<PAGE>
[LOGO OF THE AMERICAN FUNDS GROUP(R)]
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The Tax-Exempt Bond
Fund of America(R)
Prospectus
JANUARY 1, 1997
<PAGE>
THE TAX-EXEMPT BOND FUND OF AMERICA, INC.
333 South Hope Street
Los Angeles, CA 90071
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TABLE OF CONTENTS
Expenses 3
Financial Highlights 4
Investment Policies and Risks 5
Securities and Investment Techniques 6
Multiple Portfolio Counselor System 8
Investment Results 9
Dividends, Distributions and Taxes 11
Fund Organization and Management 12
Shareholder.Services 15
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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.
19-010-0197
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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 or return.
You may pay certain shareholder transaction expenses when you buy or sell
shares of the fund. Annual fund operating expenses are paid out of the fund's
earned income.
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.
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets for the fiscal period ended August 31,
1996)
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Management fees 0.37%
................................................................................
12b-1 expenses 0.24%/1/
................................................................................
Other expenses 0.07%
................................................................................
Total fund operating expenses 0.68%
/1/ 12b-1 expenses may not exceed 0.25% of the fund's average net assets
annually. Due to these distribution expenses, long-term shareholders may pay
more than the economic equivalent of the maximum front-end sales charge
permitted by the National Association of Securities Dealers, Inc.
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:
- --------------------------------------------------------------------------------
One year $ 54
Three years $ 68
Five years $ 84
Ten years $128
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>
YEARS ENDED AUGUST 31
-------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $11.94 $11.65 $12.43 $11.78 $11.30 $10.78 $10.99 $10.67 $10.78 $11.51
- --------------------------------------------------------------------------------------------------------
INCOME FROM
INVESTMENT
OPERATIONS:
Net investment
income .64 .68 .67 .68 .70 .71 .73 .74 .74 .77
Net realized and
unrealized gain
(loss) on investments .01 .29 (.69) .73 .48 .52 (.21) .32 (.05) (.64)
Total income from
investment
operations .65 .97 (.02) 1.41 1.18 1.23 .52 1.06 .69 .13
- --------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net
investment income (.64) (.68) (.68) (.68) (.70) (.71) (.73) (.74) (.74) (.77)
Distribution from
net realized gains (.09) -- (.08) (.08) -- -- -- -- (.06) (.09)
Total distributions (.73) (.68) (.76) (.76) (.70) (.71) (.73) (.74) (.80) (.86)
Net asset value, end of
year $11.86 $11.94 $11.65 $12.43 $11.78 $11.30 $10.78 $10.99 $10.67 $10.78
Total return /1/ 5.51% 8.70% (.14)% 12.42% 10.80% 11.70% 4.84% 10.24% 6.72% 1.06%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
year (in millions) $1,476 $1,424 $1,385 $1,327 $ 921 $ 712 $ 551 $ 450 $ 346 $ 333
Ratio of expenses
to average net assets .68% .66% .69% .71% .71% .72% .70% .73% .63% .57%
Ratio of net income
to average net assets 5.35% 5.87% 5.53% 5.62% 6.04% 6.33% 6.65% 6.78% 6.90% 6.78%
Portfolio
turnover rate 26.89% 49.28% 22.40% 15.55% 17.22% 24.73% 39.90% 55.70% 61.92% 26.49%
</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.
During periods of normal market conditions, at least 80% of the fund's total
assets will be invested 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 by either
Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's Corporation
("S&P") at the time of purchase in one of their three highest categories (or
unrated but determined by the investment adviser to be comparable).
Up to 35% of the fund's total assets may be invested in tax-exempt securities
rated Baa by Moody's or BBB by S&P or below (or comparable unrated) which
generally carry a greater degree of investment risk. These securities may be
rated as low as Ca by Moody's or CC by S&P. 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 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.
MORE INFORMATION ON THE FUND'S INVESTMENT POLICIES IS CONTAINED IN ITS
STATEMENT OF ADDITIONAL INFORMATION.
The fund's investment restrictions (which are described in the statement of
additional information as fundamental) and objective may not be changed without
shareholder approval. All other investment practices may be changed by the
fund's board of directors.
ACHIEVEMENT OF THE FUND'S INVESTMENT OBJECTIVE CANNOT, OF COURSE, BE ASSURED
DUE TO THE RISK OF CAPITAL LOSS FROM FLUCTUATING PRICES INHERENT IN ANY
INVESTMENT IN SECURITIES.
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 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 total 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. These securities are commonly known as "high-yield,
high-risk" or "junk" bonds and are described by the rating agencies as
speculative. These securities are subject to greater risk of default and can
significantly decline in price, particularly 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's high-yield, high-risk securities
may be rated as low as Ca or CC 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 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.
6
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THE TAX-EXEMPT BOND FUND OF AMERICA / PROSPECTUS
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The average monthly composition of the fund's portfolio based on the higher of
Moody's or S&P ratings for the fiscal year ended August 31, 1996 was as
follows:
<TABLE>
- --------------------------------------------------------------------------------
<S> <C>
Aaa/AAA 28.84%
................................................................................
Aa/AA 17.73%
................................................................................
A/A 16.23%
................................................................................
Baa/BBB 24.55%
................................................................................
Ba/BB 3.49%
................................................................................
Non-rated 4.74%
</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>
- --------------------------------------------------------------------------------
<S> <C>
A/A 0.49%
................................................................................
Baa/BBB 1.26%
................................................................................
Ba/BB 1.52%
................................................................................
B/B 1.47%
</TABLE>
Money market instruments and cash made up an average of 4.42% of the fund's
portfolio.
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, frequency and volume of trading and
number of dealers.
FORWARD COMMITMENTS
The fund may enter into commitments to purchase or sell securities for which
payment and delivery for the securities take place 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 or purchase. When the
fund sells 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 there are
changes in the market rates of interest on which the interest rates are based.
The rate adjustment feature tends to limit the extent to which the market value
of the obligation will fluctuate.
7
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THE TAX-EXEMPT BOND FUND OF AMERICA / PROSPECTUS
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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.
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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 the 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 the fund's objective and policies and by Capital
Research and Management Company's investment committee). In addition, Capital
Research and Management Company's research professionals make investment
decisions with respect to a portion of the fund's portfolio. The primary
individual portfolio counselors for the fund are listed on the following page.
8
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THE TAX-EXEMPT BOND FUND OF AMERICA / PROSPECTUS
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<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>
REBECCA L. Vice 11 years 14 years 14 years
FORD President--
Investment
Management
Group, Capital
Research and
Management
Company
- ------------------------------------------------------------------------------------
NEIL L. Senior Vice Since the fund 18 years 18 years
LANGBERG President of began
the fund. Vice operations*
President--
Investment
Management
Group, Capital
Research and
Management
Company
- ------------------------------------------------------------------------------------
MARK R. Vice 2 years 2 years 11 years
MACDONALD President--
Investment
Management
Group, Capital
Research and
Management
Company
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</TABLE>
* The fund began operations on October 3, 1979.
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INVESTMENT RESULTS
The fund may from time to time compare investment results 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.
- - 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.
- - 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.
9
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THE TAX-EXEMPT BOND FUND OF AMERICA / PROSPECTUS
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- - 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. 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.
INVESTMENT RESULTS
(FOR PERIODS ENDED SEPTEMBER 30, 1996)
<TABLE>
<CAPTION>
AVERAGE
ANNUAL
TOTAL THE FUND AT NET THE FUND AT MAXIMUM
RETURNS: ASSET VALUE SALES CHARGE/1/ LIPPER/2/
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
One year 6.41% 1.33% 5.62%
................................................................................
Five years 7.41% 6.37% 6.99%
................................................................................
Ten years 7.39% 6.88% 7.38%
................................................................................
Lifetime/3/ 8.64% 8.33% 8.16%
- --------------------------------------------------------------------------------
Yield/1/: 4.76%
Distribution Rate: 5.16%
</TABLE>
/1/ These fund results were calculated according to a standard formula that is
required for all stock and bond funds. The maximum sales charge has been
deducted.
/2/ 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.
/3/ The fund began investment operations October 3, 1979.
10
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THE TAX-EXEMPT BOND FUND OF AMERICA / PROSPECTUS
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[GRAPH APPEARS HERE]
Here are the fund's annual total returns calculated without a sales charge. This
information is being supplied on a calendar year basis.
1986 18.71
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
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.
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 LOGO
11
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THE TAX-EXEMPT BOND FUND OF AMERICA / PROSPECTUS
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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 corporate matters which
require shareholder approval, such as certain elections of board members or a
change in a fundamental investment policy, will be presented to shareholders at
a meeting called for such purpose. Shareholders have one vote per share owned.
12
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THE TAX-EXEMPT BOND FUND OF AMERICA / PROSPECTUS
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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 and 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 listed 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 and the expenses paid under the
plan were incurred within the preceding 12 months and accrued while the plan is
in effect. The 12b-1 fee paid by the fund, as a percentage of average net
assets, for the previous fiscal year is listed 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 compensation to the underwriter, generally referred to as a
concession or discount. On occasion, securities may be purchased directly from
an issuer, in
13
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THE TAX-EXEMPT BOND FUND OF AMERICA / PROSPECTUS
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 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
[MAP]
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.
- --------------------------------------------------------------------------------
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, 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.
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."
- - Automatic Investment Plan
You may invest monthly or quarterly through automatic withdrawals from your
bank account.
- - 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.
- - Cross-Reinvestment
You may invest your dividend and capital gain distributions into any other
fund in The American Funds Group.
15
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THE TAX-EXEMPT BOND FUND OF AMERICA / PROSPECTUS
- --------------------------------------------------------------------------------
- - 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) (see below) or by fax. EXCHANGES HAVE THE SAME TAX
CONSEQUENCES AS ORDINARY SALES AND PURCHASES.
- - 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
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
To establish an account $1,000
To add to an account $ 50
</TABLE>
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 200 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. A dealer concession of up to 1% may be paid by the fund from its Plan
of Distribution on these investments. Investments by retirement plans with $100
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 American Funds Distributors on these investments. 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.
17
<PAGE>
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THE TAX-EXEMPT BOND FUND OF AMERICA / PROSPECTUS
- --------------------------------------------------------------------------------
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 1997, 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.
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.
- - 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.
- - 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.
- - 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.
18
<PAGE>
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THE TAX-EXEMPT BOND FUND OF AMERICA / PROSPECTUS
- --------------------------------------------------------------------------------
- - Statement of Intention
You may enter into a non-binding commitment to invest a certain amount 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.
- --------------------------------------------------------------------------------
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) (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 and accepted by American Funds Service Company. Sale requests may be
made in writing, by telephone, including American FundsLine(R) (see below), or
by fax. Sales by telephone or fax are limited to $10,000 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 15 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. 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 bank, savings association, credit union, or
member firm of a domestic stock exchange or the National Association of
Securities Dealers, Inc., that is an eligible guarantor institution. A
signature guarantee is
19
<PAGE>
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THE TAX-EXEMPT BOND FUND OF AMERICA / PROSPECTUS
- --------------------------------------------------------------------------------
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 15 days. Additional documentation may be required for sale of
shares held in corporate, partnership or fiduciary accounts.
You may reinvest proceeds from a redemption or a dividend or capital gain
distribution without a sales charge in any fund in The American Fund Group
within 90 days after the date of the redemption or distribution. 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)
You may check your share balance, the price of your shares, or your most recent
account transactions, sell shares (up to $10,000 per fund, per account each
day), or exchange shares around the clock with American FundsLine(R). To use
this service, call 800/325-3590 from a TouchTone(TM) telephone.
TELEPHONE PURCHASES, SALES AND EXCHANGES
Unless you opt out of the telephone (including American FundsLine(R)) 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 liability
(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. Purchases through automatic investment plans and certain
retirement plans will be confirmed at least quarterly.
20
<PAGE>
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THE TAX-EXEMPT BOND FUND OF AMERICA / PROSPECTUS
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
FOR SHAREHOLDER FOR DEALER FOR 24-HOUR
SERVICES SERVICES INFORMATION
American Funds American Funds American
Service Company Distributors FundsLine(R)
800/421-0180 ext. 1 800/421-9900 ext. 11 800/325-3590
Telephone conversations may be recorded or monitored for
verification, recordkeeping and quality assurance purposes.
--------------------------------------------------------------
OTHER FUND INFORMATION
ANNUAL/SEMI-ANNUAL STATEMENT OF ADDITIONAL
REPORT TO SHAREHOLDERS INFORMATION (SAI)
Includes financial Contains more detailed
statements, detailed information on all aspects of
performance information, the fund, including the
portfolio holdings, a fund's financial statements.
statement from portfolio
management and the auditor's
report.
CODE OF ETHICS A current SAI has been filed
with the Securities and
Includes a description of the Exchange Commission and is
fund's personal investing incorporated by reference (is
policy. legally part of the
prospectus).
To request a free copy of any of the documents above:
Call American Funds or Write to the Secretary of the
Service Company Fund 333 South Hope Street
800/421-0180 ext. 1 Los Angeles, CA 90071
This prospectus has been printed on recycled paper.
[RECYCLE LOGO]
24
<PAGE>
THE TAX-EXEMPT BOND FUND OF AMERICA, INC.
PART B
STATEMENT OF ADDITIONAL INFORMATION
JANUARY 1, 1997
This document is not a prospectus but should be read in conjunction with the
current prospectus dated January 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 14
Additional Information Concerning Taxes 14
Purchase of Shares 17
Shareholder Account Services and Privileges 19
Execution of Portfolio Transactions 20
General Information 20
Investment Results 21
Description of Ratings for Debt Securities 25
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 entered 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 and the
fund's net asset value. From time to time legislation has been proposed that
would limit the use of high-yield, high-risk bonds in certain instances. The
impact that such legislation, if enacted, could have on the market for such
bonds cannot be predicted.
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. If the fund experiences
unexpected net redemptions, this may force it to sell high-yield, high-risk
bonds without regard to their investment merits, thereby decreasing the asset
base upon which expenses can be spread and possibly reducing the fund's rate of
return.
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
facilities. Municipal bonds may be used to refund outstanding obligations, to
obtain funds for general operating expenses or public improvements or for
lending private institutions or corporations funds for the construction of
educational facilities, hospitals, housing, industrial facilities or for other
public purposes. The interest on these obligations is generally not included
in gross income for federal income tax purposes. See "Additional Information
Concerning Taxes" below. Opinions 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.
There are, in addition, a variety of hybrid and special types of municipal
obligations 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.
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%, 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; and (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 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,
frequency and volume of trading and number of dealers.
FORWARD COMMITMENTS -- The fund may enter into commitments to purchase or sell
securities for which payment and delivery for the securities take place 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
or purchase. When the fund sells 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.
As the fund's aggregate commitments under these transactions increase, the
opportunity for leverage similarly increases. The fund will segregate liquid
assets which will be marked to market daily in an amount sufficient to meet its
payment obligations in these transactions. 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 resales. 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 of doing 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 to 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. All percentage limitations
expressed in the following investment restrictions are measured immediately
after and giving effect to the relevant transactions. 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.
NON-FUNDAMENTAL POLICIES -- The fund has adopted the following non-fundamental
investment policies, which may be changed by action of the Board of Directors
without shareholder approval. 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 AND AGE POSITION WITH PRINCIPAL OCCUPATION(S) DURING AGGREGATE TOTAL COMPENSATION TOTAL NUMBER
REGISTRANT PAST 5 YEARS (POSITIONS WITHIN COMPENSATION FROM ALL FUNDS OF FUND BOARDS
THE ORGANIZATIONS LISTED MAY (INCLUDING MANAGED BY CAPITAL ON WHICH
HAVE CHANGED DURING THIS VOLUNTARILY DEFERRED RESEARCH AND DIRECTOR
PERIOD) COMPENSATION/1/) FROM MANAGEMENT SERVES/2/
THE COMPANY DURING COMPANY/2/
FISCAL YEAR ENDED
AUGUST 31, 1996
<S> <C> <C> <C> <C> <C>
++ H. Frederick Christie Director Private Investor. The Mission $3,500 $145,450 18
P.O. Box 144 Group (non-utility holding
Palos Verdes Estates, CA 90274 Company, subsidiary of
Age: 63 Southern California Edison
Company), former President and
Chief Executive Officer.
Diane C. Creel Director CEO and President, $3,700 $37,450 12
100 W. Broadway The Earth Technology
Suite 5000 Corporation (international
Long Beach, CA 90802 consulting engineering)
Age: 47
Martin Fenton, Jr. Director Chairman, Senior Resource $4,100 $116,150 16
4350 Executive Drive Group (management of senior
Suite 101 living centers)
San Diego, CA 92121-2116
Age: 61
Leonard R. Fuller Director President, Fuller & Company, $3,500 $40,450 12
4337 Marina City Drive Inc. (financial management
Suite 841 ETN consulting
Marina del Rey, CA 90292 firm)
Age: 50
+* Abner D. Goldstine President, Senior Vice President none/4/ none/4/ 12
Age: 66 PEO and and Director, Capital Research
Director and Management Company
+** Paul G. Haaga, Jr. Chairman of Executive Vice President none/4/ none/4/ 14
Age: 47 the Board and Director, Capital Research
and Management Company
Herbert Hoover III Director Private Investor $3,300 $63,950 14
200 S. Los Robles Avenue
Suite 520
Pasadena, CA 91101-2431
Age: 68
Richard G. Newman Director Chairman, President and CEO, $3,900/3/ $65,450 13
3250 Wilshire Boulevard AECOM Technology Corporation
Los Angeles, CA 90010-1599 (architectural engineering)
Age: 61
Peter Valli Director Chairman and CEO, BW/IP $3,500 /3/ $38,050 12
200 Oceangate Boulevard International Inc. (industrial
Suite 900 manufacturing)
Long Beach, CA 90802
Age: 69
</TABLE>
+ Directors who are considered "interested persons" 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.
++ May be deemed an "interested person" of the fund due to membership on the
board of directors of the parent company of a registered broker-dealer.
* 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 ($6,173), Martin Fenton, Jr. ($6,570), Richard G. Newman
($12,907) and Peter C. Valli ($11,262).
/4/ 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)#
*** Neil L. Langberg, SENIOR VICE PRESIDENT. Capital Research and Management
Company,
Vice President, Investment Management Group
** Mary C. Hall, VICE PRESIDENT. Capital Research and Management Company,
Senior Vice President - Fund Business Management Group
* Michael J. Downer, VICE PRESIDENT. Capital Research and Management Company,
Senior Vice President - Fund Business Management Group
* Julie F. Williams, SECRETARY. Capital Research and Management Company,
Vice President - Fund Business Management Group
** Anthony W. Hynes, Jr., TREASURER. Capital Research and Management Company,
Vice President - Fund Business Management Group
* Kimberly S. Verdick, ASSISTANT SECRETARY. Capital Research and Management
Company, Assistant Vice President - Fund Business Management Group
* Todd D. Miller, ASSISTANT TREASURER. Capital Research and Management
Company,
Assistant Vice President - Fund Business Management Group
# Positions within the organizations listed may have changed during this
period.
* Address is 333 South Hope Street, Los Angeles, CA 90071.
** Address is 135 South State College Boulevard, Brea, CA 92821.
*** Address is 11100 Santa Monica Boulevard, Los Angeles, CA 90025
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 December 1, 1996 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, 1997, 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 no limited to, custodian, stock transfer and dividend disbursing fees and
expenses; costs of the designing, printing and mailing of reports,
prospectuses, proxy statements, and notices to its shareholders; taxes;
expenses of the issuance and redemption of 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; and costs of
stationery and forms prepared exclusively for the fund.
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, 1996, 1995, and 1994, the Investment
Adviser's total fees amounted to $5,451,000, $5,202,000, and $5,180,000,
respectively.
PRINCIPAL UNDERWRITER - American Funds Distributors, Inc. (the "Principal
Underwriter") is the principal underwriter of the fund's shares. 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, 1996 amounted to $760,000 after
allowance of $3,202,000 to dealers. During the fiscal years ended August 31,
1995 and 1994 the Principal Underwriter retained $670,000 and $1,284,000
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. The Plan is 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). Only expenses incurred
during the preceding 12 months and accrued while the Plan is in effect may be
paid by the fund. During the fund's fiscal year ended August 31, 1996, the
fund paid or accrued $3,487,000 under the Plan as compensation to dealers. As
of August 31, 1996 accrued and unpaid distribution expenses were $692,000.
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; (b) derive less than 30% of its gross income from the gains or sale
or other disposition of stock or securities held less than three months; and
(c) 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 tax-exempt obligations. Not later
than 60 days after the close of its taxable year, the fund will notify each
shareholder 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 shall 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 a 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 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.
The interest on "private activity" bonds as defined under the Code is an item
of tax preference subject to the alternative minimum tax ("AMT") on
corporations and individuals. As of the date of this statement of additional
information, individuals are subject to an AMT at a maximum marginal rate of
28% and corporations at a rate of 20%. Shareholders will not be permitted to
deduct any of their share of fund expenses in computing alternative minimum
taxable income. With respect to corporate shareholders, all interest on
municipal bonds and other tax-exempt obligations, including exempt-interest
dividends paid by the fund, is included in adjusted book income and adjusted
current earnings in calculating federal alternative minimum taxable income, and
may also affect corporate federal "environmental tax" liability.
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
<TABLE>
<CAPTION>
<S> <C> <C>
METHOD INITIAL INVESTMENT ADDITIONAL INVESTMENTS
SEE "INVESTMENT $50 MINIMUM (EXCEPT WHERE A
MINIMUMS LOWER
AND FUND NUMBERS" FOR MINIMUM IS NOTED UNDER
INITIAL INVESTMENT "INVESTMENT
MINIMUMS. MINIMUMS AND FUND NUMBERS").
BY VISIT ANY INVESTMENT MAIL DIRECTLY TO YOUR
CONTACTING DEALER INVESTMENT
YOUR WHO IS REGISTERED IN DEALER'S ADDRESS PRINTED ON
INVESTMENT THE YOUR
DEALER STATE WHERE THE ACCOUNT STATEMENT.
PURCHASE IS
MADE AND WHO HAS A
SALES
AGREEMENT WITH
AMERICAN
FUNDS DISTRIBUTORS.
BY MAIL MAKE YOUR CHECK FILL OUT THE ACCOUNT
PAYABLE ADDITIONS FORM AT
TO THE FUND AND MAIL THE BOTTOM OF A RECENT
TO THE ACCOUNT
ADDRESS INDICATED ON STATEMENT, MAKE YOUR CHECK
THE PAYABLE
ACCOUNT APPLICATION. TO THE FUND, WRITE YOUR
PLEASE INDICATE AN ACCOUNT
INVESTMENT DEALER ON NUMBER ON YOUR CHECK, AND
THE MAIL THE
ACCOUNT APPLICATION. CHECK AND FORM IN THE
ENVELOPE
PROVIDED WITH YOUR ACCOUNT
STATEMENT.
BY TELEPHONE CONTACT YOUR COMPLETE THE "INVESTMENTS BY
INVESTMENT PHONE" SECTION ON THE
DEALER TO OPEN ACCOUNT
ACCOUNT, APPLICATION OR AMERICAN
THEN FOLLOW THE FUNDSLINK
PROCEDURES AUTHORIZATION FORM. ONCE
FOR ADDITIONAL YOU
INVESTMENTS. ESTABLISH THE PRIVILEGE,
YOU, YOUR
FINANCIAL ADVISOR OR ANY
PERSON WITH
YOUR ACCOUNT INFORMATION CAN
CALL
AMERICAN FUNDSLINE(R) AND
MAKE
INVESTMENTS BY TELEPHONE
(SUBJECT TO
CONDITIONS NOTED IN
"TELEPHONE
REDEMPTIONS AND EXCHANGES"
BELOW).
BY WIRE CALL 800/421-0180 TO YOUR BANK SHOULD WIRE YOUR
OBTAIN ADDITIONAL INVESTMENTS IN
YOUR ACCOUNT THE SAME
NUMBER(S), IF MANNER AS DESCRIBED UNDER
NECESSARY. PLEASE "INITIAL
INDICATE INVESTMENT."
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.
</TABLE>
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, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas Day. The net asset
value per share is determined as follows:
1. Municipal bonds and notes and any other securities with more than 60 days
remaining to maturity normally are valued at prices obtained from a national
municipal bond pricing service, except that, where such prices are not
available or determined by the fund's officers not to represent market value,
they are valued at prices representing the mean between bid and asked
quotations (on the sale of similar issues) obtained from one or more
broker/dealers dealing in such municipal bonds and notes.
All securities with 60 days or less to maturity are amortized to maturity
based on their cost to the fund if acquired within 60 days of maturity or, if
already held by the fund on the 60th day, based on the value determined on the
61st day. The maturities of variable or floating rate instruments, or
instruments with the right to sell them at par to the issuer or dealer, are
deemed to be the time remaining until the next interest adjustment date or
until they can be redeemed at par.
Where market prices or market quotations are not readily available, securities
are valued at fair value as determined in good faith by the Board of Directors
or a committee thereof. The fair value of all other assets is added to the
value of securities to arrive at the total assets;
2. There are deducted from the total assets, thus determined, all liabilities,
including proper accruals of expense items; and
3. The value of the net assets so obtained is 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.
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):
<TABLE>
<CAPTION>
<S> <C> <C>
FUND MINIMUM FUND
INITIAL NUMBER
INVESTMENT
STOCK AND STOCK/BOND FUNDS
AMCAP Fund(R) 02
$1,000
American Balanced Fund(R) 11
500
American Mutual Fund(R) 03
250
Capital Income Builder(R) 12
1,000
Capital World Growth and Income 33
Fund(SM) 1,000
EuroPacific Growth Fund(R) 16
250
Fundamental Investors(SM) 10
250
The Growth Fund of America(R) 05
1,000
The Income Fund of America(R) 06
1,000
The Investment Company of America(R) 04
250
The New Economy Fund(R) 14
1,000
New Perspective Fund(R) 07
250
SMALLCAP World Fund(R) 35
1,000
Washington Mutual Investors Fund(SM) 01
250
BOND FUNDS
American High-Income Municipal Bond 40
Fund(R) 1,000
American High-Income Trust(SM) 21
1,000
The Bond Fund of America(SM) 08
1,000
Capital World Bond Fund(R) 31
1,000
Intermediate Bond Fund of 23
America(SM) 1,000
Limited Term Tax-Exempt Bond Fund of 43
America(SM) 1,000
The Tax-Exempt Bond Fund of 19
America(R) 1,000
The Tax-Exempt Fund of 20
California(R)* 1,000
The Tax-Exempt Fund of Maryland(R)* 24
1,000
The Tax-Exempt Fund of Virginia(R)* 25
1,000
U.S. Government Securities Fund(SM) 22
1,000
MONEY MARKET FUNDS
The Cash Management Trust of 09
America(R) 2,500
The Tax-Exempt Money Fund of 39
America(SM) 2,500
The U.S. Treasury Money Fund of 49
America(SM) 2,500
___________
*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).
STATEMENT OF INTENTION - The reduced sales charges and offering prices set
forth in the Prospectus apply to purchases of $25,000 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.
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.)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
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 (see below)
none none
</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 200 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 calendar year 1997, 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 200 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.")
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 $100
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.
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 Investment Company Act of 1940, 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.
REDEEMING SHARES
<TABLE>
<CAPTION>
<S> <C>
By writing to Send a letter of instruction specifying
American the name of the fund,
Funds Service the number of shares or dollar amount to
Company (at be sold, your
the appropriate name and account number. You should also
address enclose any
indicated under share certificates you wish to redeem.
"Fund For redemptions
Organization and over $50,000 and for certain redemptions
Management - of $50,000 or less
Principal (see below), your signature must be
Underwriter and guaranteed by a bank,
Transfer Agent" savings association, credit union, or
in the prospectus) member firm of a
domestic stock exchange or the National
Association of
Securities Dealers, Inc. that is an
eligible guarantor
institution. 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 If you redeem shares through your
investment dealer investment dealer, you
may be 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 You may use this option, provided the
redemption check account is registered
sent to in the name of an individual(s), a
you by using UGMA/UTMA custodian,
American or a non-retirement plan trust. These
FundsLine(R) or by redemptions may not
telephoning, faxing, exceed $10,000 per day per fund account
or and the check
telegraphing must be made payable to the shareholder(s)
American of record and
Funds Service be sent to the address of record provided
Company the address has
(subject to the been used with the account for at least 10
conditions days. See
noted in this "Transfer Agent" and "Exchange Privilege"
section and in below for the
"Telephone appropriate telephone or fax number.
Redemptions and
Exchanges" below)
In the case of the Upon request (use the account application
money for the money
market funds, you market funds) you may establish telephone
may redemption
have redemptions privileges (which will enable you to have
wired to a redemption sent
your bank by to your bank account) and/or check writing
telephoning privileges. If you
American Funds request check writing privileges, you will
Service be provided with
Company ($1,000 or checks that you may use to draw against
more) your account.
or by writing a These checks may be made payable to anyone
check ($250 you
or more) designate and must be signed by the
authorized number of
registered shareholders exactly as
indicated on your
checking account signature card.
</TABLE>
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 15 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 200 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 shareholders
to make regular monthly or quarterly investments in shares through automatic
charges to their bank accounts. 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 shareholders will receive a confirmation statement
at least quarterly. Participation in the plan will begin within 30 days after
receipt of the account application. If the shareholder's 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. The
shareholder 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.
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 the shareholder's account. The
Transfer Agent arranges for the redemption by the fund of sufficient shares,
deposited by the shareholder with the Transfer Agent, to provide the withdrawal
payment specified.
CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS -- A shareholder in one fund
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 the shareholder's 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 shall have the right, if the
shareholder fails 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 to the shareholder. 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) (see "American FundsLine(R)" 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
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.
ACCOUNT STATEMENTS -- Your account is opened in accordance with your
registration instructions. Transactions in the account, such as additional
investments and dividend reinvestments, will be reflected on regular
confirmation statements from American Funds Service Company. Purchases through
automatic investment plans will be confirmed at least quarterly.
AMERICAN FUNDSLINE(R) -- You may check your share balance, the price of your
shares, or your most recent account transaction, redeem shares (up to $10,000
per fund, per account each day), or exchange shares around the clock with
American FundsLine(R). To use this service, call 800/325-3590 from a
TouchTone(TM) telephone. Redemptions and exchanges through American
FundsLine(R) are subject to the conditions noted above and in "Redeeming
Shares--Telephone 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 REDEMPTIONS AND EXCHANGES - By using the telephone (including
American FundsLine(R)), 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.
EXECUTION OF PORTFOLIO TRANSACTIONS
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, 1996
amounted to $658,000.
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, N.A., 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. When fund shares are purchased by an insurance
company separate account to serve as the underlying investment vehicle for
variable insurance contracts, the fund may pay a fee to the insurance company
or another party for performing certain transfer agent services with respect to
contract owners having interests in the fund. It was paid a fee of $514,000
for the fiscal year ended August 31, 1996.
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.
REMOVAL OF DIRECTORS BY SHAREHOLDERS - At any meeting of shareholders, duly
called 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 - Capital Research and Management Company 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.
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, 1996
<S> <C>
Net asset value and redemption price per share
(Net assets divided by shares $11.86
outstanding)
Maximum offering price per share (100/95.25 of
per share net asset value, which takes into
account
the fund's current maximum sales $12.45
charge)
</TABLE>
INVESTMENT RESULTS
The fund's yield is 4.76% based on a 30-day (or one month) period ended August
31, 1996, 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, 1996 was 7.88%.
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 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 net asset value or maximum
offering price for the month. The distribution rate may differ from the 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, 1996
were 0.47%, 6.33% and 6.59%, 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 283.6% compared with
315.1% 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, 1996, the fund
had a total return of 283.1% and the index showed a 301.4% return.
_______________
/1/ The Bond Buyer Index is unmanaged, reflects no expenses or management fees
and consists of 20 General Obligation bonds maturing 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.
EXPERIENCE OF INVESTMENT ADVISER - Capital Research and Management Company
manages nine common stock funds that are at least 10 years old. In all of the
10-year periods during which those funds were managed by Capital Research and
Management Company since January 1, 1966 (121 in all), those funds have had
better total returns than the Standard and Poor's 500 Stock Composite Index in
94 of the 121 periods.
Note that past results are not an indication of future investment results.
Also, the fund has different investment policies than the funds mentioned
above. These results are included solely for the purpose of informing
investors about the experience and history of Capital Research and Management
Company.
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.
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, 1996
| |
<S> <C> <C>
Periods
Number of Years 9/1-8/31 Value
1 1995 - 1996 $10,047
2 1994 - 1996 10,926
3 1993 - 1996 10,909
4 1992 - 1996 12,262
5 1991 - 1996 13,593
6 1990 - 1996 15,176
7 1989 - 1996 15,911
8 1988 - 1996 17,547
9 1987 - 1996 18,719
10 1986 - 1996 18,927
11 1985 - 1996 23,490
12 1984 - 1996 27,337
13 1983 - 1996 29,361
14 1982 - 1996 34,155
15 1981 - 1996 42,924
16 1980 - 1996 39,096
17 1979*- 1996 38,361
</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, 1996)
<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 13,494 24,072
1991 1,621 14,165 24,165 10,762 326 15,801 26,889
1992 1,723 15,888 25,888 11,219 339 18,235 29,793
1993 1,773 17,661 27,661 11,838 577 21,078 33,493
1994 1,874 19,535 29,535 11,095 773 21,578 33,446
1995 2,011 21,546 31,546 11,371 792 24,194 36,357
1996 2,017 23,563 33,563 11,295 1,042 26,024 38,361
</TABLE>
Includes reinvested dividends of $23,563 and reinvested capital gain
distributions of $1,032.
* 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."
<PAGE>
<TABLE>
<S> <C> <C>
THE TAX-EXEMPT BOND FUND OF AMERICA
Investment Portfolio, August 31, 1996
Geographic Breakdown
New York -- 12.65%
California -- 11.91%
Michigan -- 7.81%
Washington -- 7.22%
Illinois -- 6.75%
Pennsylvania -- 5.75%
Other States -- 43.14%
Cash & Short-Term Securities -- 4.77%
Quality Ratings
Aaa/AAA -- 31.81%
Aa/AA -- 16.97%
A/A -- 17.20%
Baa/BBB -- 27.86%
Below Investment Grade 6.16%
Principal Market
Amount Value
(000) (000)
Tax-Exempt Securities Maturing in More than
One Year - 95.23%
Alabama - 0.43%
Daughters of Charity, National Health System,
5.25% 2015 $4,000 $3,723
The Industrial Development Board of the City of
Mobile, Solid Waste Revenue Refunding Bonds (Mobile
Energy Services Company, L.L.C. Projects), Series
1995, 6.95% 2020 2,500 2,610
Alaska - 1.83%
Housing Finance Corporation:
Insured Mortgage Program Refunding Bonds, 1990
First Series, 7.80% 2030 5,900 5,956
Collateralized Bonds (Veterans Mortgage
Program), Series 1992A-1, 6.75% 2032 4,600 4,705
Municipality of Anchorage:
1995 General Obligation Refunding General Purpose
Bonds, Series B, FGIC Insured, 6.00% 2012 2,895 3,031
Municipal Light & Power, Senior Lien Refunding Electric
Revenue Bonds, MBIA Insured, Series 1996, 6.50% 2014 5,000 5,477
City of Valdez, Marine Terminal Revenue Refunding
Bonds (BP Pipelines Inc. Project), Series 1993B,
5.50% 2028 8,500 7,847
Arizona - 0.56%
State Transportation Board, Subordinated Highway
Revenue Bonds, Series 1992B, 6.50% 2008
(Prerefunded 2002) 1,850 2,036
Salt River Project Agricultural Improvement and
Power District, Electric System Revenue Bonds,
Refunding Series A, 7.875% 2028 (Prerefunded 1998) 1,000 1,068
The Industrial Development Authority of the City
of Scottsdale, Hospital Revenue Refunding Bonds ,
Scottsdale Memorial Hospitals, Series 1996A,
AMBAC Insured:
6.50% 2005* 2,270 2,429
6.50% 2006* 1,200 1,283
6.50% 2007* 1,290 1,377
California - 11.91%
General Obligation Bonds, 6.75% 2002 5,000 5,495
Various Purpose General Obligation Bonds,
6.75% 2006 1,000 1,121
Health Facilities Financing Authority:
Downey Community Hospital, Series 1993:
5.00% 2001 1,000 997
5.75% 2015 4,990 4,703
Kaiser Permanente Medical Care Program, Semi-Annual
Tender Revenue Bonds:
Series A, 7.00% 2018 1,900 2,039
1985 Tender Bonds, 5.55% 2025 5,000 4,619
Public Works Board, Lease Revenue Bonds:
California Community Colleges, 1994 Series B
(Various Community College Projects):
6.75% 2005 2,505 2,761
7.00% 2007 1,315 1,451
Department of Corrections, State
Prison-Lassen County (Susanville), 1993 Series D,
5.20% 2007 3,760 3,673
Statewide Communities Development Authority:
Children's Hospital of Los Angeles, MBIA Insured,
6.00% 2008 3,415 3,602
St. Joseph Health System Obligated Group,
Certificates of Participation:
5.50% 2014 2,000 1,884
5.50% 2023 2,700 2,466
Castaic Lake Water Agency Financing Corporation,
Refunding Revenue Certificates of Participation
(Water System Improvement Projects), Series 1994A,
MBIA Insured:
7.25% 2010 1,245 1,456
7.00% 2011 2,400 2,748
Central Valley Financing Authority, Cogeneration
Project Revenue Bonds (Carson Ice-Gen Project),
Series 1993, 6.10% 2013 1,000 985
Culver City Redevelopment Financing Authority, 1993
Tax Allocation Refunding Revenue Bonds, AMBAC
Insured, 5.00% 2023 3,635 3,179
Long Beach Aquarium of the Pacific, Revenue Bonds
(Aquarium of the Pacific Project), 1995 Series A:
6.10% 2010 4,000 3,917
6.125% 2015 6,965 6,557
6.125% 2023 9,000 8,332
City of Los Angeles:
State Building Authority, Lease Revenue Refunding Bonds,
Department of General Services Lease, 1993 Series A:
5.375% 2006 3,000 3,003
5.50% 2007 7,295 7,283
Convention and Exhibition Center Authority,
Certificates of Participation:
7.375% 2018 (Prerefunded 1999) 1,000 1,099
7.00% 2020 (Prerefunded 1999) 2,750 2,992
Regional Airports Improvement Corporation,
Facilities Lease Refunding Revenue Bonds,
Issue of 1992, United Air Lines, Inc. (Los
Angeles International Airport), 6.875% 2012 2,000 2,072
Wastewater System Revenue Bonds, Refunding Series 1993 D,
FGIC Insured, 5.20% 2021 2,500 2,261
Department of Water and Power, Electric Plant Revenue
Bonds, Issue of 1990, 7.10% 2031 (Subject to Crossover
Refunding 2001) 3,000 3,338
County of Los Angeles, Certificates of
Participation (Marina Del Rey), Series A:
6.25% 2003 5,500 5,653
6.50% 2008 4,750 4,783
Los Angeles County:
Metropolitan Transportation Authority,
Proposition C Sales Tax Revenue Bonds,
Second Series 1993B, AMBAC Insured, 5.25% 2023 1,300 1,181
Transportation Commission, Sales
Tax Revenue Bonds, Series 1989, 7.00% 2019 2,000 2,149
The Metropolitan Water District of Southern
California, Waterworks General Obligation Refunding
Bonds, 1993 Series A1, 5.50% 2010 3,000 3,005
Northern California Power Agency, Geothermal
Project #3, Special Revenue Bonds, 1993 Refunding
Series A, 5.60% 2006 3,000 3,057
County of Orange:
Recovery Certificates of
Participation, 1996 Series A, MBIA Insured:
6.00% 2008 7,500 7,953
6.00% 2010 6,220 6,477
Aliso Viejo Special Tax Bonds
of Community Facilities District No. 88-1,
Series A of 1992:
7.15% 2006 (Prerefunded 2002) 2,000 2,290
7.35% 2018 (Prerefunded 2002) 10,000 11,551
Orange County Local Transportation Authority,
Measure M Sales Tax
Revenue Bonds (Limited Tax Bonds):
Second Senior Bonds, Series 1992, FGIC Insured,
5.90% 2006 1,200 1,263
First Senior Bonds, MBIA Insured, 6.00% 2009 2,000 2,092
South Orange County, Public Financing Authority,
Special Tax Revenue Bonds, 1994 Series B (Junior
Lien Bonds):
6.65% 2003 1,000 1,009
6.75% 2004 2,385 2,403
Pleasanton Joint Powers Financing Authority,
Reassessment Revenue Bonds, 1993 Series A, 5.70% 2001 500 509
Riverside County Transportation Commission, Sales
Tax Revenue Bonds (Limited Tax Bonds), 1991
Series A, 6.50% 2009 (Prerefunded 2001) 3,600 3,956
Sacramento City Financing Authority, 1991 Revenue
Bonds, 6.80% 2020 (Prerefunded 2001) 5,000 5,588
Sacramento Cogeneration Authority, Cogeneration
Project Revenue Bonds:
Procter & Gamble Project, 1995 Series:
6.20% 2006 1,000 1,010
6.375% 2010 1,000 1,006
1995 Series:
6.00% 2002 2,000 2,047
6.00% 2003 2,200 2,237
Public Facilities Financing Authority of The City of
San Diego, Sewer Revenue Bonds, Series 1993, AMBAC
Insured, 5.00% 2013 1,105 1,007
San Francisco Bay Area Rapid Transit District,
Sales Tax Revenue Refunding Bonds, Series 1990,
AMBAC Insured, 6.75% 2009 3,250 3,555
Redevelopment Agency of the City and County of
San Francisco, Refunding Lease Revenue Bonds,
Series 1991 (George R. Moscone Convention
Center), 5.50% 2018 6,000 5,572
San Joaquin Hills Transportation Corridor Agency
(Orange County), Senior Lien Toll Road Revenue
Bonds, 0% 2000 4,525 3,755
The Regents of the University of California:
Various University of California Projects, 1993:
Series A, 5.50% 2021 2,000 1,834
Series B, 5.375% 2009 2,000 1,944
Revenue Bonds, Series A, MBIA Insured, 6.90% 2015
(Prerefunded 1997) 2,750 2,886
Colorado - 3.56%
Housing And Finance Authority, Multi-Family Housing Insured
Mortgage Revenue Bonds, 1982 Series A, 9.00% 2025 1,780 1,793
Student Obligation Bond Authority, Student Loan Revenue
Bonds, 1994 Series L, 6.00% 2001 1,065 1,107
Arapahoe County, Capital Improvement Trust Fund
Highway Revenue Bonds (E-470 Project):
6.90% 2015 5,750 6,025
6.95% 2020 20,500 21,478
City and County of Denver, Airport System Revenue Bonds,
Series 1992A:
7.25% 2025 (Prerefunded 2002) 5,590 6,363
7.25% 2025 14,210 15,780
District of Columbia - 2.60%
General Obligation Bonds:
Series 1990 A, AMBAC Insured, 7.25% 2005
(Prerefunded 2000) 2,500 2,768
Series 1992 B, MBIA Insured:
6.125% 2003 1,750 1,844
6.30% 2010 2,900 2,980
AMBAC Insured, 5.20% 2004 1,500 1,495
Series 1993 A, AMBAC Insured, 5.875% 2005 3,000 3,104
Series B-2, FSA Insured, 5.50% 2007 8,725 8,724
Series B-1, AMBAC Insured, 5.50% 2009 8,500 8,384
Hospital Revenue Refunding Bonds
(Medlantic Healthcare Group, Inc. Issue):
Series 1992 A, 7.00% 2005 2,000 2,088
Series 1993 A, MBIA Insured:
6.00% 2011 3,765 3,847
5.25% 2012 2,000 1,845
Redevelopment Land Agency, Sports Arena Special Tax Revenue
Bonds, Series 1996, 5.625% 2010 1,350 1,310
Florida - 1.04%
Broward County, Resource Recovery Revenue Bonds,
Series 1984:
North Project, 7.95% 2008 4,670 5,146
South Project, 7.95% 2008 1,200 1,322
The Crossing at Fleming Island Community Development
District (Clay County), Special Assessment Bonds,
Series 1995, 8.25% 2016 1,125 1,190
Mid-Bay Bridge Authority, Revenue Refunding Bonds:
Series 1993A, 8.50% 2022 (Subject to crossover refunding) 4,000 4,528
Series 1993D, 6.125% 2022 500 490
Northern Palm Beach County Improvement District, Water
Control and Improvement Bonds, Unit of Development No. 9A,
Series 1996A:
6.80% 2006 1,145 1,145
7.30% 2027 1,500 1,500
Georgia - 1.70%
General Obligation Bonds, 1995 D, 6.75% 2011 5,410 6,151
Municipal Electric Authority:
Project One Special Obligation Bonds,
Fourth Crossover Series, 6.50% 2012 1,215 1,307
General Power Revenue Bonds,
CTFS-1992B Series , 6.375% 2016 1,000 1,056
City of Atlanta:
Airport Facilities Revenue
Refunding Bonds, Series 1994 A, AMBAC Insured
6.50% 2009 1,000 1,106
Special Purpose Facilities
Revenue Refunding Bonds (Delta Air Lines, Inc.
Project), Series 1989 A, 7.50% 2019 4,500 4,741
Fulco Hospital Authority, Revenue Anticipation
Certificates:
St. Joseph's Hospital of Atlanta, Inc.,
Series 1994, 4.80% 2001 2,305 2,288
Georgia Baptist Health Care System
Project:
Series 1992A:
6.40% 2007 1,000 1,016
6.25% 2013 2,100 2,028
6.375% 2022 1,595 1,544
Series 1992 B, 6.375% 2022 610 590
Development Authority of Fulton County, Special
Facilities Revenue Bonds (Delta Air Lines, Inc.
Project), Series 1992, 6.95% 2012 3,115 3,243
Hawaii - 0.07%
State General Obligation Refunding Bonds of 1993,
Series C, 5.125% 2009 1,000 969
Illinois - 6.75%
Build Illinois Bonds (Sales Tax Revenue Bonds),
Series O, 6.00% 2002 1,000 1,061
Civic Center Bonds (Special State Obligation Bonds),
Series 1991, AMBAC Insured, 6.25% 2020 6,500 6,856
Educational Facilities Authority Revenue
Bonds, Wesleyan University, Series 1993,
5.625% 2018 1,490 1,409
Heath Facilities Authority:
Revenue Bonds, Series 1993 (OSF Healthcare System),
5.75% 2007 4,760 4,653
Refunding Bonds, Series 1993 A (Edward Hospital
Project), 6.00% 2019 1,435 1,383
Revenue and Revenue Refunding Bonds
(Evangelical Hospitals Corporation), Series C,
6.25% 2022 4,000 3,972
Revenue Bonds, Series 1992 (Edward Hospital
Association Project), 7.00% 2022 1,000 1,047
Revenue Refunding Bonds (Fairview), Series 1995A, 7.40% 2023 1,000 990
Revenue Bonds, Series 1994 A (Northwestern Memorial
Hospital), 6.00% 2024 2,000 1,983
Metropolitan Pier and Exposition Authority,
McCormick Place Expansion Project Bonds,
Current Interest Bonds, Series 1992 A,
6.50% 2027 4,000 4,060
City of Chicago:
General Obligation Bonds, Project and Refunding,
Series 1995B, FGIC Insured, 5.125% 2025 4,000 3,538
The County of Cook, General Obligation Capital Improvement
Bonds, Series 1996, FGIC Insured, 6.50% 2011 4,000 4,376
Chicago-O'Hare International Airport:
General Airport Second Lien Revenue Refunding Bonds,
1993 Series C, MBIA Insured, 5.00% 2018 10,000 8,821
Special Facilities Revenue Bonds for United
Air Lines:
1984 Series C, 8.20% 2018 1,210 1,313
1988 Series B, 8.85% 2018 1,900 2,158
Special Facilities Revenue Refunding Bonds:
Delta Air Lines, Inc. Terminal, 6.45% 2018 4,435 4,428
Series 1994 (American Airlines, Inc. Project),
8.20% 2024 2,750 3,168
Metropolitan Water Reclamation District of Greater
Chicago, Series B:
Capital Improvement Bonds, 5.25% 2004 5,000 5,088
Refunding Bonds, 5.30% 2005 5,325 5,408
Skyway Toll Bridge Refunding Revenue Bonds,
Series 1994:
6.50% 2010 13,250 13,551
6.75% 2014 6,500 6,678
Water Revenue Bonds, Refunding
Series 1993, FGIC Insured:
6.50% 2011 4,345 4,752
5.50% 2025 2,565 2,221
Regional Transportation Authority, Cook, Du Page,
Kane, Lake, McHenry and Will Counties,
General Obligation Bonds:
Series 1994D, FGIC Insured, 7.75% 2019 4,500 5,597
Series 1990A, AMBAC Insured, 7.20% 2020 1,000 1,174
Indiana - 2.66%
Educational Facilities Authority, Educational
Facilities Revenue Bonds (University of Evansville
Project), Series 1996, 5.25% 2005 1,000 951
Housing Finance Authority, Single Family Mortgage
Refunding Revenue Bonds, 1992 Series A, 6.75% 2010 1,275 1,330
State Office Building Commission, Correctional
Facilities Program Revenue Bonds, Series 1995B,
AMBAC Insured, 6.25% 2012 8,490 9,105
Transportation Finance Authority, Airport
Facilities Lease Revenue Bonds, Series A:
6.50% 2007 7,000 7,354
6.75% 2011 2,400 2,520
City of East Chicago, Pollution Control Refunding
Revenue Bonds (Inland Steel Company Project No. 11),
Series 1994, 7.125% 2007 3,000 3,068
Hospital Authority of the City of Fort Wayne,
Revenue Bonds (Parkview Memorial Hospital, Inc.
Project), Series 1992:
6.375% 2013 6,000 6,064
6.40% 2022 2,000 2,013
Indianapolis Local Public Improvement Bond Bank,
Series 1992 D Bonds, 6.60% 2007 1,960 2,118
Municipal Power Agency, Power Supply System Revenue Bonds,
1993 Series A, MBIA Insured, 5.50% 2023 5,000 4,680
Kentucky - 0.25%
Higher Education Student Loan Corp., Insured
Student Loan Revenue Bonds, 1994 Series B,
6.20% 1999 1,140 1,189
Kenton County Airport Board, Special Facilities
Revenue Bonds (Delta Air Lines, Inc. Project):
7.80% 2015 1,000 1,060
1992 Series B, 7.25% 2022 1,350 1,432
Louisiana - 4.02%
Lake Charles Harbor and Terminal District, Port
Facilities Revenue Refunding Bonds (Trunkline
LNG Company Project), Series 1992, 7.75% 2022 28,000 31,352
Offshore Terminal Authority, Deepwater Port
Refunding Revenue Bonds (LOOP INC. Project):
First Stage Series B:
5.40% 1998 3,150 3,207
6.25% 2004 9,000 9,570
First Stage Series E:
7.45% 2004 1,000 1,094
7.60% 2000 1,000 1,090
Orleans Levee District, Levee Improvement Fixed-Rate
Refunding Bonds, Series 1987 A, 8.25% 2014 6,920 6,982
Parish of St. Charles, Adjustable/Fixed-Rate
Pollution Control Revenue Bonds (Louisiana
Power & Light Company Project),
Series 1984, 8.25% 2014 5,490 5,985
Maine - 0.25%
State Housing Authority, Mortgage Purchase
Bonds,1994 Series C-1, 5.90% 2015 3,635 3,673
Maryland - 1.69%
Community Development Administration, Department
of Housing and Community Development, Single
Family Program Bonds, 1990 First Series, 7.60% 2017 5,920 6,135
Health and Higher Educational Facilities Authority:
Revenue Bonds, Howard County General Hospital
Issue, Series 1993:
5.50% 2013 2,300 2,056
5.50% 2021 6,225 5,430
Project and Refunding Revenue Bonds:
Mercy Medical Center Issue, Series 1996,
FSA Insured, 6.50% 2013 1,155 1,273
Peninsula Regional Medical Center Issue, Series 1993,
5.25% 2012 1,000 937
Calvert County, Maryland Economic Development
Revenue Bonds (Asbury-Solomons Island Facility),
Series 1995, 8.625% 2024 2,500 2,637
John Hopkins Hospital Issue, Revenue Refunding
Bonds, Series 1993, 5.00% 2023 3,000 2,611
Prince George's County, Hospital Revenue Bonds,
Dimensions Health Corporation Issue:
Series 1992, 7.25% 2017 (Prerefunded 2002) 750 854
5.30% 2024 3,305 2,951
Massachusetts - 2.46%
General Obligation Bonds Consolidated Loan of
1989, Series D, MBIA Insured, 7.00% 2009
(Prerefunded 1999) 1,000 1,091
Health and Educational Facilities Authority,
Revenue Bonds, Brigham and Women's Hospital Issue,
Series D, 6.75% 2024 7,000 7,276
Massachusetts Bay Transportation Authority, General
Transportation System Bonds, 1994 Series A
Refunding Bonds, 7.00% 2007 10,110 11,538
Water Resources Authority:
General Revenue Bonds, 1990 Series A, 7.50% 2009
(Prerefunded 2000) 9,500 10,578
General Revenue Refunding Bonds, 1993 Series B,
5.25% 2009 2,500 2,420
City of Boston, Revenue Refunding Bonds,
Boston City Hospital (FHA Insured Mortgage),
7.625% 2021 980 1,101
The New England Loan Marketing Corp.,
Student Loan Refunding Bonds:
1992 Series A, 6.50% 2002 1,000 1,066
1993 Series G, 5.20% 2002 1,200 1,205
Michigan - 7.81%
Daughters of Charity, National Health System, 5.50% 2005 1,750 1,784
Genesys Health System Obligated Group, Series 1995A:
7.10% 2002 1,955 2,071
7.20% 2003 1,000 1,062
8.00% 2005 8,880 9,752
8.10% 2013 5,000 5,500
8.125% 2021 4,500 4,925
7.50% 2027 2,925 3,048
McLaren Obligated Group, Series 1993A, 5.375% 2013 2,985 2,737
Sinai Hospital of Greater Detroit, Series 1995:
6.625% 2016 5,750 5,691
6.70% 2026 1,680 1,654
State Housing Development Authority, Rental Housing
Revenue Bonds, 1994 Series A:
6.20% 2003 600 623
AMBAC Insured, 6.40% 2005 1,850 1,979
Job Development Authority, Pollution
Control Revenue Bonds (Chrysler Corporation
Project), Series 1984, 5.70% 1999 7,000 7,162
City of Detroit:
General Obligation Revenue Bonds (Unlimited Tax):
Series 1995-A 5.60% 2001 4,250 4,291
Series 1995-B:
6.25% 2001 6,585 6,820
6.75% 2003 8,675 9,169
7.00% 2004 2,500 2,674
6.25% 2005 3,625 3,695
6.25% 2008 1,730 1,734
6.25% 2009 1,195 1,194
6.25% 2010 1,250 1,244
Downtown Development Authority,
Tax Increment Bonds (Development Area No. 1 Projects),
Series 1996C, MBIA Insured:
6.20% 2017 9,310 9,344
6.25% 2025 4,265 4,262
Greater Detroit Resource Authority, Resource Recovery
Revenue Refunding Bonds, Series 1996B,
AMBAC Insured, 6.25% 2008 1,500 1,605
City of Royal Oak Hospital Financing Authority,
Hospital Revenue Refunding Bonds (William Beaumont
Hospital), Series 1993 G, 5.25% 2019 8,000 7,175
Charter County of Wayne, Special Airport Facilities
Revenue Refunding Bonds (Northwest Airlines, Inc.
Facilities), Series 1995, 6.75% 2015 14,000 14,108
Minnesota - 0.72%
Housing Finance Agency, Housing Development
Bonds, 1991 Series A, 6.85% 2007 2,535 2,666
Housing and Redevelopment Authority of the City
of Saint Paul, Hospital Facility Revenue
Bonds (Healtheast Project), Series 1987-B:
9.75% 2017 (Subject to Crossover Prerefunding 1997) 2,735 2,948
9.75% 2017 (Subject to Crossover Prerefunding 1997) 4,640 5,002
Mississippi - 1.41%
Claiborne County, Adjustable/Fixed Rate Pollution
Control Revenue Bonds (Middle South Energy, Inc.
Project):
Series A, 9.50% 2013 1,550 1,722
Series C, 9.875% 2014 17,035 19,061
Nevada - 0.10%
City of Henderson, Local Improvement
District No. T-10 (Seven Hills) Limited Obligation
Improvement Bonds, 7.50% 2015 1,500 1,509
New Hampshire - 0.24%
Business Finance Authority, Pollution Control
Refunding Revenue Bonds (The United Illuminating
Company Project), Series A 1993, 5.875% 2033 2,985 2,694
Higher Educational and Health
Facilities Authority Revenue Bonds, Dartmouth
College Issue, Series 1993, 5.375% 2023 1,000 918
New Jersey - 1.39%
Economic Development Authority, First
Mortgage Revenue Fixed Rate Bonds:
Fellowship Village Project, Series 1995A, 9.25% 2025 7,000 7,634
Winchester Gardens at Ward Homestead Project,
Series 1996A:
8.50% 2016 4,000 3,996
8.625% 2025 3,500 3,504
Housing and Mortgage Finance Agency,
Section 8 Bonds, 1991 Series A:
6.80% 2005 2,570 2,757
6.85% 2006 2,500 2,676
New Mexico - 0.24%
Mortgage Finance Authority, Single Family Mortgage
Purchase Refunding Senior Bonds, 1992 Series
A-1, 6.85% 2010 3,385 3,505
New York - 12.65%
Dormitory Authority:
State University Educational Facilities Revenue
Refunding Bonds:
Series 1990 A, 7.50% 2013 3,500 4,092
Series 1990 B:
7.50% 2011 1,720 1,981
7.00% 2016 1,000 1,060
City University System, Consolidated Second
General Resolution Revenue Bonds:
Series 1990 F, FGIC Insured, 7.50% 2020
(Prerefunded 2000) 7,100 7,961
Series G, 5.00% 2002 2,000 1,978
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 8,380 8,613
Series 1991 E, 6.875% 2010 1,500 1,637
Series 1990 A, 7.50% 2012 500 551
Housing Finance Agency, Health Facilities Revenue Bonds
(New York City), 1996 Series A Refunding, 6.375% 2003 5,000 5,208
Local Government Assistance Corporation:
Series 1991 A, 7.00% 2016 (Prerefunded 2001) 7,000 7,811
Series 1991 B, 7.50% 2020 (Prerefunded 2001) 6,925 7,869
Series 1991 C, 0% 2005 5,000 3,196
Series 1991 D:
7.00% 2011 2,000 2,226
7.00% 2018 (Prerefunded 2002) 8,650 9,762
6.75% 2021 (Prerefunded 2002) 1,350 1,507
Series 1992 C, 5.50% 2022 1,000 921
State Medical Care Facilities Finance Agency,
Mental Health Services Facilities Improvement
Revenue Bonds:
1991 Series A, 7.50% 2021 (Prerefunded 2001) 3,645 4,128
1994 Series A, 5.10% 2003 1,720 1,687
Series D, 5.25% 2023 1,000 864
Metropolitan Transit Authority, Transit Facilities
Service Contract Bonds, Series O and P,
5.375% 2002 4,000 4,037
Urban Development Corporation, Correctional
Capital Facilities Revenue Bonds:
Series 1993 A, Refunding Series, 5.30% 2005 2,800 2,713
Series 2, 6.50% 2021 (Prerefunded 2001) 3,700 3,980
Series 6A, 6.00% 2003 2,750 2,824
Battery Park City Authority, Revenue Refunding
Bonds, Series 1993 A:
5.00% 2013 5,000 4,451
5.25% 2017 2,500 2,240
4.75% 2019 18,000 14,898
City of New York, General Obligation Bonds:
Fiscal 1995 Series C, 5.90% 2003 2,115 2,139
Fiscal 1992 Series C, 6.50% 2004 2,500 2,611
Fiscal 1995 Series F:
6.375% 2006 3,000 3,067
6.60% 2010 2,000 2,043
6.625% 2025 1,500 1,523
Fiscal 1992 Series H, 6.875% 2002 1,900 2,024
Fiscal 1993 Series A, 6.25% 2003 4,200 4,330
Fiscal 1991 Series B, 8.25% 2006 1,500 1,789
Fiscal 1995 Series E:
6.50% 2004 7,550 7,843
MBIA Insured, 6.20% 2008 3,000 3,240
Fiscal 1996 Series E, 6.50% 2006 7,500 7,746
Fiscal 1996 Series I, 6.50% 2006 8,000 8,264
Municipal Water Finance Authority,
Water and Sewer System Revenue Bonds:
Fiscal 1989 Series B, FGIC Insured,
7.625% 2017 (Prerefunded 1998) 3,000 3,219
Fiscal 1991 Series C, 7.75% 2020 (Prerefunded 2001) 5,000 5,715
Fiscal 1994 Series B:
4.875% 2002 3,000 2,995
5.50% 2019 2,000 1,850
Transit Authority, Transit
Facilities Revenue Bonds (Livingston Plaza
Project), Series 1990, FSA Insured, 7.50% 2020
(Prerefunded 2000) 4,000 4,434
Triborough Bridge and Tunnel Authority, General
Purpose and Revenue Bonds:
Series S, 7.00% 2021 (Prerefunded 2001) 11,400 12,616
Series Y, 6.00% 2012 1,000 1,049
North Carolina - 1.54%
Eastern Municipal Power Agency, Power System Revenue
Bonds:
Series 1993 B:
6.00% 2006 3,000 3,006
7.00% 2008 10,045 10,827
7.25% 2007 5,000 5,466
Series 1993 C, 5.00% 2021 4,000 3,372
Ohio - 0.12%
County of Franklin, Hospital Facilities Revenue
Refunding and Improvement Bonds (Doctors Hospital
Project), 5.60% 2006 1,750 1,793
Oklahoma - 1.26%
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 2,500 2,598
6.00% 2010 4,020 4,154
Industries Authority, Health System Revenue
Bonds, Baptist Medicine Center of Oklahoma,
Series 1995 C, AMBAC Insured, 6.375% 2009 2,500 2,679
Grand River Dam Authority, Revenue Bonds, Refunding
Series 1995, AMBAC Insured, 6.25% 2011 2,500 2,715
Tulsa Industrial Authority, Hospital Revenue
and Refunding Bonds:
St. John Medical Center Project, Series 1996,
5.375% 2017 3,000 2,799
Hillcrest Medical Center Project, Series 1996,
Connie Lee Insured, 6.25% 2010 3,555 3,684
Pennsylvania - 5.75%
Convention Center Authority, Refunding
Revenue Bonds, 1994 Series A, 6.25% 2004 10,000 10,362
Higher Educational Facilities Authority, Revenue
Bonds (Thomas Jefferson University), 1992
Series A, 6.625% 2009 1,250 1,350
Housing Finance Authority, Single Family Mortgage
Revenue Bonds:
Series 1990-29A, 7.375% 2016 3,575 3,791
Series 1992-33, 6.85% 2009 1,000 1,059
Industrial Development Authority,
Economic Development Revenue Bonds, Series 1994,
AMBAC Insured, 7.00% 2007 1,750 2,009
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) 4,500 4,948
6.50% 2021 (Prerefunded 2002) 3,000 3,298
Series A of 1993:
5.25% 2010 5,500 5,217
5.00% 2021 8,000 6,976
Frankford Hospital, Series A:
6.00% 2014 1,805 1,756
6.00% 2023 4,000 3,774
Hospital Authority of Philadelphia, Hospital
Revenue Bonds (Temple University Hospital):
Series of 1993 A, 6.50% 2008 15,500 16,047
Series of 1983, 6.625% 2023 15,385 15,552
City of Pottsville Hospital Authority, Hospital
Revenue Bonds (The Pottsville Hospital and Warne
Clinic), Series of 1994, 7.25% 2024 8,500 8,703
Rhode Island - 2.59%
Convention Center Authority, Refunding Revenue
Bonds, MBIA Insured:
1993 Series B, 5.00% 2008 2,790 2,688
1993 Series A, 5.00% 2010 3,190 3,024
1993 Series B, 5.25% 2015 5,660 5,292
Depositors Economic Protection Corporation, Special
Obligation Bonds:
1993 Series A, MBIA Insured:
5.75% 2012 4,850 4,908
6.25% 2016 4,500 4,734
1992 Series A, FSA Insured, 6.625% 2019
(Prerefunded 2002) 1,000 1,106
1993 Series A:
6.375% 2022 7,000 7,198
5.75% 2021 (Escrowed to Maturity) 4,180 4,085
5.75% 2021 2,715 2,602
Housing and Mortgage Finance Corporation,
Homeownership Opportunity Bonds, Series 3-A,
7.80% 2010 2,500 2,636
South Dakota - 0.13%
Housing Development Authority,
Homeownership Mortgage Bonds, 1995 Series A and B,
6.00% 2023 1,965 2,000
Tennessee - 2.34%
Health and Educational Facilities Board of the
Metropolitan Government of Nashville and Davidson
County, (Blakeford Project), 9.25% 2024 6,600 7,094
Memphis-Shelby County Airport Authority, Special
Facilities Revenue Bonds, Refunding Series 1992
(Federal Express Corporation), 6.75% 2012 26,375 27,409
Texas - 3.17%
National Research Laboratory Commission, General
Obligation Bonds, Series 1990 (Superconducting
Super Collider Project), 7.125% 2020
(Prerefunded 2000) 14,450 15,908
Dallas-Fort Worth International Airport
Facility Improvement Corp.:
American Airlines, Inc., Revenue Bonds, Series 1992,
6.00% 2014 3,375 3,304
Delta Air Lines, Inc., Revenue Refunding Bonds,
Series 1993, 6.25% 2013 2,400 2,372
Harris County Health Facilities Development
Corporation, SCH Health Care System Revenue Bonds
(Sisters of Charity of the Incarnate Word,
Houston), Series 1991A, 7.10% 2021 8,000 8,573
Harris County Toll Road, Unlimited Tax and
Subordinate Lien Revenue Bonds, Series 1984,
10.375% 2014 (Prerefunded 1998) 1,000 1,084
Hidalgo County Health Services Corp., Hospital Revenue
Bonds (Mission Hospital, Inc. Project), Series 1996:
7.00% 2008 1,000 1,028
6.75% 2016 1,740 1,699
Northside Independent School District (Bexar,
Medina, and Bandera Counties), Unlimited
Tax School Building Bonds, Series 1991, 6.375% 2008
(Prerefunded 2001) 3,500 3,740
Tomball Hospital Authority, Hospital Revenue
Refunding Bonds, Series 1993, Tomball Regional
Hospital, 6.125% 2023 6,250 5,836
Village at Western Oaks Municipal Utility District,
City of Austin, Contract Revenue Refunding
Bonds, Series 1991, FGIC Insured, 6.50% 2009 3,000 3,203
Utah - 2.08%
Housing Finance Agency, Single Family Mortgage
Bonds, 1995 Issue E (Federally Insured or
Guaranteed Mortgage Loans), 5.50% 2024 1,860 1,867
Intermountain Power Agency:
Special Obligation Refunding Bonds,
5th Crossover Series:
FGIC Insured, 7.00% 2015 7,000 7,289
7.20% 2019 1,000 1,038
Power Supply Revenue Refunding Bonds:
1996 Series B, MBIA Insured:
6.25% 2006 4,000 4,331
6.50% 2009 2,000 2,195
1997 Series A, AMBAC Insured, 6.50% 2011* 1,435 1,510
Salt Lake City, Hospital Revenue Bonds, Series
1992 (IHC Hospitals, Inc.):
5.50% 2021 8,100 7,510
6.25% 2023 5,000 5,036
Vermont - 0.02%
Housing Finance Agency, Single Family
Housing Bonds, Series 4, 5.75% 2012 290 292
Virginia - 1.22%
Commonwealth Transportation Board, Commonwealth of
Virginia Transportation Contract Revenue Bonds,
Series 1988 (Route 28 Project), 7.80% 2016
(Prerefunded 1998) 3,500 3,750
Industrial Development Authority of Fairfax
County, Hospital Revenue Refunding Bonds (Inova
Health System Hospitals Project), Series 1993A:
4.80% 2005 1,850 1,805
5.00% 2010 3,450 3,246
5.00% 2011 1,300 1,214
5.00% 2023 1,200 1,062
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 1,000 1,093
6.375% 2018 3,000 3,215
Industrial Development Authority of the City of
Norfolk, Hospital Revenue Bonds (Sentara
Hospitals-Norfolk Project), Series 1991,
6.50% 2013 2,500 2,620
Washington - 7.22%
General Obligation, Series B:
5.50% 2010 2,000 1,991
5.50% 2018 3,100 2,984
Public Power Supply System:
Nuclear Project No. 1 Refunding Revenue Bonds,
Series 1989 A:
7.50% 2015 (Prerefunded 1999) 1,820 1,999
6.00% 2017 7,700 7,498
Nuclear Project No. 2 Refunding Revenue Bonds:
Series 1990 A, 7.375% 2012 (Prerefunded 2000) 17,335 19,244
Series 1990 C, 7.30% 2000 1,800 1,946
Series 1992 A, 5.90% 2004 3,850 3,934
Series 1993 A, 5.10% 2000 4,600 4,627
Series 1994 A:
6.00% 2007 20,000 20,220
5.25% 2008 5,000 4,697
Nuclear Project No. 3 Refunding Revenue Bonds:
BIG Insured, 7.25% 2016 (Prerefunded 1999) 5,000 5,458
Series 1989 B:
7.25% 2015 (Prerefunded 2000) 5,450 5,988
FGIC Insured, 7.00% 2005 14,400 15,502
5.375% 2015 5,000 4,563
7.125% 2016 5,250 5,899
Wisconsin - 1.15%
Health and Educational Facilities Authority,
Revenue Bonds:
Children's Hospital Project, Series 1993, FGIC Insured,
5.50% 2006 2,000 2,045
Medical College of Wisconsin, Series 1993, 5.95% 2015 1,000 976
Housing and Economic Development Authority, Housing
Revenue Bonds, 6.40% 2003 3,480 3,618
Pollution Control and Industrial Development Revenue
Bonds (General Motors Corporation Projects), City
of Janesville, Series 1984, 5.55% 2009 3,000 2,935
Public Power Incorporated System,
Power Supply System Revenue Bonds, Series
1990 A, AMBAC Insured, 7.40% 2020
(Prerefunded 2000) 500 557
City of Superior, Limited Obligation
Refunding Revenue Bonds (Midwest Energy Resources
Company Project), Series E-1991 (Collateralized),
FGIC Insured, 6.90% 2021 6,000 6,859
Wyoming - 0.10%
Community Development Authority, Single Family
Mortgage Bonds, 1989 Series A, 7.90% 2017 510 536
Student Loan Corp., Student Loan Revenue
Refunding Bonds, Series 1991, 6.25% 1999 950 992
Guam - 0.20%
General Obligation Bonds, 1995 Series A, 5.625% 2002 3,000 3,007
-----------
1,405,516
-----------
Tax-Exempt Securities Maturing in
One Year or Less - 4.33%
State of California, 1996-97 Revenue Anticipation Notes,
Series A, 4.50% 6/30/97 1,600 1,609
County of Los Angeles, California 1996-97 Tax and Revenue
Anticipation Notes, Series A, 4.50% 6/30/97 30,200 30,362
State of Colorado, General Fund Tax and Revenue
Anticipation Notes, Series 1996A, 4.50% 6/27/97 5,700 5,728
State of Kentucky, Turnpike Authority, Resource Recovery
Road Revenue Refunding Bonds, 1981 Series A, 13.125% 7/1/09
(Prerefunded 1997) 390 419
State of Maine, General Obligation Tax
Anticipation Notes, 4.50% 6/27/97 1,000 1,005
State of Michigan, Full Faith and Credit General
Obligation Notes, 4.00% 9/30/96 9,200 9,202
State of New York Triborough Bridge and Tunnel Authority,
General Purpose and Revenue Bonds, Series K,
8.25% 1/1/17 (Prerefunded 1997) 1,000 1,035
State of Texas, Tax and Revenue Anticipation Notes,
Series 1996, 4.75% 8/29/97 14,500 14,619
-----------
63,979
-----------
TOTAL TAX-EXEMPT SECURITIES (cost: $1,409,975,000) 1,469,495
Excess of cash and receivables over payables 6,467
-----------
NET ASSETS $1,475,962
===========
*Represents a when-issued security.
See Notes to Financial Statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
The Tax-Exempt Bond Fund of America
Financial Statements
Statement of Assets and Liabilities
at August 31, 1996 (dollars in thousands)
Assets:
Tax-exempt securities (cost: $1,409,975) $1,469,495
Cash 57
Receivables for--
Sales of investments $1,677
Sales of fund's shares 1,912
Accrued interest 22,634 26,223
------------------ ------------------
1,495,775
Liabilities:
Payables for--
Purchases of investments 15,127
Repurchases of fund's shares 840
Dividends payable 2,704
Management services 464
Accrued expenses 678 19,813
------------------ ------------------
Net Assets at August 31, 1996--
Equivalent to $11.86 per share on
124,436,740 shares of $1 par value
capital stock outstanding (authorized
capital stock--200,000,000 shares) $1,475,962
===========
Statement of Operations
For the year ended August 31, 1996
(dollars in thousands)
Investment Income:
Interest on tax-exempt securities $89,217
Expenses: ------------------
Management services fee $5,451
Distribution expenses 3,487
Transfer agent fee 514
Reports to shareholders 131
Registration statement and prospectus 117
Postage, stationery and supplies 176
Directors' fees 24
Auditing and legal fees 40
Custodian fee 59
Taxes other than federal income tax 20
Other expenses 55 10,074
------------------
Net investment income 79,143
------------------
Realized Gain and Change in Unrealized
Appreciation on Investments:
Net realized gain 7,208
Net unrealized appreciation on investments:
Beginning of year 66,846
End of year 59,520
------------------
Net change in unrealized appreciation
on investments (7,326)
------------------
Net realized gain and change in
unrealized appreciation on investments (118)
------------------
Net Increase in Net Assets Resulting
from Operations $79,025
===========
Statement of Changes in Net Assets
(dollars in thousands)
Year Ended
August 31
1996 1995
------------------ ------------------
Operations:
Net investment income $ 79,143 $ 79,709
Net realized gain on investments 7,208 8,891
Net change in unrealized appreciation
on investments (7,326) 22,271
------------------ ------------------
Net increase in net assets
resulting from operations 79,025 110,871
------------------ ------------------
Dividends and Distributions Paid to
Shareholders:
Dividends from net investment income (79,078) (79,742)
Distributions from net realized gain on
investments (10,310) -
------------------ ------------------
Total dividends and distributions (89,388) (79,742)
------------------ ------------------
Capital Share Transactions:
Proceeds from shares sold:
24,816,640 and 24,743,163
shares, respectively 298,087 285,197
Proceeds from shares issued in
reinvestment of net investment
income dividends and distributions
of net realized gain on investments:
4,705,048 and 4,184,414 shares,
respectively 56,559 48,311
Cost of shares repurchased:
24,383,250 and 28,504,965
shares, respectively (292,301) (325,755)
------------------ ------------------
Net increase in net assets
resulting from capital share
transactions 62,345 7,753
------------------ ------------------
Total Increase in Net Assets 51,982 38,882
Net Assets:
Beginning of year 1,423,980 1,385,098
------------------ ------------------
End of year $1,475,962 $1,423,980
=========== ===========
See Notes to Financial Statements
</TABLE>
<PAGE>
The Tax-Exempt Bond Fund of America
Notes to Financial Statements
1. The Tax-Exempt Bond Fund of America (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 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.
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 Valuation Committee
of 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 over the life of the respective
securities. Amortization of market discounts on securities is recognized upon
disposition, subject to applicable tax requirements. Dividends are declared
daily after the determination of the fund's net investment income and paid to
shareholders monthly.
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 $59,000 includes $12,000 that was paid by these credits
rather than in cash.
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, 1996, net unrealized appreciation on investments for book
and federal income tax purposes aggregated $59,520,000, of which $65,922,000
related to appreciated securities and $6,402,000 related to depreciated
securities. There was no difference between book and tax realized gains on
securities transactions for the year ended August 31, 1996. The cost of
portfolio securities for book and federal income tax purposes was
$1,409,975,000 at August 31, 1996.
3. The fee of $5,451,000 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, 1996,
distribution expenses under the Plan were $3,487,000. As of August 31, 1996,
accrued and unpaid distribution expenses were $692,000.
American Funds Service Company (AFS), the transfer agent for the fund, was
paid a fee of $514,000. American Funds Distributors, Inc. (AFD), the principal
underwriter of the fund's shares, received $760,000 (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 of the fund 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, 1996, aggregate amounts deferred and earnings thereon were
$37,000.
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, 1996, accumulated undistributed net realized gain on
investments was $4,337,000 and additional paid-in capital was $1,287,635,000.
The fund made purchases and sales of investment securities of $422,650,000
and $379,102,000, respectively, during the year ended August 31, 1996.
<PAGE>
<TABLE>
PER-SHARE DATA AND RATIOS
Year Ended August 31
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Year 11.94 11.65 12.43 11.78 11.30
------- ------- ------- ------- -------
Income from Investment
Operations:
Net investment income .64 .68 .67 .68 .70
Net realized and
unrealized gain
(loss) on investments .01 .29 (.69) .73 .48
------- ------- ------- ------- -------
Total income from
investment operations .65 .97 (.02) 1.41 1.18
------- ------- ------- ------- -------
Less Distributions:
Dividends from net
investment income (.64) (.68) (.68) (.68) (.70)
Distributions from net
realized gains (.09) - (.08) (.08) -
------- ------- ------- ------- -------
Total distributions (.73) (.68) (.76) (.76) (.70)
------- ------- ------- ------- -------
Net Asset Value, End of Year $11.86 $11.94 $11.65 $12.43 $11.78
======= ======= ======= ======= =======
Total Return* (5.51)% (8.70)% -(0.14)% (12.42)% (10.80)%
Ratios/Supplemental Data:
Net assets, end of year
(in millions) $1,476 $1,424 $1,385 $1,327 $921
Ratio of expenses to average
net assets .68% .66% .69% .71% .71%
Ratio of net income to
average net assets 5.35% 5.87% 5.53% 5.62% 6.04%
Portfolio turnover rate 26.89% 49.28% 22.40% 15.55% 17.22%
*Calculated without deducting a sales charge.
The maximum sales charge is
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, 1996, 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, 1996 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.
[signature: Price Waterhouse LLP]
Los Angeles, California
September 30, 1996
Tax Information (Unaudited)
All of the distributions paid by the fund during the fiscal year ended August
31, 1996 were exempt-interest distributions within the meaning of Section
852(b)(5)(A) 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 year-end
information you receive from the fund's transfer agent
