[LOGO OF THE AMERICAN FUNDS GROUP(R)]
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Limited Term
Tax-Exempt
Bond Fund
of America
Prospectus
DECEMBER 1, 1996
<PAGE>
LIMITED TERM TAX-EXEMPT BOND FUND OF AMERICA
333 South Hope Street
Los Angeles, CA 90071
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TABLE OF CONTENTS
<TABLE>
<S> <C>
Expenses 1
............................................
Financial Highlights
............................................ 3
Investment Policies and Risks
............................................ 4
Securities and Investment
Techniques
............................................ 5
Multiple Portfolio Counselor System
............................................ 7
Investment Results
............................................ 8
Dividends,.Distributions.and.Taxes
............................................ 9
Fund Organization and Management
............................................ 10
Shareholder Services
............................................ 13
</TABLE>
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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.
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 NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
43-010-1296
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EXPENSES
The effect of the expenses described below is reflected in the fund's share
price or return.
You may pay certain shareholder transaction expenses when you buy or sell
shares of the fund. Annual fund operating expenses are paid out of the fund's
assets and are factored into its share price.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
- ------------------------------------------
<S> <C>
Maximum sales charge on purchases
(as a percentage of offering price) 4.75%
..........................................
</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.
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets after fee waiver)
<TABLE>
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<S> <C>
Management fees 0.30%/1/
..........................................
12b-1 expenses 0.30%/2/
..........................................
Other expenses 0.14%
..........................................
Total fund operating expenses 0.74%
</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 0.85%.
Under certain circumstances, as described in the statement of additional
information, the fund may be required to repay amounts waived.
/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, Inc.
LIMITED TERM TAX-EXEMPT BOND FUND OF AMERICA / PROSPECTUS 1996 1
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EXAMPLES
Assuming a hypothetical annual return of 5% and shareholder transaction and
operating expenses as described above, for every $1,000 you invested, you would
pay the following total expenses over the following periods:
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<TABLE>
<S> <C>
One year $ 55
..........................................................................
Three years $ 70
..........................................................................
Five years $ 87
..........................................................................
Ten years $135
</TABLE>
THESE EXAMPLES ARE NOT MEANT TO REPRESENT YOUR ACTUAL INVESTMENT RESULTS OR
EXPENSES, WHICH MAY VARY.
2 LIMITED TERM TAX-EXEMPT BOND FUND OF AMERICA / PROSPECTUS 1996
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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 together with the financial statements which are included
in the statement of additional information and the annual report. In addition,
more detailed information regarding the fund's investment strategies and
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.
SELECTED PER-SHARE DATA
<TABLE>
<CAPTION>
Years ended July 31
-----------------------------
1996 1995 1994 /1/
-----------------------------
<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
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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/
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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% 4.88% 3.67% /3/
.......................................................
Portfolio turnover rate 34.95% 45.82% 42.21% /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 0.85%, 0.90% and
0.73%, respectively, for the periods shown.
LIMITED TERM TAX-EXEMPT BOND FUND OF AMERICA / PROSPECTUS 1996 3
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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 at the time of purchase 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 by Moody's or BBB by S&P 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 taxes; therefore, while the fund's distributions
are not subject to regular federal income tax, a portion or all may be included
in determining a shareholder's federal alternative minimum tax. When in the
opinion of Capital Research and Management Company abnormal market conditions
require a temporary defensive position, the fund may invest all or a portion of
its assets 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 as fundamental) 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.
4 LIMITED TERM TAX-EXEMPT BOND FUND OF AMERICA / PROSPECTUS 1996
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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 "high-yield,
high-risk" or "junk" 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 such
things as downgrades or market action, 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.
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.
FORWARD 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. When the fund purchases such securities
it assumes the risk of any decline in value of the security beginning on the
date of the agreement or purchase. When the fund sells such securities, it does
not
LIMITED TERM TAX-EXEMPT BOND FUND OF AMERICA / PROSPECTUS 1996 5
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participate in further gains or losses with respect to the security. If the
other party to a delayed delivery transaction fails to deliver or pay for the
securities, the fund could miss a favorable price or yield opportunity, or
could experience a loss.
VARIABLE AND FLOATING RATE OBLIGATIONS
The fund may invest in variable and floating rate obligations which have
interest rates that are adjusted at designated intervals, or whenever there are
changes in the market rates of interest on which the interest rates are based.
The rate adjustment feature tends to limit the extent to which the market value
of the obligation will fluctuate.
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. In determining nominal or stated
maturity, the fund will only consider techniques approved by the staff of the
Securities and Exchange Commission.
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.
6 LIMITED TERM TAX-EXEMPT BOND FUND OF AMERICA / PROSPECTUS 1996
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MULTIPLE PORTFOLIO COUNSELOR SYSTEM
The basic investment philosophy of Capital Research and Management Company is to
seek fundamental values at reasonable prices, using a system of multiple
portfolio counselors in managing mutual fund assets. Under this system the
portfolio of the fund is divided into segments which are managed by individual
counselors. Counselors decide how their respective segments will be invested
(within the limits provided by the fund's objective and policies and by Capital
Research and Management Company's investment committee). In addition, Capital
Research and Management Company's research professionals make investment
decisions with respect to a portion of the fund's portfolio. The primary
individual portfolio counselors for the fund are listed below.
<TABLE>
<CAPTION>
YEARS OF EXPERIENCE AS
INVESTMENT PROFESSIONAL
(APPROXIMATE)
.........................
YEARS OF EXPERIENCE
AS PORTFOLIO COUNSELOR WITH CAPITAL
PORTFOLIO COUNSELORS FOR LIMITED TERM RESEARCH AND
FOR LIMITED TERM TAX-EXEMPT BOND MANAGEMENT
TAX-EXEMPT BOND FUND OF AMERICA COMPANY OR
FUND OF AMERICA PRIMARY TITLE(S) (APPROXIMATE) ITS AFFILIATES TOTAL YEARS
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BRENDA S. Vice President, Less than 1 5 years 7 years
ELLERIN Capital year
Research
Company*
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NEIL L. Senior Vice Since the fund 18 years 18 years
LANGBERG President of began
the fund. Vice operations**
President--
Investment
Management
Group, Capital
Research and
Management
Company
- ----------------------------------------------------------------------------------------
MARK R. Vice President 2 years 2 years 11 years
MACDONALD of the fund.
Vice
President--
Investment
Management
Group, Capital
Research and
Management
Company
</TABLE>
* A wholly owned subsidiary of Capital Research and Management Company
** The fund began operation on October 6, 1993
LIMITED TERM TAX-EXEMPT BOND FUND OF AMERICA / PROSPECTUS 1996 7
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INVESTMENT RESULTS
The fund may from time to time compare investment results to various indices or
other mutual funds. Fund results may be calculated on a total return, yield,
and/or distribution rate basis. Results calculated without a sales charge will
be higher.
X TOTAL RETURN is the change in value of an investment in the fund over a
given period, assuming reinvestment of any dividends and capital gain
distributions.
X YIELD refers to the income the fund expects to earn based on its current
portfolio 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, this yield may be different than the income
actually paid to shareholders.
X DISTRIBUTION RATE reflects dividends that were paid by the fund. The
distribution rate is calculated by annualizing the current month's dividend
and dividing by the average price for the month. 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.
<TABLE>
<CAPTION>
AVERAGE ANNUAL COMPOUND RETURNS
(AS OF SEPTEMBER 30, 1996)
.................................
THE FUND AT NET THE FUND AT MAXIMUM
ASSET VALUE SALES CHARGE* LEHMAN INDEX+
- ---------------------------------------------------------------
<S> <C> <C> <C>
One year + 4.90% - 0.09% + 4.44%
...............................................................
Lifetime++ + 5.08% + 3.39% + 4.61%
- ---------------------------------------------------------------
<CAPTION>
OTHER RETURNS*
(AS OF SEPTEMBER 30, 1996)
<S> <C> <C> <C>
30 days Yield: 4.39% Distribution Rate: 4.54%
- ---------------------------------------------------------------
</TABLE>
* 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. This index is unmanaged and does not reflect sales
charges, commissions or expenses.
++ The fund began investment operations October 6, 1993.
The fund's past results are not an indication of future results and reflect a
fee waiver. See "Expenses."
8 LIMITED TERM TAX-EXEMPT BOND FUND OF AMERICA / PROSPECTUS 1996
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DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
The fund declares dividends from its net investment income daily and
distributes the accrued dividends to shareholders each month. Dividends begin
accruing one day after payment for shares is received by the fund or American
Funds Service Company. Capital gains, if any, are usually distributed in
November or December. When a capital gain is distributed, the net asset value
per share is reduced by the amount of the payment.
TAXES
In any fiscal year in which the fund qualifies as a regulated investment
company and distributes to shareholders all of its net investment income and
net capital gains, the fund itself is relieved of federal income tax. The fund
is permitted to pass through to its shareholders federally tax-exempt income
subject to certain requirements. However, the fund may invest in obligations
which pay interest that is subject to state and local taxes when distributed by
the fund. Dividends derived from taxable interest income, distributions of
capital gains and dividends on gains from the disposition of certain market
discount bonds will not be exempt from federal, state or local income tax.
Capital gains are taxable whether they are reinvested or received in cash--
unless you are exempt from taxation or entitled to tax deferral. Early each
year, you will be notified as to the amount and tax status of all income
distributions paid during the prior year. You are required by the Internal
Revenue Code to report to the federal government all fund exempt-interest
dividends (and all other tax-exempt interest).
YOU MUST PROVIDE THE FUND WITH A CERTIFIED CORRECT TAXPAYER IDENTIFICATION
NUMBER (GENERALLY YOUR SOCIAL SECURITY NUMBER) AND CERTIFY THAT YOU ARE NOT
SUBJECT TO BACKUP WITHHOLDING. IF YOU FAIL TO DO SO THE IRS CAN REQUIRE THE
FUND TO WITHHOLD 31% OF YOUR TAXABLE DISTRIBUTIONS AND REDEMPTIONS. Federal law
also requires the fund to withhold 30% or the applicable tax treaty rate from
certain dividends paid to nonresident alien, non-U.S. partnership and non-U.S.
corporation shareholder accounts.
This is a brief summary of some of the tax laws that affect your investment in
the fund. Please see the statement of additional information and your tax
adviser for further information.
LIMITED TERM TAX-EXEMPT BOND FUND OF AMERICA / PROSPECTUS 1996 9
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FUND ORGANIZATION AND MANAGEMENT
FUND ORGANIZATION AND VOTING RIGHTS
The fund, an open-end, diversified management investment company, was organized
as a 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. Members of the board who
are not employed by Capital Research and Management Company or its affiliates
are paid certain fees for services rendered to the fund as described in the
statement of additional information. They may elect to defer all or a portion
of these fees through a deferred compensation plan in effect for the fund. The
fund does not hold annual meetings of shareholders. However, significant
corporate matters which require shareholder approval, such as certain elections
of board members or a change in a fundamental investment policy, will be
presented to shareholders at a meeting called for such purpose. Shareholders
have one vote per share owned.
THE INVESTMENT ADVISER
Capital Research and Management Company, a large and experienced investment
management organization founded in 1931, is the investment adviser to the fund
and other funds, including those in The American Funds Group. Capital Research
and Management Company, a wholly owned subsidiary of The Capital Group
Companies, Inc., is headquartered at 333 South Hope Street, Los Angeles, CA
90071. Capital Research and Management Company manages the investment portfolio
and business affairs of the fund. The management fee paid by the fund to
Capital Research and Management Company is composed of a 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 as a percentage of average net assets for
the previous fiscal year is listed above under "Expenses."
Capital Research and Management Company and its affiliated companies have
adopted a personal investing policy that is consistent with the recommendations
contained in the May 9, 1994 report issued by the Investment Company
Institute's Advisory Group on Personal Investing. (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.
10 LIMITED TERM TAX-EXEMPT BOND FUND OF AMERICA / PROSPECTUS 1996
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PLAN OF DISTRIBUTION
The fund has a Plan of Distribution or "12b-1 Plan" under which it may finance
activities primarily intended to sell shares, provided the categories of
expenses are approved in advance by the board and the expenses paid under the
plan were incurred within the preceding 12 months and accrued while the plan is
in effect. The 12b-1 fee paid by the fund as a percentage of average net assets
for the 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.
LIMITED TERM TAX-EXEMPT BOND FUND OF AMERICA / PROSPECTUS 1996 11
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PRINCIPAL UNDERWRITER AND TRANSFER AGENT
American Funds Distributors, Inc. and American Funds Service Company serve as
the principal underwriter and transfer agent for the fund, respectively. They
are headquartered at 333 South Hope Street, Los Angeles, CA 90071 and 135 South
State College Boulevard, Brea, CA 92821, respectively.
AMERICAN FUNDS SERVICE COMPANY SERVICE AREAS
[MAP OF UNITED STATES OF AMERICA]
12 LIMITED TERM TAX-EXEMPT BOND FUND OF AMERICA / PROSPECTUS 1996
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SHAREHOLDER SERVICES
The fund offers you a valuable array of services you can use to alter your
investment program as your needs and circumstances change. These services,
which are summarized below, are available only in states where they may be
legally offered and may be terminated or modified at any time upon 60 days'
written notice. A COMPLETE DESCRIPTION OF SHAREHOLDER SERVICES AND ACCOUNT
POLICIES IS CONTAINED IN THE FUND'S STATEMENT OF ADDITIONAL INFORMATION. In
addition, an easy-to-read guide to owning a fund in The American Funds Group
titled "Welcome to the Family" is sent to new shareholders and is available by
writing or calling American Funds Service Company.
- --------------------------------------------------------------------------------
PURCHASING SHARES
HOW TO PURCHASE SHARES
You may open an account by contacting any investment dealer authorized to sell
the fund's shares. You may add to your account through your dealer or directly
through American Funds Service Company by mail, wire, or bank debit. You may
also establish or add to your account by exchanging shares from any of your
other accounts in The American Funds Group. The fund and American Funds
Distributors reserve the right to reject any purchase order.
Various purchase options are available as described below subject to certain
investment minimums and limitations described in the statement of additional
information and "Welcome to the Family."
X Automatic Investment Plan
You may invest monthly or quarterly through automatic withdrawals from your
bank account.
X Automatic Reinvestment
You may reinvest your dividends and capital gain distributions into the
fund (with no sales charge). This will be done automatically unless you
elect to have the dividends and/or capital gain distributions paid to you
in cash.
X Cross-Reinvestment
You may invest your dividend and capital gain distributions into any other
fund in The American Funds Group.
LIMITED TERM TAX-EXEMPT BOND FUND OF AMERICA / PROSPECTUS 1996 13
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X Exchange Privilege
You may exchange your shares into other funds in The American Funds Group
generally with no sales charge. Exchanges of shares from the money market
funds that were initially purchased with no sales charge will generally be
subject to the appropriate sales charge. You may also elect to
automatically exchange shares among any of the funds in The American Funds
Group. Exchange requests may be made in writing, by telephone including
American FundsLine(R) (see below) or by fax. EXCHANGES HAVE THE SAME TAX
CONSEQUENCES AS ORDINARY SALES AND PURCHASES.
X 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,
generally using market prices, by dividing the total value of its assets after
subtracting liabilities by the number of its shares outstanding. Shares are
purchased at the offering price next determined after your investment is
received and accepted by American Funds Service Company. The offering price is
the net asset value plus a sales charge, if applicable.
SHARE CERTIFICATES
Shares are credited to your account and certificates are not issued unless you
request them by writing to American Funds Service Company.
INVESTMENT MINIMUMS
<TABLE>
- -------------------------------
<S> <C>
To establish an account $1,000
To add to an account $ 50
</TABLE>
14 LIMITED TERM TAX-EXEMPT BOND FUND OF AMERICA / PROSPECTUS 1996
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SALES CHARGES
A sales charge may apply, as described below, when purchasing shares. Sales
charges may be reduced for larger purchases as indicated below.
<TABLE>
<CAPTION>
SALES CHARGE AS A
PERCENTAGE OF
..................
DEALER
NET CONCESSION AS
OFFERING AMOUNT % OF OFFERING
INVESTMENT PRICE INVESTED PRICE
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Less than $25,000 4.75% 4.99% 4.00%
.......................................................................
$25,000 but less than $50,000 4.50% 4.71% 3.75%
.......................................................................
$50,000 but less than $100,000 4.00% 4.17% 3.25%
.......................................................................
$100,000 but less than $250,000 3.50% 3.63% 2.75%
.......................................................................
$250,000 but less than $500,000 2.50% 2.56% 2.00%
.......................................................................
$500,000 but less than $1 million 2.00% 2.04% 1.60%
.......................................................................
$1 million or more and certain other
investments described below see below see below see below
</TABLE>
PURCHASES NOT SUBJECT TO SALES CHARGES
Investments of $1 million or more and investments made by employer-sponsored
defined contribution-type plans with 200 or more eligible employees are sold
with no initial sales charge. A 1% CONTINGENT DEFERRED SALES CHARGE MAY BE
IMPOSED ON CERTAIN REDEMPTIONS MADE WITHIN ONE YEAR OF PURCHASE BY THESE
ACCOUNTS. A dealer concession of up to 1% may be paid by the fund from its Plan
of Distribution on these investments. Investments by retirement plans with $100
million or more in assets may be made with no sales charge and are not subject
to a contingent deferred sales charge. A dealer concession of up to 1% may be
paid by American Funds Distributors on these investments. Investments by
certain individuals and entities including employees and other associated
persons of dealers authorized to sell shares of the fund and Capital Research
and Management Company and its affiliated companies are not subject to a sales
charge.
LIMITED TERM TAX-EXEMPT BOND FUND OF AMERICA / PROSPECTUS 1996 15
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ADDITIONAL DEALER COMPENSATION
In addition to the concessions listed, up to 0.25% of average net assets is
paid annually to qualified dealers for providing certain services pursuant to
the fund's Plan of Distribution. During 1997, American Funds Distributors will
also provide additional compensation to the top one hundred dealers who have
sold shares of funds in The American Funds Group based on the pro rata share of
a qualifying dealer's sales.
REDUCING YOUR SALES CHARGE
You and your immediate family may combine investments to reduce your costs. You
must let your investment dealer or American Funds Service Company know if you
qualify for a reduction in your sales charge using one or any combination of
the methods described below.
X Aggregation
Investments that may be aggregated include those made by you, your spouse
and your children under the age of 21, if all parties are purchasing shares
for their own account(s), including any business account solely "controlled
by", as well as any retirement plan or trust account solely for the
benefit, of these individuals. Investments made for multiple employee
benefit plans of a single employer or "affiliated" employers may be
aggregated provided they are not also aggregated with individual accounts.
Finally, investments made by a common trust fund or other diversified
pooled account not specifically formed for the purpose of accumulating fund
shares may be aggregated.
Purchases made for nominee or street name accounts will generally not be
aggregated with those made for other accounts unless qualified as described
above.
X Concurrent Purchases
You may combine concurrent purchases of two or more funds in The American
Funds Group, except direct purchases of the money market funds. Shares of
the money market funds purchased through an exchange, reinvestment or
cross-reinvestment from a fund having a sales charge do qualify.
X Right of Accumulation
You may take into account the current value of your existing holdings in
The American Funds Group to determine your sales charge. Direct purchases
of the money market funds are excluded.
16 LIMITED TERM TAX-EXEMPT BOND FUND OF AMERICA / PROSPECTUS 1996
<PAGE>
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X Statement of Intention
You may enter into a non-binding commitment to invest a certain amount in
non-money market fund shares over a 13-month period. A portion of your
account may be held in escrow to cover additional sales charges which may
be due if your total investments over the statement period are insufficient
to qualify for the applicable sales charge reduction.
- --------------------------------------------------------------------------------
SELLING SHARES
HOW TO SELL SHARES
You may sell (redeem) shares in your account by contacting your investment
dealer or American Funds Service Company. You may also use American
FundsLine(R) (see below). 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 15 days. Proceeds
will not be mailed until sufficient time has passed to provide reasonable
assurance that checks or drafts (including certified or cashier's check) for
shares purchased have cleared (which may take up to 15 calendar days from the
purchase date). Except for delays relating to clearance of checks for share
purchases or in extraordinary circumstances (and as permissible under the
Investment Company Act of 1940), sale proceeds will be paid on or before the
seventh day following receipt and acceptance of an order. The fund may, with 60
days' written notice, close your account if due to a sale of shares the account
has a value of less than the minimum required initial investment.
Generally, written requests to sell shares must be signed by you and must
include any shares you wish to sell that are in certificate form. Your
signature must be guaranteed by a bank, savings association, credit union, or
member firm of a domestic stock exchange or the National Association of
Securities Dealers, Inc., that is an eligible guarantor institution. A
signature guarantee is
LIMITED TERM TAX-EXEMPT BOND FUND OF AMERICA / PROSPECTUS 1996 17
<PAGE>
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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 15 days. Additional documentation may be required for sale of shares
held in corporate, partnership or fiduciary accounts.
You may reinvest proceeds from a redemption or a dividend or capital gain
distribution without a sales charge in any fund in The American Fund Group
within 90 days after the date of the redemption or distribution. Reinvestment
will be at the next calculated net asset value after receipt and acceptance by
American Funds Service Company.
- --------------------------------------------------------------------------------
OTHER IMPORTANT THINGS TO REMEMBER
AMERICAN FUNDSLINE(R)
You may check your share balance, the price of your shares, or your most recent
account transactions, sell shares (up to $10,000 per fund, per account each
day), or exchange shares around the clock with American FundsLine(R). To use
this service, call 800/325-3590 from a TouchTone(TM) telephone.
TELEPHONE PURCHASES, SALES AND EXCHANGES
Unless you opt out of the telephone (including American FundsLine(R)) or fax
purchase, sale and/or exchange options (see below), you agree to hold the fund,
American Funds Service Company, any of its affiliates or mutual funds managed
by such affiliates, and each of their respective directors, trustees, officers,
employees and agents harmless from any losses, expenses, costs or liability
(including attorney fees) which may be incurred in connection with the exercise
of these privileges provided. American Funds Service Company employs reasonable
procedures to confirm that the instructions received from any person with
appropriate account information are genuine. If reasonable procedures are not
employed, the fund may be liable for losses due to unauthorized or fraudulent
instructions.
Generally, all shareholders are automatically eligible to use these options.
However, you may elect to opt out of these options by writing American Funds
Service Company. (You may also reinstate them at any time by writing to
American Funds Service Company.)
ACCOUNT STATEMENTS
You will receive regular confirmation statements reflecting transactions in
your account. Purchases through automatic investment plans and certain
retirement plans will be confirmed at least quarterly.
18 LIMITED TERM TAX-EXEMPT BOND FUND OF AMERICA / PROSPECTUS 1996
<PAGE>
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NOTES
LIMITED TERM TAX-EXEMPT BOND FUND OF AMERICA / PROSPECTUS 1996 19
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NOTES
20 LIMITED TERM TAX-EXEMPT BOND FUND OF AMERICA / PROSPECTUS 1996
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NOTES
LIMITED TERM TAX-EXEMPT BOND FUND OF AMERICA / PROSPECTUS 1996 21
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NOTES
PHONE NUMBERS TO CALL FOR SERVICE AND INFORMATION
Call American Funds Call American Funds Call American
Service Company Distributors FundsLine(R)
for shareholder services for dealer services for 24-hour
800/421-0180 ext. 1 800/421-9900 ext. 11 information
800/325-3590
Telephone conversations may be recorded or monitored for verification,
recordkeeping and quality assurance purposes.
This prospectus has been printed on recycled paper using soy-based ink.
[LOGO OF RECYCLED PAPER]
22 LIMITED TERM TAX-EXEMPT BOND FUND OF AMERICA / PROSPECTUS 1996
<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.
Description of Certain Securities and Investment Techniques 1
Investment Restrictions 6
Fund Officers and Trustees 8
Management 11
Dividends and Distributions 14
Additional Information Concerning Taxes 14
Purchase of Shares 18
Redeeming Shares 24
Shareholder Account Services and Privileges 25
Redemption of Shares 27
Execution of Portfolio Transactions 27
General Information 27
Investment Results 29
Description of Ratings for Debt Securities 31
Financial Statements attached
</TABLE>
DESCRIPTION OF CERTAIN SECURITIES AND INVESTMENT TECHNIQUES
The descriptions below are intended to supplement the material in the
prospectus under "Investment Policies and Risks."
INVESTMENT POLICIES -- 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 Ba by Moody's and BB by S&P
or below or unrated but of comparable quality, commonly known as high-yield,
high-risk" or "junk" 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 political and corporate
developments. During an economic downturn or substantial period of rising
interest rates, highly leveraged issuers may experience financial stress that
would adversely affect their ability to service their principal and interest
payment obligations, to meet projected business goals, and to obtain additional
financing. If the issuer of a bond 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 and the fund's net asset value. From time to time legislation has been
proposed that would limit the use of high-yield, high-risk bonds in certain
instances. The impact that such legislation, if enacted, could have on the
market for such bonds cannot be predicted.
PAYMENT EXPECTATIONS -- High-yield, high-risk bonds may contain redemption or
call provisions. If an issuer exercised these provisions in a declining
interest rate market, the fund would have to replace the security with a lower
yielding security, resulting in a decreased return for investors. Conversely,
a high-yield, high-risk bond's value will decrease in a rising interest rate
market, as will the value of the fund's assets. If the fund experiences
unexpected net redemptions, this may force it to sell high-yield, high-risk
bonds without regard to their investment merits, thereby decreasing the asset
base upon which expenses can be spread and possibly reducing the fund's rate of
return.
LIQUIDITY AND VALUATION -- There may be little trading in the secondary market
for particular bonds, which may affect adversely the fund's ability to value
accurately or dispose of such bonds. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may decrease the
values and liquidity of high-yield, high-risk bonds, especially in a thin
market.
MUNICIPAL BONDS -- Municipal bonds are debt obligations generally issued to
obtain funds for various public purposes, including the construction of public
facilities. Municipal bonds may be used to refund outstanding obligations, to
obtain funds for general operating expenses or 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.
MUNICIPAL LEASE OBLIGATIONS -- The fund may invest without limitation 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.
WHEN-ISSUED SECURITIES AND FIRM COMMITMENT AGREEMENTS -- The fund may purchase
securities on a when issued or delayed delivery basis or sell them on a
delayed-delivery basis. These are trading practices in which payment and
delivery for the securities take place at a future date. When the fund
purchases such securities, it assumes the risk of any decline in value of the
security beginning on the date of the agreement or purchase. When the fund
sells such securities, it does not participate in further gains or losses with
respect to the security. If the other party to a delayed delivery transaction
fails to deliver or pay for the securities, the fund could miss a favorable
price or yield opportunity, or could experience a loss. The fund as purchaser
assumes the risk of any decline in value of the security beginning on the date
of the agreement or purchase. As the fund's aggregate commitments under these
transactions increase, the opportunity for leverage similarly increases.
The fund will identify liquid assets which will be marked to market daily in
an amount sufficient to meet its payment obligations in these transactions.
Although these transactions will not be entered into for leveraging purposes,
to the extent the fund's aggregate commitments under these transactions exceed
its segregated assets, the fund temporarily could be in a leveraged position
(because it may have an amount greater than its net assets subject to market
risk). Should market values of the fund's portfolio securities decline while
the fund is in a leveraged position, greater depreciation of its net assets
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.
PRIVATE PLACEMENTS -- Generally, municipal securities acquired in private
placements are subject to contractual restrictions on resales. Accordingly,
all private placements will be considered illiquid unless they have been
specifically determined to be liquid taking into account factors such as the
frequency and volume of trading and the commitment of dealers to make markets
under procedures adopted by the fund's board of trustees.
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 below).
REPURCHASE AGREEMENTS - Although the fund has no current intention to do so
during the next 12 months, the fund may enter on a temporary basis into
repurchase agreements, under which the fund buys a security and obtains a
simultaneous commitment from the seller to repurchase the security at a
specified time and price. The seller must maintain with the fund's custodian
collateral equal to at least 100% of the repurchase price including accrued
interest, as monitored daily by the Investment Adviser. The fund will only
enter into repurchase agreements involving securities in which it could
otherwise invest and with selected banks and securities dealers whose financial
condition is monitored by the Investment Adviser. If the seller under the
repurchase agreement defaults, the fund may incur a loss if the value of the
collateral securing the repurchase agreement has declined and may incur
disposition costs in connection with liquidating the collateral. If bankruptcy
proceedings are commenced with respect to the seller, liquidation of the
collateral by the fund may be delayed or limited.
PORTFOLIO MANAGEMENT -- In seeking to achieve the fund's objective, the
Investment Adviser causes the fund to purchase securities which it believes
represent the best values then currently available in the marketplace. Such
values are a function of yield, maturity, issue classification and quality
characteristics, coupled with expectations regarding the economy, movements in
the general level and term structure of interest rates, political developments,
and variations in the supply of funds available for investment in the
tax-exempt market relative to the demand for the funds placed upon it. These
latter factors change continuously and should be met with a dynamic, responsive
approach to the investment process. Some of the more important portfolio
management techniques that are utilized by the Investment Adviser are set forth
below.
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 3 to 10 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. The fund does not
anticipate its portfolio turnover to exceed 100% annually. The fund's
portfolio turnover rate would equal 100% if each security in the fund's
portfolio were replaced once per year. See "Financial Highlights" in the
prospectus for the fund's annual portfolio turnover over its lifetime.
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.
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. 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
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NAME, ADDRESS AND AGE POSITION PRINCIPAL AGGREGATE TOTAL TOTAL
WITH OCCUPATION(S) DURING COMPENSATION COMPENSATION NUMBER OF
REGISTRANT PAST 5 YEARS (INCLUDING FROM ALL FUNDS FUND BOARDS
(POSITIONS WITHIN VOLUNTARILY MANAGED BY ON WHICH
THE DEFERRED CAPITAL RESEARCH TRUSTEE
ORGANIZATIONS LISTED COMPENSATION AND MANAGEMENT SERVES/2/
MAY HAVE CHANGED /1/) FROM THE COMPANY/2/ FOR
DURING THIS PERIOD) TRUST DURING THE YEAR ENDED
FISCAL YEAR JULY 31, 1996
ENDED JULY
31, 1996
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++ H. Frederick Trustee Private Investor. $2,200/3/ $143,150 18
Christie The Mission Group
P.O. Box 144 (non-utility holding
Palos Verdes Estates, Company, subsidiary
CA 90274 of Southern
Age: 63 California Edison
Company), former
President and Chief
Executive Officer
Diane C. Creel Trustee CEO and President, $2,400 $37,750 12
100 W. Broadway The Earth Technology
Suite 5000 Corporation
Long Beach, CA 90802 (international
Age: 47 consulting
engineering)
Martin Fenton, Jr. Trustee Chairman, Senior $2,600/3/ $115,150 16
4350 Executive Drive Resource Group
Suite 101 (management of
San Diego, CA senior
92121-2116 living centers)
Age: 61
Leonard R. Fuller Trustee President, Fuller & $2,200 $40,150 12
4337 Marina City Company, Inc.
Drive (financial
Suite 841 ETN management
Marina del Rey, CA consulting firm)
90292
Age: 50
+* Abner D. Goldstine President, Capital Research and none/4/ none/4/ 12
Age: 66 PEO and Management Company,
Trustee Senior Vice
President
and Director
+** Paul G. Haaga, Jr. Chairman Capital Research and none/4/ none/4/ 14
Age: 47 of Management Company,
the Board Senior Vice
President
and Director
Herbert Hoover III Trustee Private Investor $2,000 $63,350 14
1520 Circle Drive
San Marino CA 91108
Age: 68
Richard G. Newman Trustee Chairman, President $2,600/3/ $62,150 13
3250 Wilshire and CEO, AECOM
Boulevard Technology
Los Angeles, CA Corporation
90010-1599 (architectural
Age: 61 engineering)
Peter Valli Trustee Chairman, BW/IP $2,400/3/ $38,350 12
45 Sea Isle Drive International Inc.
Long Beach, CA 90803 (industrial
Age: 69 manufacturing)
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+ 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 ($3,904), Martin Fenton, Jr. ($4,584), Richard
G. Newman ($8,671) and Peter C. Valli ($7,659). 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 $900 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. As of November 1, 1996, the officers and Trustees and
their families as a group owned beneficially or of record less than 1% of the
outstanding shares of the fund.
MANAGEMENT
INVESTMENT ADVISER -- The Investment Adviser, founded in 1931, maintains
research facilities in the U.S. and abroad (Los Angeles, San Francisco, New
York, Washington D.C., London, Geneva, Singapore, Hong Kong and Tokyo), with a
staff of professionals, many of whom have years of investment experience. The
Investment Adviser is located at 333 South Hope Street, Los Angeles, CA 90071,
and at 135 South State College Boulevard, Brea, CA 92821. The Investment
Adviser's research professionals travel several million miles a year, making
more than 5,000 research visits in more than 50 countries around the world.
The Investment Adviser believes that it is able to attract and retain quality
personnel. The Investment Adviser is a wholly owned subsidiary of The Capital
Group Companies, Inc.
An affiliate of the Investment Adviser compiles indices for major stock
markets around the world and compiles and edits the Morgan Stanley Capital
International Perspective, providing financial and market information about
more than 2,400 companies around the world.
The Investment Adviser is responsible for more than $100 billion of stocks,
bonds and money market instruments and serves over five million investors of
all types throughout the world. These investors include privately owned
businesses and large corporations, as well as schools, colleges, foundations
and other non-profit and tax-exempt organizations.
INVESTMENT ADVISORY AND SERVICE AGREEMENT -- The Investment Advisory and
Service Agreement (the "Agreement") between the fund and the Investment Adviser
will continue in effect until May 31, 1997, unless sooner terminated, and may
be renewed from year to year thereafter, provided that any such renewal has
been specifically approved at least annually by (i) the Board of 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 a fee, at an annual rate of 0.30% per annum on
the first $60 million of the fund's average 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%, and 7%, management fees
would be 0.33%, 0.36%, 0.39%, 0.42%, and 0.45%, 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.
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 0.74% 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 $817,000.
Fee waivers amounted to $207,000 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 $222,000 after allowance of $906,000 to dealers. During
the fiscal years ended 1995 and 1994, the Principal Underwriter received
$197,000 and $313,000, after allowance of $793,000 and $4,225,240,
respectively.
As required by rule 12b-1, the Plan (together with the Principal Underwriting
Agreement) has been approved by a majority of the entire Board of 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.). Only expenses incurred
during the preceding 12 months and accrued while the Plan is in effect may be
paid by the fund. During the period, the fund paid $602,000 under the Plan as
compensation to dealers. As of July 31, 1996, accrued and unpaid distribution
expenses were $49,000.
The Glass-Steagall Act and other applicable laws, among other things,
generally prohibit federally chartered or supervised banks from engaging in the
business of underwriting, selling or distributing securities, but permit banks
to make shares of mutual funds available to their customers and to perform
administrative and shareholder servicing functions. However, judicial or
administrative decisions or interpretations of such laws, as well as changes in
either federal or state statutes or regulations relating to the permissible
activities of banks or their subsidiaries 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 original issue discount or
market premium ratably amortized to the date of maturity or determined in such
other manner as may be deemed appropriate; minus (b) all liabilities accrued,
including interest, taxes and other expense items, amounts determined and
declared as dividends or distributions and reserves for contingent or
undetermined liabilities, all determined in accordance with generally accepted
accounting principles.
ADDITIONAL INFORMATION CONCERNING TAXES
The following is only a summary of certain additional federal, state and local
tax considerations generally affecting the fund and its shareholders. No
attempt is made to present a detailed explanation of the tax treatment of the
fund or its shareholders, and the discussion here and in the fund's prospectus
is not intended as a substitute for careful tax planning. Investors are urged
to consult their tax advisers with specific reference to their own tax
situations.
The fund is not intended to constitute a balanced investment program and is
not designed for investors seeking capital appreciation or maximum tax-exempt
income irrespective of fluctuations in principal. Shares of the fund would
generally not be suitable for tax-exempt institutions or tax-deferred
retirement plans (E.G., plans qualified under Section 401 of the Internal
Revenue Code, Keogh-type plans and individual retirement accounts.) Such
retirement plans would not gain any benefit from the tax-exempt nature of the
fund's dividends because such dividends would be ultimately taxable to
beneficiaries when distributed to them. In addition, the fund may not be an
appropriate investment for entities which are "substantial users" of facilities
financed by private activity bonds or "related persons" thereof. "Substantial
user" is defined under U.S. Treasury Regulations to include a non-exempt person
who regularly uses a part of such facilities in his trade or business and whose
gross revenues derived with respect to the facilities financed by the issuance
of bonds are more than 5% of the total revenues derived by all users of such
facilities, or who occupies more than 5% of the usable area of such facilities
or for whom such facilities or a part thereof were specifically constructed,
reconstructed or acquired. "Related persons" include certain related natural
persons, affiliated corporations, a partnership and its partners and an S
Corporation and its shareholders.
The fund intends to meet all the requirements and has elected the tax status
of a "regulated investment company" under the provisions of Subchapter M of the
Internal Revenue Code of 1986 (the "Code"). Under Subchapter M, if the fund
distributes within specified times at least 90% of its taxable and tax-exempt
net investment income, it will be taxed only on that portion, if any, which it
retains.
To qualify, the fund must (a) derive at least 90% of its gross income from
dividends, interest, payments with respect to securities loans, and gains from
the sale or other disposition of stock, securities, currencies, or other income
derived with respect to its business of investing in such stock, securities, or
currencies; (b) derive less than 30% of its gross income from the gains or sale
or other disposition of stock or securities held less than three months, and
(c) diversify its holdings so that, at the end of each fiscal quarter, (i) at
least 50% of the market value of the fund's assets is represented by cash, cash
items, U.S. Government securities, securities of other regulated investment
companies, and other securities which must be limited, in respect of any one
issuer to an amount not greater than 5% of the fund's assets and 10% of the
outstanding voting securities of such issuer, and (ii) not more than 25% of the
value of its assets is invested in the securities of any one issuer (other than
U.S. Government securities or the securities of other regulated investment
companies) or in two or more issuers which the fund controls and which are
engaged in the same or similar trades or businesses or related trades or
businesses.
The percentage of total dividends paid by the fund with respect to any taxable
year which qualify for exclusion from gross income ("exempt-interest
dividends") will be the same for all shareholders receiving dividends during
such year. In order for the fund to pay exempt-interest dividends during any
taxable year, at the close of each fiscal quarter at least 50% of the aggregate
value of the fund's assets must consist of tax-exempt obligations. Not later
than 60 days after the close of its taxable year, the fund will notify each
shareholder of the portion of the dividends paid by the fund to the shareholder
with respect to such taxable year which constitutes exempt-interest dividends.
The aggregate amount of dividends so designated cannot, however, exceed the
excess of the amount of interest excludable from gross income from tax under
Section 103 of the Code received by the fund during the taxable year over any
amounts disallowed as deductions under Sections 265 and 171(a)(2) of the Code.
Interest on indebtedness incurred by a shareholder to purchase or carry fund
shares is not deductible for federal income tax purposes if the fund
distributes exempt-interest dividends during the shareholder's taxable year.
If a shareholder receives an exempt-interest dividend with respect to any share
and such share is held for six months or less, any loss on the sale or exchange
of such share will be disallowed to the extent of the amount of such
exempt-interest dividend.
While the fund does not expect to realize substantial long-term capital gains,
any net realized long-term capital gains will be distributed annually. The
fund will have no tax liability with respect to such gains, and the
distributions will be taxable to shareholders as long-term capital gains,
regardless of how long a shareholder has held fund shares. Such distributions
will be designated as a capital gains distribution in a written notice mailed
by the fund to shareholders not later than 60 days after the close of the
fund's taxable year. If a shareholder receives a designated capital gain
distribution (treated by the shareholder as a long-term capital gain) with
respect to any fund share and such fund share is held for six months or less,
then (unless otherwise disallowed) any loss on the sale or exchange of that
fund share will be treated as long-term capital loss to the extent of the
designated capital gain distribution. The fund also may make a distribution of
net realized long-term capital gains near the end of the calendar year to
comply with certain requirements of the Code. Gain recognized on the
disposition of a debt obligation (including tax-exempt obligations purchased
after April 30, 1993) purchased by the fund at a market discount (generally at
a price less than its principal amount) will be treated as ordinary income to
the extent of the portion of the market discount which accrued during the
period of time the fund held the debt obligation.
Similarly, while the fund does not expect to earn any significant investment
company taxable income in the event that any taxable income is earned by the
fund it will be distributed. In general, the fund's investment company taxable
income will be its taxable income subject to certain adjustments and excluding
the excess of any net long-term capital gain for the taxable year over the net
short-term capital loss, if any, for such year. The fund would be taxed on any
undistributed investment company taxable income. Since any such income will be
distributed, it will be taxable to shareholders as ordinary income (whether
distributed in cash or additional shares).
The Code imposes limitations on the use and investment of the proceeds of
state and local governmental bonds and upon other funds of the issuers of such
bonds. These limitations must be satisfied on a continuing basis to maintain
the exclusion from gross income of interest on such bonds. These provisions of
the Code generally apply to bonds issued after August 15, 1986. Bond counsel
qualify their opinions as to the federal tax status of new issues of bonds by
making such opinions contingent on the issuer's future compliance with these
limitations. Any failure on the part of an issuer to comply could cause the
interest on its bonds to become taxable to investors retroactive to the date
the bonds were issued.
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 39.6%
(effective tax rates may be higher for some individuals due to phase out of
exemptions and elimination of deductions); the maximum individual tax rate
applicable to net capital gains is 28%; and the maximum corporate tax
applicable to ordinary income and net capital gains is 35%. However, to
eliminate the benefit of lower marginal corporate income tax rates,
corporations which have taxable income in excess of $100,000 for a taxable year
will be required to pay an additional amount of 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
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METHOD INITIAL INVESTMENT ADDITIONAL INVESTMENTS
See "Investment Minimums and $50 minimum (except where a lower
Fund Numbers" for initial minimum is noted under "Investment
investment minimums. Minimums and Fund Numbers").
By contacting Visit any investment dealer who Mail directly to your investment
your is registered in the state where dealer's address printed on your
investment the purchase is made and who account statement.
dealer has a sales agreement with
American Funds Distributors.
By mail Make your check payable to the Fill out the account additions form at the
fund and mail to the address bottom of a recent account statement, make
indicated on the account your check payable to the fund, write your
application. Please indicate an account number on your check, and mail
investment dealer on the account the check and form in the envelope
application. provided with your account statement.
By telephone Please contact your investment Complete the "Investments by Phone"
dealer to open account, then section on the account application or
follow the procedures for American FundsLink Authorization Form.
additional investments. Once you establish the privilege, you, your
financial advisor or any person with your
account information can call American
FundsLine(R) and make investments by
telephone (subject to conditions noted in
"Telephone Purchases, Redemptions and
Exchanges" below).
By wire Call 800/421-0180 to obtain Your bank should wire your additional
your account number(s), if investments in the same manner as
necessary. Please indicate an described under "Initial Investment."
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.
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PRICE OF SHARES -- Purchases of shares are made at the offering price next
determined after the purchase order is received by the fund or American Funds
Service Company; this offering price is effective for orders received prior to
the time of determination of the net asset value and, in the case of orders
placed with dealers, accepted by the Principal Underwriter prior to its close
of business. In the case of orders sent directly to the fund or American Funds
Service Company, an investment dealer MUST be indicated. The dealer is
responsible for promptly transmitting purchase orders to the Principal
Underwriter. Orders received by the investment dealer, the Transfer Agent, or
the fund after the time of the determination of the net asset value will be
entered at the next calculated offering price. Prices which appear in the
newspaper are not always indicative of prices at which you will be purchasing
and redeeming shares of the fund, since such prices generally reflect the
previous day's closing price whereas purchases and redemptions are made at the
next calculated 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):
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FUND MINIMUM FUND
INITIAL NUMBER
INVESTMENT
STOCK AND STOCK/BOND FUNDS
AMCAP Fund(R) 02
$1,000
American Balanced Fund(R) 11
500
American Mutual Fund(R) 03
250
Capital Income Builder(R) 12
1,000
Capital World Growth and Income Fund(SM) 33
1,000
EuroPacific Growth Fund(R) 16
250
Fundamental Investors(SM) 10
250
The Growth Fund of America(R) 05
1,000
The Income Fund of America(R) 06
1,000
The Investment Company of America(R) 04
250
The New Economy Fund(R) 14
1,000
New Perspective Fund(R) 07
250
SMALLCAP World Fund(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.)
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AMOUNT OF PURCHASE SALES CHARGE AS DEALER
AT THE OFFERING PRICE PERCENTAGE OF THE: CONCESSION
AS PERCENTAGE
OF THE
OFFERING
PRICE
NET AMOUNT OFFERING
INVESTED PRICE
STOCK AND STOCK/BOND FUNDS
Less than $50,000 6.10%
5.75% 5.00%
$50,000 but less than $100,000
4.71 4.50 3.75
BOND FUNDS
Less than $25,000
4.99 4.75 4.00
$25,000 but less than $50,000
4.71 4.50 3.75
$50,000 but less than $100,000
4.17 4.00 3.25
STOCK, STOCK/BOND, AND BOND FUNDS
$100,000 but less than $250,000
3.63 3.50 2.75
$250,000 but less than $500,000
2.56 2.50 2.00
$500,000 but less than $1,000,000
2.04 2.00 1.60
$1,000,000 or more
none none (see below)
</TABLE>
Commissions 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 1997, provide additional compensation
to dealers. Currently these payments are limited to the top one hundred dealers
who have sold shares of the fund or other funds in The American Funds Group.
These payments will be based on a pro rata share of a qualifying dealer's
sales. American Funds Distributors will, on an annual basis, determine the
advisability of continuing these payments.
Any employer-sponsored 403(b) plan or defined contribution plan qualified
under Section 401(a) of the Internal Revenue Code including a "401(k)" plan
with 200 or more eligible employees or any other purchaser investing at least
$1 million in shares of the fund (or in combination with shares of other funds
in The American Funds Group other than the money market funds) may purchase
shares at net asset value; however, a contingent deferred sales charge of 1% is
imposed on certain redemptions made within twelve months of the purchase. (See
"Redeeming Shares--Contingent Deferred Sales Charge.")
Qualified dealers currently are paid a continuing service fee not to exceed
0.25% of average net assets (0.15% in the case of the money market funds)
annually in order to promote selling efforts and to compensate them for
providing certain services. These services include processing purchase and
redemption transactions, establishing shareholder accounts and providing
certain information and assistance with respect to the fund.
NET ASSET VALUE PURCHASES -- The stock, stock/bond and bond funds may sell
shares at net asset value to: (1) current or retired directors, trustees,
officers and advisory board members of the funds managed by Capital Research
and Management Company, employees of Washington Management Corporation,
employees and partners of The Capital Group Companies, Inc. and its affiliated
companies, certain family members of the above persons, and trusts or plans
primarily for such persons; (2) current registered representatives, retired
registered representatives with respect to accounts established while active,
or full-time employees (and their spouses, parents, and children) of dealers
who have sales agreements with American Funds Distributors (or who clear
transactions through such dealers) and plans for such persons or the dealers;
(3) companies exchanging securities with the fund through a merger, acquisition
or exchange offer; (4) trustees or other fiduciaries purchasing shares for
certain retirement plans of organizations with retirement plan assets of $100
million or more; (5) insurance company separate accounts; (6) accounts managed
by subsidiaries of The Capital Group Companies, Inc.; and (7) The Capital Group
Companies, Inc., its affiliated companies and Washington Management
Corporation. Shares are offered at net asset value to these persons and
organizations due to anticipated economies in sales effort and expense.
AGGREGATION -- Sales charge discounts are available for certain aggregated
investments. Qualifying investments include those by you, your spouse and your
children under the age of 21, if all parties are purchasing shares for their
own account(s), which may include purchases through employee benefit plan(s)
such as an IRA, individual-type 403(b) plan or single-participant Keogh-type
plan or by a business solely controlled by these individuals (for example, the
individuals own the entire business) or by a trust (or other fiduciary
arrangement) solely for the benefit of these individuals. Individual purchases
by a trustee(s) or other fiduciary(ies) may also be aggregated if the
investments are (1) for a single trust estate or fiduciary account, including
an employee benefit plan other than those described above or (2) made for two
or more employee benefit plans of a single employer or of affiliated employers
as defined in the Investment Company Act of 1940, again excluding employee
benefit plans described above, or (3) for a diversified common trust fund or
other diversified pooled account not specifically formed for the purpose of
accumulating fund shares. Purchases made for nominee or street name accounts
(securities held in the name of an investment dealer or another nominee such as
a bank trust department instead of the customer) may not be aggregated with
those made for other accounts and may not be aggregated with other nominee or
street name accounts unless otherwise qualified as described above.
REDEEMING SHARES
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By writing to American Funds Send a letter of instruction specifying the name of the fund, the
Service Company (at the number of shares or dollar amount to be sold, your name and
appropriate address indicated account number. You should also enclose any share certificates
under "Fund Organization and you wish to redeem. For redemptions over $50,000 and for
Management - Principal certain redemptions of $50,000 or less (see below), your
Underwriter and Transfer signature must be guaranteed by a bank, savings association,
Agent" in the prospectus) 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 may be
dealer charged for this service. SHARES HELD FOR YOU IN YOUR
INVESTMENT DEALER'S STREET NAME MUST BE REDEEMED THROUGH THE
DEALER.
You may have a redemption You may use this option, provided the account is registered in the
check sent to you by using name of an individual(s), a UGMA/UTMA custodian, or a non-
American FundsLine(R) or by retirement plan trust. These redemptions may not exceed
telephoning, faxing, or $10,000 per day, per fund account and the check must be made
telegraphing American Funds payable to the shareholder(s) of record and be sent to the address
Service Company (subject to of record provided the address has been used with the account for
the conditions noted in this at least 10 days. See "Transfer Agent" and "Exchange Privilege"
section and in "Telephone below for the appropriate telephone or fax number.
Purchases, Redemptions and
Exchanges" below)
In the case of the money Upon request (use the account application for the money market
market funds, you may have funds) you may establish telephone redemption privileges (which
redemptions wired to your will enable you to have a redemption sent to your bank account)
bank by telephoning American and/or check writing privileges. If you request check writing
Funds Service Company privileges, you will be provided with checks that you may use to
($1,000 or more) or by draw against your account. These checks may be made payable
writing a check ($250 or to anyone you designate and must be signed by the authorized
more) 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 dates you select. Bank accounts will be
charged on the day or a few days before investments are credited, depending on
the bank's capabilities, and shareholders will receive a confirmation statement
at least quarterly. Participation in the plan will begin within 30 days after
receipt of the account application. If the shareholder's bank account cannot
be charged due to insufficient funds, a stop-payment order or closing of the
account, the plan may be terminated and the related investment reversed. The
shareholder may change the amount of the investment or discontinue the plan at
any time by writing to the Transfer Agent.
AUTOMATIC REINVESTMENT --Dividends and capital gain distributions are
reinvested in additional shares at no sales charge unless you indicate
otherwise on the account application. You also may elect to have dividends
and/or capital gain distributions paid in cash by informing the fund, American
Funds Service Company or 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 and certain retirement 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 FundsLine(R) are subject
to the conditions noted above and in "Redeeming Shares--Telephone Redemptions
and Exchanges" below. You will need your fund number (see the list of funds in
The American Funds Group under "Purchase of Shares--Investment Minimums and
Fund Numbers"), personal identification number (the last four digits of your
Social Security number or other tax identification number associated with your
account) and account number.
TELEPHONE REDEMPTIONS AND EXCHANGES -- By using the telephone (including
American FundsLine(R)), fax or telegraph redemption and/or exchange options,
you agree to hold the fund, American Funds Service Company, any of its
affiliates or mutual funds managed by such affiliates, and each of their
respective directors, trustees, officers, employees and agents harmless from
any losses, expenses, costs or liability (including attorney fees) which may be
incurred in connection with the exercise of these privileges. Generally, all
shareholders are automatically eligible to use these options. However, you may
elect to opt out of these options by writing American Funds Service Company
(you may reinstate them at any time also by writing American Funds Service
Company). If American Funds Service Company does not employ reasonable
procedures to confirm that the instructions received from any person with
appropriate account information are genuine, the fund may be liable for losses
due to unauthorized or fraudulent instructions. In the event that shareholders
are unable to reach the fund by telephone because of technical difficulties,
market conditions, or a natural disaster, redemption and exchange requests may
be made in writing only.
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, 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. It was paid a fee of
$83,000 for the fiscal year ended July 31, 1996.
AMERICAN FUNDS SERVICE COMPANY SERVICE AREAS
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SERVICE AREA ADDRESS AREAS SERVED
WESTERN P.O. Box 2205 AK, AZ, CA, HI, ID, MT, NV, OR,
Brea, CA 92822-2205 UT, WA and outside the U.S.
Fax: 714/671-7080
WESTERN- P.O. Box 659522 AR, CO, IA, KS, LA, MN, MO, ND,
CENTRAL San Antonio, TX 78265-9522 NE, NM, OK, SD, TX and WY
Fax: 210/530-4050
EASTERN- P.O. Box 6007 AL, IL, IN, KY, MI, MS, OH, TN and
CENTRAL Indianapolis, IN 46206-6007 WI
Fax: 317/735-6620
EASTERN P.O. Box 2280 CT, DE, FL, GA, MA, MD, ME, NC,
Norfolk, VA 23501-2280 NH, NJ, NY, PA, RI, SC, VA, VT,
Fax: 804/670-4773 WV and Washington, D.C.
All shareholders may call American Funds Service Company at 800/421-0180 for service.
</TABLE>
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, financial statements and other information audited
annually by the fund's independent accountants, Price Waterhouse LLP, whose
selection is determined annually by the Board of 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>
DETERMINATION OF NET ASSET VALUE, REDEMPTION PRICE AND
MAXIMUM OFFERING PRICE PER SHARE -- JULY 31, 1996
<S> <C>
Net asset value and redemption price per share
(Net assets divided by shares outstanding) $ 14.36
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) $ 15.08
</TABLE>
INVESTMENT RESULTS
The fund's yield is 4.49% 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 7.43%.
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 0.40% and 3.15%,
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 4.54%.
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>
<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>
<PAGE>
<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>
<PAGE>
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.
<PAGE>
<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.
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.
