CHARGE -- A contingent deferred sales charge of 1%
applies to certain redemptions made within twelve months of purchase on
investments of $1 million or more and on any investment made with no initial
sales charge by any employer-sponsored 403(b) plan or defined contribution plan
qualified under Section 401(a) of the Internal Revenue Code including a
"401(k)" plan with 100 or more eligible employees. The charge is 1% of the
lesser of the value of the shares redeemed (exclusive of reinvested dividends
and capital gain distributions) or the total cost of such shares. Shares held
for the longest period are assumed to be redeemed first for purposes of
calculating this charge. The charge is waived for exchanges (except if shares
acquired by exchange were then redeemed within 12 months of the initial
purchase); for distributions from qualified retirement plans and other employee
benefit plans; for redemptions resulting from participant-directed switches
among investment options within a participant-directed employer- sponsored
retirement plan; for distributions from 403(b) plans or IRAs due to death,
disability or attainment of age 59 1/2; for tax-free returns of excess
contributions to IRAs; for redemptions through certain automatic withdrawals
not exceeding 10% of the amount that would otherwise be subject to the charge;
and for redemptions in connection with loans made by qualified retirement
plans.
SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES
AUTOMATIC INVESTMENT PLAN -- The automatic investment plan enables you to make
regular monthly or quarterly investments in shares through automatic charges to
your bank account. With shareholder authorization and bank approval, the
Transfer Agent will automatically charge the bank account for the amount
specified ($50 minimum), which will be automatically invested in shares at the
offering price on or about the dates you select. Bank accounts will be charged
on the day or a few days before investments are credited, depending on the
bank's capabilities, and you will receive a confirmation statement at least
quarterly. Participation in the plan will begin within 30 days after receipt
of the account application. If your bank account cannot be charged due to
insufficient funds, a stop-payment order or closing of the account, the plan
may be terminated and the related investment reversed. You may change the
amount of the investment or discontinue the plan at any time by writing to the
Transfer Agent.
AUTOMATIC REINVESTMENT -- Dividends and capital gain distributions are
reinvested in additional shares at no sales charge unless you indicate
otherwise on the account application. You also may elect to have dividends
and/or capital gain distributions paid in cash by informing the fund, American
Funds Service Company or your investment dealer.
CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS -- You may elect to
cross-reinvest dividends or dividends and capital gain distributions paid by
that fund (the "paying fund") into any other fund in The American Funds Group
(the "receiving fund") subject to the following conditions: (i) the aggregate
value of your account(s) in the paying fund(s) must equal or exceed $5,000
(this condition is waived if the value of the account in the receiving fund
equals or exceeds that fund's minimum initial investment requirement), (ii) as
long as the value of the account in the receiving fund is below that fund's
minimum initial investment requirement, dividends and capital gain
distributions paid by the receiving fund must be automatically reinvested in
the receiving fund, and (iii) if this privilege is discontinued with respect to
a particular receiving fund, the value of the account in that fund must equal
or exceed the fund's minimum initial investment requirement or the fund will
have the right, if you fail to increase the value of the account to such
minimum within 90 days after being notified of the deficiency, automatically to
redeem the account and send the proceeds toyou. These cross-reinvestments of
dividends and capital gain distributions will be at net asset value (without
sales charge).
EXCHANGE PRIVILEGE -- You may exchange shares into other funds in The American
Funds Group. Exchange purchases are subject to the minimum investment
requirements of the fund purchased and no sales charge generally applies.
However, exchanges of shares from the money market funds are subject to
applicable sales charges on the fund being purchased, unless the money market
fund shares were acquired by an exchange from a fund having a sales charge, or
by reinvestment or cross-reinvestment of dividends or capital gain
distributions.
You may exchange shares by writing to American Funds Service Company (see
"Redeeming Shares"), by contacting your investment dealer, by using American
FundsLine(R) or American FundsLine Online(SM)(see "American FundsLine(R) and
American FundsLine Online(SM)" below), or by telephoning 800/421-0180
toll-free, faxing (see "Transfer Agent" below for the appropriate fax numbers)
or telegraphing American Funds Service Company. (See "Telephone and Computer
Purchases, Redemptions and Exchanges" below.) Shares held in corporate-type
retirement plans for which Capital Guardian Trust Company serves as trustee may
not be exchanged by telephone, fax or telegraph. Exchange redemptions and
purchases are processed simultaneously at the share prices next determined
after the exchange order is received. (See "Purchase of Shares--Price of
Shares.") THESE TRANSACTIONS HAVE THE SAME TAX CONSEQUENCES AS ORDINARY SALES
AND PURCHASES.
AUTOMATIC EXCHANGES -- You may automatically exchange shares (in amounts of $50
or more) among any of the funds in The American Funds Group on any day (or
preceding business day if the day falls on a non-business day) of each month
you designate. You must either meet the minimum initial investment requirement
for the receiving fund OR the originating fund's balance must be at least
$5,000 and the receiving fund's minimum must be met within one year.
AUTOMATIC WITHDRAWALS -- Withdrawal payments are not to be considered as
dividends, yield or income. Automatic investments may not be made into a
shareholder account from which there are automatic withdrawals. Withdrawals of
amounts exceeding reinvested dividends and distributions and increases in share
value would reduce the aggregate value of your account. The Transfer Agent
arranges for the redemption by the fund of sufficient shares, deposited by you
with the Transfer Agent, to provide the withdrawal payment specified.
ACCOUNT STATEMENTS -- Your account is opened in accordance with your
registration instructions. Transactions in the account, such as additional
investments , will be reflected on regular confirmation statements from
American Funds Service Company. Dividend and capital gain reinvestments and
purchases through automatic investment plans and certain retirement plans will
be confirmed at least quarterly.
AMERICAN FUNDSLINE(R) AND AMERICAN FUNDSLINE ONLINE(SM) -- You may check your
share balance, the price of your shares, or your most recent account
transaction, redeem shares (up to $50,000 per shareholder each day), or
exchange shares around the clock with American FundsLine(R) and American
FundsLine Online(SM). To use this service, call 800/325-3590 from a
TouchTone(TM) telephone or access the American Funds Website on the Internet at
www.americanfunds.com. Redemptions and exchanges through American FundsLine(R)
and American FundsLine Online(SM) are subject to the conditions noted above and
in "Redeeming Shares--Telephone and Computer Purchases, Redemptions and
Exchanges" below. You will need your fund number (see the list of funds in The
American Funds Group under "Purchase of Shares--Investment Minimums and Fund
Numbers"), personal identification number (the last four digits of your Social
Security number or other tax identification number associated with your
account) and account number.
TELEPHONE AND COMPUTER PURCHASES, REDEMPTIONS AND EXCHANGES -- By using the
telephone (including American FundsLine(R) and American FundsLine Online(SM)),
fax or telegraph redemption and/or exchange options, you agree to hold the
fund, American Funds Service Company, any of its affiliates or mutual funds
managed by such affiliates, and each of their respective directors, trustees,
officers, employees and agents harmless from any losses, expenses, costs or
liability (including attorney fees) which may be incurred in connection with
the exercise of these privileges. Generally, all shareholders are
automatically eligible to use these options. However, you may elect to opt out
of these options by writing American Funds Service Company (you may reinstate
them at any time also by writing American Funds Service Company). If American
Funds Service Company does not employ reasonable procedures to confirm that the
instructions received from any person with appropriate account information are
genuine, the fund may be liable for losses due to unauthorized or fraudulent
instructions. In the event that shareholders are unable to reach the fund by
telephone because of technical difficulties, market conditions, or a natural
disaster, redemption and exchange requests may be made in writing only.
REDEMPTION OF SHARES - The fund's Articles of Incorporation permit the fund to
direct the Transfer Agent to redeem your shares if the shares through
redemptions, market decline or otherwise, have a value of less than $1000
(determined, for this purpose only as the greater of your cost or the current
net asset value of the shares, including any shares acquired through
reinvestment of income dividends and capital gain distributions), or are fewer
than ten shares. Prior notice of at least 60 days will be given to you before
the involuntary redemption provision is made effective with respect to your
account. You will have not less than 30 days from the date of such notice
within which to bring the account up to the minimum determined as set forth
above.
EXECUTION OF PORTFOLIO TRANSACTIONS
Orders for the fund's portfolio securities transactions are placed by the
Investment Adviser. The Investment Adviser strives to obtain the best
available prices in its portfolio transactions taking into account the costs
and promptness of executions. When circumstances relating to a proposed
transaction indicate that a particular broker (either directly or through its
correspondent clearing agents) is in a position to obtain the best price and
execution, the order is placed with that broker. This may or may not be a
broker who has provided investment research statistical, or other related
services to the Investment Adviser or has sold shares of the fund or other
funds served by the Investment Adviser. The fund does not consider that it has
an obligation to obtain the lowest available commission rate to the exclusion
of price, service and qualitative considerations.
There are occasions on which portfolio transactions for the fund may be
executed as part of concurrent authorizations to purchase or sell the same
security for other funds served by the Investment Adviser, or for trusts or
other accounts served by affiliated companies of the Investment Adviser.
Although such concurrent authorizations potentially could be either
advantageous or disadvantageous to the fund, they are effected only when the
Investment Adviser believes that to do so is in the interest of the fund. When
such concurrent authorizations occur, the objective is to allocate the
executions in an equitable manner.
Brokerage commissions paid on portfolio transactions, including dealer
concessions on underwritings, for the fiscal year ended August 31, 1997
amounted to $739,000.
GENERAL INFORMATION
CUSTODIAN OF ASSETS -- Securities and cash owned by the fund, including
proceeds from the sale of shares of the fund and of securities in the fund's
portfolio, are held by The Chase Manhattan Bank, One Chase Manhattan Plaza,
New York, NY 10081, as Custodian.
TRANSFER AGENT -- American Funds Service Company, a wholly owned subsidiary of
the Investment Adviser, maintains the record of each shareholder's account,
processes purchases and redemptions of the fund's shares, acts as dividend and
capital gain distribution disbursing agent, and performs other related
shareholder service functions. It was paid a fee of $454,000 for the fiscal
year ended August 31, 1997.
INDEPENDENT ACCOUNTANTS -- Price Waterhouse LLP, 400 South Hope Street, Los
Angeles, CA 90071, has served as the fund's independent accountants since its
inception, providing audit services, preparation of tax returns and review of
certain documents to be filed with the Securities and Exchange Commission. The
financial statements included in this Statement of Additional Information have
been so included in reliance on the report of the independent accountants given
on the authority of said firm as experts in auditing and accounting.
SHAREHOLDER VOTING RIGHTS -- At any meeting of shareholders, duly called for
such purpose, and at which a quorum is present, the shareholders may, by the
affirmative vote of the holders of a majority of the votes entitled to be cast
thereon, remove any director or directors from office and may elect a successor
or successors to fill any resulting vacancies for the unexpired terms of
removed directors. The fund has made an undertaking, at the request of the
staff of the Securities and Exchange Commission, to apply the provisions of
section 16(c) of the 1940 Act with respect to the removal of directors, as
though the fund were a common-law trust. Accordingly, the directors of the
fund shall promptly call a meeting of shareholders for the purpose of voting
upon the question of removal of any director when requested in writing to do so
by the record holders of not less than 10% of the outstanding shares.
REPORTS TO SHAREHOLDERS -- The fund's fiscal year ends on August 31.
Shareholders are provided at least semi-annually with reports showing the
investment portfolio, financial statements and other information. The fund's
annual financial statements are audited annually by the fund's independent
accountants, Price Waterhouse LLP, whose selection is determined annually by
the Board of Directors.
PERSONAL INVESTING POLICY -- The Investment Adviser and its affiliated
companies have adopted a personal investing policy consistent with Investment
Company Institute guidelines. This policy includes: a ban on acquisitions of
securities pursuant to an initial public offering; restrictions on acquisitions
of private placement securities; pre-clearance and reporting requirements;
review of duplicate confirmation statements; annual recertification of
compliance with codes of ethics; disclosure of personal holdings by certain
investment personnel prior to recommendation for purchase for the fund;
blackout periods on personal investing for certain investment personnel; ban on
short-term trading profits for investment personnel; limitations on service as
a director of publicly traded companies; and disclosure of personal securities
transactions. You may obtain a summary of the personal investing policy by
contacting the Secretary of the fund.
The financial statements including the investment portfolio and the report of
independent accountants contained in the annual report are included in this
statement of additional information. The following information is not included
in the annual report:
<TABLE>
<CAPTION>
DETERMINATION OF NET ASSET VALUE, REDEMPTION PRICE AND
MAXIMUM OFFERING PRICE PER SHARE -- AUGUST 31, 1997
<S> <C>
Net asset value and redemption price per share
(Net assets divided by shares outstanding) $12.27
Maximum offering price per share (100/95.25 of
per share net asset value, which takes into account
the fund's current maximum sales charge) $12.88
</TABLE>
INVESTMENT RESULTS
The fund's yield was 4.15% based on a 30-day (or one month) period ended
August 31, 1997, computed by dividing the net investment income per share
earned during the period by the maximum offering price per share on the last
day of the period, according to the following formula:
YIELD = 2[( a-b/cd + 1)/6/ - 1]
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends.
d = the maximum offering price per share on the last day of the
period.
The fund may also calculate a tax equivalent yield based on a 30-day (or one
month) period ended no later than the date of the most recent balance sheet
included in the registration statement, computed by dividing that portion of
the yield (as computed by the formula stated above) which is tax-exempt by one
minus a stated income tax rate and adding the product to that portion, if any,
of the yield that is not tax-exempt. The fund's tax equivalent yield based on
the maximum individual effective federal tax rate of 39.6% for the 30-day (or
one month) period ended August 31, 1997 was 6.87%.
The fund may also calculate a distribution rate on a taxable and tax
equivalent basis. The distribution rate is computed by annualizing the current
month's dividend and dividing by the average price for the month. The taxable
equivalent distribution rate will reflect the most current federal and state
tax rates available. The current distribution rate may differ from the current
yield.
The fund's total return over the past 12 months and average annual total
returns over the past five-year and ten-year periods ending on August 31, 1997
were 4.20%, 6.05% and 7.43%, respectively. The average annual total return
("T") is computed by equating the value at the end of the period ("ERV") with a
hypothetical initial investment of $1,000 ("P") over a period of years ("n")
according to the following formula as required by the Securities and Exchange
Commission: P(1+T)/n/ = ERV.
The following assumptions will be reflected in computations made in accordance
with the formula stated above: (1) deduction of the maximum sales load of
4.75% from the $1,000 initial investment; (2) reinvestment of dividends and
distributions at net asset value on the reinvestment date determined by the
Board; and (3) a complete redemption at the end of any period illustrated.
During its lifetime, the fund had a total return of 319.6% compared with
360.7% for The Bond Buyer Index./1/ In the period from January 1, 1980, when
the Lehman Brothers Municipal Bond Index/2/ began, to August 31, 1997, the fund
had a total return of 319.0% and the index showed a 338.5% return.Note that
past results are not an indication of future investment results.
The fund may also refer to results compiled by organizations such as Lipper
Analytical Services, Morningstar, Inc. and Wiesenberger Investment Companies
Services. Additionally, the fund may, from time to time, refer to results
published in various newspapers or periodicals, including Barrons, Forbes,
Fortune, Institutional Investor, Kiplinger's Personal Finance Magazine, Money,
U.S. News and World Report and The Wall Street Journal.
/1/ The Bond Buyer Index is unmanaged, reflects no expenses or management fees
and consists of 20 General Obligations bonds maturity in 20 years and rated A
to AA by Standard & Poor's Corporation.
/2/ The Lehman Brothers Municipal Bond Index is unmanaged, reflects no expenses
or management fees and consists of a large universe of municipal bonds issued
as state general obligations or revenue bonds with a minimum rating of BBB by
Standard & Poor's Corporation.
SEE THE DIFFERENCE TIME CAN MAKE IN AN INVESTMENT PROGRAM
<TABLE>
<CAPTION>
...and taken all distributions
If you had invested in shares, your investment
$10,000 in the fund would have been worth this
this many years ago... much at August 31, 1997
| |
<S> <C> <C>
Periods
Number of Years 9/1-8/31 Value
1 1996 - 1997 $10,420
2 1995 - 1996 10,990
3 1994 - 1996 11,951
4 1993 - 1996 11,934
5 1992 - 1996 13,413
6 1991 - 1996 14,869
7 1990 - 1996 16,601
8 1989 - 1996 17,405
9 1988 - 1996 19,195
10 1987 - 1997 20,476
11 1986 - 1997 20,703
12 1985 - 1997 25,694
13 1984 - 1997 29,902
14 1983 - 1997 32,116
15 1982 - 1997 37,360
16 1981 - 1997 46,952
17 1980 - 1997 42,764
18 1979*- 1997 41,961
</TABLE>
ILLUSTRATION OF A $10,000 INVESTMENT IN THE FUND
WITH DIVIDENDS REINVESTED
(FOR THE LIFETIME OF THE FUND OCTOBER 3, 1979 THROUGH AUGUST 31, 1997)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
COST OF SHARES VALUE OF SHARES**
Fiscal Annual Dividends Total From From From Total
Year End Dividends (cumulative) Investment Initial Capital Gains Dividends Value
Aug. 31 Cost Investment Reinvested Reinvested
1980* $ 553 $ 553 $ 10,553 $ 8,819 $ 0 $ 529 $ 9,348
1981 779 1,332 11,332 7,362 0 1,146 8,508
1982 932 2,264 12,264 8,362 0 2,334 10,696
1983 978 3,242 13,242 8,971 0 3,473 12,444
1984 1,026 4,268 14,268 8,895 0 4,466 13,361
1985 1,182 5,450 15,450 9,543 0 6,012 15,555
1986 1,297 6,747 16,747 10,962 53 8,297 19,312
1987 1,335 8,082 18,082 10,267 192 9,057 19,516
1988 1,390 9,472 19,472 10,162 307 10,358 20,827
1989 1,499 10,971 20,971 10,467 317 12,176 22,960
1990 1,573 12,544 22,544 10,267 311 13,493 24,071
1991 1,621 14,165 24,165 10,762 326 15,800 26,888
1992 1,723 15,888 25,888 11,219 339 18,234 29,792
1993 1,773 17,661 27,661 11,838 577 21,077 33,492
1994 1,874 19,535 29,535 11,095 773 21,576 33,444
1995 2,011 21,546 31,546 11,371 792 24,192 36,355
1996 2,017 23,563 33,563 11,295 1,042 26,024 38,360
1997 2,131 25,693 35,693 11,686 1,193 29,082 41,961
</TABLE>
Includes reinvested dividends of $23,563 and reinvested capital gain
distributions of $1,146
* From inception on October 3, 1979
** Results assume deduction of the maximum sales charge of 4.75% from the
initial purchase payment.
DESCRIPTION OF RATINGS FOR DEBT SECURITIES
The ratings of Moody's Investors Service, Inc. and Standard & Poor's
Corporation represent their opinions as to the quality of the municipal bonds
which they undertake to rate. It should be emphasized, however, that ratings
are general and are not absolute standards of quality. Consequently, municipal
bonds with the same maturity, coupon and rating may have different yields,
while municipal bonds of the same maturity and coupon with different ratings
may have the same yield.
Moody's Investors Service, Inc. rates the long-term debt securities issued by
various entities from "Aaa" to "C." Moody's applies the numerical modifiers 1,
2, and 3 in each generic rating classification from AA through B in its
corporate bond rating system. The modifier 1 indicates that the security ranks
in the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the issue ranks in the
lower end of its generic rating category. Ratings are described as follows:
BONDS --
"Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as 'gilt
edge.' Interest payments are protected by a large or by an exceptionally
stable margin, and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues."
"Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities, or fluctuation of
protective elements may be of greater amplitude, or there may be other elements
present which make the long-term risks appear somewhat larger than the Aaa
securities."
"Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future."
"Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and, in
fact, have speculative characteristics as well."
"Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class."
"Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small."
"Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest."
"Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or having other marked
shortcomings."
"Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing."
NOTES --
"The MIG 1 designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing.
The MIG 2 designation denotes high quality. Margins of protection are ample
although not as large as in the preceding group."
COMMERCIAL PAPER --
"Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics:
-- Leading market positions in well established industries.
-- High rates of return on funds employed.
-- Conservative capitalization structures with moderate reliance on debt and
ample asset protection.
-- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
-- Well established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while appropriate, may
be more affected by external conditions. Ample alternate liquidity is
maintained."
Standard & Poor's Corporation rates the long-term securities debt of various
entities in categories ranging from "AAA" to "D" according to quality. The
ratings from "AA" to "CCC" may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within the major rating categories.
Ratings are described as follows:
BONDS -- "Debt rated 'AAA' has the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely strong."
"Debt rated 'AA' has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree."
"Debt rated 'A' has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories."
"Debt rated 'BBB' is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories."
"BB, B, CCC, CC, C -- Regarded, on balance, as predominantly speculative with
respect to capacity to pay interest and repay principal in accordance with the
terms of the obligation. BB indicates the lowest degree of speculation and C
the highest degree of speculation. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions."
"The rating 'C1' is reserved for income bonds on which no interest is being
paid."
"Debt rated 'D' is in payment default. The 'D' rating category is used when
interest payments or principal payments are not made on the date due even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The 'D' rating also will be
used upon the filing of a bankruptcy petition if debt service payments are
jeopardized."
NOTES -- "The SP-1 rating denotes a very strong or strong capacity to pay
principal and interest. Those issues determined to possess overwhelming safety
characteristics will be given a plus (+) designation.
The SP-2 rating denotes a satisfactory capacity to pay principal and
interest."
COMMERCIAL PAPER --
The A-1 designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+)
designation."
<TABLE>
THE TAX-EXEMPT BOND FUND OF AMERICA
Investment Portfolio, August 31, 1997
Geographic Breakdown
<S> <C> <C>
New York -- 12.51%
California -- 10.31%
Illinois -- 9.41%
Michigan -- 7.95%
Washington -- 7.29%
Pennsylvania -- 5.30%
Other States -- 41.16%
Cash & Short-Term Securities -- 6.07%
Aaa/AAA -- 32.26%
Aa/AA -- 17.20%
A/A -- 15.61%
Baa/BBB -- 23.22%
Below investment grade 5.64%
Cash & Short-Term Securities 6.07%
Principal Market
Amount Value
(000) (000)
Tax-Exempt Securities Maturing in More than
One Year - 93.93%
Alabama - 0.41%
Daughters of Charity, National Health System,
5.25% 2015 $4,000 $3,879
The Industrial Development Board of the City of
Mobile, Solid Waste Revenue Refunding Bonds (Mobile
Energy Services Co., LLC Projects), Series
1995, 6.95% 2020 2,500 2,723
Alaska - 1.22%
Housing Finance Corp.,
Collateralized Bonds (Veterans Mortgage
Program), Series 1992A-1, 6.75% 2032 4470 4696
Municipality of Anchorage:
1995 General Obligation Refunding General Purpose
Bonds, Series B, FGIC Insured, 6.00% 2012 2895 3178
Municipal Light & Power, Senior Lien Refunding Electric
Revenue Bonds, MBIA Insured, Series 1996, 6.50% 2014 5000 5750
City of Valdez, Marine Terminal Revenue Refunding
Bonds (BP Pipelines Inc. Project), Series 1993B,
5.50% 2028 6000 5843
Arizona - 0.46%
State Transportation Board, Subordinated Highway
Revenue Bonds, Series 1992B, 6.50% 2008
(Prerefunded 2002) 1850 2042
The Industrial Development Authority of the City
of Scottsdale, Hospital Revenue Refunding Bonds,
Scottsdale Memorial Hospitals, Series 1996A,
AMBAC Insured:
6.50% 2005 2270 2527
6.50% 2006 1200 1346
6.50% 2007 1290 1455
California - 10.31%
General Obligation Bonds:
6.75% 2006 1000 1150
5.25% 2016 7320 7207
Health Facilities Financing Authority,
Hospital Revenue Bonds (Downey Community Hospital), Series 1993,
5.75% 2015 4990 5023
Public Works Board, Lease Revenue Bonds,
California Community Colleges, 1994 Series B
(Various Community College Projects):
6.75% 2005 2505 2848
7.00% 2007 1315 1492
Statewide Communities Development Authority:
Children's Hospital of Los Angeles, MBIA Insured,
6.00% 2008 1715 1880
Kaiser Permanente Medical Care Program, Semi-Annual
Tender Revenue Bonds:
Series A, 7.00% 2018 1900 2030
1985 Tender Bonds, 5.55% 2025 5000 4944
St. Joseph Health System Obligated Group,
Certificates of Participation:
5.50% 2014 2000 2006
5.50% 2023 2700 2678
California Department of Water Resources, Central Valley Project,
Water System Revenue Bonds, Series Q, MBIA Insured, 5.375% 2027 2500 2458
Alameda Public Financing Authority, 1997 Revenue Bonds
(Marina Village Assessment District Bond Refinancing):
6.05% 2008 1000 1022
6.375% 2014 1000 1022
Anaheim Public Financing Authority, Lease Revenue Bonds (Anaheim
Public Improvements Project), Senior Lease Revenue Bonds,
1997 Series A, FSA Insured, 6.00% 2024 1000 1095
Association of Bay Area Governments Finance
Authority For Nonprofit Corporations, Certificates of Participation
(Stanford University Hospital),
Series 1993, 5.50% 2013 2000 2010
Castaic Lake Water Agency Financing Corporation,
Refunding Revenue Certificates of Participation
(Water System Improvement Projects), Series 1994A,
MBIA Insured, 7.00% 2011 2400 2896
Central Valley Financing Authority, Cogeneration
Project Revenue Bonds (Carson Ice-Gen Project), Series 1993:
6.00% 2009 3750 3897
6.10% 2013 1000 1039
Culver City Redevelopment Financing Authority, 1993
Tax Allocation Refunding Revenue Bonds, AMBAC Insured,
5.00% 2023 3635 3398
Long Beach Aquarium of the Pacific, Revenue Bonds
(Aquarium of the Pacific Project), 1995 Series A:
6.10% 2010 4000 4119
6.125% 2015 5500 5603
6.125% 2023 13000 13195
City of Los Angeles:
State Building Authority, Lease Revenue Refunding Bonds,
Department of General Services Lease, 1993 Series A:
5.375% 2006 3000 3145
5.50% 2007 7295 7703
Convention and Exhibition Center Authority,
Certificates of Participation:
7.375% 2018 (Prerefunded 1999) 1000 1078
7.00% 2020 (Prerefunded 1999) 2750 2946
Regional Airports Improvement Corp.,
Facilities Lease Refunding Revenue Bonds,
Issue of 1992, United Air Lines, Inc. (Los
Angeles International Airport), 6.875% 2012 2000 2163
Department of Water and Power, Electric Plant Revenue
Bonds, Issue of 1990, 7.10% 2031 (Subject to Crossover
Refunding 2001) 3000 3275
County of Los Angeles:
Capital Asset Leasing Corp., Certificates of
Participation (Marina Del Rey), Series A:
6.25% 2003 5500 5876
6.50% 2008 4750 5041
Metropolitan Transportation Authority,
Proposition C Sales Tax Revenue Bonds,
Second Series 1993B, AMBAC Insured, 5.25% 2023 1300 1250
Transportation Commission, Sales
Tax Revenue Bonds, Series 1989, 7.00% 2019 2000 2134
The Metropolitan Water District of Southern
California, Waterworks General Obligation Refunding
Bonds, 1993 Series A1, 5.50% 2010 3000 3114
Northern California Power Agency, Geothermal
Project #3, Special Revenue Bonds, 1993 Refunding
Series A, 5.60% 2006 3000 3088
County of Orange:
Aliso Viejo Special Tax Bonds
of Community Facilities District No. 88-1,
Series A of 1992:
7.15% 2006 (Prerefunded 2002) 2000 2292
7.35% 2018 (Prerefunded 2002) 10000 11548
Recovery Certificates of
Participation, 1996 Series A, MBIA Insured,
6.00% 2008 5000 5476
South Orange County, Public Financing Authority,
Special Tax Revenue Bonds, 1994 Series B (Junior
Lien Bonds):
6.65% 2003 1000 1038
6.75% 2004 1000 1039
City of Stockton, Mello-Roos Revenue Bonds, Series 1997A,
Community Facilities District No. 90-2 (Brookside Estates),
5.40% 2004(1) 500 500
Pleasanton Joint Powers Financing Authority,
Reassessment Revenue Bonds, 1993 Series A, 5.70% 2001 485 503
Riverside County Transportation Commission, Sales
Tax Revenue Bonds (Limited Tax Bonds), 1991
Series A, 6.50% 2009 (Prerefunded 2001) 3600 3956
Sacramento City Financing Authority, 1991 Revenue
Bonds, 6.80% 2020 (Prerefunded 2001) 5000 5592
Sacramento Cogeneration Authority, Cogeneration
Project Revenue Bonds:
Procter & Gamble Project, 1995 Series:
6.20% 2006 1000 1072
6.375% 2010 1000 1083
1995 Series:
6.00% 2002 1000 1058
6.00% 2003 2200 2339
County of Sacramento, Laguna Creek Ranch/Elliott Ranch
Community Facilities District No.1, Improvement Area No.2,
Special Tax Refunding Bonds, 6.30% 2021 500 500
San Francisco Bay Area Rapid Transit District,
Sales Tax Revenue Refunding Bonds, Series 1990,
AMBAC Insured, 6.75% 2009 3250 3507
Redevelopment Agency of the City and County of
San Francisco, Refunding Lease Revenue Bonds,
Series 1991 (George R. Moscone Convention
Center), 5.50% 2018 4000 3932
County of San Diego, Reassessment District No. 97-1
(4-S Ranch), Limited Obligation Improvement Bonds,
6.25% 2012 1000 993
The Regents of the University of California,
Various University of California Projects, 1993:
Series B, 5.375% 2009 2000 2075
Series A, 5.50% 2021 2000 1971
Colorado - 4.27%
Housing And Finance Authority:
Multi-Family Housing Insured
Mortgage Revenue Bonds, 1982 Series A, 9.00% 2025 1780 1796
Single-Family Housing Program Senior and Subordinate Bonds:
1996 Series C-2, 7.10% 2015 3000 3334
1997 Series A-3, 7.00% 2016 1750 1946
1997 Series B-3, 6.80% 2028 1000 1103
Student Obligation Bond Authority, Student Loan Revenue
Bonds, 1994 Series L, 6.00% 2001 1065 1114
Arapahoe County, Capital Improvement Trust Fund
Highway Revenue Bonds (E-470 Project):
6.90% 2015 (Prerefunded 2005) 5750 6702
6.95% 2020 (Prerefunded 2005) 20500 23964
City and County of Denver, Airport System Revenue Bonds,
Series 1992A:
7.25% 2025 (Prerefunded 2002) 5590 6406
7.25% 2025 (Prerefunded 2002) 14210 16285
The Regents of the University of Colorado, Master Lease
Purchase Agreement, Refunding Certificates of
Participation (Telecommunications and Cogeneration
Projects), Series 1996, AMBAC Insured, 6.00% 2005 5000 5368
Connecticut - 1.91%
Health and Educational Facilities Authority Revenue Bonds,
University of Hartford Issue, Series D, 6.75% 2012 2800 2846
Housing Finance Authority, Housing Mortgage Finance Program Bonds,
Subseries B-1, 6.25% 2011 1000 1048
Mashantucket (Western) Pequot Tribe, Special Revenue Bonds,
1996 Series A:
6.25% 2002 2000 2129
6.25% 2003 4000 4280
6.375% 2004 10700 11567
6.50% 2005 3000 3257
6.40% 2011 5000 5313
Delaware - 0.07%
Economic Development Authority, First Mortgage Revenue Bonds
(Peninsula United Methodist Homes, Inc. Issue), Series 1997A,
6.00% 2009 1000 1038
District of Columbia - 1.67%
General Obligation Bonds:
Series 1990 A, AMBAC Insured, 7.25% 2005
(Prerefunded 2000) 2500 2734
Series 1992 B, MBIA Insured:
6.125% 2003 1750 1877
6.30% 2010 2900 3142
AMBAC Insured, 5.20% 2004 1000 1025
Series 1993 A, AMBAC Insured, 5.875% 2005 3000 3199
Series 1993 B-1, AMBAC Insured, 5.50% 2009 3000 3124
Hospital Revenue Refunding Bonds
(Medlantic Healthcare Group, Inc. Issue):
Series 1992 A, 7.00% 2005 2000 2173
Series 1993 A, MBIA Insured:
6.00% 2011 3765 4057
5.25% 2012 2000 1988
Series 1997A, MBIA Insured:
5.10% 2008 1000 998
5.20% 2009 1000 997
Redevelopment Land Agency, Sports Arena Special Tax Revenue
Bonds, Series 1996, 5.625% 2010 1275 1267
Florida - 1.09%
Arbor Green Community Development District (City of Tampa,
Hillsborough County), Special Assessment Revenue Bonds,
Series 1996, 7.60% 2018 1000 1032
Broward County, Resource Recovery Revenue Bonds,
Series 1984:
North Project, 7.95% 2008 4500 4905
South Project, 7.95% 2008 2155 2347
The Crossing at Fleming Island Community Development
District (Clay County), Special Assessment Bonds,
Series 1995, 8.25% 2016 1105 1194
Mid-Bay Bridge Authority, Revenue Refunding Bonds:
Series 1993D, 6.125% 2022 500 511
Series 1991B, 8.50% 2022 (Subject to Crossover Refunding) 4000 4550
Northern Palm Beach County Improvement District, Water
Control and Improvement Bonds, Unit of Development No. 9A,
Series 1996A:
6.80% 2006 1145 1198
7.30% 2027 1500 1581
Georgia - 1.44%
Municipal Electric Authority:
General Power Revenue Bonds:
1992B Series, 6.50% 2012 1215 1356
CTFS-1992B Series, 6.375% 2016 1000 1098
Mel Power, Project One Subordinated Bonds, AMBAC Insured,
Series B:
6.00% 2007(1) 1995 2166
5.625% 2009(1) 1000 1049
City of Atlanta:
Airport Facilities Revenue
Refunding Bonds, Series 1994 A, AMBAC Insured,
6.50% 2009 1000 1142
Special Purpose Facilities
Revenue Refunding Bonds (Delta Air Lines, Inc.
Project), Series 1989 A, 7.50% 2019 4500 4795
Fulco Hospital Authority, Revenue Anticipation
Certificates:
St. Joseph's Hospital of Atlanta, Inc.,
Series 1994, 4.80% 2001 2305 2334
Georgia Baptist Health Care System
Project:
Series 1992 A:
6.40% 2007 1000 1056
6.25% 2013 2100 2173
6.375% 2022 1595 1650
Series 1992 B, 6.375% 2022 610 631
Development Authority of Fulton County, Special
Facilities Revenue Bonds (Delta Air Lines, Inc.
Project), Series 1992, 6.95% 2012 3115 3396
Hawaii - 0.12%
City and County of Honolulu, General Obligation Bonds, Refunding
and Improvement Series, 1993B, 5.00% 2013 2000 1966
Illinois - 9.41%
Build Illinois Bonds (Sales Tax Revenue Bonds),
Series O, 6.00% 2002 1000 1065
Civic Center Bonds (Special State Obligation Bonds),
Series 1991, AMBAC Insured, 6.25% 2020 6500 7227
Educational Facilities Authority Revenue
Bonds, Wesleyan University, Series 1993,
5.625% 2018 1490 1490
Health Facilities Authority:
Revenue Bonds, Series 1993:
OSF Healthcare System, 5.75% 2007 6760 6910
Rush-Presbyterian-St. Luke's Medical Center Obligated Group,
MBIA Insured, 5.25% 2020 3000 2861
Refunding Bonds:
Edward Hospital Project, Series 1993 A:
5.75% 2009 1100 1115
6.00% 2019 1435 1452
Advocate Health Care Network, Series 1997 A:
5.50% 2008 2110 2178
5.80% 2016 10000 10155
Revenue and Revenue Refunding Bonds:
Evangelical Hospitals Corp., Series C,
6.25% 2022 (Escrowed to Maturity) 4000 4438
Lutheran General Health, Series C, 6.00% 2018 2705 2860
Revenue Bonds, Series 1992 (Edward Hospital
Association Project), 7.00% 2022 1000 1073
Revenue Refunding Bonds (Fairview),
Series 1995 A:
6.25% 2001 1105 1126
6.50% 2006 770 794
7.40% 2023 1000 1045
Revenue Bonds, Series 1994 A (Northwestern Memorial
Hospital), 6.00% 2024 2000 2059
Housing Development Authority, Multi-Family Housing Bonds,
1992 Series A, 7.00% 2010 1490 1591
City of Chicago:
General Obligation Bonds, Project and Refunding,
Series 1995B, FGIC Insured, 5.125% 2025 4000 3794
The County of Cook, General Obligation Capital Improvement
Bonds, Series 1996, FGIC Insured:
6.00% 2006 3920 4282
6.50% 2011 4000 4623
Chicago-O'Hare International Airport:
General Airport Second Lien Revenue Refunding Bonds,
1993 Series C, MBIA Insured, 5.00% 2018 10000 9415
Special Facilities Revenue Bonds for United
Air Lines:
1984 Series C, 8.20% 2018 6645 7167
1988 Series B, 8.85% 2018 1865 2115
Special Facilities Revenue Refunding Bonds:
Delta Air Lines, Inc. Terminal, 6.45% 2018 4435 4636
Series 1994 (American Airlines, Inc. Project),
8.20% 2024 2750 3294
Metropolitan Pier and Exposition Authority, McCormick Place
Expansion Project Bonds, Series 1992A, 6.50% 2027
(Prerefunded 2003) 3910 4364
Metropolitan Water Reclamation District of Greater
Chicago, Series B:
Capital Improvement Bonds, 5.25% 2004 5000 5183
Refunding Bonds, 5.30% 2005 5325 5530
Sales Tax Revenue Bonds, Series 1997,
FGIC Insured, 5.375% 2027 5000 4902
School Reform Board of Trustees of the Board of Education
of the City of Chicago, Unlimited Tax General Obligation Bonds
(Dedicated Tax Revenues), Series 1997, AMBAC Insured, 6.75% 2012 4000 4691
Skyway Toll Bridge Refunding Revenue Bonds,
Series 1994:
6.50% 2010 (Prerefunded 2004) 13250 14745
6.75% 2014 (Prerefunded 2004) 6500 7321
Water Revenue Bonds, Refunding
Series 1993, FGIC Insured:
6.50% 2011 4435 5001
5.50% 2025 2565 2386
Regional Transportation Authority, Cook, Du Page,
Kane, Lake, McHenry and Will Counties,
General Obligation Bonds:
Series 1994D, FGIC Insured, 7.75% 2019 4500 5843
Series 1990A, AMBAC Insured, 7.20% 2020 1000 1236
Indiana - 2.95%
Educational Facilities Authority, Educational
Facilities Revenue Bonds (University of Evansville
Project), Series 1996, 5.25% 2005 1000 1009
Health Facility Financing Authority, Hospital Revenue Bonds
(Clarian Health Partners, Inc.), Series 1996A, 5.50% 2016 11000 10862
Housing Finance Authority, Single Family Mortgage
Refunding Revenue Bonds, 1992 Series A, 6.75% 2010 1275 1348
State Office Building Commission, Correctional
Facilities Program Revenue Bonds, Series 1995B,
AMBAC Insured, 6.25% 2012 8490 9530
Transportation Finance Authority, Airport
Facilities Lease Revenue Bonds, Series A:
6.50% 2007 3245 3538
6.50% 2007 (Prerefunded 2002) 3755 4162
6.75% 2011 (Prerefunded 2002) 2400 2688
City of East Chicago, Pollution Control Refunding
Revenue Bonds (Inland Steel Co. Project No. 11),
Series 1994, 7.125% 2007 3000 3272
Hospital Authority of the City of Fort Wayne,
Revenue Bonds (Parkview Memorial Hospital, Inc.
Project), Series 1992:
6.375% 2013 6000 6341
6.40% 2022 2000 2103
Indianapolis Local Public Improvement Bond Bank,
Series 1992 D Bonds, 6.60% 2007 1960 2207
Iowa - 0.13%
Finance Authority Single Family Mortgage Bonds, 1997 Series F,
5.55% 2016 2000 1993
Kentucky - 0.24%
Higher Education Student Loan Corp., Insured
Student Loan Revenue Bonds, 1994 Series B,
6.20% 1999 1140 1186
Kenton County Airport Board, Special Facilities
Revenue Bonds (Delta Air Lines, Inc. Project):
Series 1985, 7.80% 2015 1000 1073
1992 Series B, 7.25% 2022 1350 1481
Louisiana - 3.92%
Health Education Authority, Revenue Bonds (Lambeth House Project),
Series 1996, 9.00% 2026 9000 9616
Lake Charles Harbor and Terminal District, Port
Facilities Revenue Refunding Bonds (Trunkline
LNG Co. Project), Series 1992, 7.75% 2022 28000 32020
Offshore Terminal Authority, Deepwater Port
Refunding Revenue Bonds (LOOP INC. Project):
First Stage Series B:
5.40% 1998 3150 3195
6.25% 2004 5600 6063
First Stage Series E:
7.45% 2004 1000 1096
7.60% 2010 1000 1093
Public Facilities Authority, Fixed Rate Health and
Education Capital Facilities Revenue Bonds, AMBAC Insured,
Remarketing 6/2/97:
Series 1985A-1, 5.00% 2015 1500 1534
Series 1985B-1, 5.00% 2015 5000 5114
Parish of St. Charles, Adjustable/Fixed-Rate
Pollution Control Revenue Bonds (Louisiana
Power & Light Co. Project),
Series 1984, 8.25% 2014 2490 2696
Maine - 0.20%
Housing Authority, Mortgage Purchase
Bonds, 1994 Series C-1, 5.90% 2015 3115 3201
Maryland - 1.89%
Community Development Administration, Department
of Housing and Community Development, Single
Family Program Bonds:
1990 First Series, 7.60% 2017 5920 6190
1997 First Series, 5.25% 2005 5815 5948
Health and Higher Educational Facilities Authority:
Revenue Bonds, Howard County General Hospital
Issue, Series 1993:
5.50% 2013 2300 2277
5.50% 2021 6225 5962
Project and Refunding Revenue Bonds,
Peninsula Regional Medical Center Issue, Series 1993,
5.25% 2012 1000 993
Calvert County, Maryland Economic Development
Revenue Bonds (Asbury-Solomons Island Facility),
Series 1995, 8.625% 2024 2500 2798
Johns Hopkins Hospital Issue, Revenue Refunding
Bonds, Series 1993, 5.00% 2023 2000 1894
Prince George's County, Hospital Revenue Bonds,
Dimensions Health Corp. Issue:
Series 1992, 7.25% 2017 (Prerefunded 2002) 750 853
5.30% 2024 3305 3168
Massachusetts - 2.40%
General Obligation Bonds Consolidated Loan of
1989, Series D, MBIA Insured, 7.00% 2009
(Prerefunded 1999) 1000 1076
Massachusetts Bay Transportation Authority, General
Transportation System Bonds, 1994 Series A
Refunding Bonds, 7.00% 2007 10110 11767
Health and Educational Facilities Authority,
Revenue Bonds, Brigham and Women's Hospital Issue,
Series D, 6.75% 2024 7000 7566
Housing Finance Agency, Single Family Housing Revenue Bonds,
Series 39, 6.50% 2014 1425 1475
Water Resources Authority:
General Revenue Bonds, 1990 Series A, 7.50% 2009
(Prerefunded 2000) 9500 10433
General Revenue Refunding Bonds, 1993 Series B,
5.25% 2009 2500 2518
Boston City Hospital (FHA Insured Mortgage),
7.625% 2021 980 1084
The New England Loan Marketing Corp.,
Student Loan Refunding Bonds:
1992 Series A, 6.50% 2002 1000 1079
1993 Series G, 5.20% 2002 1200 1211
Michigan - 7.95%
State Hospital Finance Authority Hospital Revenue Refunding Bonds:
Daughters of Charity, National Health System, 5.50% 2005 1750 1827
Genesys Health System Obligated Group, Series 1995A:
7.10% 2002 2055 2237
7.20% 2003 1000 1103
8.00% 2005 8880 10260
8.10% 2013 5000 5855
8.125% 2021 4500 5240
7.50% 2027 3020 3368
McLaren Obligated Group, Series 1993A, 5.375% 2013 2985 2936
Sinai Hospital of Greater Detroit, Series 1995:
6.625% 2016 5750 6163
6.70% 2026 1680 1804
Pontiac Osteopathic, Series 1994 A:
6.00% 2014 3500 3556
6.00% 2024 3400 3431
State Housing Development Authority, Rental Housing
Revenue Bonds, 1994 Series A:
6.20% 2003 1600 1679
AMBAC Insured, 6.40% 2005 1850 1988
Job Development Authority, Pollution
Control Revenue Bonds (Chrysler Corp.
Project), Series 1984, 5.70% 1999 7000 7194
City of Detroit,
General Obligation Revenue Bonds (Unlimited Tax):
Series 1995-A, 5.60% 2001 4250 4377
Series 1995-B:
6.25% 2001 6585 6925
6.75% 2003 8675 9486
7.00% 2004 2500 2789
6.25% 2005 2625 2827
6.25% 2008 1730 1851
6.25% 2009 1195 1271
6.25% 2010 1250 1322
Downtown Development Authority,
Tax Increment Bonds (Development Area No. 1 Projects),
Series 1996C:
6.20% 2017 9310 9782
6.25% 2025 4265 4477
City of Royal Oak Hospital Financing Authority,
Hospital Revenue Refunding Bonds (William Beaumont
Hospital), Series 1993 G, 5.25% 2019 8000 7765
Charter County of Wayne, Special Airport Facilities
Revenue Refunding Bonds (Northwest Airlines, Inc.
Facilities), Series 1995, 6.75% 2015 13985 15160
Minnesota - 0.44%
Housing Finance Agency:
Housing Development Bonds, 1991 Series A, 6.85% 2007 2535 2673
Single Family Mortgage Bonds, 1994 Series E,
Remarketing 3/12/96, 5.60% 2013 2220 2249
Regents of the University of Minnesota, General
Obligations Bonds, Series 1996A, 5.50% 2006 2000 2113
Mississippi - 0.58%
Claiborne County, Adjustable/Fixed-Rate Pollution
Control Revenue Bonds (Middle South Energy, Inc.
Project), Series C, 9.875% 2014 8500 9219
Nevada - 0.24%
City of Henderson, Local Improvement
District No. T-10 (Seven Hills) Limited Obligation
Improvement Bonds, 7.50% 2015 1500 1548
General Obligation (Limited Tax) Bonds, Series A-2, 6.00% 2011 2135 2340
New Hampshire - 0.19%
Business Finance Authority, Pollution Control
Refunding Revenue Bonds (The United Illuminating
Co. Project), Series A 1993, 5.875% 2033 2985 2944
New Jersey - 1.36%
Economic Development Authority, First
Mortgage Revenue Fixed Rate Bonds:
Fellowship Village Project, Series 1995A, 9.25% 2025 7000 8316
Winchester Gardens at Ward Homestead Project,
Series 1996A:
8.50% 2016 4000 4236
8.625% 2025 3500 3725
Housing and Mortgage Finance Agency,
Section 8 Bonds, 1991 Series A:
6.80% 2005 2570 2757
6.85% 2006 2500 2677
New Mexico - 0.20%
Mortgage Finance Authority, Single Family Mortgage
Purchase Refunding Senior Bonds, 1992 Series
A-1, 6.85% 2010 3040 3188
New York - 12.51%
Dormitory Authority:
State University Educational Facilities Revenue
Refunding Bonds:
Series B, 5.70% 2004 1485 1559
Series 1990 A, 7.50% 2013 3500 4297
Series 1990 B:
7.50% 2011 1720 2063
7.00% 2016 1000 1078
Court Facilities, Lease Revenue Bonds, Series 1993A,
5.50% 2010 4000 4032
City University System, Consolidated Second
General Resolution Revenue Bonds:
Series 1990 F, FGIC Insured, 7.50% 2020
(Prerefunded 2000) 7100 7852
Series G, 5.00% 2002 2000 2035
Environmental Facilities Corporation, State Water
Pollution Control Revolving Fund Revenue Bonds
(New York City Municipal Water Finance Authority
Project):
Series 1994 A, 5.75% 2009 6000 6413
Series 1991 E, 6.875% 2010 1500 1650
Series 1990 A, 7.50% 2012 500 552
Housing Finance Agency, Health Facilities Revenue Bonds
(New York City), 1996 Series A Refunding, 6.375% 2003 5000 5399
Local Government Assistance Corp.:
Series 1991 A, 7.00% 2016 (Prerefunded 2001) 7000 7756
Series 1991 B, 7.50% 2020 (Prerefunded 2001) 6925 7788
Series 1991 C, 0% 2005 5000 3486
Series 1991 D:
7.00% 2011 (Prerefunded 2002) 2000 2249
7.00% 2018 (Prerefunded 2002) 8650 9726
6.75% 2021 (Prerefunded 2002) 1350 1504
Series 1992 C, 5.50% 2022 1000 984
State Medical Care Facilities Finance Agency:
Mental Health Services Facilities Improvement
Revenue Bonds:
1991 Series A, 7.50% 2021 (Prerefunded 2001) 3645 4085
1994 Series A, 5.10% 2003 1720 1753
1997 Series B, 5.30% 2004 2220 2282
Series D, 5.25% 2023 1000 939
Series 1997B:
6.00% 2005 1000 1067
6.00% 2007 1750 1880
5.60% 2008 1300 1345
5.70% 2009 2795 2873
St. Luke's-Roosevelt Hospital Center FHA-Insured Mortgage
Revenue Bonds, 1993 Series A, 5.60% 2013 9380 9578
Metropolitan Transit Authority, Transit Facilities
Service Contract Bonds, Series O and P,
5.375% 2002 4000 4135
Urban Development Corp., Correctional
Capital Facilities Revenue Bonds:
Series 1993 A, Refunding Series, 5.30% 2005 2800 2865
Series 2, 6.50% 2021 (Prerefunded 2001) 3700 3959
Battery Park City Authority, Revenue Refunding
Bonds, Series 1993 A:
5.00% 2013 5000 4817
5.25% 2017 2500 2418
4.75% 2019 18000 16028
City of New York, General Obligation Bonds:
Fiscal 1992 Series C, 6.50% 2004 2500 2696
Fiscal 1992 Series H:
6.875% 2002 (Escrowed to Maturity) 285 313
6.875% 2002 1615 1755
Fiscal 1995 Series F:
6.375% 2006 3000 3261
6.60% 2010 2000 2176
6.625% 2025 1500 1634
Fiscal 1993 Series A, 6.25% 2003 2200 2365
Fiscal 1991 Series B, 8.25% 2006 1500 1832
Fiscal 1995 Series E:
6.50% 2004 4550 4946
MBIA Insured, 6.20% 2008 3000 3311
Fiscal 1996 Series E, 6.50% 2006 7500 8230
Fiscal 1996 Series I, 6.50% 2006 7000 7687
Municipal Water Finance Authority,
Water and Sewer System Revenue Bonds:
Fiscal 1991 Series C, 7.75% 2020 (Prerefunded 2001) 5000 5666
Fiscal 1994 Series B:
4.875% 2002 3000 3044
5.50% 2019 2000 1985
Transit Authority, Transit
Facilities Revenue Bonds (Livingston Plaza
Project), Series 1990, FSA Insured, 7.50% 2020
(Prerefunded 2000) 4000 4370
Triborough Bridge and Tunnel Authority, General
Purpose and Revenue Bonds:
Series S, 7.00% 2021 (Prerefunded 2001) 11400 12523
Series Y, 6.00% 2012 1000 1095
North Carolina - 1.51%
Eastern Municipal Power Agency, Power System Revenue
Bonds:
Series 1993 B:
6.00% 2006 3000 3169
7.25% 2007 5000 5735
7.00% 2008 10045 11373
6.00% 2026 1700 1754
Series 1993 C, 5.00% 2021 2300 2053
Ohio - 0.12%
County of Franklin, Hospital Facilities Revenue
Refunding and Improvement Bonds (Doctors Hospital
Project), 5.60% 2006 1750 1854
Oklahoma - 0.87%
Health System Revenue
Bonds, Baptist Medicine Center of Oklahoma,
Series 1995 C, AMBAC Insured, 6.375% 2009 2500 2761
State Industrial Authority, Health System
Revenue Refunding Bonds (Obligated Group consisting
of INTEGRIS Baptist Medical Center, Inc., INTEGRIS
South Oklahoma City Hospital Corp. and INTEGRIS
Rural Health, Inc.), AMBAC Insured, Series 1995D:
6.00% 2009 2500 2700
6.00% 2010 5020 5395
Tulsa Industrial Authority, Hospital Revenue
and Refunding Bonds,
St. John Medical Center Project, Series 1996,
5.375% 2017 3000 2970
Pennsylvania - 5.30%
Convention Center Authority, Refunding
Revenue Bonds, 1994 Series A, 6.25% 2004 10000 10583
Higher Educational Facilities Authority, Revenue
Bonds (Thomas Jefferson University), 1992
Series A, 6.625% 2009 1250 1363
Housing Finance Authority, Single Family Mortgage
Revenue Bonds,
Series 1992-33, 6.85% 2009 1000 1065
Industrial Development Authority,
Economic Development Revenue Bonds, Series 1994,
AMBAC Insured, 7.00% 2007 1750 2052
Hospitals and Higher Education Facilities
Authority of Philadelphia:
Hospital Revenue Bonds (The Children's Hospital of
Philadelphia Project):
Series A of 1992:
6.50% 2009 (Prerefunded 2002) 4500 4944
6.50% 2021 (Prerefunded 2002) 3000 3296
Series A of 1993, 5.00% 2021 8000 7397
Frankford Hospital, Series A:
6.00% 2014 2705 2758
6.00% 2023 4000 4054
Hospital Authority of Philadelphia, Hospital
Revenue Bonds (Temple University Hospital):
Series of 1993 A, 6.50% 2008 15500 17028
5.70% 2009 1000 1014
Series of 1983, 6.625% 2023 15385 16521
City of Pottsville Hospital Authority, Hospital
Revenue Bonds (The Pottsville Hospital and Warne
Clinic), Series of 1994, 7.25% 2024 8500 9091
Scranton-Lackawanna Health and Welfare Authority,
Hospital Revenue Bonds (Moses Taylor Hospital Project),
Series 1997:
6.05% 2010 1000 1016
6.15% 2012 2245 2273
Rhode Island - 1.81%
Convention Center Authority, Refunding Revenue
Bonds, MBIA Insured, 1993 Series B, 5.00% 2008 2790 2822
Depositors Economic Protection Corp., Special
Obligation Bonds:
1993 Series A, MBIA Insured:
5.75% 2012 4850 5195
6.25% 2016 4500 4978
1992 Series A, FSA Insured, 6.625% 2019
(Prerefunded 2002) 1000 1112
1993 Series A (Escrowed to Maturity):
6.375% 2022 7000 7889
5.75% 2021 1210 1260
5.75% 2021 2715 2828
Housing and Mortgage Finance Corporation,
Homeownership Opportunity Bonds, Series 3-A,
7.80% 2010 2500 2677
South Dakota - 0.09%
Housing Development Authority,
Homeownership Mortgage Bonds, 1995 Series A and B,
6.00% 2023 1305 1350
Tennessee - 2.27%
Health and Educational Facilities Board of the
Metropolitan Government of Nashville and Davidson
County (Blakeford Project), 9.25% 2024 6600 7417
Memphis-Shelby County Airport Authority, Special
Facilities Revenue Bonds, Refunding Series 1992
(Federal Express Corp.), 6.75% 2012 26375 28788
Texas - 2.86%
National Research Laboratory Commission, General
Obligation Bonds, Series 1990 (Superconducting
Super Collider Project), 7.125% 2020
(Prerefunded 2000) 14450 15738
Dallas/Fort Worth International Airport
Facility Improvement Corp.:
American Airlines, Inc., Revenue Bonds, Series 1995,
6.00% 2014 2590 2669
Delta Air Lines, Inc., Revenue Refunding Bonds,
Series 1993, 6.25% 2013 2400 2497
Harris County Health Facilities Development
Corp., SCH Health Care System Revenue Bonds
(Sisters of Charity of the Incarnate Word, Houston):
Series 1991A, 7.10% 2021 (Prerefunded 2001) 8000 8907
Series 1997B, 6.25% 2027 1500 1664
Hidalgo County Health Services Corp., Hospital Revenue
Bonds (Mission Hospital, Inc. Project), Series 1996:
7.00% 2008 1000 1089
6.75% 2016 1740 1839
Northeast Medical Center, Hospital Authority, County of Humble,
Revenue Bonds, FSA Insured, 6.25% 2012 1000 1104
Northside Independent School District (Bexar,
Medina and Bandera Counties), Unlimited
Tax School Building Bonds, Series 1991, 6.375% 2008
(Prerefunded 2001) 3500 3731
Tomball Hospital Authority, Hospital Revenue
Refunding Bonds, Series 1993, 6.125% 2023 6250 6350
Utah - 1.47%
Housing Finance Agency, Single Family Mortgage
Bonds, 1995 Issue E (Federally Insured or
Guaranteed Mortgage Loans), 5.50% 2024 1415 1438
Intermountain Power Agency:
Special Obligation Refunding Bonds,
5th Crossover Series 1987B,
FGIC Insured, 7.00% 2015 7000 7157
1997 Series A, AMBAC Insured, 6.50% 2011 1435 1650
Salt Lake City, Hospital Revenue Bonds, Series
1992 (IHC Hospitals, Inc.):
5.50% 2021 8100 8016
6.25% 2023 5000 5229
Vermont - 0.02%
Housing Finance Agency, Single Family
Housing Bonds, Series 4, 5.75% 2012 290 295
Virginia - 1.23%
Housing Development Authority, Commonwealth Mortgage
Bonds:
Series D, Subseries D-3, Remarketing 5/30/96:
6.00% 2012 1430 1491
6.00% 2012 1470 1533
6.05% 2013 1510 1578
6.05% 2013 1555 1625
Series D, Subseries D-4, Remarketing 7/16/96:
6.00% 2009 1180 1239
6.00% 2009 1220 1281
6.05% 2010 1255 1316
6.05% 2010 1290 1353
Industrial Development Authority of Fairfax
County, Hospital Revenue Refunding Bonds (Inova
Health System Hospitals Project), Series 1993A:
4.80% 2005 1850 1857
5.00% 2011 1300 1281
5.00% 2023 1200 1125
Industrial Development Authority of the County of
Hanover, Hospital Revenue Bonds (Memorial Regional
Medical Center Project at Hanover Medical Park),
Series 1995, MBIA Insured,
6.50% 2009 1000 1146
Industrial Development Authority of the City of
Norfolk, Hospital Revenue Bonds (Sentara
Hospitals-Norfolk Project), Series 1991,
6.50% 2013 2500 2706
Washington - 7.29%
General Obligation, Series B:
5.50% 2010 2000 2101
5.50% 2018 13100 13492
Health Care Facilities Authority, Revenue Bonds,
Refunding Series 1997A (Virginia Mason Medical Center),
MBIA Insured:
6.00% 2005 2325 2506
6.00% 2007 1500 1629
Public Power Supply System:
Nuclear Project No. 1 Refunding Revenue Bonds,
Series 1989A:
7.50% 2015 (Prerefunded 1999) 1820 1962
6.00% 2017 2000 2006
Nuclear Project No. 2 Refunding Revenue Bonds:
Series 1990A, 7.375% 2012 (Prerefunded 2000) 17335 19063
Series 1990C, 7.30% 2000 1800 1934
Series 1992A, 5.90% 2004 3850 4079
Series 1993B, FSA Insured, 5.65% 2008 3030 3188
Series 1994A:
6.00% 2007 19900 21342
5.25% 2008 5000 5012
Nuclear Project No. 3 Refunding Revenue Bonds:
BIG Insured, 7.25% 2016 (Prerefunded 1999) 5000 5369
Series 1989 B:
7.25% 2015 (Prerefunded 2000) 5450 5911
FGIC Insured, 7.00% 2005 14400 15476
5.375% 2015 5000 4874
7.125% 2016 5250 6215
Wisconsin - 1.23%
Health and Educational Facilities Authority,
Revenue Bonds:
Children's Hospital Project, Series 1993, FGIC Insured,
5.50% 2006 2000 2102
Medical College of Wisconsin, Series 1993, 5.95% 2015 3000 3062
Housing and Economic Development Authority, Housing
Revenue Bonds, 6.40% 2003 3480 3663
Pollution Control and Industrial Development Revenue
Bonds (General Motors Corp. Projects), City
of Janesville, Series 1984, 5.55% 2009 3000 3080
Public Power Incorporated System,
Power Supply System Revenue Bonds, Series
1990 A, AMBAC Insured, 7.40% 2020
(Prerefunded 2000) 500 551
City of Superior, Limited Obligation
Refunding Revenue Bonds (Midwest Energy Resources
Co. Project), Series E-1991 (Collateralized),
FGIC Insured, 6.90% 2021 6000 7210
Wyoming - 0.09%
Community Development Authority, Single Family
Mortgage Bonds, 1989 Series A, 7.90% 2017 405 419
Student Loan Corp., Student Loan Revenue
Refunding Bonds, Series 1991, 6.25% 1999 950 987
Guam - 0.19%
General Obligation Bonds, 1995 Series A, 5.625% 2002 3000 3036
-----------
1496327
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Tax-Exempt Securities Maturing in
One Year or Less - 4.95%
State of Colorado, Tax and Revenue Anticipation Notes,
1997 Series A, 4.50% 6/26/98 3800 3821
State of California, County of Contra Costa, Tax and Revenue
Anticipation Notes, 1997-1998 Series A, 4.50% 7/1/98 11400 11465
Harris County Toll Road (Texas), Unlimited Tax and Subordinate Lein Revenue,
Bonds, Series 1984,
10.375% 2014 (Prerefunded 1998) 1000 1027
State of Texas, City of Houston, Tax and Revenue Anticipation Notes,
Series 1997, 4.50% 6/30/98 7000 7039
State of California, Los Angeles County, Tax and Revenue
Anticipation Notes, Series A, 4.50% 6/30/98 23300 23432
State of Michigan, Full Faith and Credit General Obligation
Notes, 4.50% 9/30/97 11050 11056
State of New Mexico, 1997-98 Tax and Revenue Ancticipation Notes,
Series 1997, 4.50% 6/30/98 1500 1508
City of New York, Municipal Water Finance Authority,
Water and Sewer System Revenue Bonds,
Fiscal 1989 Series B, FGIC Insured,
7.625% 2017 (Prerefunded 1998) 3000 3134
State of North Carolina, Raleigh-Durham Airport Authority, Special
Facility Refunding Revenue Bonds (American Airlines, Inc. Project),
Series B, 3.75% 11/1/15(2) 500 500
State of Pennsylvania, School District of Philadelphia, Tax and
Revenue Anticipation Notes, Series of 1997-1998,
4.50% 6/30/98 6000 6031
City of Saint Paul (Minnesota), Housing and Redevelopment Authority,
Hospital Facility Revenue Bonds (Healtheast Project),
Series 1987-B:
9.75% 2017 (Subject to Crossover Prerefunding 1997) 3005 3092
9.75% 2017 (Subject to Crossover Prerefunding 1997) 495 509
State of Arizona, Salt River Project Agricultural Improvement and
Power District, Electric System Revenue Bonds,
Refunding Series A, 7.875% 2028 (Prerefunded 1998) 1000 1033
The Regents of the University of California,
Revenue Bonds, Series A, MBIA Insured, 6.90% 2015
(Prerefunded 1997) 1500 1530
Commonwealth Transportation Board, Commonwealth of
Virginia Transportation Contract Revenue Bonds,
Series 1988 (Route 28 Project), 7.80% 2016
(Prerefunded 1998) 3500 3639
-----------
78816
-----------
TOTAL TAX-EXEMPT SECURITIES (cost: $1,462,874,000) 1575143
Excess of cash and receivables over payables 17956
-----------
NET ASSETS $1,593,099
======
(1)Represents a when-issued security.
(2)Coupon rate changes periodically.
See Notes to Financial Statements
</TABLE>
<PAGE>
<TABLE>
The Tax-Exempt Bond Fund of America
Financial Statements
<S> <C> <C>
Statement of Assets and Liabilities
at August 31, 1997 (dollars in thousands)
Assets:
Tax-exempt securities (cost: $1,462,874) $1,575,143
Cash 84
Receivables for--
Sales of fund's shares 4,147
Accrued interest 22,358 26,505
------------------ ------------------
1,601,732
Liabilities:
Payables for--
Purchases of investments 3,689
Repurchases of fund's shares 785
Dividends payable 2,839
Management services 483
Accrued expenses 837 8,633
------------------ ------------------
Net Assets at August 31, 1997--
Equivalent to $12.27 per share on
129,790,898 shares of $1 par value
capital stock outstanding (authorized
capital stock--200,000,000 shares) $1,593,099
===========
Statement of Operations
For the year ended August 31, 1997
(dollars in thousands)
Income:
Investment Income:
Interest on tax-exempt securities $90,918
Expenses:
Management services fee $5,567
Distribution expenses 3,718
Transfer agent fee 454
Reports to shareholders 121
Registration statement and prospectus 157
Postage, stationery and supplies 147
Directors' fees 24
Auditing and legal fees 39
Custodian fee 60
Taxes other than federal income tax 23
Other expenses 85 10,395
------------------
Net investment income 80,523
------------------
Realized Gain and Increase in Unrealized
Appreciation on Investments:
Net realized gain 3,847
Net unrealized appreciation on investments:
Beginning of year 59,520
End of year 112,269
------------------
Net change in unrealized appreciation
on investments 52,749
------------------
Net realized gain and increase in
unrealized appreciation on investments 56,596
------------------
Net Increase in Net Assets Resulting
from Operations $137,119
===========
Statement of Changes in Net Assets
(dollars in thousands)
Year ended August 31
1997 1996
------------------ ------------------
Operations:
Net investment income $ 80,523 $ 79,143
Net realized gain on investments 3,847 7,208
Increase in unrealized appreciation
on investments 52,749 (7,326)
------------------ ------------------
Net increase in net assets
resulting from operations 137,119 79,025
------------------ ------------------
Dividends and Distributions Paid to
Shareholders:
Dividends from net investment income (80,789) (79,078)
Distributions from net realized gain on
investments (4,359) (10,310)
------------------ ------------------
Total dividends and distributions (85,148) (89,388)
------------------ ------------------
Capital Share Transactions:
Proceeds from shares sold:
20,390,763 and 24,816,640
shares, respectively 246,583 298,087
Proceeds from shares issued in
reinvestment of net investment
income dividends and distributions
of net realized gain on investments:
4,336,074 and 4,705,048 shares,
respectively 52,363 56,559
Cost of shares repurchased:
19,372,679 and 24,383,250
shares, respectively (233,780) (292,301)
------------------ ------------------
Net increase in net assets
resulting from capital share
transactions 65,166 62,345
------------------ ------------------
Total Increase in Net Assets 117,137 51,982
Net Assets:
Beginning of year 1,475,962 1,423,980
------------------ ------------------
End of year $1,593,099 $1,475,962
=========== ===========
See Notes to Financial Statements
</TABLE>
<PAGE>
Notes to Financial Statements
1. The Tax-Exempt Bond Fund of America, Inc. (the "fund") is registered under
the Investment Company Act of 1940 as an open-end, diversified management
investment company. The fund seeks a high level of federally tax-free current
income, consistent with the preservation of capital, through a diversified
portfolio of municipal bonds. The following paragraphs summarize the
significant accounting policies consistently followed by the fund in the
preparation of its financial statements:
Tax-exempt securities with original or remaining maturities in excess of
60 days are valued at prices obtained from a national municipal bond pricing
service. The pricing service takes into account various factors such as
quality, yield and maturity of tax-exempt securities comparable to those held
by the fund, as well as actual bid and asked prices on a particular day. Other
securities with original or remaining maturities in excess of 60 days,
including securities for which pricing service values are not available, are
valued at the mean of their quoted bid and asked prices. However, in
circumstances where the investment adviser deems it appropriate to do so,
securities will be valued at the mean of their representative quoted bid and
asked prices or, if such prices are not available, at the mean of such prices
for securities of comparable maturity, quality and type. Securities for which
market quotations are not readily available are valued at fair value by the
Board of Directors or a committee thereof. All securities with 60 days or less
to maturity are valued at amortized cost, which approximates market value.
As is customary in the mutual fund industry, securities transactions are
accounted for on the date the securities are purchased or sold. In the event
the fund purchases securities on a delayed delivery or "when-issued" basis, it
will segregate with its custodian liquid assets in an amount sufficient to meet
its payment obligations in these transactions. Realized gains and losses from
securities transactions are reported on an identified cost basis. Interest
income is reported on the accrual basis. Premiums and original issue discounts
on securities purchased are amortized. Amortization of market discounts on
securities is recognized upon disposition, subject to applicable tax
requirements. Dividends to shareholders are declared daily after the
determination of the fund's net investment income and paid to shareholders
monthly.
2. It is the fund's policy to continue to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its net investment income, including any net realized gain on
investments, to its shareholders. Therefore, no federal income tax provision is
required.
As of August 31, 1997, net unrealized appreciation on investments for book
and federal income tax purposes aggregated $112,269,000, of which $113,051,000
related to appreciated securities and $782,000 related to depreciated
securities. There was no difference between book and tax realized gains on
securities transactions for the year ended August 31, 1997. The cost of
portfolio securities for book and federal income tax purposes was
$1,462,874,000 at August 31, 1997.
3. The fee of $5,567,000 for management services was paid pursuant to an
agreement with Capital Research and Management Company (CRMC), with which
certain officers and Directors of the fund are affiliated. The Investment
Advisory and Service Agreement provides for monthly fees, accrued daily, based
on an annual rate of 0.30% of the first $60 million of average net assets;
0.21% of such assets in excess of $60 million but not exceeding $1 billion;
0.18% of such assets in excess of $1 billion but not exceeding $3 billion; and
0.16% of such assets in excess of $3 billion; plus 3.00% on the first
$3,333,333 of the fund's monthly gross investment income; 2.50% of such income
in excess of $3,333,333 but not exceeding $8,333,333; and 2.25% of such income
in excess of $8,333,333.
Pursuant to a Plan of Distribution, the fund may expend up to 0.25% of its
average net assets annually for any activities primarily intended to result in
sales of fund shares, provided the categories of expenses for which
reimbursement is made are approved by the fund's Board of Directors. Fund
expenses under the Plan include payments to dealers to compensate them for
their selling and servicing efforts. During the year ended August 31, 1997,
distribution expenses under the Plan were $3,718,000. As of August 31, 1997,
accrued and unpaid distribution expenses were $770,000.
American Funds Service Company (AFS), the transfer agent for the fund, was
paid a fee of $454,000. American Funds Distributors, Inc. (AFD), the principal
underwriter of the fund's shares, received $632,000 (after allowances to
dealers) as its portion of the sales charges paid by purchasers of the fund's
shares. Such sales charges are not an expense of the fund and, hence, are not
reflected in the accompanying statement of operations.
Directors who are unaffiliated with CRMC may elect to defer part or all of
the fees earned for services as members of the Board. Amounts deferred are not
funded and are general unsecured liabilities of the fund. As of August 31,
1997, aggregate amounts deferred and earnings thereon were $57,000.
CRMC is owned by The Capital Group Companies, Inc. AFS and AFD are both
wholly owned subsidiaries of CRMC. Certain Directors and officers of the fund
are or may be considered to be affiliated with CRMC, AFS and AFD. No such
persons received any remuneration directly from the fund.
4. As of August 31, 1997, accumulated undistributed net realized gain on
investments was $3,576,000 and additional paid-in capital was $1,347,447,000.
The fund made purchases and sales of investment securities of
$258,311,000 and $210,874,000 respectively, during the year ended August 31,
1997.
Pursuant to the custodian agreement, the fund receives credits against its
custodian fee for imputed interest on certain balances with the custodian bank.
The custodian fee of $60,000 includes $5,000 that was paid by these credits
rather than in cash.
<PAGE>
<TABLE>
Per-Share Data and Ratios
Year Ended August 31
<S> <C> <C> <C> <C> <C>
1997 1996 1995 1994 1993
Net Asset Value, Beginning
of Year $11.86 $11.94 $11.65 $12.43 $11.78
------- ------- ------- ------- -------
Income from Investment
Operations:
Net investment income .64 .64 .68 .67 .68
Net realized and
unrealized gain
(loss) on investments .45 .01 .29 (.69) .73
------- ------- ------- ------- -------
Total income from
investment operations 1.09 .65 .97 (.02) 1.41
------- ------- ------- ------- -------
Less Distributions:
Dividends from net
investment income (.64) (.64) (.68) (.68) (.68)
Distributions from net
realized gains (.04) (.09) - (.08) (.08)
------- ------- ------- ------- -------
Total distributions (.68) (.73) (.68) (.76) (.76)
------- ------- ------- ------- -------
Net Asset Value, End of Year $12.27 $11.86 $11.94 $11.65 $12.43
======= ======= ======= ======= =======
Total Return* 9.39% 5.51% 8.70% (.14)% 12.42%
Ratios/Supplemental Data:
Net assets, end of year
(in millions) $1,593 $1,476 $1,424 $1,385 $1,327
Ratio of expenses to average
net assets .68% .68% .66% .69% .71%
Ratio of net income to
average net assets 5.27% 5.35% 5.87% 5.53% 5.62%
Portfolio turnover rate 14.39% 26.89% 49.28% 22.40% 15.55%
*Calculated without deducting a sales charge. The maximum
sales charge is 4.75% of the fund's offering price.
</TABLE>
Report of Independent Accountants
To the Board of Directors and Shareholders of
The Tax-Exempt Bond Fund of America, Inc.:
In our opinion, the accompanying statement of assets and liabilities,
including the investment portfolio, and the related statements of operations
and of changes in net assets and the per-share data and ratios present fairly,
in all material respects, the financial position of The Tax-Exempt Bond Fund of
America, Inc. (the "Fund") at August 31, 1997, the results of its operations,
the changes in its net assets and the per-share data and ratios for the periods
indicated, in conformity with generally accepted accounting principles. These
financial statements and per-share data and ratios (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in
accordance with generally accepted auditing standards, which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit 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, and evaluating the overall financial
statement presentation. We believe that our audits, which included
confirmation of securities at August 31, 1997 by correspondence with the
custodian and brokers and the application of alternative auditing procedures
where confirmations from brokers were not received, provide a reasonable basis
for the opinion expressed above.
/s/ Price Waterhouse LLP
Los Angeles, California
September 30, 1997
Tax Information (Unaudited)
During the fiscal year ended August 31, 1997 the fund paid 64.0 cents per share
of exempt-interest distributions within the meaning of Section 852(b)(5)(A) of
the Internal Revenue Code and 3.5 cents per share of capital gain distributions
within the meaning of Section 852(b)(3)(C) of the Internal Revenue Code.
This information is given to meet certain requirements of the Internal Revenue
Code and should not be used by shareholders for preparing their income tax
returns. For tax return preparation purposes, please refer to the calendar
year-end information you receive from the fund's transfer agent.
