SEC. File Nos. 33-66214
811-7888
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
Registration Statement Under the Securities Act of 1933 [X]
Post-Effective Amendment No. 4
and
Registration Statement Under The Investment Company Act of 1940 [X]
Amendment No. 6
LIMITED TERM TAX-EXEMPT BOND FUND OF AMERICA
(Exact Name of Registrant as specified in charter)
333 South Hope Street
Los Angeles, California 90071
(Address of principal executive offices)
Registrant's telephone number, including area code:
(213) 486-9200
JULIE F. WILLIAMS
333 South Hope Street
Los Angeles, California 90071
(name and address of agent for service)
The Registrant has filed a declaration pursuant to rule 24f-2
registering an indefinite number of shares under the Securities Act of 1933.
On September 12, 1996, it filed its 24f-2 notice for fiscal 1996 .
Approximate date of proposed public offering:
It is proposed that this filing become effective on December 1, 1996,
pursuant to paragraph (a) of rule 485.
<PAGE>
LIMITED TERM TAX-EXEMPT BOND FUND OF AMERICA
CROSS REFERENCE SHEET
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ITEM NUMBER OF
PART "A" OF FORM N-1A CAPTIONS IN PROSPECTUS (PART "A")
1. Cover Page Cover Page
2. Synopsis Expenses
3. Condensed Financial Information Financial Highlights; Investment Results
4. General Description of Registrant Fund Organization and Management; Investment
Policies and Risks; Securities
and Investment Techniques
5. Management of the Fund Financial Highlights; Fund Organization and Management
6. Capital Stock and Other Securities Policies and Risks
Fund Organization and Management;
Dividends, Distributions and Taxes
7. Purchase of Securities Being Offered Purchasing Shares; Fund Organization and Management;
Other Important Things to Remember
8. Redemption or Repurchase Selling Shares
9. Legal Proceedings N/A
ITEM NUMBER OF CAPTIONS IN STATEMENT OF
PART "B" OF FORM N-1A ADDITIONAL INFORMATION (PART "B")
10. Cover Page Cover
11. Table of Contents Table of Contents
12. General Information and History N/A
13. Investment Objectives and Policies Description of Certain Securities;
Fundamental Policies; Investment Restrictions
14. Management of the Registrant Fund Officers and Trustees
15. Control Persons and Principal Holder
of Securities Fund Officers and Trustees
16. Investment Advisory and Other Services Fund Officers and Trustees; Fund Organization and
Management (Part "A"); General Information; Management
17. Brokerage Allocation and Other Practices Execution of Portfolio Transactions; Fund Organization
and Management (Part "A")
18. Capital Stock and Other Securities N/A
19. Purchase, Redemption and Pricing of
Securities Being Offered Purchase of Shares; Redeeming Shares; Shareholder Account
Services and Privileges; Purchasing Shares (Part "A"); General
Information
20. Tax Status Dividends and Distributions
21. Underwriter Management; Fund Organization and Management (Part "A")
22. Calculation of Performance Data Investment Results
23. Financial Statements Financial Statements
</TABLE>
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ITEM IN PART "C"
24. Financial Statements and Exhibits
25. Persons Controlled by or under
Common Control with Registrant
26. Number of Holders of Securities
27. Indemnification
28. Business and Other Connections of
Investment Adviser
29. Principal Underwriters
30. Location of Accounts and Records
31. Management Services
32. Undertakings
Signature Page
</TABLE>
<PAGE>
PROSPECTUS
December 1, 1996
Limited Term Tax-Exempt Bond Fund of America
333 South Hope Street
Los Angeles, CA 90071
The fund's investment objective is to provide investors with current income,
exempt from federal income taxes, consistent with its stated maturity and
quality standards and preservation of capital. The fund seeks to achieve this
objective by investing in a portfolio of tax-exempt fixed-income securities
with a dollar-weighted average effective maturity of between 3 and 10 years.
This prospectus presents information you should know before investing in the
fund. You should keep it on file for future reference.
More detailed information about the fund, including the fund's financial
statements, is contained in the statement of additional information dated
December 1, 1996, which has been filed with the Securities and Exchange
Commission and is available to you without charge, by writing to the Secretary
of the fund at the above address or calling American Funds Service Company.
PHONE NUMBERS TO CALL FOR SERVICE AND
INFORMATION
Call American Funds Service Company
for shareholder services 800/421-0180
ext. 1
Call American Funds Distributors
for dealer services 800/421-9900
ext. 11
Call American FundsLine/R/
for 24-hour information 800/325-3590
Telephone conversations may be recorded or
monitored for verification,
recordkeeping and quality assurance purposes.
YOU MAY LOSE MONEY BY INVESTING IN THE FUND. The likelihood of loss is greater
if you intend to 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 OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
43-010-1296
TABLE OF CONTENTS
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Expenses Fund Organization and
Management
Financial Highlights Shareholder Services
Investment Policies and Purchasing Shares
Risks
Securities and Selling Shares
Investment Techniques
Investment Results Other Important Things
to Remember
Dividends,
Distributions and Taxes
</TABLE>
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 a fund. Annual fund operating expenses are paid out of the fund's
assets and are factored into its share price.
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Shareholder Transaction Expenses
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Maximum sales charge on purchases (as a 4.75%
percentage of offering price)
</TABLE>
SALES CHARGES ARE REDUCED OR ELIMINATED FOR LARGER PURCHASES. The fund has 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.
<TABLE>
<CAPTION>
Annual Fund Operating Expenses (as a percentage of average net assets after fee waiver)
<S> <C>
Management fees %/1/
12b-1 expenses %/2/
Other expenses %
Total fund operating expenses %
</TABLE>
/1/ The Investment Advisory and Service Agreement provides for fee reductions
to the extent that annual operating expenses exceed 0.75% of the average net
assets of the fund. Capital Research and Management Company has been
voluntarily waiving fees to the extent necessary to ensure that the fund's
expenses do not exceed 0.74% of the average daily net assets. Without such a
waiver, fees (as a percentage of average net assets) would have been 0. %.
/2/ 12b-1 expenses may not exceed 0.30% 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.
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 expenses annually:
<TABLE>
<CAPTION>
One year $
<S> <C>
Three years
Five years
Ten years
</TABLE>
THESE EXAMPLES ARE NOT MEANT TO REPRESENT YOUR ACTUAL INVESTMENT RESULTS OR
EXPENSES, WHICH MAY VARY.
FINANCIAL HIGHLIGHTS
The following information has been derived from the fund's financial statements
which have been audited by Price Waterhouse LLP, independent accountants. This
table should be read in conjunction with the financial statements which may be
found in the statement of additional information.
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SELECTED PER-SHARE DATA
Years ended 1996 1995 1994/1/
July 31
Net Asset Value, $ $ $
Beginning of Period
INCOME FROM INVESTMENT
OPERATIONS
Net investment income
Net realized and unrealized ( )
gain (loss) on investments
Total income from investment
operations
LESS DISTRIBUTIONS
Dividends from net ( ) ( ) ( )
investment income
Net Asset Value, $ $ $
End of Period
Total Return/2/ % % %/3/
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ $ $
(in millions)
Ratio of expenses to average %/4/ %/4/ %/3/,/4/
net assets
Ratio of net income to % % %/3/
average net assets
Portfolio turnover rate % % %/3/
</TABLE>
/1/The period ended July 31, 1994 represents the initial period of operations
from October 6, 1993 to July 31, 1994.
/2/Excludes maximum sales charge of 4.75%.
/3/Based on operations for the period shown and, accordingly, not
representative of a full year's operations.
/4/Had Capital Research and Management Company not waived fees, the fund's
ratio of expenses to average net assets would have been . %, % and
%, respectively, for the periods shown.
INVESTMENT POLICIES AND RISKS
THE FUND SEEKS TO PROVIDE YOU WITH CURRENT INCOME, EXEMPT FROM FEDERAL INCOME
TAXES, CONSISTENT WITH ITS STATED MATURITY AND QUALITY STANDARDS AND
PRESERVATION OF CAPITAL.
In seeking to achieve its objective, the fund will invest in a portfolio of
tax-exempt fixed-income securities with a dollar-weighted average effective
maturity of between 3 to 10 years. The fund will not purchase any security
with an effective maturity greater than 10 years Additionally, the average
nominal or stated maturity of the fund's portfolio will not exceed 15 years.
Under normal market conditions, at least 80% of the fund's total assets will be
invested in tax-exempt securities, at least 65% in bonds and other debt
securities having initial maturities in excess of one year and that are rated
in one of the three highest categories by Moody's Investors Service, Inc. or
Standard and Poor's Corporation or unrated but determined to be of comparable
quality, and up to 35% in tax-exempt securities rated Baa or BBB or determined
to be of comparable quality. Securities rated Baa or BBB are deemed to have
speculative characteristics by the rating agencies. The fund may hold a
portion of its assets in short-term obligations (generally, securities with
original or remaining maturities of one year or less) issued by states,
municipalities, and public authorities. The fund may invest up to 20% of its
assets in certain tax-exempt securities, the interest on which would constitute
an item of tax preference subject to federal alternative minimum tax on
corporations and individuals. When in the opinion of Capital Research and
Management Company abnormal market conditions require a temporary defensive
position, the fund may invest in taxable short-term fixed-income securities
(generally, securities with original or remaining maturities of one year or
less). The fund's investment policies are described below. A COMPLETE
DESCRIPTION OF THE INVESTMENT POLICIES IS CONTAINED IN THE FUND'S STATEMENT OF
ADDITIONAL INFORMATION.
The fund's investment restrictions (which are described in the statement of
additional information) and objective may not be changed without shareholder
approval. All other investment practices may be changed by the fund's board of
trustees.
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.
SECURITIES AND INVESTMENT TECHNIQUES
DEBT SECURITIES Bonds and other debt securities are used by issuers to borrow
money. The issuer pays the investor a fixed or variable rate of 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.
In general, bond prices rise when interest rates fall, and vice versa. Debt
securities have varying levels of sensitivity to changes in interest rates and
varying degrees of quality as measured by Moody's Investors Service, Inc.
(which rates bonds from Aaa to C) or Standard & Poor's Corporation (which rates
bonds from AAA to D) or as rated by the fund's investment adviser. Longer-term
bonds are generally more sensitive to interest rate changes than short-term
bonds.
The fund will not purchase securities rated Ba by Moody's and BB by S&P or
below or unrated but of comparable quality (commonly known as "junk bonds" or
high-yield, high-risk bonds). However, subsequent to its purchase by the fund,
the rating of an issue of securities may be reduced below the current minimum
rating required for its purchase, or in the case of an unrated issue of
securities, its credit quality may become equivalent to an issue of securities
rated Ba and BB or below. Neither event requires the elimination of such an
obligation from the fund's portfolio, but Capital Research and Management
Company will consider such an event in determining whether the fund should
continue to hold such an obligation in its portfolio. If, as a result of a
downgrade or otherwise, the fund holds more than 5% of its net assets in
high-yield, high-risk bonds, the fund will dispose of the excess as
expeditiously as possible.
In addition to ratings, Capital Research and Management Company will consider
factors such as term, yield, and liquidity in selecting fixed-income
securities. Capital Research and Management Company attempts to reduce the
risks described above through diversification of the portfolio and by credit
analysis of each issuer as well as by monitoring broad economic trends and
corporate and legislative developments.
MUNICIPAL LEASE OBLIGATIONS The fund may invest in municipal lease revenue
obligations. The fund currently intends to purchase only 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 issuer
and lessee, the terms of the lease, frequency and volume of trading, and number
of dealers.
FIRM COMMITMENTS The fund may purchase securities on a when-issued or
delayed-delivery basis or sell them on a delayed-delivery basis and enter into
firm commitment agreements. These are trading practices in which payment and
delivery for the securities take place at a future date. The fund does not
participate in further gains or losses with respect to the security. If the
other party to a delayed delivery transactions 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.
MATURITY Under normal market conditions, the fund's dollar-weighted average
effective portfolio maturity will range between 3 and 10 years. The fund will
not purchase any security with an effective maturity of more than 10 years. In
calculating effective maturity, the fund, under certain circumstances, may
consider demand features whose market characteristics indicate an earlier
maturity than the stated maturity date.
Additionally, the fund's dollar-weighted average nominal or stated portfolio
maturity will not exceed 15 years, and the fund will not purchase any security
with a nominal or stated maturity in excess of 25 years.
SPECIAL CONSIDERATIONS The fund may invest up to 20% of its total assets in
"private activity" bonds which pay interest constituting an item of tax
preference subject to an alternative minimum tax on corporations and
individuals. Accordingly, a portion of the fund's dividends may be an item of
tax preference in computing a shareholder's alternative minimum tax for federal
income tax purposes. In addition, with respect to corporate shareholders of
the fund, all interest on municipal bonds and other tax-exempt obligations,
including exempt-interest dividends paid by the fund, is included in adjusted
current earnings in calculating federal alternative minimum taxable income, and
may also affect corporate federal "environmental tax" liability.
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.
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PORTFOLIO PRIMARY YEARS OF YEARS OF EXPERIENCE AS
COUNSELORS FOR TITLE(S) EXPERIENCE AS INVESTMENT PROFESSIONAL
LIMITED TERM TAX-EXEMPT PORTFOLIO (APPROXIMATE)
BOND FUND OF AMERICA COUNSELOR FOR
LIMITED TERM
TAX-EXEMPT
BOND FUND OF
AMERICA
(APPROXIMATE)
WITH CAPITAL TOTAL YEARS
RESEARCH AND
MANAGEMENT
COMPANY OR
ITS
AFFILIATES
Brenda S. Ellerin Vice President, Less than 1 5 years 7 years
Capital year
Research
Company*
Neil L. Langberg Senior Vice Since the fund 18 years 18 years
President of began
the fund. Vice operations**
President -
Investment
Management
Group, Capital
Research and
Management
Company
Mark R. Macdonald Vice President 2 years 2 years 11 years
of the fund.
Vice President
- Investment
Management
Group, Capital
Research and
Management
Company
* A wholly owned subsidiary of Capital Research and Management Company
**The fund began operation on October 6, 1993
</TABLE>
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 refers to the income generated by an investment in the fund over a
given period of time, expressed as an annual percentage rate. Because yield is
calculated using a formula mandated by the Securities and Exchange Commission
that differs from other accounting methods, the quoted yield may not equal the
income actually paid to shareholders.
+ 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.
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AVERAGE ANNUAL
COMPOUND RETURNS/#/
FUND/*/ LEHMAN INDEX /**/
One year +_____% +_____%
Lifetime /##/ +_____% +_____%
30-DAY
YIELD*/#/ DISTRIBUTION RATE
% %
/#/ All returns are as of September 30, 1996.
/*/ These fund results were calculated according to
a standard that is required for all stock and bond
funds. The maximum sales charges have been deducted.
/**/ Lehman Brothers 7-Year Municipal Bond Index
represents the investment grade municipal bond market.
/##/The fund began investment operations October 6,
1993.
</TABLE>
Past results are not an indication of future results. Further information
regarding the fund's investment results is contained in the fund's annual
report which may be obtained without charge by writing to the Secretary of the
fund at the address indicated on the cover of this prospectus.
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 so qualifies and distributes to
shareholders all of its net investment income and net capital gains, the fund
itself is relieved of federal income tax. The fund is permitted to pass
through to its shareholders federally tax-exempt income subject to certain
requirements. However, the fund may invest in obligations which pay interest
that is subject to state and local taxes when distributed by the fund.
Dividends derived from taxable interest income or distributions of capital
gains 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.
FUND ORGANIZATION AND MANAGEMENT
FUND ORGANIZATION AND VOTING RIGHTS The fund, an open-end, diversified
management investment company, was organized as a Massachusetts business trust
on July 12, 1993. All fund operations are supervised by the fund's board of
trustees who meet periodically and perform duties required by applicable state
and federal laws. 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.
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 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 basic management fee which may not exceed 0.30% of the fund's
average net assets annually and decline at certain asset levels, plus 3% of the
fund's annual gross income. The total management fee paid by the fund 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 report dated May 9, 1994 issued by the Investment Company
Institute's Advisory Group on Personal Investing. (See the statement of
additional information.) This policy has also been incorporated into the
fund's "code of ethics" which is available from the fund's Secretary upon
request.
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 for the last
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 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 AREA
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<CAPTION>
SERVICE AREA ADDRESS AREAS SERVED
<S> <C> <C>
WEST P.O. Box 2205 AK, AZ, CA, HI, ID, MT, NV, OR, UT, WA
Brea, CA 92822-2205 and outside the U.S.
Fax: 714/671-7080
CENTRAL- P.O. Box 659522 AR, CO, IA, KS, LA, MN, MO, ND, NE, NM,
WEST San Antonio, TX 78265-9522 OK, SD, TX, and WY
Fax: 210/530-4050
CENTRAL- P.O. Box 6007 AL, IL, IN, KY, MI, MS, OH, TN and WI
EAST Indianapolis, IN 46206-6007
Fax: 317/735-6620
EAST P.O. Box 2280 CT, DE, FL, GA, MA, MD, ME, NC, NH, NJ,
Norfolk, VA 23501-2280 NY, PA, RI, SC, VA, VT, WV and Washington, D.C.
Fax: 804/670-4773
ALL SHAREHOLDERS MAY CALL AMERICAN FUNDS SERVICE COMPANY AT 800/421-0180 FOR SERVICE.
</TABLE>
<PAGE>
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
upon request.
PURCHASING SHARES
HOW TO PURCHASE SHARES 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
(see below).
Various purchase options are available as described below subject to certain
investment minimums and limitations described in the statement of additional
information.
+ 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.
+ Exchange Privilege
You may exchange your shares into other funds in The American Funds Group 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
You may invest in the funds through various retirement plans. For further
information contact your investment dealer or American Funds Distributors.
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
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
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<CAPTION>
<S> <C>
To establish an account $1,000
To add to an account $50
</TABLE>
SALES CHARGES You may pay a sales charge when purchasing shares. Sales charges
may be reduced for larger purchases as indicated below.
<TABLE>
<CAPTION>
Investment Sales Charge as a Percentage of Dealer Concession
as % of Offering
Price
<S> <C> <C> <C>
Offering Price Net Amount
Invested
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 see below see below see below
investments described 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.
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 1996,
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 retirement plan or business account solely
"controlled by", as well as any 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.
+ 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 a 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). You may also 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 10 days.
Proceeds will not be mailed until sufficient time has passed to provide
reasonable assurance that checks or drafts (including certified or cashier's
check) for shares purchased have cleared. 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 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, provided the address has been
used with the account for at least 10 days. Additional documentation may be
required for sale of shares held in corporate, partnership or fiduciary
accounts.
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.
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.) 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.
ACCOUNT STATEMENTS You will receive regular confirmation statements reflecting
transactions in your account. Purchases through automatic investment plans
will be confirmed at least quarterly.
THIS PROSPECTUS HAS BEEN PRINTED ON RECYCLED PAPER USING SOY-BASED INK.
<PAGE>
LIMITED TERM TAX-EXEMPT BOND FUND OF AMERICA
Part B
Statement of Additional Information
December 1, 1996
This document is not a prospectus but should be read in conjunction with
the current prospectus dated December 1, 1996 of Limited Term Tax-Exempt Bond
Fund of America (the "fund"). The prospectus may be obtained from your
investment dealer or financial planner or by writing to the fund at the
following address:
Limited Term Tax-Exempt Bond Fund of America
Attention: Secretary
333 South Hope Street
Los Angeles, CA 90071
(213) 486-9200
Table of Contents
<TABLE>
<CAPTION>
<S> <C>
ITEM PAGE NO.
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Description of Certain Securities and Investment Techniques 1
Investment Restrictions 5
Fund Officers and Trustees 9
Management 12
Dividends and Distributions 15
Additional Information Concerning Taxes 15
Purchase of Shares 19
Redeeming Shares 25
Shareholder Account Services and Privileges 27
Redemption of Shares 28
Execution of Portfolio Transactions 29
General Information 29
Investment Results 30
Description of Ratings for Debt Securities 32
Financial Statements
</TABLE>
DESCRIPTION OF CERTAIN SECURITIES AND INVESTMENT TECHNIQUES
INVESTMENT POLICIES -- The fund intends to invest in securities rated in the
top four categories by Standard & Poor's Corporation ("S&P") or Moody's
Investors Service, Inc. ("Moody's") or unrated but determined to be of
comparable quality by Capital Research and Management Company. (See
"Description of Ratings for Debt Securities" below.) However, subsequent to
its purchase by the fund, an issue of 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 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 a downgrade or otherwise, the fund
holds more than 5% of its net assets in bonds rated lower than Baa by Moody's
or BBB by S&P or unrated but of comparable quality (commonly known as "junk
bonds" or high-yield, high-risk bonds), the fund will dispose of the excess as
expeditiously as possible.
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 municipal and corporate
developments. During an economic downturn or substantial period of rising
interest rates, highly leveraged issuers or issuers whose revenue is very
sensitive to economic conditions 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 defaulted 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.
PAYMENT EXPECTATIONS - High-yield, high-risk bonds may contain redemption or
call provisions. If an issuer exercised these provisions in a declining
interest rate market, the fund would have to replace the security with a lower
yielding security, resulting in a decreased return for investors. Conversely,
a high-yield, high-risk bond's value will decrease in a rising interest rate
market, as will the value of the fund's assets.
LIQUIDITY AND VALUATION - There may be little trading in the secondary market
for particular bonds, which may affect adversely the fund's ability to value
accurately or dispose of such bonds. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may decrease the
values and liquidity of high-yield, high-risk bonds, especially in a thin
market.
MUNICIPAL BONDS - Municipal bonds are generally debt obligations 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 for 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, 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.
WHEN-ISSUED SECURITIES AND FIRM COMMITMENT AGREEMENTS - The fund may purchase
securities on a delayed delivery or "when-issued" basis and enter into firm
commitment agreements (transactions whereby the payment obligation and interest
rate are fixed at the time of the transaction but the settlement is delayed).
The fund as purchaser assumes the risk of any decline in value of the security
beginning on the date of the agreement or purchase.
The fund will identify liquid assets such as cash, U.S. Government securities
or other appropriate high-grade debt obligations 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 holdings
of cash and securities that do not fluctuate in value (such as short-term money
market instruments), the fund temporarily will be in a leveraged position
(because it will 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
will 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.
TEMPORARY INVESTMENTS -- The fund may invest in short-term municipal
obligations of up to one year in maturity during periods of temporary defensive
strategy resulting from abnormal market conditions, 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 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
subject to the limitations described in the statement of additional
information).
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.
MATURITY - Under normal market conditions, the fund's dollar-weighted
average effective portfolio maturity will range between 3 and 10 years. The
fund will not purchase any security with an effective maturity of more than 10
years. In calculating effective maturity, a feature such as a put, call or
sinking fund will be considered to the extent it results in a security whose
market characteristics indicate a maturity of 10 years or less, even though the
nominal or stated maturity may be beyond 10 years. Capital Research and
Management Company will consider the impact on effective maturity of potential
changes in the financial condition of issuers and in market interest rates in
making investment selections for the fund.
Additionally, the fund's dollar-weighted average nominal or stated
portfolio maturity will not exceed 15 years, and the fund will not purchase any
security with a nominal or stated maturity in excess of 25 years. For purposes
of determining nominal or stated maturity, the fund will consider only the
techniques approved for such purposes by the staff of the Securities and
Exchange Commission which currently do not include any call or sinking fund
features but are limited to those described in rule 2a-7(d) under the
Investment Company Act of 1940 applicable to money market funds.
ADJUSTMENT OF MATURITIES -- The Investment Adviser seeks to anticipate
movements in interest rates and adjusts the maturity distribution of the
portfolio accordingly subject to maintaining, under normal market conditions,
an average dollar-weighted portfolio maturity of three to ten years. 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 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. See "Financial
Highlights" in the prospectus for the fund's annual portfolio turnover over its
lifetime.
INVESTMENT RESTRICTIONS
FUNDAMENTAL POLICIES -- The fund has adopted the following fundamental policies
and investment restrictions which may not be changed without a majority vote of
its outstanding shares. Such majority is defined by law 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 transaction. The fund may not:
1. With respect to 75% of the fund's total assets, purchase the securities of
any issuer (other than securities issued or guaranteed by the U.S. Government
or any of its agencies or instrumentalities) if, as a result, (a) more than 5%
of the fund's total assets would be invested in the securities of that issuer,
or (b) the fund would hold more than 10% of the outstanding voting securities
of that issuer;
2. Purchase or sell real estate unless acquired as a result of ownership of
securities or other instruments (but this shall not prevent the fund from
investing in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business);
3. Purchase or sell commodities unless acquired as a result of ownership of
securities or other instruments or engage in futures transactions;
4. Invest 25% or more of the fund's total assets in the securities of issuers
in the same industry. Obligations of the U.S. Government, its agencies and
instrumentalities are not subject to this 25% limitation on industry
concentration;
5. Invest more than 15% of the value of its net assets in securities which
are not readily marketable (including repurchase agreements maturing in more
than seven days) or engage in the business of underwriting securities of other
issuers, except to the extent that the purchase or disposal of an investment
position may technically constitute the fund as an underwriter as that term is
defined under the Securities Act of 1933;
6. Invest in companies for the purpose of exercising control or management;
7. Make loans to others except for (a) purchasing debt securities; (b)
entering into repurchase agreements; and (c) loaning portfolio securities;
8. Issue senior securities, except as permitted under the Investment Company
Act of 1940;
9. Borrow money, except from banks for temporary purposes in an amount not to
exceed one-third of the value of the fund's total assets. Moreover, in the
event that the asset coverage for such borrowing falls below 300%, the fund
will reduce, within three days, the amount of its borrowing in order to provide
for 300% asset coverage;
10. Pledge or hypothecate assets in excess of one-third of the fund's total
assets;
11. Purchase or sell puts, calls, straddles, or spreads, or combinations
thereof (this restriction does not prevent the fund from investing in
securities with put and call features); nor
12. Invest in oil, gas, or other mineral exploration or development programs
or leases.
NON-FUNDAMENTAL POLICIES -- The following policies may be changed by action of
the Board of Trustees without shareholder approval.
1. The fund does not currently intend (at least for the next 12 months) to
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.
2. The fund does not currently intend (at least for the next 12 months) to
purchase the securities of any issuer (other than securities issued or
guaranteed by the governments of any country or political subdivisions thereof)
if, as a result, more than 5% of its total assets would be invested in the
securities of business enterprises that, including predecessors, have a record
of less than three years of continuous operation.
3. The fund does not currently intend (at least for the next 12 months) to
invest in the securities of other investment companies except in connection
with a merger, consolidation, acquisition, reorganization or as deemed
advisable by its officers in connection with the administration of a deferred
compensation plan adopted by Trustees and to the extent such investments are
allowed by an exemptive order granted by the U.S. Securities and Exchange
Commission.
4. The fund does not currently intend (at least for the next 12 months) to
purchase the securities of any issuer if those Officers and Trustees of the
fund, its Investment Adviser or principal underwriter who individually own more
than 1/2 of 1% of the securities of such issuer together own more than 5% of
such issuer's securities.
5. The fund does not currently intend (at least for the next 12 months) to
invest more than 5% of its net assets, valued at the lower of cost or market at
the time of purchase, in warrants, including not more than 2% of such net
assets in warrants that are not listed on a major stock exchange. However,
warrants acquired in units or attached to securities may be deemed to be
without value for the purpose of this restriction.
6. The fund does not currently intend (at least for the next 12 months) to
invest more than 5% of its net assets in restricted securities (excluding Rule
144A securities).
7. The fund does not currently intend (at least for the next 12 months) to
purchase securities in the event its borrowings exceed 5%.
8. The fund does not currently intend (at least for the next 12 months) to
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.
9. The fund does not currently intend (at least for the next 12 months) to
loan portfolio securities.
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.
FUND OFFICERS AND TRUSTEES
Trustees and Trustee 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 ON
THE ORGANIZATIONS LISTED MAY (INCLUDING MANAGED BY CAPITAL WHICH TRUSTEE
HAVE CHANGED DURING VOLUNTARILY DEFERRED RESEARCH AND SERVES/2/
THIS PERIOD) COMPENSATION/1/) FROM MANAGEMENT
THE FUND DURING THE YEAR ENDED
FISCAL YEAR ENDED JULY 31, 1996
JULY 31, 1996
<S> <C> <C> <C> <C> <C>
++ H. Frederick Christie Trustee Private Investor. The Mission $ /3/ $ 18
P.O. Box 144 Group (non-utility holding
Palos Verdes Estates, CA 90274 Company, subsidiary of Southern
Age: 63 California Edison Company),
former President and Chief
Executive Officer
Diane C. Creel Trustee CEO and President, $ $ 12
100 W. Broadway The Earth Technology Corporation
Suite 5000 (environmental engineering)
Long Beach, CA 90802
Age: 47
Martin Fantan, Jr. Trustee Chairman, Senior Resource Group $ /3/ $ 15
4350 Executive Drive (management of senior living
Suite 101 centers)
San Diego, CA 92121-2116
Age: 61
Leonard R. Fuller Trustee President, Fuller & Company, Inc. $ $ 12
4337 Marina City Drive (financial management consulting
Suite 841 ETN firm)
Marina del Rey, CA 90292
Age: 50
+* Abner D. Goldstine President, Capital Research and Management none/4/ none/4/ 12
Age: 66 PEO and Company, Senior Vice President
Trustee and Director
+**Paul G. Haaga, Jr. Chairman of Capital Research and Management none/4/ none/4/ 14
Age: 47 the Board Company, Senior Vice President
and Director
Herbert Hoover III Trustee Private Investor $ $ 14
1520 Circle Drive
San Marino CA 91108
Age: 68
Richard G. Newman Trustee Chairman, President and CEO, $ /3/ $ 13
3250 Wilshire Boulevard AECOM Technology Corporation
Los Angeles, CA 90010-1599 (architectural engineering)
Age: 61
Peter Valli Trustee Chairman, BW/IP $ /3/ $ 12
45 Sea Isle Drive International Inc. (industrial
Long Beach, CA 90803 manufacturing)
Age: 69
</TABLE>
+ Trustees 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 trustees 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 Trustee.
/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 Trustees is as
follows: H. Frederick Christie ($ ), Martin Fenton, Jr. ($
), Richard G. Newman ($ ) and Peter C. Valli ($ ).
Amounts deferred and accumulated earnings thereon are not funded and are
general unsecured liabilities of the fund until paid to the Trustee.
/4/ Paul G. Haaga, Jr. and Abner D. Goldstine are affiliated with the
Investment Adviser and, accordingly, receive no compensation from the Fund.
OFFICERS
*** 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
# 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 Trustee who is a
director, officer, or employee of the Investment Adviser. The fund pays annual
fees of $1,200 to Trustees who are not affiliated with the Investment Adviser,
plus $200 for each Board of Trustees meeting attended, plus $200 for each
meeting attended as a member of a committee of the Board of Trustees. The
Trustees 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 Trustees who are not affiliated with
the Investment Adviser.
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 Trustees, 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 Trustees 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 it,
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 fee, at an annual rate of 0.30% per annum
on the first $60 million of the fund's net assets; plus 0.21% per annum on the
portion of such net assets in excess of $60 million, plus 3% of the Fund's
gross investment income for the preceding month. Assuming net assets of $200
million and gross income levels of 3%, 4%, 5%, 6%, 7% and 8%, management fees
would be .33%, .36%, .39%, .42%, .45% and .48%, respectively.
For the purposes 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, provides suitable office space,
necessary small office equipment and general purpose accounting forms,
supplies, and postage used at the offices of the fund. The fund pays all
expenses not assumed by the Investment Adviser, including, but not limited to,
custodian, stock transfer and dividend disbursing fees and expenses; costs of
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 trustees unaffiliated with the Investment Adviser; association dues;
and costs of stationery and forms prepared exclusively for the fund.
The Investment Adviser has agreed to waive its fees by any amount necessary to
assure that such expenses do not exceed applicable expense limitations in any
state in which the funds' shares are being offered for sale. Only one state
(California) continues to impose expense limitations on funds registered for
sale therein. The California provision currently limits annual expenses to the
sum of 2-1/2% of the first $30 million of average net assets, 2% of the next
$70 million and 1-1/2% of the remaining average net assets. Rule 12b-1
distribution expenses would be excluded from this limit. Other expenses which
are not subject to these limitations include interest, taxes, brokerage
commissions, transaction costs, and extraordinary items such as litigation, as
well as, for purposes of the state expense limitations, any amounts excludable
under the applicable regulation. Expenditures, including costs incurred in
connection with the purchase or sale of portfolio securities, which are
capitalized in accordance with generally accepted accounting principles
applicable to investment companies, are accounted for as capital items and not
as expenses.
The Investment Adviser has agreed to bear any fund expenses (with the
exception of interest, taxes, brokerage costs and extraordinary expenses such
as litigation and acquisitions) in excess of 0.75% of the fund's average net
assets per annum, subject to reimbursement by the fund, during a period which
will terminate at the earlier of (i) such time as no reimbursement has been
required for a period of 12 consecutive months, provided no advances are
outstanding, or (ii) October 1, 2003. Each month, to the extent the fund owes
money to the Investment Adviser pursuant to this provision of the Agreement and
the fund's annualized expense ratio for the month is below 0.75%, the fund will
reimburse the Investment Adviser until the fund's annualized expense ratio
equals 0.75% or the debt is repaid, whichever comes first. CRMC has also
voluntarily agreed to waive its fees to the extent necessary to ensure that the
fund's expenses do not exceed 0. % of the average daily net assets. There
can be no assurance that this voluntary fee waiver will continue in the future.
During the period, the Investment Adviser's total fees amounted to $ . Fee
waivers amounted to$ for the year ended July 31, 1996.
PRINCIPAL UNDERWRITER -- American Funds Distributors, Inc. (the "Principal
Underwriter") is the principal underwriter of the fund's shares. The Principal
Underwriter is located at 333 South Hope Street, Los Angeles, CA 90071, 135
South State College Boulevard, Brea, CA 92821, 8000 IH-10 West, San Antonio,
TX 78230, 8332 Woodfield Crossing Boulevard, Indianapolis, IN 46240, and 5300
Robin Hood Road, Norfolk, VA 23513. The fund has adopted a Plan of
Distribution (the "Plan"), pursuant to rule 12b-1 under the 1940 Act. The
Principal Underwriter receives amounts payable pursuant to the Plan (see below)
and commissions consisting of that portion of the sales charge remaining after
the discounts which it allows to investment dealers. Commissions retained by
the Principal Underwriter on sales of fund shares during the period ended July
31, 1996 amounted to $ after allowance of $ to dealers.
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 Trustees and
separately by a majority of the Trustees 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 Trustees 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
Trustees who are not "interested persons" of the fund shall be committed to the
discretion of the Trustees 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 Trustees.
Under the Plan, the fund may expend up to 0.30% 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 Trustees 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.). During the period, the
fund paid $ under the Plan as compensation to dealers. As of July 31,
1996, accrued and unpaid distribution expenses were $ .
The Glass-Steagall Act and other applicable laws, among other things,
generally prohibit commercial 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 of 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 with 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
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 discount or 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.
In most cases, 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. The fund may invest up to 20% of its
total assets in "private activity" bonds. As of the date of this statement of
additional information, individuals are subject to an AMT at a maximum 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 tax
income. With respect to corporate shareholders of the fund, all interest on
municipal bonds and other tax-exempt obligations, including exempt-interest
dividends paid by the fund, is included in adjusted current earnings in
calculating federal alternative minimum taxable income, and may also affect
corporate federal "environmental tax" liability.
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 net income (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
will 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 may
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
federal individual stated tax rate applicable to ordinary income is 35%
(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 tax of up to $11,750 and
corporations which have taxable income in excess of $15,000,000 for a taxable
year will be required to pay an additional amount of income tax of up to
$100,000. Naturally, the amount of tax payable by a taxpayer will be affected
by a combination of tax law rules covering, E.G., deductions, credits,
deferrals, exemptions, sources of income and other matters.
Under the Code, distributions of net investment income by the fund to a
nonresident alien individual, nonresident alien fiduciary of a trust or estate,
non-U.S. corporation, or non-U.S. partnership (a "non-U.S. 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 to a
non-U.S. shareholder 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>
METHOD INITIAL INVESTMENT ADDITIONAL INVESTMENTS
<S> <C> <C>
See "Investment Minimums $50 minimum (except where a lower
and Fund Numbers" for minimum is noted under "Investment
initial investment Minimums and Fund Numbers").
minimums.
By contacting Visit any investment Mail directly to your investment
your dealer who is registered dealer's address printed on your
investment in the state where the account statement.
dealer purchase is made and who
has a sales agreement with
American Funds
Distributors.
By mail Make your check payable to Fill out the account additions form
the fund and mail to the at the bottom of a recent account
address indicated on the statement, make your check payable to
account application. the fund, write your account number
Please indicate an on your check, and mail the check and
investment dealer on the form in the envelope provided with
account application. your account statement.
By telephone Please contact your Complete the "Investments by Phone"
investment dealer to open section on the account application or
account, then follow the American FundsLink Authorization
procedures for additional Form. Once you establish the
investments. 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 Purchases,
Redemptions and Exchanges" below).
By wire Call 800/421-0180 to Your bank should wire your additional
obtain your account investments in the same manner as
number(s), if necessary. described under "Initial Investment."
Please indicate an
investment dealer on the
account. Instruct your
bank to wire funds to:
Wells Fargo Bank
155 Fifth Street
Sixth Floor
San Francisco, CA 94106
(ABA #121000248)
For credit to the account
of:
American Funds Service
Company
a/c #4600-076178
(fund name)
(your fund acct. no.)
THE FUNDS 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, and 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 closing price. The net asset value per share of the money
market funds normally will remain constant at $1.00 based on the funds' 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 Trustees
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, the liabilities,
including proper accruals of expense items; and
3. The value of the net assets so obtained are then divided by the total
number of shares outstanding and the result, rounded to the nearer cent, is the
net asset value per share.
Any purchase order may be rejected by the Principal Underwriter or by the
fund. The fund will not knowingly sell fund shares (other than for the
reinvestment of dividends or capital gain distributions) directly or indirectly
or through a unit investment trust to any other investment company, person or
entity, where, after the sale, such investment company, person, or entity would
own beneficially directly, indirectly, or through a unit investment trust more
than 4.5% of the outstanding shares of the fund without the consent of a
majority of the Board of Trustees.
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>
MINIMUM FUND
FUND INITIAL NUMBER
INVESTMENT
STOCK AND STOCK/BOND FUNDS
AMCAP Fund(r) 02
$1,000
American Balanced Fund(r) 11
500
American Mutual Fund(r) 03
250
Capital Income Builder(r) 12
1,000
Capital World Growth and Income Fund(sm) 33
1,000
EuroPacific Growth Fund(r) 16
250
Fundamental Investors$ 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(sm) 35
1,000
Washington Mutual Investors Fund(sm) 01
250
BOND FUNDS
American High-Income Municipal Bond Fund(sm) 40
$1,000
American High-Income Trust(r) 21
1,000
The Bond Fund of America(sm) 08
1,000
Capital World Bond Fund(r) 31
1,000
Intermediate Bond Fund of America(r) 23
1,000
Limited Term Tax-Exempt Bond Fund of America(sm) 43
1,000
The Tax-Exempt Bond Fund of America(sm) 19
1,000
The Tax-Exempt Fund of California(r)* 20
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 America(r) 09
2,500
The Tax-Exempt Money Fund of America(sm) 39
2,500
The U.S. Treasury Money Fund of America(sm) 49
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 public 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 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 escrowed shares 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 are
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>
SALES CHARGE AS DEALER
AMOUNT OF PURCHASE PERCENTAGE OF THE: CONCESSION
AT THE OFFERING PRICE 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 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% 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 1996, 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 American Funds Send a letter of instruction specifying the name of the
Service Company (at the fund, the number of shares or dollar amount to be sold,
appropriate address indicated your name and account number. You should also enclose
under "Fund Organization and any share certificates you wish to redeem. For
Management - Transfer Agent") redemptions over $50,000 and for certain redemptions of
$50,000 or less (see below), 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. You should verify
with the institution that it is an eligible guarantor
prior to signing. Additional documentation may be
required for redemption of shares held in corporate,
partnership or fiduciary accounts. Notarization by a
Notary Public is not an acceptable signature guarantee.
By contacting your investment If you redeem shares through your investment dealer, you
dealer 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 redemption You may use this option, provided the account is
check sent to you by using registered in the name of an individual(s), a UGMA/UTMA
American FundsLine(r) or by custodian, or a non-retirement plan trust. These
telephoning, faxing, or redemptions may not exceed $10,000 per day, per fund
telegraphing American Funds account and the check must be made payable to the
Service Company (subject to shareholder(s) of record and be sent to the address of
the conditions noted in this record provided the address has been used with the
section and in "Telephone account for at least 10 days. See "Transfer Agent" and
Purchases, Redemptions and "Exchange Privilege" below for the appropriate telephone
Exchanges" below) or fax number.
In the case of the money Upon request (use the account application for the money
market funds, you may have market funds) you may establish telephone redemption
redemptions wired to your bank privileges (which will enable you to have a redemption
by telephoning American Funds sent to your bank account) and/or check writing
Service Company ($1,000 or privileges. If you request check writing privileges,
more) or by writing a check you will be provided with checks that you may use to
($250 or more) draw against your account. These checks may be made
payable to anyone you 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, PROVIDED THE ADDRESS HAS
BEEN USED WITH THE ACCOUNT FOR AT LEAST 10 DAYS.
CONTINGENT DEFERRED SALES CHARGE - A contingent deferred sales charge of 1%
applies to certain redemptions made within twelve months of purchase on
investments of $1 million or more and on any investment made with no initial
sales charge by any employer-sponsored 403(b) plan or defined contribution plan
qualified under Section 401(a) of the Internal Revenue Code including a
"401(k)" plan with 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 10th day of the month (or on or
about the 15th day of the month in the case of accounts for retirement plans
where Capital Guardian Trust Company serves as custodian or trustee.) 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 you 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 TouchTonet
telephone. Redemptions and exchanges through American FundsLineR 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.
REDEMPTION OF SHARES
The fund's Declaration of Trust permits the fund to direct the Transfer Agent
to redeem the shares of any shareholder if the shares owned by such shareholder
through redemptions, market decline or otherwise, have a value of less than the
minimum initial investment amount required of new shareholders of that series
or Class, (determined, for this purpose only as the greater of the
shareholder's cost or the current net asset value of the shares, including any
shares acquired through reinvestment of income dividends and capital gain
distributions). Prior notice of at least 60 days will be given to a
shareholder before the involuntary redemption provision is made effective with
respect to the shareholder's account. The shareholder will have not less than
30 days from the date of such notice within which to bring the account up to
the minimum determined as set forth above.
EXECUTION OF PORTFOLIO TRANSACTIONS
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. The fund does not intend to pay a mark-up
in exchange for research in connection with principal transactions.
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 (AFS), 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. was
paid a fee of $ for the fiscal year ended July 31, 1996.
INDEPENDENT ACCOUNTANTS -- Price Waterhouse LLP, 400 South Hope Street, Los
Angeles, CA 90071, provides 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 accounting and
auditing.
SHAREHOLDER VOTING RIGHTS -- 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
trustee or trustees from office and may elect a successor or successors to fill
any resulting vacancies for the unexpired terms of removed trustees. 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 trustees, as though the fund were a common-law
trust. Accordingly, the trustees of the fund shall promptly call a meeting of
shareholders for the purpose of voting upon the question of removal of any
trustee 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 July 31.
Shareholders are provided at least semi-annually with reports showing the
investment portfolio and financial statements audited annually by the fund's
independent accountants, Price Waterhouse LLP, whose selection is determined
annually by the Trustees.
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
<S> <C>
MAXIMUM OFFERING PRICE PER SHARE -- JULY 31, 1996
Net asset value and redemption price per share
(Net assets divided by shares 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 charge)
</TABLE>
INVESTMENT RESULTS
The fund's yield is % based on a 30-day (or one month) period ended
July 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 July 31, 1996 was %.
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.
As of July 31, 1996, the fund's total return over the past twelve months
and average annual total return over its lifetime were 0. % and %,
respectively. Over the fund's lifetime (October 6, 1993 to July 31, 1996), the
Lehman Brothers 7-Year Municipal Bond Index/1/ had an average annual total
return of %.
The fund's average annual total return ("T") will be computed by equating the
value at the end of the period ("ERV") with a hypothetical initial investment
of $1,000 ("P") over a number 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. The
fund will calculate total return for one, five and ten-year periods after such
a period has elapsed.
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.
/1/ The Lehman Brothers 7-Year 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.
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."
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:
"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."
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>
PART C
LIMITED TERM TAX-EXEMPT BOND FUND OF AMERICA
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(A) FINANCIAL STATEMENTS:
Included in Prospectus - Part A
Financial Highlights (to be provided by amendment)
Included in Statement of Additional Information - Part B (to be provided by
amendment)
Investment Portfolio Notes to Financial Statements
Statement of Assets and Liabilities Per-Share Data and Ratios
Statement of Operations Report of Independent Accountants
Statement of Changes in Net Assets
(B) EXHIBITS:
1. On file (see SEC file No. 33-66214, Pre-Effective Amendment No. 2 on Form
N-1A filed 10/4/93).
2. On file (see SEC file No. 33-66214, Post-Effective Amendment No.1 on Form
N-1A filed 3/24/94).
3. None.
4. On file (see SEC file No. 33-66214, Pre-Effective Amendment No. 2 on form
N-1A filed 10/4/93).
5. On file (see SEC file No. 33-66214, Pre-Effective Amendment No. 1 on Form
N-1A filed 9/9/93).
6. On file (see SEC file No. 33-66214, Pre-Effective Amendment No. 1 on Form
N-1A filed 9/9/93).
7. None.
8. On file (see SEC file No. 33-66214, Pre-Effective Amendment No. 1 on Form
N-1A filed 9/9/93).
9. On file (see SEC file No. 33-66214, Post-Effective Amendment No. 3 on form
N-1A filed 9/28/95).
10. On file (see SEC file No. 33-66214, Pre-Effective Amendment No. 2 on Form
N-1A filed 10/4/93).
11. Consent of Independent Accountants. (to be provided by amendment)
12. None.
13. On file (see SEC file No. 33-66214, Pre-Effective Amendment No. 2 on Form
N-1A filed 10/4/93).
14. On file (see SEC file No. 33-66214, initial Registration Statement on Form
N-1A filed 7/19/93).
15. On file (see SEC file No. 33-66214, Pre-Effective Amendment No. 1 on Form
N-1A filed 9/9/93).
16. Schedule for computation of each performance quotation provided in the
Registration Statement in response to Item 22. (to be provided by amendment)
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
As of July 31, 1996
<TABLE>
<CAPTION>
<S> <C>
Number of
Title of Class Record Holders
Shares of beneficial
5,004
interest (no par value)
</TABLE>
ITEM 27. INDEMNIFICATION.
Registrant is a joint-insured under an Investment Advisor/Mutual Fund Errors
and Omissions Policy. The carrier of the primary policy in the amount of $15
million is American International Surplus Lines Insurance Company, and it has a
$250,000 deductible. The carrier of the secondary policy in the amount of $10
million is Chubb Custom Insurance Company. The carrier of the excess policy in
the amount of $20 million is ICI Mutual Insurance Company.
Article VI of the Trust's By-Laws states:
(a) The Trust shall indemnify any Trustee or officer of the Trust who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than action by or in the right of the Trust) by reason
of the fact that such person is or was such Trustee or officer or an employee
or agent of the Trust, or is or was serving at the request of the Trust as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding if
such person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the Trust, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe such
person's conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
the person reasonably believed to be opposed to the best interests of the
Trust, and, with resect to any criminal action or proceeding, had reasonable
cause to believe that such person's conduct was unlawful.
(b) The Trust shall indemnify any Trustee or officer of the Trust who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the Trust to procure a judgment
in its favor by reason of the fact that such person is or was such Trustee or
officer or an employee or agent of the Trust, or is or was serving at the
request of the Trust as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), actually and reasonably incurred by such
person in connection with the defense or settlement of such action or suit if
such person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the Trust, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of such person's duty to the Trust unless and
only to the extent that the court in which such action or suit was brought, or
any other court having jurisdiction in the premises, shall determine upon
application that, despite the adjudication of liability but in view of all
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which such court shall deem proper.
(c) To the extent that a Trustee or officer of the Trust has been successful
on the merits in defense of any action, suit or proceeding referred to in
subparagraphs (a) or (b) above or in defense of any claim, issue or matter
therein, such person shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by such person in connection
therewith, without the necessity for the determination as to the standard of
conduct as provided in subparagraph (d).
(d) Any indemnification under subparagraph (a) or (b) (unless ordered by a
court) shall be made by the Trust only as authorized in the specific case upon
a determination that indemnification of the Trustee or officer is proper under
the standard of conduct set forth in subparagraph (a) or (b). Such
determination shall be made (i) by the Board by a majority vote of a quorum
consisting of Trustees who were not parties to such action, suit or proceeding,
and are disinterested Trustees or (ii) if such a quorum of disinterested
Trustees so directs, by independent legal counsel in a written opinion; and any
determinations so made shall be conclusive.
(e) Expenses incurred in defending a civil or criminal action, suit or
proceeding may be paid by the Trust in advance of the final disposition of such
action, suit or proceeding, as authorized in the particular case, upon receipt
of an undertaking by or on behalf of the Trustee or officer to repay such
amount unless it shall ultimately be determined that such person is entitled to
be indemnified by the Trust as authorized herein. Such determination must be
made by disinterested trustees or independent legal counsel.
(f) Agents and employees of the Trust who are not Trustees or officers of the
Trust may be indemnified under the same standards and procedures set forth
above, in the discretion of the Board.
(g) Any indemnification pursuant to this Article shall not be deemed
exclusive of any other rights to which those indemnified may be entitled and
shall continue as to a person who has ceased to be Trustee or officer and shall
inure to the benefit of the heirs, executors and administrators of such person.
(h) Nothing in the Declaration of Trust or in these By-Laws shall be deemed
to protect any Trustee or officer of the Trust against any liability to the
Trust or to its shareholders to which such person would otherwise be subject by
reason of willful malfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of such person's office.
(i) The Trust shall have power to purchase and maintain insurance on behalf
of any person against any liability asserted against or incurred by such
person, whether or not the Trust would have the power to indemnify such person
against such liability under the provisions of this Article. Nevertheless,
insurance will not be purchased or maintained by the Trust if the purchase or
maintenance of such insurance would result in the indemnification of any person
in contravention of any rule or regulation of the Securities and Exchange
Commission.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to Trustees, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a Trustee, officer of controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by
such Trustee, officer of controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The fund will comply with the indemnification requirements contained in the
1940 Act Releases No. 7221 (June 9, 1972) and No. 11330 (September 4, 1980).
In addition, indemnification by the Trust shall be consistent with the
requirements of rule 484 under the Securities Act of 1933. Furthermore, the
fund has undertaken to the staff of the Securities and Exchange Commission that
the fund's indemnification provisions quoted above prohibit indemnification for
liabilities arising under the Securities Act of 1933 and the Investment Company
Act of 1940.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
None.
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) American Funds Distributors, Inc. is also the Principal Underwriter of
shares of: AMCAP Fund, Inc., American Balanced Fund, Inc., The American Funds
Income Series, The American Funds Tax-Exempt Series I, The American Funds
Tax-Exempt Series II, American High-Income Municipal Bond Fund, American
High-Income Trust, American Mutual Fund, Inc., The Bond Fund of America, Inc.,
Capital Income Builder, Inc., Capital World Bond Fund, Inc., Capital World
Growth and Income Fund, Inc., The Cash Management Trust of America, 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, The New Economy Fund, New Perspective Fund, Inc., SMALLCAP
World Fund, Inc., The Tax-Exempt Bond Fund of America, Inc., The Tax-Exempt
Money Fund of America, The U.S. Treasury Money Fund of America and Washington
Mutual Investors Fund, Inc.
<TABLE>
<CAPTION>
(b) (1) (2) (3)
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICES
BUSINESS ADDRESS WITH UNDERWRITER WITH REGISTRANT
<S> <C> <C> <C>
# David A. Abzug Assistant Vice President None
John A. Agar Regional Vice President None
1501 N. University Drive,
Suite 227A
Little Rock, AR 72207
Robert B. Aprison Regional Vice President None
2983 Bryn Wood Drive
Madison, WI 53711
& Richard Armstrong Assistant Vice President None
* William W. Bagnard Vice President None
Steven L. Barnes Vice President None
8000 Town Line Avenue South
Suite 204
Minneapolis, MN 55438
Michelle A. Bergeron Regional Vice President None
4160 Gateswalk Drive
Smyrna, GA 30080
Joseph T. Blair Vice President None
27 Drumlin Road
West Simsbury, CT 06092
John A. Blanchard Regional Vice President None
6421 Aberdeen Road
Mission Hills, KS 66208
Ian B. Bodell Senior Vice President None
3100 West End Ave., Ste 870
Nashville, TN 37215
Michael L. Brethower Vice President None
108 Hagen Court
Georgetown, TX 78628
C. Alan Brown Regional Vice President None
4619 McPherson Avenue
St. Louis, MO 63108
* Daniel C. Brown Senior Vice President None
@ J. Peter Burns Vice President None
Brian C. Casey Regional Vice President None
9508 Cable Drive
Kensington, MD 20895
Victor C. Cassato Vice President None
609 W. Littleton Blvd., Ste 310
Littleton, CO 80120
Christopher J. Cassin Vice President None
231 Burlington
Clarendon Hills, IL 60514
Denise M. Cassin Regional Vice President None
1301 Stoney Creek Drive
San Ramon, CA 94538
* Larry P. Clemmensen Director and Treasurer None
* Kevin G. Clifford Director and Senior Vice President None
Ruth M. Collier Vice President None
145 West 67th Street, #12K
New York, NY 10023
Thomas E. Cournoyer Vice President None
2333 Granada Boulevard
Coral Gables, FL 33134
% Douglas A. Critchell Vice President None
4116 Woodbine Street
Chevy Chase, MD 20815
* Carl D. Cutting Vice President None
+ Charline Dawkins Assistant Vice President None
Michael A. Dilella Vice President None
P.O. Box 661
Ramsey, NJ 07446
G. Michael Dill Senior Vice President None
505 E. Main Street, Suite A
Jenks, OK 74037
Kirk D. Dodge Regional Vice President None
2617 Salisbury Road
Ann Arbor, MI 48103
Peter J. Doran Senior Vice President None
1205 Franklin Avenue
Garden City, NY 11530
* Michael J. Downer Secretary Vice President
Robert W. Durbin Vice President None
74 Sunny Lane
Tiffin, OH 44883
+ Lloyd G. Edwards Vice President None
* Paul H. Fieberg Senior Vice President None
John Fodor Regional Vice President None
15 Latisquama Road
Southborough, MA 01772
* Mark P. Freeman, Jr. Director and President None
Clyde E. Gardner Vice President None
Route 2, Box 3162
Osage Beach, MO 65065
# Evelyn K. Glassford Vice President None
Jeffrey J. Greiner Regional Vice President None
5898 Heather Glen Court
Dublin, OH 43017
* Paul G. Haaga, Jr. Director Chairman of the Board
David E. Harper Vice President None
R.D. 1, Box 210, Rte. 519
Frenchtown, NJ 08825
Ronald R. Hulsey Regional Vice President None
6744 Avalon
Dallas, TX 75214
Robert S. Irish Regional Vice President None
1225 Vista Del Mar Drive
Delray Beach, FL 33483
* Michael J. Johnston Chairman of the Board None
* Robert L. Johansen Vice President and Controller None
# Damien Jordan Senior Vice President None
V. John Kriss Senior Vice President None
P.O. Box 274
Surfside, CA 90743
Arthur J. Levine Vice President None
12558 Highlands Place
Fishers, IN 46038
# Karl A. Lewis Assistant Vice President None
T. Blake Liberty Regional Vice President None
12585-E East Tennessee Circle
Aurora, CO 80012
* Lorin E. Liesy Assistant Vice President None
* Susan G. Lindgren Vice President - Institutional Investment Services Division None
Stephen A. Malbasa Regional Vice President None
13405 Lake Shore Blvd.
Cleveland, OH 44110
Steven M. Markel Vice President None
5241 S. Race Street
Littleton, CO 80121
* John C. Massar Director and Senior Vice President None
* E. Lee McClennahan Senior Vice President None
Laurie B. McCurdy Regional Vice President None
920 Edgeside Avenue
Tucson, AZ 8574
& John V. McLaughlin Senior Vice President None
Terry W. McNabb Vice President None
2002 Barrett Station Road
St. Louis, MO 63131
* R. William Melinat Vice President - Institutional None
Investment Services Division
David R. Murray Regional Vice President None
25701 S.E. 32nd Place
Issaquah, WA 98029
Stephen S. Nelson Vice President None
7215 Trevor Court
Charlotte, NC 28226
William E. Noe Regional Vice President None
304 River Oaks Road
Brentwood, TN 37027
Peter A. Nyhus Regional Vice President None
3084 Wilds Ridge Court
Prior Lake, MN 55372
Eric P. Olson Regional Vice President None
62 Park Drive
Glenview, IL 60025
Fredric Phillips Regional Vice President None
32 Ridge Avenue
Newton Centre, MA 02161
# Candance D. Pilgrim Assistant Vice President None
Carl S. Platou Regional Vice President None
4021 96th Avenue, S.E.
Mercer Island, WA 98040
* John O. Post, Jr. Vice President None
Steven J. Reitman Vice President None
212 The Lane
Hinsdale, IL 60521
Brian A. Roberts Regional Vice President None
12025 Delmahoy Drive
Charlotte, NC 28277
George S. Ross Vice President None
55 Madison Avenue
Morristown, NJ 07960
* Julie D. Roth Vice President None
* James F. Rothenberg Director None
Douglas F. Rowe Regional Vice President None
30309 Oak Tree Drive
Georgetown, TX 78628
* Christopher S. Rowey Regional Vice President None
Dean B. Rydquist Vice President None
1080 Bay Pointe Crossing
Alpharetta, GA 30202
Richard R. Samson Vice President None
4604 Glencoe Avenue, Suite 4
Marina del Rey, CA 90292
Joseph D. Scarpitti Regional Vice President None
25760 Kensington Drive
Westlake, OH 44145
* Daniel B. Seivert Assistant Vice President None
* R. Michael Shanahan Director None
* David W. Short Director and Senior None
Vice President
* Victor S. Sidhu Vice President - Institutional None
Investment Services Division
William P. Simon, Jr. Vice President None
554 Canterbury Lane
Berwyn, PA 19312
* John C. Smith Assistant Vice President - None
Institutional Investment
Services Division
* Mary E. Smith Assistant Vice President - None
Institutional Investment
Services Division
Rodney G. Smith Regional Vice President None
2350 Lakeside Blvd., #850
Richardson, TX 75082
Nicholas D. Spadaccini Regional Vice President None
855 Markley Woods Way
Cincinnati, OH 45230
Daniel S. Spradling Senior Vice President None
#4 West Fourth Ave/Ste 406
San Mateo, CA 94402
Thomas A. Stout Regional Vice President None
12913 Kendale Lane
Bowie, MD 20715
Craig R. Strauser Regional Vice President None
17040 Summer Place
Lake Oswego, OR 97035
Francis N. Strazzeri Regional Vice President None
31641 Saddletree Drive
Westlake Village, CA 91361
* Drew W. Taylor Assistant Vice President None
& James P. Toomey Assistant Vice President None
+ Christopher E. Trede Assistant Vice President None
George F. Truesdail Vice President None
400 Abbotsford Court
Charlotte, NC 28270
Scott W. Ursin-Smith Regional Vice President None
606 Glenwood Avenue
Mill Valley, CA 94941
@ Andrew J. Ward Vice President None
* David M. Ward Assistant Vice President - None
Institutional Investment
Services Division
Thomas E. Warren Regional Vice President None
4001 Crockers Lk Blvd.,#1012
Sarasota, FL 34238
# J. Kelly Webb Senior Vice President None
Gregory J. Weimer Regional Vice President None
125 Surrey Drive
Canonsburg, PA 15317
# Timothy W. Weiss Director None
** N. Dexter Williams Vice President None
Timothy J. Wilson Regional Vice President None
113 Farmview Place
Venetia, PA 15367
# Laura Wimberly Assistant Vice President None
@ Marshall D. Wingo Director and Senior Vice President None
* Robert L. Winston Director and Senior Vice President None
William R. Yost Regional Vice President None
9320 Overlook Trail
Eden Prairie, MN 55347
Janet M. Young Regional Vice President None
1616 Vermont
Houston, TX 77006
Scott D. Zambon Regional Vice President None
209 Robinson Drive
Tustin Ranch, CA 92782
</TABLE>
_______________________
* Business Address, 333 South Hope Street, Los Angeles, CA 90071
** Business Address, Four Embarcadero Center, Suite 1800, San Francisco, CA
94111
# Business Address, 135 South State College Blvd., Brea, CA 92821
& Business Address, 8000 IH-10 West, Suite 1400, San Antonio, TX 78230
@ Business Address, 5300 Robin Hood Road, Norfolk, VA 23513
+ Business Address, 8332 Woodfield Crossing Blvd., Indianapolis, IN 46240
% Business Address, 3000 K. Street, Suite 230, Washington, D.C. 20007-5124
(c) None.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
Accounts, books and other records required by Rules 31a-1 and 31a-2 under the
Investment Company Act of 1940, as amended, are maintained and kept in the
offices of the Fund and its investment adviser, Capital Research and Management
Company, 333 South Hope Street, Los Angeles, CA 90071. Certain accounting
records are maintained and kept in the offices of the Fund's accounting
department, 135 South State College Blvd., Brea, CA 92821.
Records covering shareholder accounts are maintained and kept by the transfer
agent, American Funds Service Company, 135 South State College Blvd., Brea, CA
92821, 8000 IH-10 West, Suite 1400, San Antonio, TX 78230, 5300 Robin Hood
Road, Norfolk, VA 23513 and 8332 Woodfield Crossing Blvd., Indianapolis, IN
46240.
Records covering portfolio transactions are also maintained and kept by the
custodian, The Chase Manhattan Bank, One Chase Manhattan Plaza, New York, NY
10081.
ITEM 31. MANAGEMENT SERVICES.
None.
ITEM 32. UNDERTAKINGS.
(c) As reflected in the prospectus, the fund undertakes to provide each person
to whom a prospectus is delivered with a copy of the fund's latest annual
report to shareholders, upon request and without charge.
<PAGE>
SIGNATURE OF REGISTRANT
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this amended Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Los Angeles, and State of California, on the 26th
day of September, 1996.
LIMITED TERM TAX-EXEMPT BOND
FUND OF AMERICA
By/s/ Paul G. Haaga, Jr.
(Paul G. Haaga, Jr., Chairman of the Board)
Pursuant to the requirements of the Securities Act of 1933, this amendment to
registration statement has been signed below on September 26, 1996, by the
following persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
<S> <C> <C>
(1) Principal Executive Officer:
/s/ Abner D. Goldstine President and Trustee
(Abner D. Goldstine)
(2) Principal Financial Officer and
Principal Accounting Officer:
/s/ Anthony W. Hynes, Jr. Treasurer
(Anthony W. Hynes, Jr.)
(3) Trustees:
H. Frederick Christie* Trustee
Martin Fenton, Jr.* Trustee
/s/ Abner D. Goldstine President and Trustee
(Abner D. Goldstine)
Diane C. Creel* Trustee
Leonard R. Fuller* Trustee
Herbert Hoover III * Trustee
Richard G. Newman* Trustee
Peter C. Valli* Trustee
</TABLE>
*By /s/ Julie F. Williams
Julie F. Williams, Attorney-in-Fact
C-13
