[The American Funds Group(R)]
THE TAX-EXEMPT BOND FUND OF AMERICA
Investing along America's Main Street
1997 ANNUAL REPORT For the year ended August 31
[picture: portion of Route 66]
[graphic: Route 66 on the map of the continental United States]
THE TAX-EXEMPT BOND FUND OF AMERICA(R) seeks a high level of federally tax-free
current income, consistent with preservation of capital, through a diversified
portfolio of municipal bonds.
The Tax-Exempt Bond Fund of America is one of the 28 mutual funds in The
American Funds Group,(R) managed by Capital Research and Management Company.
Since 1931, Capital has invested with a long-term focus based on thorough
research and attention to risk.
INVESTMENT HIGHLIGHTS
through 8/31/97
12-MONTH TOTAL RETURN +9.39%
(income plus capital changes, with dividends
reinvested but excluding payment of sales charges)
TAX-FREE DISTRIBUTION RATE
FOR AUGUST 4.93%
(income return only, reflecting
maximum sales charge)
TAXABLE EQUIVALENT
DISTRIBUTION RATE 8.16%
(for August, assuming a 39.6%
federal tax rate)
SEC 30-DAY YIELD AS OF AUGUST 31 4.15%
(reflecting maximum sales charge)
For current yield information, please call toll-free: 800/421-0180.
AVERAGE ANNUAL COMPOUND RETURNS*
8/31/97 9/30/97
for periods ended (fiscal year-end) (latest calendar
quarter)
Lifetime (since October 3, 1979) +8.34% +8.37%
10 Years +7.43% +8.00%
Five Years +6.05% +6.24%
One Year +4.20% +3.86%
*Assumes reinvestment of all distributions and payment of the 4.75% maximum
sales charge at the beginning of the stated periods.
WHY TAX-FREE INVESTING IS WORTHWHILE
<TABLE>
<CAPTION>
<S> <C> <C> <C>
THE FUND'S 4.93% TAX-EXEMPT
DISTRIBUTION RATE IN AUGUST/2/
Your Taxable Income Current Federal is equivalent to a taxable
Single Joint Tax Rate/1/ distribution rate of:
$0 - 24,650 $0 - 41,200 15.0% 5.80%
24,651 - 59,750 41,201 - 99,600 28.0 6.85
59,751 - 124,650 99,601 - 151,750 31.0 7.14
124,651 - 271,050 151,751 - 271,050 36.0 7.70
Over 271,050 Over 271,050 39.6 8.16
</TABLE>
/1/The federal rates are marginal rates. They do not include an adjustment for
the loss of personal exemptions and the phase-out of itemized deductions that
are applicable to certain taxable income levels.
/2/The fund's distribution rate in the table is based on offering price and
therefore reflects the effects of the maximum sales charge on the initial
investment. It is not a projection of future results. Such results will reflect
interest rate levels, changes in the value of portfolio securities, the effects
of portfolio transactions, and fund expenses.
Fund results in this report were computed without a sales charge unless
otherwise indicated. The maximum sales charge is 4.75% of the fund's offering
price. Sales charges are lower for accounts of $25,000 or more. The fund's
30-day yield as of September 30, 1997, calculated in accordance with the
Securities and Exchange Commission formula, was 4.25%. The fund's distribution
rate as of that date was 4.90%. The SEC yield reflects income the fund expects
to earn based on its current portfolio of securities, while the distribution
rate is based solely on the fund's past dividends. Accordingly, the fund's SEC
yield and distribution rate may differ.
THE FIGURES IN THIS REPORT REFLECT PAST RESULTS. SHARE PRICE AND RETURN WILL
VARY, SO YOU MAY LOSE MONEY BY INVESTING IN THE FUND. THE SHORTER THE TIME
PERIOD OF YOUR INVESTMENT, THE GREATER THE POSSIBILITY OF LOSS. FUND SHARES ARE
NOT DEPOSITS OR OBLIGATIONS OF, OR INSURED OR GUARANTEED BY, THE U.S.
GOVERNMENT, ANY FINANCIAL INSTITUTION, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, OR ANY OTHER AGENCY, ENTITY OR PERSON. Income may be subject to
state or local income taxes. Certain other income, as well as capital gain
distributions, are taxable.
FELLOW SHAREHOLDERS:
Strong economic growth and low inflation helped The Tax-Exempt Bond Fund of
America earn solid returns in the fiscal year ended August 31.
Shareholders saw the value of their holdings in the fund rise 9.4% if, as most
do, they reinvested their monthly dividends totaling about 64 cents a share and
their 3.5 cents a share capital gain distribution. Approximately 40% of that
increase came from the rising value of the securities held in the fund's
portfolio.
Shareholders who took their dividends in cash had an income return of 5.4% and
saw the value of their holdings rise 3.8%. Investors in the 39.6% federal tax
bracket would have had to earn a taxable return of 8.9% to equal the tax-free
income return the fund generated.
The fund outpaced the majority of its peers during the year; the Lipper General
Municipal Debt Funds Average rose 8.8% for the period. In addition, the fund
surpassed the 9.2% return of the unmanaged Lehman Brothers Municipal Bond
Index, which includes no expenses.
During its 18-year lifetime, The Tax-Exempt Bond Fund of America has
experienced a wide variety of economic situations but has rarely seen an
environment similar to this past year. Economic growth continued to be strong,
unemployment fell, interest rates declined and inflation remained in check.
Such a beneficial convergence of economic trends is unusual and has led some
analysts to speak of a "new paradigm" in which low inflation coexists with
healthy economic growth. Historically, a strong economy has sparked fears of
inflation and has led to higher interest rates.
While the "new paradigm" prevailed for most of the past fiscal year, predicting
interest rate movements and economic growth rates for the upcoming year is
always tricky. We believe our shareholders should remember that change, not the
status quo, has been the hallmark of the financial markets in the long run.
Although we are naturally very pleased with the strong results the fund has
achieved this year, we hasten to add that such results are unlikely to continue
indefinitely.
Regardless of the economic environment, we seek to add value to investment with
thorough research into individual bond issues. This past year we have seen this
emphasis on research bear fruit.
One holding, bonds issued by the Louisiana parish of Lake Charles for the
Panhandle Eastern Natural Gas Company, demonstrates the benefits of our
research process. The bonds were rated BB when The Tax-Exempt Bond Fund of
America first added them to its portfolio. Bonds rated BB or lower are
considered by the rating agencies to have speculative characteristics and
higher risk. Eventually the gas company's fortunes improved, just as our
research analysts had anticipated. The bonds were upgraded to BBB and,
following the merger of Panhandle Eastern with Duke Power Co., they were raised
to A. As a bond's rating improves, and the market believes its credit risk has
diminished, its price usually rises.
[Sidebar]
For more than four years the distribution rate/+/ paid by The Tax-Exempt Bond
Fund of America has surpassed the rate paid by the average municipal bond fund.
The chart at the right shows the margin of difference between the fund's rate
and the average since January 1992. Distribution rates are calculated by
dividing dividends by the sum of the net asset value and capital gains.
[bar chart]
<TABLE>
<CAPTION>
<S> <C>
Date Distribution
Rate Difference
01/31/92 -0.32
02/29/92 -0.27
03/31/92 -0.28
04/30/92 -0.27
05/31/92 -0.21
06/30/92 -0.16
07/31/92 -0.13
08/31/92 -0.06
09/30/92 -0.05
10/31/92 -0.09
11/30/92 -0.01
12/31/92 0.00
01/31/93 0.03
02/28/93 0.03
03/31/93 0.01
04/30/93 -0.01
05/31/93 0.06
06/30/93 0.02
07/31/93 0.02
08/31/93 0.04
09/30/93 0.05
10/31/93 0.13
11/30/93 0.19
12/31/93 0.18
01/31/94 0.19
02/28/94 0.22
03/31/94 0.19
04/30/94 0.31
05/31/94 0.31
06/30/94 0.34
07/31/94 0.39
08/31/94 0.39
09/30/94 0.45
10/31/94 0.48
11/30/94 0.41
12/31/94 0.47
01/31/95 0.50
02/28/95 0.51
03/31/95 0.50
04/30/95 0.49
05/31/95 0.50
06/30/95 0.50
07/31/95 0.53
08/31/95 0.52
09/30/95 0.51
10/31/95 0.50
11/30/95 0.48
12/31/95 0.49
01/31/96 0.45
02/28/96 0.45
03/31/96 0.44
04/30/96 0.44
05/31/96 0.39
06/30/96 0.39
07/31/96 0.36
08/31/96 0.35
09/30/96 0.33
10/31/96 0.33
11/30/96 0.36
12/31/96 0.35
01/31/97 0.35
02/28/97 0.36
03/31/97 0.36
04/30/97 0.38
05/31/97 0.39
06/30/97 0.40
07/31/97 0.42
08/31/97 0.43
</TABLE>
/+/As calculated by Lipper Analytical Services
[End bar chart]
[End sidebar]
This year, thanks in part to profits earned when some bonds were sold after
being upgraded, the fund will pay a capital gain distribution of at least 2.5
cents a share in late November. Several other issues in the portfolio were
upgraded this past year, adding to the rise in the fund's net asset value. We
continue to look for good opportunities in lower-rated bonds in an effort to
replace those securities that were upgraded and maintain our position in higher
yielding bonds. But it has been difficult to find lower-rated bonds that we
believe offer a return commensurate with the additional risk we would have to
take.
During the coming year we will monitor changes in interest rates and the health
of the economy closely. We will also continue to rely on our extensive research
efforts to find those issues we believe offer the best opportunity for
long-term rewards regardless of short-term market fluctuations.
We look forward to reporting to you again in six months.
Cordially,
/s/ Paul G. Haaga, Jr. /s/Abner D. Goldstine
PAUL G. HAAGA, JR. ABNER D. GOLDSTINE
Chairman of the Board President
October 15, 1997
Here's how a $10,000 investment in The Tax-Exempt Bond Fund of America grew
between October 3, 1979, when the fund began operations, and August 31, 1997,
the end of the fund's latest fiscal year.
As you can see, the $10,000 investment would have grown to $41,961 with the
4.75% maximum sales charge included and all distributions reinvested, an
average increase of 8.34% a year.
AVERAGE ANNUAL COMPOUND RETURNS*
8/31/97
for periods ended (fiscal year-end)
10 Years +7.43%
Five Years +6.05%
One Year +4.20%
*Assumes reinvestment of all distributions and payment of the 4.75% maximum
sales charge at the beginning of the stated periods.
$44,059/1/
TEBF at net asset value (without any sales charge)
$43,853/2/
Lehman Brothers Municipal Bond Index
$41,961/3,4/
TEBF at maximum offering price
$40,787/5/
Lipper General Municipal Debt Funds Average
$10,000/3/
original investment
[chart]
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Year ended August 31 1980/#/ 1981 1982 1983
TEBF at net asset value
(without any sales charge) 9,815 8,933 11,230 13,086
Lehman Brothers
Municipal Bond Index 9,543 8,017 10,544 12,179
TEBF at maximum
offering price 9,348 8,508 10,696 12,444
Lipper General Municipal
Bond Fund Average 8,800 7,651 9,827 11,722
Year ended August 31 1984 1985 1986 1987
TEBF at net asset value
(without any sales charge) 14,029 16,332 20,277 20,491
Lehman Brothers
Municipal Bond Index 13,234 15,435 18,999 19,879
TEBF at maximum
offering price 13,361 15,555 19,312 19,516
Lipper General Municipal
Bond Fund Average 12,660 14,930 18,492 18,944
Year ended August 31 1988 1989 1990 1991
TEBF at net asset value
(without any sales charge) 21,889 24,108 25,275 28,233
Lehman Brothers
Municipal Bond Index 21,246 23,580 25,093 28,052
TEBF at maximum
offering price 20,827 22,960 24,072 26,889
Lipper General Municipal
Bond Fund Average 20,312 22,654 23,776 26,648
Year ended August 31 1992 1993 1994 1995
TEBF at net asset value
(without any sales charge) 31,283 35,168 35,118 $36,174
Lehman Brothers
Municipal Bond Index 31,184 34,989 35,038 38,144
TEBF at maximum
offering price 29,793 33,493 33,446 36,357
Lipper General Municipal
Bond Fund Average 29,665 33,330 33,063 36,559
Year ended August 31 1996 1997
TEBF at net asset value
(without any sales charge)/1/ $40,278 $44,059
Lehman Brothers
Municipal Bond Index /2/ 40,142 43,853
TEBF at maximum
offering price /3/,/4/ 38,361 41,961
Lipper General Municipal
Bond Fund Average 37,371 40,787
</TABLE>
$10,000 original investment /3/
[end chart]
Past results are not predictive of future results.
/#/For the period October 3, 1979 through August 31,1980.
/1/Includes reinvested dividends of $26,978 and reinvested capital gain
distributions of $1,204.
/2/With interest compounded. The index, which started on January 1, 1980, is
unmanaged and does not reflect sales charges, commissions or expenses.
/3/These figures, unlike those shown elsewhere in this report, reflect payment
of the maximum sales charge of 4.75% on the $10,000 investment. Thus, the net
amount invested was $9,525. As outlined in the prospectus, the sales charge is
reduced for larger investments. There is no sales charge on dividends or
capital gain distributions that are reinvested in additional shares. Results
shown do not take into account income or capital gain taxes.
/4/Includes reinvested dividends of $25,693 and reinvested capital gain
distributions of $1,146.
/5/With dividends reinvested. The average does not reflect sales charges.
INVESTING ALONG AMERICA'S MAIN STREET
[photo: portion of Route 66]
In 1926, Henry Ford changed the life of America by lowering the price of the
motorcar. What had once been a land of railroads would soon become the
automotive capital of the world. Autos brought profound changes to American
society, altering courtship habits, leisure activities, family and working
life. And they motivated the government to begin forging a network of roads and
byways.
By the end of that year, vision and ingenuity had fashioned America's first
transcontinental highway, which many would call America's Main Street.
Originating on the shore of Lake Michigan in Chicago, this new road meandered
through three time zones and eight states. Linking east to west in a broken
chain of paved highways, "Route 66" not only became one of the most famous
roads in the world, it also profoundly ingrained itself in the mythology of
America. Route 66 conjures images of things purely American - of highway
diners, Midwestern farms, Southwestern deserts and West Coast sunsets.
This concrete-and-asphalt artery pulsates through many of the states in which
The Tax-Exempt Bond Fund of America holds municipal bonds. Your fund owns bonds
that help finance a wide array of projects in over 35 states, including six of
the eight traversed by Route 66. Together, these projects reflect the
continuing development of America. It is fitting that America's Main Street
provides a pathway to many of them.
[photo caption]
Northwestern Memorial Hospital
[end photo caption]
[photo: postcard stating, "Greetings from Chicago Illinois"]
INVESTING IN THE TAX-EXEMPT MARKET
Finding good opportunities in the $1.3 trillion U.S. municipal bond market
requires far more than just a map. Thousands of projects in cities, counties
and states across the nation are currently funded with the help of tax-exempt
money.
With so many options available, it can be difficult to determine which bonds
offer the best opportunities. That's why many investors who want to build a
sound, well-balanced portfolio turn to professionally managed funds such as The
Tax-Exempt Bond Fund of America. Every project in which the fund invests, from
mortgages in Alaska to bridges in Florida, was thoroughly researched before it
was added to our portfolio.
In the following pages we will travel westbound on Route 66, stopping along the
way to observe several projects helped by your investment dollars. The journey
begins in Chicago, on Adams Street at Michigan Avenue. What survives of
historic U.S. 66 zigs and zags through the Windy City before heading south out
of the state.
FROM THE WINDY CITY...
Like Old 66, Chicago invokes many images. Rising high above the gentle lines of
Lake Michigan, Chicago is the birthplace of the skyscraper, home to the Wrigley
Building and the Sears Tower. For some, it is the land of legendary tough guys
like Al Capone. For others, Chicago is the capital of American architecture and
a center of fine universities.
For shareholders in The Tax-Exempt Bond Fund of America, Chicago is home to one
of the many medical facilities the fund invests in nationwide. By the Outer
Harbor of Lake Michigan, north of the Old Road, stands Northwestern Memorial
Hospital, one of the nation's premier medical centers and the primary teaching
hospital for Northwestern University's adjacent Medical School.
Northwestern Memorial traces its roots back more than 130 years but officially
was founded in 1972 through a merger of two of Chicago's oldest and most
respected institutions - Chicago Wesley Memorial and Passavant Memorial
hospitals. Three years later, Prentice Women's Hospital and Maternity Center,
Chicago's only hospital devoted exclusively to women, joined Northwestern
Memorial.
[Sidebar]
Your investment dollars are financing a project to modernize Chicago's
Northwestern Memorial Hospital, one of the nation's premier medical facilities.
[End sidebar]
[illustration: Route 66 on map of state of Illinois]
IMPROVING A PREMIER FACILITY
In 1994 the Illinois Health Facilities Authority began issuing bonds to help
fund a $580 million project to improve and expand the hospital by 1999. One
tower will be replaced with a more modern facility that will accommodate 496
beds for inpatient care, while a new pavilion will provide ambulatory care
services, housing 600 physicians.
Brenda Ellerin, a Capital Research and Management Company (CRMC) analyst who
researches health care facilities for the fund, recognized Northwestern's
excellent reputation and its dominant position in Chicago's competitive health
care market. The bonds, which were added to The Tax-Exempt Bond Fund of
America's portfolio in late 1994, were deemed a good value in part because they
had solid investment-grade ratings and offered an attractive yield.
Since then, major indicators confirm that the future of Northwestern Memorial
appears to be a bright one. Over the past three years, the hospital's inpatient
admissions have increased by over 4%, its outpatient visits have grown by over
13%, and its costs have been reduced by some 25%, making Northwestern one of
the lowest-cost medical centers in the region. Based on current trends, Ellerin
believes that Northwestern will maintain volume, control costs, show strong
financial performance and complete its project on time and within budget. The
new structures should help Northwestern Memorial serve the community more
effectively while providing a training ground for medical students from
Northwestern University.
Back on Michigan Avenue, signs lead to Historic Route 66 and out of the city.
The road passes sites far removed from the modern feel of Northwestern
Memorial. Along the old highway, well outside Chicago, a bar called Dreamland
invokes images of an era long past. Several towns later, the Route 66 Cafe
invites travelers to pause for a moment before heading through Missouri to
Oklahoma and Texas, which is our next stop.
[Sidebar]
When America was becoming a land of automobiles, U.S. 66 was built as the
country's first transcontinental highway.
[End sidebar]
[photo: old-fashioned gasoline station]
...TO THE LONE STAR STATE
Your final glimpse of Oklahoma is a town called Texola, home of one of the
earliest restaurants on U.S. 66. A sign reading "There's No Place Like Texola"
fades as the Lone Star State emerges. Cutting through that northern square
known as the Texas Panhandle, Route 66 takes you into the only state to have
joined the union as a sovereign nation. Today, small hardware stores, garages,
diners, and museums with names like The Devil's Rope remain scattered within
the upper boundaries of the state.
[photo caption]
Dallas/Fort Worth International Airport
[end photo caption]
[photo: Dallas, TX]
Deeper into Texas, about midway between the two U.S. coasts, lies the world's
second-busiest airport in terms of takeoffs and landings, with over 2,500 daily
flights serving 200 cities worldwide. In 1996 over 56 million travelers passed
through Dallas/Fort Worth International Airport. The airport is also home to
American Airlines, North America's second-largest commercial carrier.
Shareholders in The Tax-Exempt Bond Fund of America have a special relationship
with both the airport and the airline.
A PRIVATE CORPORATION IN THE MUNI MARKET
Some years back, American Airlines, which also manages ground services at DFW,
wanted to raise money for the development of heavy equipment, such as flight
simulators for pilot training and more efficient baggage handling systems. It
turned to what many would think an unlikely source: the municipal bond market.
The tax-exempt market is usually a way for cities, counties and districts to
raise money for public purposes. Private corporations generally issue bonds in
the taxable market. However, companies do have access to the lower cost
financing available in the municipal market for projects that benefit the
"public good."
American financed, and later refinanced, its project in the tax-exempt market
to save substantial dollars in annual interest payments. With the money raised
from the bonds, American served the public good by contributing to the airport
and the community. Together, the flight simulators and the baggage systems
promote safer travel in the air and more efficient service on the ground. And
an economically healthy, ever-improving airport can prompt commercial
development and job creation.
The American Airlines bonds provide a good example of the benefits of investing
in The Tax-Exempt Bond Fund of America rather than buying individual municipal
securities. Corporate-backed bonds help diversify the portfolio. In addition,
the fund's portfolio counselors and analysts can access the in-depth research
conducted by CRMC's equity analysts, who are among the most experienced in the
business.
Our investment professionals, working with CRMC's equity analysts, learned that
the airline had a flawless repayment record. American also had been expanding
its international routes and forging alliances with foreign carriers to
strengthen its worldwide network. Its strong payment record and growing network
of routes led to an improving credit rating, as the fund's investment
professionals had anticipated. Such research-based insight might be difficult
for individual investors and is one reason they turn to professionally managed
funds.
[illustration: Route 66 on map of state of Texas]
[Sidebar]
American Airlines, North America's second-largest commercial carrier, raised
money in the tax-exempt market to improve facilities at Dallas/Fort Worth
International Airport.
[End sidebar]
ACROSS THE LAND OF ENCHANTMENT...
D.H. Lawrence once wrote that for greatness of beauty, he had never experienced
anything like New Mexico. Today almost everyone has seen the state, even if
they have never visited - they know it as the magnificent backdrop of countless
Westerns. America's Main Street cuts a fragmented path through many of the Land
of Enchantment's austere deserts, scattered pueblos and rugged canyons before
entering Albuquerque, where the road reaches one of its busiest sections, on
Central Avenue.
Perhaps it is the natural brilliance of the land that inspires its residents to
stay. Mark Macdonald, a portfolio counselor for The Tax-Exempt Bond Fund of
America, has noted that people in New Mexico move less often than do residents
of many other states. This is one reason why our investment professionals felt
the bonds issued by New Mexico's Mortgage Finance Authority were an attractive
addition to your fund's portfolio.
[illustration: cowboy riding giant jackrabbit]
[Sidebar]
Postcards like this, still popular in curio shops along Route 66, tell tall
tales of cowboys and jackrabbits big enough to ride.
[End sidebar]
THE DIFFICULTIES OF EASY-TO-UNDERSTAND BONDS
Moderate- and low-income families often cannot afford the payments on a home
financed at market interest rates. This is where some of your fund's bonds come
in. To help finance such loans, the New Mexico Mortgage Finance Authority
raised money in the tax-exempt market at below-market interest rates, passing
on the savings to borrowers.
These bonds seem safe and simple at first glance. The issuing authority pools
the mortgages together as security for the bonds, much like a bank uses a house
as security for an individual mortgage. Although a few homeowners may fail to
make their payments, it is unlikely that a significant number will default.
Because of this security feature, mortgage-backed bonds often carry high credit
ratings. However, a closer look reveals that these bonds are not quite so easy
to understand.
[photo caption]
Aliso Viejo, California
[end photo caption]
[photo: postcard stating, "Greetings from Los Angeles California"]
In addition to facing credit risk, buyers of mortgage-backed bonds face
"prepayment risk," the risk that the bonds will be paid off early - an
undesirable prospect for investors earning good returns on highly rated bonds.
As Macdonald explains, "The bonds are attractively priced to compensate for the
possibility of losing the bonds early." To evaluate this possibility, analysts
and portfolio counselors at CRMC research several factors. Should interest
rates fall, for instance, homeowners may refinance their homes and pay off
their mortgages early. If the economy of the state improves, they may sell
their homes and move to more expensive properties. If it weakens significantly,
homeowners may be more likely to sell and move out of state. Our investment
professionals also take into account the bond's track record to estimate the
likelihood of prepayment.
As they researched the bonds, the fund's investment professionals learned that
New Mexico residents tend to stay put compared with people in many other
states. They also weighed the bonds' track record of prepayments and determined
the market didn't properly appreciate the opportunity the securities offered.
Thanks to these bonds, home ownership has become a reality for about 1,750
families in New Mexico. For shareholders in The Tax-Exempt Bond Fund of
America, these housing bonds confirm that even what appear to be
easy-to-understand investments require industry knowledge, research skills and
a solid understanding of the bond market.
...TO THE WESTERN FRONTIER
The Land of Enchantment and the Golden State are separated by Arizona, a
tourist haven replete with world-renowned natural wonders. The Tax-Exempt Bond
Fund of America owns two municipal bonds in the Grand Canyon State,
contributing to highway improvements and hospital expansion.
The state next door comprises a far bigger portion of your fund's investments.
The Colorado River signals our arrival in California, as the long, hot journey
through the Mojave Desert continues. America's Main Street ends where the
nation meets its western frontier, the Pacific Ocean, the destination that made
the words "Go West, young man" as much a part of American mythology as Route 66
itself.
[illustration: Route 66 on map of state of California]
[Sidebar]
Route 66 meets its western terminus in Santa Monica, California. South of Los
Angeles lies Aliso Viejo, a new community built with the help of the municipal
bond market.
[End sidebar]
A PROMISING NEW COMMUNITY
Until recently, Aliso Viejo was a largely undeveloped stretch of land south of
Los Angeles. Then municipal bonds were issued to create an urban infrastructure
including sewers and roads. The number of homes in Aliso Viejo has grown to
about 10,000 from 4,500 in 1992.
Municipal bonds such as these have a twist. When construction begins and the
land is mostly vacant, all taxes that support the bonds are paid by the master
developer. Over the long term, the bonds are secured by anticipated tax
revenues from a growing resident population in the community. As the population
increases, the risk of payment default decreases because the land values go up
and it is unlikely that a great number of residents will fail to pay their
taxes. Since credit ratings are linked to risk, the bond may receive an
improved credit rating once the population grows and development moves forward.
The investment professionals at The Tax-Exempt Bond Fund of America carefully
researched the Aliso Viejo bonds before making a purchase, analyzing both the
short-term and long-term outlook for the community.
David Hoag, an analyst for the fund, explains that the initial decision to buy
was based on the strength and creditworthiness of the original master
developer. "In 1992 we were anticipating a downturn in the real estate market.
We felt that the master developer for the Aliso Viejo project had the resources
to handle any such downturns. This was one of the few real estate-based
investments we made in the early 1990s," Hoag says.
To evaluate the long-term outlook, our investment professionals looked at the
areas around Aliso Viejo. They found that there was also significant expansion
in adjacent communities, and concluded that Aliso Viejo was likely to continue
growing. The project therefore seemed sound and the bonds a good buy.
The bonds that were initially purchased were unrated at the time. They have
since been refinanced and received a rating of AAA from Standard & Poor's
rating agency.
Aliso Viejo is also our final stop. Back in Los Angeles, Route 66 twists
through Hollywood, Beverly Hills, Westwood and Santa Monica. The smell of the
ocean announces the country's western frontier and the end of America's Main
Street, on the final block of Santa Monica Boulevard.
[photo: couple in car]
[Sidebar]
The dream of the open road is ingrained in American mythology. For many,
traveling America's highways remains a favorite way to experience the land's
diverse beauty.
[End sidebar]
[illustration: back of car]
<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
-----------
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>
<PAGE>
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.
Printed on recycled paper
Litho in USA MED/INS/3217
Lit. No. TEBF-011-1097
THE AMERICAN FUNDS GROUP(R)
THE TAX-EXEMPT BOND FUND OF AMERICA
BOARD OF DIRECTORS
H. FREDERICK CHRISTIE
Rolling Hills Estates, California
Private investor; former President and Chief Executive Officer, The Mission
Group; former President, Southern California Edison Company
DON R. CONLAN
South Pasadena, California
President (retired), The Capital Group Companies, Inc.
DIANE C. CREEL
Long Beach, California
Chief Executive Officer and President,
The Earth Technology Corporation
(international consulting engineering)
MARTIN FENTON, JR.
San Diego, California
Chairman of the Board,
Senior Resource Group, Inc.
(senior living centers management)
LEONARD R. FULLER
Marina del Rey, California
President, Fuller & Company, Inc.
(financial management consulting)
ABNER D. GOLDSTINE
Los Angeles, California
President of the fund
Senior Vice President and Director,
Capital Research and Management Company
PAUL G. HAAGA, JR.
Los Angeles, California
Chairman of the Board of the fund
Executive Vice President and Director,
Capital Research and Management Company
HERBERT HOOVER III
San Marino, California
Private investor
RICHARD G. NEWMAN
Los Angeles, California
Chairman of the Board, President and
Chief Executive Officer,
AECOM Technology Corporation
(architectural engineering)
PETER C. VALLI
Long Beach, California
Retired; former Chairman of the Board,
BW/IP International, Inc.
(industrial manufacturing)
OTHER OFFICERS
NEIL L. LANGBERG
Los Angeles, California
Senior Vice President of the fund
Vice President - Investment Management Group, Capital Research and Management
Company
MICHAEL J. DOWNER
Los Angeles, California
Vice President of the fund
Senior Vice President -
Fund Business Management Group,
Capital Research and Management Company
MARY C. HALL
Brea, California
Vice President of the fund
Senior Vice President -
Fund Business Management Group,
Capital Research and Management Company
MARK R. MACDONALD
Los Angeles, California
Vice President of the fund
Vice President - Investment Management Group,
Capital Research and Management Company
JULIE F. WILLIAMS
Los Angeles, California
Secretary of the fund
Vice President -
Fund Business Management Group,
Capital Research and Management Company
ANTHONY W. HYNES, JR.
Brea, California
Treasurer of the fund
Vice President -
Fund Business Management Group,
Capital Research and Management Company
KIMBERLY S. VERDICK
Los Angeles, California
Assistant Secretary of the fund
Assistant Vice President -
Fund Business Management Group,
Capital Research and Management Company
TODD L. MILLER
Brea, California
Assistant Treasurer of the fund
Assistant Vice President -
Fund Business Management Group,
Capital Research and Management Company
OFFICES OF THE FUND AND
OF THE INVESTMENT ADVISER,
CAPITAL RESEARCH AND MANAGEMENT COMPANY
333 South Hope Street
Los Angeles, California 90071-1443
135 South State College Boulevard
Brea, California 92821-5804
TRANSFER AGENT FOR SHAREHOLDER ACCOUNTS
AMERICAN FUNDS SERVICE COMPANY
(Please write to the address nearest you.)
P.O. Box 2205
Brea, California 92822-2205
P.O. Box 659522
San Antonio, Texas 78265-9522
P.O. Box 6007
Indianapolis, Indiana 46206-6007
P.O. Box 2280
Norfolk, Virginia 23501-2280
CUSTODIAN OF ASSETS
The Chase Manhattan Bank
One Chase Manhattan Plaza
New York, New York 10081-0001
COUNSEL
Paul, Hastings, Janofsky & Walker LLP
555 South Flower Street
Los Angeles, California 90071-2371
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
400 South Hope Street
Los Angeles, California 90071-2889
PRINCIPAL UNDERWRITER
American Funds Distributors, Inc.
333 South Hope Street
Los Angeles, California 90071-1462
FOR INFORMATION ABOUT YOUR ACCOUNT OR ANY OF THE FUND'S SERVICES, PLEASE
CONTACT YOUR FINANCIAL ADVISER. YOU MAY ALSO CALL AMERICAN FUNDS SERVICE
COMPANY, TOLL-FREE, AT 800/421-0180 OR VISIT WWW.AMERICANFUNDS.COM ON THE WORLD
WIDE WEB.
This report is for the information of shareholders of The Tax-Exempt Bond Fund
of America, but it may also be used as sales literature when preceded or
accompanied by the current prospectus, which gives details about charges,
expenses, investment objectives and operating policies of the fund. If used as
sales material after December 31, 1997, this report must be accompanied by an
American Funds Group Statistical Update for the most recently completed
calendar quarter.
About our cover: A highway winds through New Mexico, one of the 8 states along
Route 66.
Postcard images from Curt Teich Archives.
Page 5 photo (c)D. Jeanene Tiner.
