LIMITED TERM TAX-EXEMPT BOND FUND OF AMERICA
TAKING THE MIDDLE PATH
1996 ANNUAL REPORT
for the year ended July 31
[The American Funds Group(R)]
Limited Term Tax-Exempt Bond Fund of America(SM) seeks an opportunity for
current income exempt from federal income taxes, consistent with preservation
of capital, through investments in tax-exempt securities with effective
maturities between three and 10 years.
[chart]
CHARTING A $10,000 INVESTMENT IN LIMITED TERM TAX-EXEMPT BOND FUND OF AMERICA
(for the period October 6, 1993 to July 31, 1996, with dividends reinvested)
<TABLE>
<CAPTION>
Date The fund at The fund at net Lehman Brothers
maximum asset value 7-Year
offering price* (without any Municipal Bond
sales charge) Index
<S> <C> <C> <C>
10/6/93 $9,525 $10,000 $10,000
10/31/93 9,689 10,171 10,026
1/31/94 9,976 10,472 10,228
4/30/94 9,573 10,049 9,810
7/31/94 9,728 10,211 9,979
10/31/94 9,616 10,094 9,836
1/31/95 9,732 10,215 10,024
4/30/95 10,050 10,550 10,384
7/31/95 10,355 10,870 10,786
10/31/95 10,604 11,131 11,051
1/31/96 10,833 11,371 11,341
4/30/96 10,768 11,304 11,171
7/31/96 10,914 11,456 11,333
</TABLE>
$11,456
The fund at net asset value (without any sales charge)
$11,333
Lehman Brothers 7-Year Municipal Bond Index
$10,914
The fund at maximum offering price*
*These figures, unlike those in the letter to shareholders, which are at net
asset value, reflect payment of the maximum sales charge of 4.75% on the
$10,000 investment. Thus, the net amount invested was $9,525. As outlined in
the prospectus, the sales charge is reduced for larger investments.
The Lehman index is unmanaged and has no expenses.
Past results are not predictive of future results.
[end chart]
RETURNS AFTER DEDUCTING THE MAXIMUM SALES CHARGE
<TABLE>
<CAPTION>
PERIODS ENDED 6/30/96 PERIODS ENDED 7/31/96
Total Average Annual Total Average Annual
Return Compound Return Return Compound Return
<S> <C> <C> <C> <C>
LIFETIME +8.17% +2.91% +9.14% +3.15%
(since
10/6/93)
ONE YEAR +0.31 - +0.40 -
</TABLE>
These results reflect the effect of a fee waiver. Without the waiver, the
results would have been lower. The fund's 30-day yield as of August 31, 1996,
calculated in accordance with the Securities and Exchange Commission formula,
was 4.39%. The fund's distribution rate as of that date was 4.59%. The SEC
yield reflects income the fund expects to earn based on its current portfolio
of securities, while the distribution rate is based solely on the fund's past
dividends. Accordingly, the fund's SEC yield and distribution rate may differ.
THE FIGURES IN THIS REPORT REFLECT PAST RESULTS. SHARE PRICE AND RETURN WILL
VARY, SO YOU MAY LOSE MONEY BY INVESTING IN THE FUND. THE SHORTER THE TIME
PERIOD OF YOUR INVESTMENT, THE GREATER THE POSSIBILITY OF LOSS. FUND SHARES ARE
NOT DEPOSITS OR OBLIGATIONS OF, OR INSURED OR GUARANTEED BY, THE U.S.
GOVERNMENT, ANY FINANCIAL INSTITUTION, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, OR ANY OTHER AGENCY, ENTITY OR PERSON. While the fund invests for
income that is exempt from regular federal income taxes, that income may be
subject to state or local income taxes and/or federal alternative minimum
taxes. Also, distributions from gains on the disposition of certain bonds
purchased at less than par value and capital gain distributions, if any, are
taxable.
FELLOW SHAREHOLDERS:
Despite an uneven period for the bond market, Limited Term Tax-Exempt Bond Fund
of America came through its second full fiscal year with a solid return.
Interest rates began to tick upward about halfway through the year but the fund
was still able to provide both generous tax-free income and modest capital
appreciation.
Over the 12 months ended July 31, the fund paid dividends totaling 69 cents a
share, all exempt from regular federal income taxes.
- - If you took those dividends in cash, your tax-free income return was 4.8%.
- - If you reinvested your dividends in additional fund shares, your income
return was 4.9%.
- - To match a 4.9% tax-free return, a shareholder in the top federal tax bracket
of 39.6% would have had to earn 8.1% from a taxable investment.
Meanwhile, the fund's share price rose to $14.36 on July 31 from $14.29 at the
start of the fiscal year. This gain, combined with the fund's income return,
produced a total return of 5.4% for those who reinvested dividends.
By comparison, the 139 intermediate municipal bond funds tracked by Lipper
Analytical Services gained an average of 4.9%, while the unmanaged Lehman
Brothers 7-Year Municipal Bond Index rose 5.1%, both with distributions
reinvested. Since its inception on October 6, 1993, your fund has posted a
total return of 14.6%, while the Lipper average has risen 11.4% and the Lehman
index has gained 13.3%.
Interest rates fell gradually during the first half of the fiscal year, driven
down by expectations of a weak U.S. economy. As the second half of the fiscal
year began, economic data suggested growth was heating up. Fears of inflation
and possible rate hikes by the Federal Reserve pushed rates back up. Bond
prices, which move inversely to interest rates, fell. The fund's conservative
philosophy served it well throughout these ups and downs. Its relatively short
effective maturity of 5.1 years kept the fund from enjoying the full upswing,
but also protected it from sharper losses in the second half of the year.
As for what lies ahead, our crystal ball is cloudy. In July and August, some
economic statistics hinted at a slowing in activity, allowing the bond market
to catch its breath. More recently, there have been some indications of a
pickup in the rate of growth, leaving much uncertainty about the economic
outlook and which direction interest rates are headed. In times like this, it
may be particularly appropriate to take the middle path and invest in an
intermediate-term fund. As we move into the new fiscal year, we will maintain a
close watch on the economy and adjust the fund's portfolio accordingly.
As of July 31, the fund's portfolio consisted of 97 bond issues from 28 states
and the District of Columbia. More than 60% of the securities are rated A or
better by independent bond-rating services.
Beginning on page 2, we take a closer look at intermediate-term bonds and the
research process we use to evaluate potential investments in the fund. We hope
you find this information of interest.
Cordially,
Paul G. Haaga, Jr. Abner D. Goldstine
Chairman of the Board President
September 17, 1996
The Limited Term Tax-Exempt Bond Fund of America was created to help its
shareholders seek current income exempt from federal taxes, consistent with the
preservation of capital, through investments in tax-exempt bonds with limited
maturities. By building an actively managed portfolio of intermediate-term
bonds, the fund's managers sought to produce much of the income of long-term
municipal bonds, but with less fluctuation in principal value.
"Watching the municipal market this last fiscal year reminded me why this fund
can make so much sense for our shareholders," says Neil Langberg, one of the
fund's portfolio counselors and a vice president of its investment adviser,
Capital Research and Management Company (CRMC). "For much of the year interest
rates fell, which helped longer term bond funds. Later, rates moved back up and
short-term offerings like money market funds did better. But if you look at the
whole cycle, the most comfortable place to be was in the middle, in a
limited-term fund."
Finding value in the middle, in intermediate-term tax-exempt municipal bonds
with three- to 10-year effective maturities, has helped the fund meet its
objectives over its lifetime. In this report we'll discuss some characteristics
of limited-term bonds, examine the research methods CRMC uses to find good
values, and take a closer look at two specific areas - student loan and
moderate-income housing bonds - where that research has paid off.
THE VALUE IN THE MIDDLE
When selecting a tax-exempt bond fund, investors must make a choice. How much
fluctuation in the value of their investment are they willing to accept in
return for higher income? Short-term funds have offered relative safety, with
low yields. Long-term municipal bond funds have produced considerably higher
income, in exchange for sometimes wide swings in principal value. Limited-term
municipal bond funds, however, may have offered an attractive tradeoff to some
investors. Historically, these bonds have produced much of the interest income
of long-term bonds, with considerably less fluctuation in principal value.
Of course, this means that in a rising bond market investors typically have
made more money in a long-term bond fund than in a limited-term fund. But they
have had to watch the value of their principal rise and fall more along the
way. Investors concerned with preservation of capital may be unwilling to
accept this tradeoff. They may prefer the opportunity that has been offered by
limited-term funds: much of the interest income with less fluctuation in
principal value. Over its brief lifetime, Limited Term Tax-Exempt Bond Fund of
America has followed this pattern.
RESEARCH THAT ENHANCES RESULTS
This characteristic of limited-term bonds has been one key to the fund's
ability to meet its objectives. Another important factor has been the active
portfolio management provided by Capital Research and Management Company. At
the heart of CRMC's investment philosophy is a search for the best values that
can be found through fundamental, in-depth research.
CRMC's research effort seeks to enhance results by recognizing opportunities
overlooked by other investors and by anticipating changes in the marketplace
before they become generally known. The fund's team of analysts conducts the
research, investigating issuers and economic data, in order to make
recommendations to the portfolio counselors. As the counselors decide on
portfolio selections, the fund's experienced professional traders work to
obtain the best possible prices on individual trades.
BUILDING A WELL-DIVERSIFIED PORTFOLIO
To determine which individual bonds to recommend for the fund's portfolio, the
research analysts must examine both bond issues and the municipal bond market
as a whole. This process involves viewing the market from a number of
perspectives. They look at state and regional economies, the creditworthiness
of issuers, the outlook for interest rates, and the market's understanding of
various sectors. When pieced together, these cross sections can provide a more
complete view of the market to help the portfolio counselors build a
well-diversified portfolio of tax-exempt municipal bonds.
REGIONAL ANALYSIS - examining the relative economic strength of state and local
governments.
CREDIT RESEARCH - studying the financial status of an issuer to detect changes
that could affect its credit strength and the market value of its bonds.
INTEREST RATE ANALYSIS - observing economic data and market trends to
anticipate the direction and speed of interest rate changes, allowing for
timely adjustments to the mix of maturities in the fund.
SECTOR ANALYSIS - diversifying the fund's assets among various sectors and
watching for undervalued or misunderstood segments of the market.
THE VALUE OF MISUNDERSTOOD SECTORS
We'll use examples of two sectors, student loan bonds and bonds that provide
the capital for moderate-income mortgage loans, to illustrate the research
process at work. "Basically, these two areas are simply misunderstood," says
Jeff Brown, one of the fund's research analysts. "By digging in and doing the
structural research, we've been able to find bonds that we believe offer
excellent value with below-average prices and above-average yields." This kind
of structural research can identify subtle, but important, differences among
bonds in the same sector, differences that may not be reflected in the bonds'
prices or yields.
Bonds in both these sectors often sell more cheaply and offer higher yields
than bonds in other sectors because they carry "prepayment risk." This means
that the loans backing the bonds can be paid off early, usually forcing the
lending agency to "call" the bonds back from the bondholders, returning the
principal early and reducing the return to the investor.
"We've found that some of these student loan and mortgage bonds are different.
The market is pricing them as if they will be called, when for all practical
purposes they cannot be," says Mark Macdonald, another portfolio counselor of
the fund. "When you read the fine print, you learn that some issuers won't call
the bonds within certain limits. Instead they recycle the early payoffs into
new loans. Those are the bonds we look for. And even if the worst case scenario
occurs and the bonds are called, they are often priced so low that they remain
a solid investment value."
Reading the fine print of bond indentures and meeting with issuers to fully
understand the features and structure of a bond are the kinds of hands-on
research methods that have made a difference for Limited Term Tax-Exempt Bond
Fund of America. Intensive research has always been a hallmark of Capital
Research and Management Company, because we believe fundamental research can
add value. We'll do everything we can to make that advantage work for you.
[Sidebar]
Once CRMC's research professionals identify misunderstood sectors, they seek
out individual bonds that fit the pattern they've discovered.
[End sidebar]
<TABLE>
LIMITED TERM TAX-EXEMPT BOND FUND OF AMERICA
INVESTMENT PORTFOLIO
July 31, 1996
- ---------------------------------------------------- --------- ---------
Portfolio Composition
<S> <C> <C>
New York 9.40%
California 8.91%
Maine 8.68%
Texas 7.52%
Louisiana 6.75%
Michigan 6.45%
Massachusetts 6.01%
Pennsylvania 4.36%
Mississippi 4.28%
Minnesota 4.16%
Other states 29.48%
Cash equivalents 4.00%
- ---------------------------------------------------- --------- ---------
Principal Market
Amount Value
(000) (000)
--------- ---------
Tax-Exempt Securities Maturing in More than
One Year - 96.00%
Alaska - 1.49%
Student Loan Corporation, Student Loan
Revenue Bonds, 1988 Series A, AMBAC Insured AMT,
8.40% 2003 $2,750 $2,938
Arizona - 2.13%
Educational Loan Marketing Corporation,
1992 Educational Loan Revenue Bonds, Series A,
6.70% 2000 4,000 4,184
California - 8.91%
Health Facilities Financing Authority,
Hospital Revenue Bonds (Downey Community
Hospital), Series 1993:
5.00% 2001 1,250 1,249
5.30% 2004 1,010 1,006
Housing Finance Agency, Single Family
Mortgage Bonds, 1995 Issue B-2, AMBAC Insured AMT,
5.70% 2007 (2002)* 1,400 1,408
City of Fremont, Multifamily Housing Revenue Refunding
Bonds, Issue A of 1995 (Durham Greens Project),
5.40% 2026 (2006)* 2,830 2,824
Long Beach Aquarium of the Pacific, Revenue
Bonds (Aquarium of the Pacific Project),
1995 Series A, 5.75% 2005 1,500 1,481
County of Los Angeles, Certificates of Participation:
1991 Master Refunding Project, 6.40% 2000 1,000 1,039
Marina Del Rey, Series A, 6.25% 2003 3,100 3,191
Pleasanton Joint Powers Financing Authority,
Reassessment Revenue Bonds, 1993 Series A,
5.70% 2001 980 997
Sacramento:
Cogeneration Authority, Cogeneration
Project Revenue Bonds (Proctor & Gamble Project),
1995 Series, 7.00% 2004 1,000 1,075
Power Authority, Cogeneration Project Revenue
Bonds (Campbell Soup Project), 1995 Series:
6.50% 2004 2,000 2,097
6.50% 2005 1,100 1,158
Colorado - 2.79%
Housing and Finance Authority, Single
Family Program Senior Bonds, 1995 Series C-2,
5.625% 2009 (1997)* 995 1,004
Student Obligation Bond Authority, Student
Loan Revenue Bonds, 1994 Series L, 6.00% 2001 1,065 1,113
City and County of Denver, Airport
System Revenue Bonds, Series 1991D AMT:
6.80% 1997 1,170 1,208
7.30% 2000 2,000 2,168
District of Columbia - 0.51%
General Obligation Refunding Bonds,
Series 1994D, FGIC Insured, 5.10% 2002 1,000 1,007
Georgia - 0.78%
Municipal Electric Authority of Georgia, Power
Revenue Bonds, Series Q, 8.375% 2016
(crossover refunded 1998) 500 536
Fulco Hospital Authority, Revenue Anticipation
Certificates (Saint Joseph's Hospital of
Atlanta, Inc.), Series 1994, 4.70% 2000 1,000 993
Illinois - 1.56%
Health Facilities Authority,
Revenue Bonds, Series 1993:
(OSF Healthcare System), 5.25% 2001 2,025 2,042
City of Chicago, General Obligation Equipment Notes,
Series 1996, AMBAC Insured, 5.60% 2006 1,000 1,031
Indiana - 0.88%
Employment Development Commission,
Pollution Control Revenue Bonds (Chrysler
Corporation Project), Series 1985, 5.70% 1999 1,700 1,725
Kentucky - 0.79%
Higher Education Student Loan Corporation,
Insured Student Loan Revenue Bonds,
Series B, 6.20% 1999 1,490 1,553
Louisiana - 6.75%
Offshore Terminal Authority,
Deepwater Port Refunding Revenue Bonds
(LOOP INC. Project), First Stage:
Series 1992B:
6.00% 2001 1,500 1,569
6.20% 2003 1,500 1,591
Series E, 7.45% 2004 5,000 5,480
Parish of St. Charles, Adjustable/Fixed Rate
Pollution Control Revenue Bonds
(Louisiana Power & Light Company Project),
Second Series 1984, 8.00% 2014 (1999)* 4,250 4,634
Maine - 8.68%
Educational Loan Marketing Corporation,
Senior Student Loan Revenue Bonds:
Series 1991 AMT, 6.90% 2003 3,000 3,231
Series 1994A-4 AMT:
5.95% 2003 1,000 1,034
6.05% 2004 1,500 1,553
Housing Authority, Mortgage Purchase Bonds:
1994 Series E, 6.30% 2002 1,650 1,701
1994 Series C-1, 5.90% 2015 (1999)* 7,920 8,022
Student Loan Revenue Refunding Bonds:
Series 1992A-1 AMT, 6.20% 2003 540 566
Series 1992A-4 AMT, 6.30% 2004 925 971
Maryland - 1.26%
Community Development Administration, Department
of Housing and Community Development,
Single Family Program Bonds,
1994 Fifth Series AMT, 5.875% 2017 (2001)* 1,450 1,455
Northeast Maryland Waste Disposal Authority,
Solid Waste Revenue Bonds (Montgomery County
Resource Recovery Project), Series 1993A AMT,
5.90% 2005 1,000 1,026
Massachusetts - 6.01%
Housing Finance Agency, Housing Project Revenue Bonds,
Series A, AMBAC Insured:
5.25% 2002 1,000 1,018
5.35% 2003 750 765
The New England Education Loan Marketing
Corporation, Student Loan Revenue Refunding Bonds:
1992 Senior Issue A, 6.50% 2002 4,500 4,823
1992 Senior Issue D, 6.20% 2000 3,000 3,154
Water Resources Authority, General
Revenue Bonds, 1993 Series C, 5.25% 2001 2,000 2,049
Michigan - 6.45%
Hospital Finance Authority, Hospital Revenue Refunding
Bonds (Genesys Health System Obligated Group),
Series 1995A, 7.20% 2003 2,375 2,533
Housing Development Authority, Rental Housing Revenue
Bonds, 1992 Series A, AMBAC Insured, 6.40% 2005 1,200 1,286
City of Detroit, General Obligation Refunding Bonds
(Unlimited Tax):
Series A:
6.10% 2003 1,800 1,846
6.25% 2004 2,165 2,234
Series 1995-B, 6.75% 2003 4,500 4,777
Minnesota - 4.16%
Housing and Finance Authority, Single Family Mortgage,
Series Q, 6.25% 2014 (1999)* 975 997
The Housing and Redevelopment Authority of the
City of Saint Paul, Hospital Facility
Revenue Bonds (HealthEast Project):
Series 1987-A, 9.75% 2017 (crossover refunded
1997) 1,950 2,116
Series 1987-B, 9.75% 2017 (1997)* 2,500 2,657
Series 1987-C, 9.75% 2017 (crossover refunded
1997) 2,225 2,414
Mississippi - 4.28%
Claiborne County Adjustable/Fixed-Rate Pollution
Control Revenue Bonds (Middle South Energy,
Inc. Project), Series C, 9.875% 2014 (1998)* 7,500 8,417
New Mexico - 1.09%
New Mexico Educational Assistance Foundation, Student
Loan Revenue Bonds, Subordinate 1992 Series One-B AMT,
6.85% 2005 2,065 2,135
New York - 9.40%
Dormitory Authority of the State of New York,
Revenue Bonds, City University Issue, Series U,
6.10% 2001 1,500 1,571
Environment Facilities Corp., Solid Waste Disposal
Revenue Bonds, (Occidental Petroleum Corp. Project),
Series 1993 Subseries B AMT, 5.50% 2003 1,135 1,121
Urban Development Corporation:
Correctional Capital Facilities Revenue Bonds:
Series 6, 6.00% 2003 2,000 2,063
1993A Refunding Series, 6.30% 2003 1,305 1,367
The City of New York General Obligation Bonds:
1994 Series A, 6.00% 2000 2,000 2,068
1994 Series B, 6.25% 2001 1,000 1,044
1994 Series A, 6.10% 2002 1,800 1,855
1994 Series D, 5.70% 2002 1,000 1,011
Fiscal 1993 Series A, 6.25% 2003 2,000 2,071
Series E, 6.50% 2004 1,000 1,047
Series A-1, AMBAC Insured, 6.25% 2005 3,000 3,263
North Carolina - 2.06%
Eastern Municipal Power Agency,
Power System Revenue Bonds, Refunding
Series 1993 C, 5.00% 2002 2,000 1,961
Municipal Power Agency Number 1,
Catawba Electric Revenue Bonds, Series 1992,
6.00% 2004 2,000 2,084
Ohio - 3.24%
Housing Finance Agency, Single Family
Mortgage Revenue Bonds, 1992 Series A-2 AMT,
5.70% 2013 (1999)* 2,030 2,048
County of Franklin, Hospital Facilities
Revenue Refunding and Improvement Bonds (Doctors
Hospital Project), Series 1993, 5.70% 2004 1,120 1,130
The Student Loan Funding Corporation, Cincinnati:
Student Loan Revenue Refunding Bonds,
Series 1992A AMT, 5.40% 1999 2,130 2,164
Senior Subordinated Revenue Bonds,
Series 1993A AMT, 5.75% 2003 1,000 1,021
Oklahoma - 0.92%
Housing Finance Agency, Single Family
Mortgage Revenue Bonds (Homeownership Loan
Program), 1994 Series A-1 AMT, 6.25% 2016 (1999)* 1,790 1,815
Pennsylvania - 4.36%
Higher Education Assistance Agency,
Student Loan Adjustable Rate Tender Revenue
Refunding Bonds, 1985 Series A, FGIC Insured,
6.80% 2000 8,000 8,577
South Dakota - 1.82%
Housing Development Authority, Homeownership Mortgage
Bonds, 1996 Series A, 5.50% 2010 1,000 1,004
Student Loan Finance Corporation, Student Loan
Revenue Bonds, Series 1994-A AMT, 5.95% 2001 (2001)* 2,500 2,565
Texas - 7.52%
General Obligation Bonds,
Veterans' Housing Assistance Program, Fund I
Series 1994C Refunding Bonds, 6.25% 2015 (1998)* 2,445 2,480
City of Austin, Combined Utility Systems
Revenue Refunding Bonds, Series 1992A,
MBIA Insured, 7.00% 2002 1,000 1,070
Brazos Higher Education Authority, Inc.,
Student Loan Revenue Refunding Bonds:
Series 1992C-1 AMT, 6.00% 1999 1,435 1,480
Series 1994A-2 AMT, 5.85% 2001 1,000 1,034
Series 1993C-1 AMT, 5.50% 2002 1,000 1,015
Subordinate Series 1993C-2 AMT, 5.875% 2004 4,000 4,061
Cities of Dallas and Fort Worth, Dallas-Fort Worth
International Airport, Dallas-Fort Worth
Regional Airport, Joint Revenue
Refunding Bonds, Series 1992B, 6.00% 2002 1,000 1,061
Harris County Health Facilities Development Corp.,
Hospital Revenue Refunding Bonds, Children's Hospital
Project, Series 1995 MBIA Insured, 6.00% 2004 1,000 1,062
Houston Water, AMBAC Insured, 7.00% 2004 1,350 1,532
Utah - 0.96%
Housing Finance Agency, Single Family Mortgage
Purchase Refunding Bonds, Series 1996, (Federally
Insured or Guranteed Mortgage Loans), 5.45% 2004 1,880 1,887
Vermont - 0.14%
Housing Finance Agency, Single Family
Housing Bonds, Series 4, 5.75% 2012 (1999)* 280 282
Virginia - 2.12%
Housing Development Authority, Commonwealth Mortgage
Bonds, 1995 Series A-AMT, Subseries A-1, 6.60% 2004 1,200 1,247
Industrial Development Board of the City of Butler,
Pollution Control Refunding Revenue Bonds (James River
Project) Series 1993, 5.50% 2005 3,000 2,914
Washington - 3.62%
Washington Public Power Supply System:
Nuclear Project No. 1 Refunding Revenue Bonds,
Series 1993A, 6.30% 2001 1,000 1,053
Nuclear Project No. 2 Refunding Revenue Bonds:
Series 1990C, 7.30% 2000 1,500 1,623
Series 1993A, 5.10% 2000 750 754
Series 1992A, 5.90% 2004 1,500 1,545
Nuclear Project No. 3 Refunding Revenue Bonds,
Series 1989B, 7.10% 2000 2,000 2,147
Wisconsin - 1.32%
Health and Educational Facilities
Authority, Revenue Bonds (Luther Hospital
Project), Series 1992, 6.00% 2003 1,000 1,050
Housing and Economic Development
Authority, Housing Revenue Bonds, 6.20% 2001 1,500 1,548
---------
188,776
---------
Tax-Exempt Securities Maturing in
One Year or Less - 2.63%
County of Los Angeles, 1996-97 Tax and Revenue
Anticipation Notes, Series A, 4.50% 6/30/97 3,850 3,869
State of Michigan, Full Faith and Credit General
Obligation Notes, 4.00% 9/30/96 300 300
State of Texas, Tax and Revenue Anticipation
Notes, Series 1995A, 4.75% 8/30/96 1,000 1,001
---------
5,170
---------
TOTAL TAX-EXEMPT SECURITIES (cost: $193,550,000) 193,946
Excess of cash, prepaids and receivables over
payables 2,688
---------
NET ASSETS $196,634
=========
*These are valued on the basis of their effective
maturity - that is, the dates at which the securities
are expected to be called or refunded by the issuers.
The effective maturity dates are shown in parentheses.
See Notes to Financial Statements
</TABLE>
<TABLE>
Limited Term Tax-Exempt Bond Fund of America
Financial Statements
Statement of Assets and Liabilities
at July 31, 1996 (dollars in thousands)
<S> <C> <C>
Assets:
Tax-exempt securities
(cost: $193,550) $193,946
Cash 75
Prepaid organization expense 6
Receivables for--
Sales of fund's shares $117
Accrued interest 3,027 3,144
---------- ----------
197,171
Liabilities:
Payables for--
Repurchases of fund's shares $150
Dividends payable 249
Management services 61
Accrued expenses 77 537
---------- ----------
Net Assets at July 31, 1996 --
Equivalent to $14.36 per share on 13,689,398
shares of beneficial interest issued and
outstanding; unlimited shares authorized $196,634
==========
Statement of Operations
for the year ended July 31, 1996
(dollars in thousands)
Investment Income:
Income:
Interest on tax-exempt securities $11,159
----------
Expenses:
Management services fee $817
Distribution expenses 602
Transfer agent fee 83
Reports to shareholders 70
Registration statement and prospectus 48
Postage, stationery and supplies 20
Trustees' fees 18
Auditing and legal fees 31
Custodian fee 10
Taxes other than federal income tax 3
Organization expense 3
Other expenses 10
----------
Total expenses before reimbursement 1,715
Reimbursement of expenses 207 1,508
---------- ----------
Net investment income 9,651
----------
Realized Gain and Unrealized
Appreciation on Investments:
Net realized gain 367
Net unrealized (depreciation)
appreciation on investments:
Beginning of year (64)
End of year 396
----------
Net change from unrealized depreciation
to unrealized appreciation on investments 460
----------
Net realized gain and unrealized
appreciation on investments 827
----------
Net Increase in Net Assets
Resulting from Operations $10,478
==========
Statement of Changes in Net Assets
(dollars in thousands)
Year Ended
July 31
1996 1995
---------- ----------
Operations:
Net investment income $9,651 $9,153
Net realized gain (loss) on investments 367 (1,626)
Net unrealized appreciation on investments 460 3,947
---------- ----------
Net increase in net assets
resulting from operations 10,478 11,474
---------- ----------
Dividends Paid from Net
Investment Income (9,651) (9,177)
---------- ----------
Capital Share Transactions:
Proceeds from shares sold:
6,334,113 and 8,657,598 shares, respectively 91,389 120,121
Proceeds from shares issued in
reinvestment of net investment
income dividends:
461,784 and 449,087 shares, respectively 6,661 6,265
Cost of shares repurchased:
6,465,529 and 9,148,603 shares, respectively (93,099) (126,763)
---------- ----------
Net increase (decrease) in net assets
resulting from capital share
transactions 4,951 (377)
---------- ----------
Total Increase in Net Assets 5,778 1,920
Net Assets:
Beginning of year 190,856 188,936
---------- ----------
End of year $196,634 $190,856
========== ==========
See Notes to Financial Statements
</TABLE>
LIMITED TERM TAX-EXEMPT BOND FUND OF AMERICA
NOTES TO FINANCIAL STATEMENTS
1. Limited Term Tax-Exempt Bond Fund of America (the "fund") is registered
under the Investment Company Act of 1940 as an open-end, diversified management
investment company. The fund seeks current income exempt from federal income
taxes, consistent with preservation of capital, through investments in
tax-exempt securities with effective maturities between three and 10 years. The
following paragraphs summarize the significant accounting policies consistently
followed by the fund in the preparation of its financial statements:
Tax-exempt securities with original or remaining maturities in excess of 60
days are valued at prices obtained from a national municipal bond pricing
service. The pricing service takes into account various factors such as
quality, yield and maturity of tax-exempt securities comparable to those held
by the fund, as well as actual bid and asked prices on a particular day. Other
securities with original or remaining maturities in excess of 60 days,
including securities for which pricing service values are not available, are
valued at the mean of their quoted bid and asked prices. However, in
circumstances where the investment adviser deems it appropriate to do so,
securities will be valued at the mean of their representative quoted bid and
asked prices, or, if such prices are not available, at the mean of such prices
for securities of comparable maturity, quality and type. All securities with 60
days or less to maturity are valued at amortized cost, which approximates
market value. Securities for which market quotations are not readily available
are valued at fair value as determined in good faith by the Valuation Committee
of the Board of Trustees.
As is customary in the mutual fund industry, securities transactions are
accounted for on the date the securities are purchased or sold. Realized gains
and losses from securities transactions are reported on an identified cost
basis. Interest income is reported on the accrual basis. Premiums and original
issue discounts on securities purchased are amortized over the life of the
respective securities. Amortization of market discounts on securities is
recognized upon disposition, subject to applicable tax requirements. Dividends
to shareholders are declared daily after determination of the fund's net
investment income and paid to shareholders monthly.
Prepaid organization expenses are amortized over the estimated period of
benefit, not to exceed five years from commencement of operations. In the event
that Capital Research and Management Company (CRMC), the fund's investment
adviser, redeems any of its original shares prior to the end of the five-year
period, the proceeds of the redemption payable with respect to such shares
shall be reduced by the pro rata share (based on the proportionate share of the
original shares redeemed to the total number of original shares outstanding at
the time of such redemption) of the unamortized prepaid organization expenses
as of the date of such redemption. In the event the fund liquidates prior to
the end of the five-year period, CRMC shall bear any unamortized prepaid
organization expenses.
Pursuant to the custodian agreement, the fund receives credits against its
custodian fee for imputed interest on certain balances with the custodian bank.
The custodian fee of $10,000 includes $6,000 that was paid by these credits
rather than in cash.
2. It is the fund's policy to continue to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its net taxable income, including any net realized gain on
investments, to its shareholders. Therefore, no federal income tax provision is
required.
As of July 31, 1996, net unrealized appreciation on investments for book and
federal income tax purposes aggregated $396,000, of which $2,060,000 related to
appreciated securities and $1,664,000 related to depreciated securities. There
was no difference between book and tax realized gains on securities
transactions for the year ended July 31, 1996. The fund has available at July
31, 1996 a net capital loss carryforward totaling $3,643,000 which may be used
to offset capital gains realized during subsequent years through 2003 and
thereby relieve the fund and its shareholders of any federal income tax
liability with respect to the capital gains that are so offset. It is the
intention of the fund not to make distributions from capital gains while there
is a capital loss carryforward. The cost of portfolio securities for book and
federal income tax purposes was $193,550,000 at July 31, 1996.
3. The fee of $817,000 for management services was paid pursuant to an
agreement with CRMC, with which certain officers and Trustees of the fund are
affiliated. The Investment Advisory and Service Agreement provides for monthly
fees, accrued daily, based on an annual rate of 0.30% of the first $60 million
of average net assets; 0.21% of such assets in excess of $60 million; and 3.00%
of the fund's monthly gross investment income. The Investment Advisory and
Service Agreement provides for fee reductions to the extent annual operating
expenses exceed 0.75% of the average daily net assets of the fund, during a
period which will terminate at the earlier of such time as no reimbursement has
been required for a period of 12 consecutive months, provided no advances are
outstanding, or October 1, 2003. CRMC has also voluntarily agreed to waive its
fees to the extent necessary to ensure the fund's expenses do not exceed 0.74%
of the average daily net assets. Expenses that are not subject to these
limitations are interest, taxes, brokerage commissions, transaction costs, and
extraordinary expenses. Fee reductions were $207,000 for the year ended July
31, 1996. There can be no assurance that this voluntary fee waiver will
continue in the future.
Pursuant to a Plan of Distribution, the fund may expend up to 0.30% of its
average net assets annually for any activities primarily intended to result in
sales of fund shares, provided the categories of expenses for which
reimbursement is made are approved by the fund's Board of Trustees. Fund
expenses under the Plan include payments to dealers to compensate them for
their selling and servicing efforts. During the year ended July 31, 1996,
distribution expenses under the Plan were $602,000. As of July 31, 1996,
accrued and unpaid distribution expenses were $49,000.
American Funds Service Company (AFS), the transfer agent for the fund, was
paid a fee of $83,000. American Funds Distributors, Inc. (AFD), the principal
underwriter of the fund's shares, received $222,000 (after allowances to
dealers) as its portion of the sales charges paid by purchasers of the fund's
shares. Such sales charges are not an expense of the fund and, hence, are not
reflected in the accompanying statement of operations.
Trustees who are unaffiliated with CRMC may elect to defer part or all of the
fees earned for services as members of the Board. Amounts deferred are not
funded and are general unsecured liabilities of the fund. As of July 31, 1996,
aggregate amounts deferred and earnings thereon were $25,000.
CRMC is owned by The Capital Group Companies, Inc. AFS and AFD are both
wholly owned subsidiaries of CRMC. Certain Trustees and officers of the fund
are or may be considered to be affiliated with CRMC, AFS, and AFD. No such
persons received any remuneration directly from the fund.
4. As of July 31, 1996, accumulated net realized loss on investments was
$3,643,000 and paid-in capital was $199,881,000.
The fund made purchases and sales of investment securities of $74,221,000 and
$67,172,000, respectively, during the year ended July 31, 1996.
<TABLE>
Per-Share Data and Ratios
Period
October
Year Ended 6, 1993 /1/
July 31 to July
1996 1995 31, 1994
--------- --------- ---------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $14.29 $14.10 $14.29
--------- --------- ---------
Income From Investment Operations:
Net investment income .69 .69 .49
Net realized and unrealized
gain (loss) on investments .07 .19 (.19)
--------- --------- ---------
Total income from investment operations .76 .88 .30
--------- --------- ---------
Less Distributions:
Dividends from net investment income (.69) (.69) (.49)
--------- --------- ---------
Net Asset Value, End of Period $14.36 $14.29 $14.10
========= ========= =========
Total Return /2/ 5.39% 6.45% 2.11% /3/
Ratios/Supplemental Data:
Net assets, end of period (in millions) $197 $191 $189
Ratio of expenses to average net assets .74% /4/ .64% /4/ .51% /3/ /4/
Ratio of net income to average net assets 4.77% /3/ 4.88% 3.67% /3/
Portfolio turnover rate 34.95% /3/ 45.82% 42.21% /3/
/1/ Commencement of operations.
/2/Calculated without deducting a
sales charge. The maximum sales charge
is 4.75% of the fund's offering price.
/3/Based on operations for the period shown
and, accordingly, not representative of
a full year's operations.
/4/Had CRMC not waived fees, the fund's
ratios of expenses to average net assets
would have been 0.85%, 0.90%, and 0.73%,
respectively, for the periods shown.
</TABLE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Limited Term Tax-Exempt Bond Fund of America
In our opinion, the accompanying statement of assets and liabilities,
including the investment portfolio, and the related statements of operations
and of changes in net assets and the per-share data and ratios present fairly,
in all material respects, the financial position of Limited Term Tax-Exempt
Bond Fund of America (the "Fund") at July 31, 1996, the results of its
operations, the changes in its net assets and the per-share data and ratios for
the periods indicated, in conformity with generally accepted accounting
principles. These financial statements and per-share data and ratios (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at July 31, 1996 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
Los Angeles, California
August 30, 1996
Tax Information (unaudited)
All of the distributions paid by the fund during the fiscal year ended July 31,
1996 were exempt-interest distributions within the meaning of Section
852(b)(5)(A) of the Internal Revenue Code.
This information is given to meet certain requirements of the Internal Revenue
Code and should not be used by shareholders for preparing their income tax
returns. For tax return preparation purposes, please refer to the calendar
year-end information you receive from the fund's transfer agent.
FOR INFORMATION ABOUT YOUR ACCOUNT OR ANY OF THE FUND'S SERVICES, PLEASE
CONTACT YOUR FINANCIAL ADVISER, OR CALL AMERICAN FUNDS SERVICE COMPANY,
TOLL-FREE, AT 800/421-0180.
Printed on recycled paper
Litho in USA CGD/FS/3045
Lit No. LTEX-011-0996
This report is for the information of shareholders of Limited Term Tax-Exempt
Bond Fund of America, but it may also be used as sales literature when preceded
or accompanied by the current prospectus, which gives details about charges,
expenses, investment objectives and operating policies of the fund. If used as
sales material after September 30, 1996, this report must be accompanied by an
American Funds Group Statistical Update for the most recently completed
calendar quarter.
BOARD OF TRUSTEES
H. FREDERICK CHRISTIE
Rolling Hills Estates, California
Private investor; former President and Chief Executive Officer, The Mission
Group; former President, Southern California Edison Company
DIANE C. CREEL
Long Beach, California
Chairwoman, Chief Executive
Officer and President,
The Earth Technology Corporation
(environmental engineering)
MARTIN FENTON, JR.
San Diego, California
Chairman of the Board,
Senior Resource Group, Inc.
(senior living centers management)
LEONARD R. FULLER
Marina del Rey, California
President, Fuller & Company, Inc.
(financial management consulting)
ABNER D. GOLDSTINE
Los Angeles, California
President of the fund
Senior Vice President and Director,
Capital Research and Management Company
PAUL G. HAAGA, JR.
Los Angeles, California
Chairman of the Board of the fund
Senior Vice President and Director,
Capital Research and Management Company
HERBERT HOOVER III
San Marino, California
Private investor
RICHARD G. NEWMAN
Los Angeles, California
Chairman of the Board, President
and Chief Executive Officer,
AECOM Technology Corporation
(architectural engineering)
PETER C. VALLI
Long Beach, California
Chairman of the Board,
BW/IP International, Inc.
(industrial manufacturing)
OTHER OFFICERS
NEIL L. LANGBERG
Los Angeles, California
Senior Vice President of the fund
Vice President -
Investment Management Group,
Capital Research and Management Company
MICHAEL J. DOWNER
Los Angeles, California
Vice President of the fund
Senior Vice President -
Fund Business Management Group,
Capital Research and Management Company
MARY C. HALL
Brea, California
Vice President of the fund
Senior Vice President -
Fund Business Management Group,
Capital Research and Management Company
MARK R. MACDONALD
Los Angeles, California
Vice President of the fund
Vice President -
Investment Management Group,
Capital Research and Management Company
JULIE F. WILLIAMS
Los Angeles, California
Secretary of the fund
Vice President -
Fund Business Management Group,
Capital Research and Management Company
ANTHONY W. HYNES, JR.
Brea, California
Treasurer of the fund
Vice President -
Fund Business Management Group,
Capital Research and Management Company
KIMBERLY S. VERDICK
Los Angeles, California
Assistant Secretary of the fund
Assistant Vice President -
Fund Business Management Group,
Capital Research and Management Company
OFFICES OF THE FUND
OFFICES OF THE FUND AND
OF THE INVESTMENT ADVISER,
CAPITAL RESEARCH AND
MANAGEMENT COMPANY
333 South Hope Street
Los Angeles, California 90071-1443
135 South State College Boulevard
Brea, California 92821-5804
TRANSFER AGENT FOR
SHAREHOLDER ACCOUNTS
American Funds Service Company
(Please write to the address nearest you.)
P.O. Box 2205
Brea, California 92822-2205
P.O. Box 659522
San Antonio, Texas 78265-9522
P.O. Box 6007
Indianapolis, Indiana 46206-6007
P.O. Box 2280
Norfolk, Virginia 23501-2280
CUSTODIAN OF ASSETS
The Chase Manhattan Bank, N.A.
One Chase Manhattan Plaza
New York, New York 10081-0001
COUNSEL
Morrison & Foerster LLP
345 California Street
San Francisco, California 94104-2675
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
400 South Hope Street
Los Angeles, California 90071-2889
PRINCIPAL UNDERWRITER
American Funds Distributors, Inc.
333 South Hope Street
Los Angeles, California 90071-1462
