<PAGE>
LIMITED TERM TAX-EXEMPT BOND FUND OF AMERICA
Part B
Statement of Additional Information
October 1, 1998
as amended August 1, 1999
This document is not a prospectus but should be read in conjunction with the
current prospectus dated October 1, 1998 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
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ITEM PAGE NO.
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<S> <C>
Certain Investment Limitations 1
Description of Certain Securities and Investment Techniques 2
Investment Restrictions 7
Fund Organization 9
Fund Officers and Trustees 10
Management 14
Dividends and Distributions 16
Additional Information Concerning Taxes 17
Purchase of Shares 20
Selling Shares 26
Shareholder Account Services and Privileges 28
Execution of Portfolio Transactions 30
General Information 30
Investment Results and Related Statistics 32
Description of Ratings for Debt Securities 35
Financial Statements attached
</TABLE>
CERTAIN INVESTMENT LIMITATIONS
The following limitations and guidelines are considered at the time of
purchase, under normal market conditions, and are based on a percentage of the
fund's net assets unless otherwise noted. This summary is not intended to
reflect all of the fund's investment limitations.
TAX-EXEMPT SECURITIES
- - The fund will invest at least 80% of its assets in tax-exempt securities.
DEBT SECURITIES
- - The fund may invest up to 20% of its assets in securities subject to federal
alternative minimum tax.
- - The fund will invest at least 65% of its assets in debt securities rated A or
better or unrated but determined to be of equivalent quality.
- - The fund may invest up to 35% of its assets in debt securities rated BBB/Baa
or unrated but determined to be of equivalent quality.
BONDS
- - The fund will invest at least 65% of its assets in bonds (any debt securities
having initial maturities in excess of one year).
MATURITY
- - The dollar-weighted average effective maturity of the fund's portfolio will
be between 3 and 10 years.
- - The maximum dollar-weighted average nominal or stated maturity of the fund's
portfolio will be 15 years.
- - The maximum effective maturity of any one security in the fund's portfolio
will be 10 years.
- - The maximum nominal or stated maturity of any security in the fund's
portfolio will be 25 years.
DESCRIPTION OF CERTAIN SECURITIES AND INVESTMENT TECHNIQUES
The descriptions below are intended to supplement the material in the
prospectus under "Investment Policies and Risks."
DEBT SECURITIES -- Bonds and other debt securities are used by issuers to
borrow money. Issuers pay investors interest and generally must repay the
amount borrowed at maturity. Some debt securities, such as zero coupon bonds,
do not pay current interest, but are purchased at a discount from their face
values. The prices of debt securities fluctuate depending on such factors as
interest rates, credit quality, and maturity. In general their prices decline
when interest rates rise
and vice versa.
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 effective 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.
The fund intends to invest in debt 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.)
The fund may invest in debt securities rated Baa or BBB by Moody's or S&P or
in unrated securities that are determined to be of equivalent quality by
Capital Research and Management Company. These securities are considered
"investment grade" but also may have speculative characteristics. 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.
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.
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. A
high-yield, high-risk bond's value will decrease in a rising interest rate
market, as will the value of the fund's assets.
LIQUIDITY AND VALUATION -- There may be little trading in the secondary market
for particular bonds, which may affect adversely the fund's ability to value
accurately or dispose of such bonds. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may decrease the
values and liquidity of high-yield, high-risk bonds, especially in a thin
market.
MUNICIPAL BONDS -- Municipal bonds are debt obligations generally issued to
obtain funds for various public purposes, including the construction of public
facilities. 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
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.
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.
ZERO COUPON BONDS -- Municipalities may issue zero coupon securities which are
debt obligations that do not entitle the holder to any periodic payments of
interest prior to maturity or a specified date when the securities begin paying
current interest. They are issued and traded at a discount from their face
amount or par value, which discount varies depending on the time remaining
until cash payments begin, prevailing interest rates, liquidity of the
security, and the perceived credit quality of the issuer.
PRE-REFUNDED BONDS -- From time to time, a municipality may refund a bond that
it has already issued prior to the original bond's call date by issuing a
second bond, the proceeds of which are used to purchase securities. The
securities are placed in an escrow account pursuant to an agreement between the
municipality and an independent escrow agent. The principal and interest
payments on the securities are then used to pay off the original bondholders.
For the purposes of diversification, pre-refunded bonds will be treated as
governmental issues.
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 interest
rates change. The rate adjustment feature tends to limit the extent to which
the market value of the obligation will fluctuate.
FORWARD COMMITMENTS -- The fund may enter into commitments to purchase or sell
securities at a future date. When the fund agrees to purchase such securities,
it assumes the risk of any decline in value of the security beginning on the
date of the agreement. When the fund agrees to sell such securities, it does
not participate in further gains or losses with respect to the securities
beginning on the date of the agreement. If the other party to such transaction
fails to deliver or pay for the securities, the fund could miss a favorable
price or yield opportunity, or could experience a loss.
As the fund's aggregate commitments under these transactions increase, the
opportunity for leverage similarly increases. The fund will not use these
transactions for the purpose of leveraging and will segregate liquid assets
which will be marked to market daily in 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.
RESTRICTED SECURITIES AND ILLIQUIDITY -- The fund may purchase securities
subject to restrictions on resale. All such securities whose principal trading
market is in the U.S. will be considered illiquid unless they have been
specifically determined to be liquid under procedures which have been adopted
by the fund's board of directors, taking into account factors such as the
frequency and volume of trading, the commitment of dealers to make markets and
the availability of qualified investors, all of which can change from time to
time. The fund may incur certain additional costs in disposing of illiquid
securities.
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; (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).
SECURITIES SUBJECT TO ALTERNATIVE MINIMUM TAXES -- The fund may invest up to
20% of its assets in tax-exempt securities believed to pay interest
constituting an item of tax preference subject to alternative minimum taxes;
therefore, while the fund's distributions from tax-exempt securities are not
subject to regular federal income tax, a portion or all may be included in
determining a shareholder's federal alternative minimum tax.
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.
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 the Investment Company Act
of 1940 ("1940 Act") as the vote of the lesser of (i) 67% or more of the
outstanding voting securities present at a meeting, if the holders of more than
50% of the outstanding voting securities are present in person or by proxy, or
(ii) more than 50% of the outstanding voting securities. All percentage
limitations expressed in the following investment restrictions are measured
immediately after and giving effect to the relevant 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 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
invest more than 5% of its net assets in restricted securities (excluding Rule
144A securities).
5. The fund does not currently intend (at least for the next 12 months) to
purchase securities in the event its borrowings exceed 5%.
6. 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.
7. 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 ORGANIZATION
The fund is an open-end, diversified management investment company. It was
organized as a Massachusetts business trust on July 12, 1993.
All fund operations are supervised by the fund's board of trustees. The board
meets periodically and performs 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 "Trustees and Trustee Compensation" below.
FUND OFFICERS AND TRUSTEES
Trustees and Trustee Compensation
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NAME, POSITION PRINCIPAL AGGREGATE TOTAL TOTAL
ADDRESS WITH OCCUPATION(S) COMPENSATION COMPENSATION NUMBER
AND AGE REGISTRANT DURING PAST 5 (INCLUDING (INCLUDING OF FUND
YEARS (POSITIONS VOLUNTARILY VOLUNTARILY BOARDS ON
WITHIN THE DEFERRED DEFERRED WHICH
ORGANIZATIONS COMPENSATION COMPENSATION TRUSTEE
LISTED MAY HAVE /1/) FROM THE /1/ FROM ALL SERVES /2/
CHANGED DURING FUND DURING FUNDS MANAGED
THIS PERIOD) FISCAL YEAR BY CAPITAL
ENDED 7/31/98 RESEARCH AND
MANAGEMENT
COMPANY OR ITS
AFFILIATES /2/
FOR THE YEAR
ENDED 7/31/98
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H. Frederick Christie Trustee Private Investor. $2,611/3/ $171,100 18
P.O. Box 144 Former President
Palos Verdes Estates, and Chief
CA 90274 Executive
Age: 65 Officer, The
Mission Group
(non-utility
holding Company,
subsidiary of
Southern
California Edison
Company)
+Don R. Conlan Trustee President none/4/ none/4/ 12
Age: 62 (Retired), The
Capital Group
Companies, Inc.
Diane C. Creel Trustee CEO and $2,500/3/ $44,650 12
100 W. Broadway President,
Suite 5000 The Earth
Long Beach, CA 90802 Technology
Age: 49 Corporation
(international
consulting
engineering)
Martin Fenton, Jr. Trustee Chairman, Senior $3,025/3/ $122,684 16
4660 La Jolla Village Resource Group,
Drive LLC (management
Suite 725 of senior living
San Diego, CA 92122 centers)
Age: 63
Leonard R. Fuller Trustee President, Fuller $2,666/3/ $51,850 12
4337 Marina City Drive Consulting
Suite 841 ETN (financial
Marina del Rey, CA management
90292 consulting firm)
Age: 52
+*Abner D. Goldstine President, Capital Research none/4/ none/4/ 12
Age: 68 PEO and and Management
Trustee Company, Senior
Vice President
and Trustee
+**Paul G. Haaga, Jr. Chairman Capital Research none/4/ none/4/ 14
Age: 49 of and Management
the Board Company,
Executive Vice
President
and Trustee
Herbert Hoover III Trustee Private Investor $2,443 $66,684 13
1520 Circle Drive
San Marino CA 91108
Age: 70
Richard G. Newman Trustee Chairman, $3,054/3/ $102,250 13
3250 Wilshire President and
Boulevard CEO,
Los Angeles, CA 90010- AECOM Technology
1599 Corporation
Age: 63 (architectural
engineering)
</TABLE>
+ Trustees who are considered "interested persons as defined in the Investment
Company Act of 1940, as amended (the "1940 Act"), on
the basis of their affiliation with the fund's Investment Adviser, Capital
Research and Management Company.
* 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 29 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., New World 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 Endowments, whose shareholders are
limited to (i) any entity exempt from taxation under Section 501(c)(3) of the
Internal Revenue Code of 1986, as amended ("501(c)(3) organization"); (ii) any
trust, the present or future beneficiary of which is a 501(c)(3) organization,
and (iii) any other entity formed for the primary purpose of benefiting a
501(c)(3) organization. An affiliate of Capital Research and Management
Company, Capital International, Inc., manages Emerging Markets Growth Fund,
Inc.
/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 ($5,908), Diane C. Creel ($494), Martin Fenton,
Jr. ($7,979), Leonard R. Fuller ($2,235) and Richard G. Newman ($20,161).
Amounts deferred and accumulated earnings thereon are not funded and are
general unsecured liabilities of the fund until paid to the Trustee.
/4/ Don R. Conlan, Paul G. Haaga, Jr. and Abner D. Goldstine are affiliated
with the Investment Adviser and, accordingly, receive no compensation from the
Fund.
OFFICERS
(with their principal occupations during the past five years)#
<TABLE>
<CAPTION>
NAME AND ADDRESS AGE POSITION(S) HELD PRINCIPAL OCCUPATION(S)
WITH REGISTRANT DURING PAST 5 YEARS
<S> <C> <C> <C>
Neil L. Langberg 45 Senior Vice Vice President - Investment
11100 Santa Monica Blvd. President Management Group, Capital
Los Angeles, CA 90025 Research and Management
Company
Mark R. Macdonald 39 Senior Vice Vice President - Investment
11100 Santa Monica Blvd. President Management Group, Capital
Los Angeles, CA 90025 Research and Management
Company
Michael J. Downer 43 Vice President Senior Vice President -
333 South Hope Street Fund Business Management
Los Angeles, CA 90071 Group, Capital Research and
Management Company
Brenda S. Ellerin 35 Vice President Vice President - Capital
11100 Santa Monica Blvd. Research Company
Los Angeles, CA 90025
Julie F. Williams 50 Secretary Vice President - Fund
333 South Hope Street Business Management Group,
Los Angeles, CA 90071 Capital Research and
Management Company
Anthony W. Hynes, Jr. 35 Treasurer Vice President - Fund
135 South State College Business Management Group,
Blvd. Capital Research and
Brea, CA 92821 Management Company
Kimberly S. Verdick 33 Assistant Assistant Vice President -
333 South Hope Street Secretary Fund Business Management
Los Angeles, CA 90071 Group, Capital Research and
Management Company
Todd L. Miller 39 Assistant Assistant Vice President -
135 South State College Treasurer Fund Business Management
Blvd. Group, Capital Research and
Brea, CA 92821 Management Company
</TABLE>
# Positions within the organizations listed may have changed during this
period.
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 September 1, 1998, 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 $175 billion of stocks,
bonds and money market instruments and serves over eight 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, 1999, 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 $300
million and gross income levels of 3%, 4%, 5%, 6%, and 7%, management fees
would be 0.32%, 0.35%, 0.38%, 0.41% and 0.44%, 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, and 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;
costs of stationery and forms prepared exclusively for the fund; and costs of
assembling and storing shareholder account data.
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. For the fiscal
years ended July 31, 1998, 1997 and 1996, the Investment Adviser's total fees
amounted to $830,000, $815,000 and $817,000, respectively. Fee waivers
amounted to $$169,000 for the year ended July 31, 1998.
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, 1998 amounted to $113,000 after allowance of $463,000 to dealers. During
the fiscal years ended 1997 and 1996, the Principal Underwriter received
$155,000 and $222,000, after allowance of $625,000 and $906,000, respectively.
As required by rule 12b-1, the Plan (together with the Principal Underwriting
Agreement) has been approved by a majority of the entire Board of 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. Plan expenditures are 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, any defined contribution plan qualified under
Section 401(a) of the Internal Revenue Code including a "401(k)" plan with 100
or more eligible employees; or a community foundation).
Commissions 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 any
"401(k)" plan with 100 or more eligible employees) in excess of the Plan
limitation not reimbursed during the most recent fiscal quarter are recoverable
for five quarters provided that such commissions do not exceed the annual
expense limit. After five quarters, commissions are not recoverable. During
the period, the fund paid $636,000 under the Plan as compensation to dealers.
As of July 31, 1998, accrued and unpaid distribution expenses were $59,000.
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
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.
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.
If a shareholder has elected to receive dividends and/or capital gain
distributions in cash, and the postal or other delivery service is unable to
deliver checks to the shareholder's address of record, or the shareholder does
not respond to mailings from American Funds Service Company with regard to
uncashed distribution checks, the shareholder's distribution option will
automatically be converted to having all dividends and other distributions
reinvested in additional shares.
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, as amended (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; and (b) 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 certain tax-exempt obligations. Not
later than 60 days after the close of its taxable year, the fund will notify
each shareholder in writing 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(a) 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 distributed 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
net assets in "private activity" bonds. As of the date of this statement of
additional information, individuals are subject to an AMT at a maximum marginal
rate of 28% (20% on capital gains with respect to assets held more than one
year) 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
generally applicable to net capital gains on assets held more than one year is
20%; and the maximum corporate tax applicable to ordinary income and net
capital gains is 35%. However, to eliminate the benefit of lower marginal
corporate income tax rates, corporations which have taxable income in excess of
$100,000 for a taxable year will be required to pay an additional amount of tax
of up to $11,750 and corporations which have taxable income in excess of
$15,000,000 for a taxable year will be required to pay an additional amount of
income tax of up to $100,000. Naturally, the amount of tax payable by a
taxpayer will be affected by a combination of tax law rules covering, E.G.,
deductions, credits, deferrals, exemptions, sources of income and other
matters.
Under the Code, distributions of net investment income by the fund to a
nonresident alien individual, nonresident alien fiduciary of a trust or estate,
non-U.S. corporation, or non-U.S. partnership (a "non-U.S. shareholder") will
be subject to U.S. withholding tax (at a rate of 30% or a lower treaty rate, if
applicable). Withholding will not apply if a dividend paid by the fund to a
non-U.S. shareholder is "effectively connected" with a U.S. trade or business,
in which case the reporting and withholding requirements applicable to U.S.
citizens, U.S. residents, or domestic corporations will apply.
PURCHASE OF SHARES
<TABLE>
<CAPTION>
<S> <C> <C>
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 investment is registered in the state where dealer's address printed on your
dealer the purchase is made and who has account statement.
a sales agreement with American
Funds Distributors.
By mail Make your check payable to the Fill out the account additions form at
fund and mail to the address the bottom of a recent account
indicated on the account statement, make your check payable to
application. Please indicate an the fund, write your account number on
investment dealer on the account your check, and mail the check and
application. form in the envelope 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 and
Computer Purchases, Redemptions and
Exchanges" below).
By computer Please contact your investment Complete the American FundsLink
dealer to open account, then Authorization Form. Once you
follow the procedures for establish the privilege, you, your
additional investments. financial advisor or any person with
your account information may access
American FundsLine(R) on the Internet
and make investments by computer
(subject to conditions noted in
"Telephone and Computer 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.
</TABLE>
INVESTMENT MINIMUMS AND FUND NUMBERS -- Here are the minimum initial
investments required by the funds in The American Funds Group along with fund
numbers for use with our automated phone line, American FundsLine(R) (see
description below):
<TABLE>
<CAPTION>
<S> <C> <C>
FUND MINIMUM FUND
INITIAL NUMBER
INVESTMENT
STOCK AND STOCK/BOND FUNDS
AMCAP Fund(R) $1,000 02
American Balanced Fund(R) 500 11
American Mutual Fund(R) 250 03
Capital Income Builder(R) 1,000 12
Capital World Growth and Income 1,000 33
Fund(SM)
EuroPacific Growth Fund(R) 250 16
Fundamental Investors(SM) 250 10
The Growth Fund of America(R) 1,000 05
The Income Fund of America(R) 1,000 06
The Investment Company of America(R) 250 04
The New Economy Fund(R) 1,000 14
New Perspective Fund(R) 250 07
New World Fund (SM) 1,000+ 36
SMALLCAP World Fund(SM) 1,000 35
Washington Mutual Investors Fund(SM) 250 01
BOND FUNDS
American High-Income Municipal Bond 1,000 40
Fund(SM)
American High-Income Trust(R) 1,000 21
The Bond Fund of America(SM) 1,000 08
Capital World Bond Fund(R) 1,000 31
Intermediate Bond Fund of America(R) 1,000 23
Limited Term Tax-Exempt Bond Fund of 1,000 43
America(SM)
The Tax-Exempt Bond Fund of 1,000 19
America(SM)
The Tax-Exempt Fund of 1,000 20
California(R)*
The Tax-Exempt Fund of Maryland(R)* 1,000 24
The Tax-Exempt Fund of Virginia(R)* 1,000 25
U.S. Government Securities Fund(SM) 1,000 22
MONEY MARKET FUNDS
The Cash Management Trust of 2,500 09
America(R)
The Tax-Exempt Money Fund of 2,500 39
America(SM)
The U.S. Treasury Money Fund of 2,500 49
America(SM)
*Available only in certain states.
+Effective September 15, 1999.
</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).
SALES CHARGES -- The sales charges you pay when purchasing the stock,
stock/bond, and bond funds of The American Funds Group are set forth below.
The money market funds of The American Funds Group are offered at net asset
value. (See "Investment Minimums and Fund Numbers" for a listing of the
funds.)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
AMOUNT OF PURCHASE SALES CHARGE AS DEALER
AT THE OFFERING PRICE PERCENTAGE OF THE: CONCESSION
AS PERCENTAGE
OF THE
OFFERING
PRICE
NET AMOUNT OFFERING
INVESTED PRICE
STOCK AND STOCK/BOND
FUNDS
Less than $50,000 6.10% 5.75% 5.00%
$50,000 but less than 4.71 4.50 3.75
$100,000
BOND FUNDS
Less than $25,000 4.99 4.75 4.00
$25,000 but less than 4.71 4.50 3.75
$50,000
$50,000 but less than 4.17 4.00 3.25
$100,000
STOCK, STOCK/BOND, AND
BOND FUNDS
$100,000 but less than 3.63 3.50 2.75
$250,000
$250,000 but less than 2.56 2.50 2.00
$500,000
$500,000 but less than 2.04 2.00 1.60
$1,000,000
$1,000,000 or more none none (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 100
or more eligible employees are sold with no initial sales charge. A contingent
deferred sales charge may be imposed on certain redemptions by these accounts
made within one year of purchase. Investments by retirement plans, foundations
or endowments with $50 million or more in assets may be made with no sales
charge and are not subject to a contingent deferred sales charge.
In addition, 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.
DEALER COMMISSIONS -- Commissions of up to 1% will be paid to dealers who
initiate and are responsible for purchases of $1 million or more, for purchases
by any employer-sponsored 403(b) plan or purchases by any defined contribution
plan qualified under section 401(a) of the Internal Revenue Code including a
"401(k)" plan with 100 or more eligible employees, and for purchases made at
net asset value by certain retirement plans of organizations with collective
retirement plan assets of $50 million or more: 1.00% on amounts of $1 million
to $4 million, 0.50% on amounts over $4 million to $10 million, and 0.25% on
amounts over $10 million.
OTHER COMPENSATION TO DEALERS -- American Funds Distributors, at its expense
(from a designated percentage of its income), currently provides 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.
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.
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.
STATEMENT OF INTENTION -- You may enter into a non-binding commitment to
purchase shares of a fund(s) over a 13-month period and receive the same sales
charge as if all shares had been purchased at once. This includes purchases
made during the previous 90 days, but does not include appreciation of your
investment or reinvested distributions. The reduced sales charges and offering
prices set forth in the Prospectus apply to purchases of $50,000 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 use 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 any 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 pay to the Principal Underwriter
the difference between the sales charge actually paid and the sales charge
which would have been paid if the total of such purchases had been made at a
single time. If the difference is not paid by the close of the period, the
appropriate number of shares held in escrow will be redeemed to pay such
difference. If the proceeds from this redemption are inadequate, the purchaser
will be liable to the Principal Underwriter for the balance still outstanding.
The Statement may be revised upward at any time during the 13-month period, and
such a revision will be treated as a new Statement, except that the 13-month
period during which the purchase must be made will remain unchanged and there
will be no retroactive reduction of the sales charges paid on prior purchases.
Existing holdings eligible for rights of accumulation (see the prospectus and
account application) and any individual investments in American Legacy products
(American Legacy, American Legacy II and American Legacy III variable
annuities, American Legacy Life, American Legacy Variable Life, and American
Legacy Estate Builder) 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.
When the trustees of certain retirement plans purchase shares 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)
any rollovers or transfers reasonably anticipated to be invested in non-money
market American Funds during the 13-month period, and any individual
investments in American Legacy products 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.
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.
CONCURRENT PURCHASES -- You may combine purchases of two or more funds in The
American Funds Group, except direct purchases of the money market funds.
Shares of money market funds purchased through an exchange, reinvestment or
cross-reinvestment from a fund having a sales charge do qualify.
RIGHT OF ACCUMULATION -- You may take into account the current value of your
existing holdings in The American Funds Group, as well as your holdings in
Endowments (shares of which may be owned only by tax-exempt organizations), to
determine your sales charge on investments in accounts eligible to be
aggregated, or when making a gift to an individual or charity. When
determining your sales charge, you may also take into account the value of your
individual holdings, as of the end of the week prior to your investment, in
various American Legacy products (American Legacy, American Legacy II and
American Legacy III variable annuities, American Legacy Life, American Legacy
Variable Life, and American Legacy Estate Builder). Direct purchases of the
money market funds are excluded.
PRICE OF SHARES -- Shares are purchased at the offering price next determined
after the purchase order is received and accepted 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 do not always indicate the prices at which you will be purchasing and
redeeming shares of the fund, since such prices generally reflect the previous
day's closing price whereas purchases and redemptions are made at the next
calculated price. The net asset value per share of 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. For example, if the Exchange closes at 1:00 p.m. on one day and at 4:00
p.m. on the next, the fund's share price would be determined as of 4:00 p.m.
New York time on both days. The New York Stock Exchange is currently closed on
weekends and on the following holidays: New Year's Day, Martin Luther King,
Jr.'s Birthday, President's Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving and Christmas Day.
All portfolio securities of funds managed by Capital Research and Management
Company are valued, and the net asset value per share is determined, as
follows:
1. Equity securities, including depositary receipts, are valued at the last
reported sale price on the exchange or market on which such securities are
traded, as of the close of business on the day the securities are being valued
or, lacking any sales, at the last available bid price. In cases where equity
securities are traded on more than one exchange, the securities are valued on
the exchange or market determined by the Investment Adviser to be the broadest
and most representative market, which may be either a securities exchange or
the over-the-counter market. Fixed-income securities are valued at prices
obtained from a pricing service, when such prices are available; however, in
circumstances where the Investment Adviser deems it appropriate to do so, such
securities will be valued at the mean quoted bid and asked prices or at prices
for securities of comparable maturity, quality and type.
Securities with original maturities of one year or less having 60 days or
less to maturity are amortized to maturity based on their cost if acquired
within 60 days of maturity or, if already held on the 60th day, based on the
value determined on the 61st day. Forward currency contracts are valued at the
mean of representative quoted bid and asked prices.
Assets or liabilities initially expressed in terms of foreign currencies are
translated prior to the next determination of the net asset value of the fund's
shares into U.S. dollars at the prevailing market rates.
Securities and assets for which representative market quotations are not
readily available are valued at fair value as determined in good faith under
policies approved by the fund's Board;
2. Liabilities, including accruals of taxes and other expense items, are
deducted from total assets; and
3. 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.
SELLING SHARES
Shares are sold at the net asset value next determined after your request is
received in good order by American Funds Service Company. You may sell
(redeem) shares in your account in any of the following ways:
THROUGH YOUR DEALER (certain charges may apply)
- - Shares held for you in your dealer's street name must be sold through the
dealer.
WRITING TO AMERICAN FUNDS SERVICE COMPANY
- - Requests must be signed by the registered shareholder(s)
- - A signature guarantee is required if the redemption is:
-- Over $50,000;
-- Made payable to someone other than the registered shareholder(s); or
-- Sent to an address that has not been used with the account for at least 10
days.
Your signature may be guaranteed by a domestic stock exchange or the National
Association of Securities Dealers, Inc., bank, savings association or credit
union that are eligible guarantor institutions.
- - Additional documentation may be required for sales of shares held in
corporate, partnership or fiduciary accounts.
- - You must include any shares you wish to sell that are in certificate form.
TELEPHONING OR FAXING AMERICAN FUNDS SERVICE COMPANY, OR BY USING AMERICAN
FUNDSLINE(R) OR AMERICAN FUNDSLINE ONLINE(SM)
- - Redemptions by telephone or fax (including American FundsLine(R) and American
FundsLine OnLine(SM)) are limited to $50,000 per shareholder each day.
- - Checks must be made payable to the registered shareholder(s).
- - Checks must be mailed to an address of record that has been used with the
account for at least 10 days.
MONEY MARKET FUNDS
- - You may have redemptions of $1,000 or more wired to your bank by writing
American Funds Service Company.
- - You may establish check writing privileges (use the money market funds
application).
-- If you request check writing privileges, you will be provided with checks
that you may use to draw against your account. These checks may be made
payable to anyone you designate and must be signed by the authorized number or
registered shareholders exactly as indicated on your checking account signature
card.
Redemption proceeds will not be mailed until sufficient time has passed to
provide reasonable assurance that checks or drafts (including certified or
cashier's checks) for shares purchased have cleared (which may take up to 15
calendar days from the purchase date). Except for delays relating to clearance
of checks for share purchases or in extraordinary circumstances (and as
permissible under the Investment Company Act of 1940), sale proceeds will be
paid on or before the seventh day following receipt and acceptance of an order.
Interest will not accrue or be paid on amounts that represent uncashed
distribution or redemption checks.
You may reinvest proceeds from a redemption or a dividend or capital gain
distribution without a sales charge (any contingent deferred sales charge paid
will be credited to your account) in any fund in The American Funds Group
within 90 days after the date of the redemption or distribution. Redemption
proceeds of shares representing direct purchases in the money market funds are
excluded. Proceeds will be reinvested at the next calculated net asset value
after your request is received and accepted by American Funds Service Company.
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 100 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.
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) or American FundsLine OnLine(SM) (see "American FundsLine(R) and
American FundsLine OnLine(SM) 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 and Computer
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.
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.
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) AND AMERICAN FUNDSLINE ONLINE(SM) -- You may check your
share balance, the price of your shares, or your most recent account
transaction, redeem shares (up to 50,000 per shareholder each day), or exchange
shares around the clock with American FundsLine(R) and American FundsLine
OnLine(SM). To use this service, call 800/325-3590 from a TouchTone(TM)
telephone or access the American Funds Website on the Internet at
www.americanfunds.com. Redemptions and exchanges through American FundsLine(R)
and American FundsLine OnLine(SM) are subject to the conditions noted above and
in "Redeeming Shares--Telephone and Computer 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 AND COMPUTER REDEMPTIONS AND EXCHANGES -- By using the telephone or
computer (including American FundsLine(R)) and American FundsLine OnLine(SM),
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.
SHARE CERTIFICATES -- Shares are credited to your account and certificates are
not issued unless you request them by writing to American Funds Service
Company.
REDEMPTION OF SHARES -- The fund's Declaration of Trust permits the fund to
direct the Transfer Agent to redeem your shares if the shares through
redemptions, market decline or otherwise, have a value of less than the minimum
initial investment amount required of new shareholders (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). We will give you prior
notice of at least 60 days before the involuntary redemption provision is made
effective with respect to your account. You 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
The Investment Adviser places orders for the fund's portfolio securities
transactions. The Investment Adviser strives to obtain the best available
prices in its portfolio transactions taking into account the costs and
promptness of executions. When circumstances relating to a proposed
transaction indicate that a particular broker (either directly or through their
correspondent clearing agents) is in a position to obtain the best price and
execution, the order is placed with that broker. This may or may not be a
broker who has provided investment research statistical, or other related
services to the Investment Adviser or has sold shares of the fund or other
funds served by the Investment Adviser. The fund does not have an obligation
to obtain the lowest available commission rate to the exclusion of price,
service and qualitative considerations.
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, 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 $65,000 for the fiscal
year ended July 31, 1998.
INDEPENDENT ACCOUNTANTS -- PricewaterhouseCoopers LLP, 400 South Hope Street,
Los Angeles, CA 90071, serves as the fund's independent auditors and 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.
REPORTS TO SHAREHOLDERS -- The fund's fiscal year ends on July 31. It provides
shareholders at least semi-annually with reports showing the investment
portfolio, financial statements and other information audited annually by the
fund's independent accountants, PricewaterhouseCoopers LLP, whose selection is
determined annually by the Board of Trustees. In an effort to reduce the
volume of mail shareholders receive from the fund when a household owns more
than one account, the Transfer Agent has taken steps to eliminate duplicate
mailings of shareholder reports. To receive additional copies of a report
shareholders should contact the Transfer Agent.
YEAR 2000 - The fund and its shareholders depend on the proper functioning of
computer systems maintained by the Investment Adviser and its affiliates and
other key service providers. Many computer systems in use today will require
reprogramming or replacement prior to the year 2000 because of the way they
store dates and make date-related calculations. The fund understands that
these service providers are taking steps to address the "Year 2000 problem".
However, there can be no assurance that these steps will be sufficient to avoid
any adverse impact on the fund. In addition, the fund's investments could be
adversely affected by the Year 2000 problem. For example, the markets for
securities in which the fund invests could experience settlement problems and
liquidity issues. Corporate and governmental data processing errors may cause
losses for individual companies and overall economic uncertainties. Earnings of
individual issuers are likely to be affected by the costs of addressing the
problem, which may be substantial and may be reported inconsistently.
PERSONAL INVESTING POLICY -- The Investment Adviser 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; 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. You may obtain a summary
of the personal investing policy by contacting the Secretary of the fund.
The financial statements including the investment portfolio and the report of
independent accountants contained in the annual report are included in this
statement of additional information. The following information is not included
in the annual report:
<TABLE>
<CAPTION>
DETERMINATION OF NET ASSET VALUE, REDEMPTION PRICE AND
<S> <C>
MAXIMUM OFFERING PRICE PER SHARE -- JULY 31, 1998
Net asset value and redemption price per share
(Net assets divided by shares outstanding) $14.85
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) $15.59
</TABLE>
SHAREHOLDER AND TRUSTEE RESPONSIBILITY -- Under the laws of certain states,
including Massachusetts, where the Trust was organized, and California, where
the Trust's principal office is located, shareholders of a Massachusetts
business trust may, under certain circumstances, be held personally liable as
partners for the obligations of the Trust. However, the risk of a shareholder
incurring any financial loss on account of shareholder liability is limited to
circumstances in which the Trust itself would be unable to meet its
obligations. The Declaration of Trust contains an express disclaimer of
shareholder liability for acts or obligations of the Trust and provides that
notice of the disclaimer may be given in each agreement, obligation, or
instrument which is entered into or executed by the Trust or Trustees. The
Declaration of Trust provides for indemnification out of Trust property of any
shareholder held personally liable for the obligations of the Trust and also
provides for the Trust to reimburse such shareholder for all legal and other
expenses reasonably incurred in connection with any such claim or liability.
Under the Declaration of Trust, the Trustees or officers are not liable for
actions or failure to act; however, they are not protected from liability by
reason of their willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of their office. The Trust
will provide indemnification to its Trustees and officers as authorized by its
By-Laws and by the 1940 Act and the rules and regulations thereunder.
SHAREHOLDER VOTING RIGHTS -- All shares of the fund have equal voting rights
and may be voted in the elections of Trustees and on other matters submitted to
the vote of shareholders. As permitted by Massachusetts law and the 1940 Act,
there will normally be no meetings of shareholders for the purpose of electing
Trustees unless and until such time as less than a majority of the Trustees
holding office have been elected by shareholders. At that time, the Trustees
then in office will call a shareholders' meeting for the election of Trustees.
The Trustees must call a meeting of shareholders for the purpose of voting upon
the question of removal of any Trustee when requested to do so by the record
holders of 10% of the outstanding shares. At such a meeting, a Trustee may be
removed by the holders of record of a majority of the outstanding shares of the
fund, either by declaration in writing or by votes cast in person or by proxy.
Except as set forth above, the Trustees will continue to hold office and may
appoint successor Trustees. The shares do not have cumulative voting rights,
which means that the holders of a majority of the shares voting for the
election of Trustees can elect all the Trustees. No amendment may be made to
the Trust's Declaration of Trust without the affirmative vote of a majority of
the outstanding shares of the fund, except that amendments may be made by the
Trustees to conform the Declaration of Trust to the requirements of applicable
Federal laws or regulations or the requirements of the regulated investment
company provisions of the Code; however, the Trustees will not be liable for
failing to do so. If not terminated by the vote or written consent of a
majority of the outstanding shares, the Trust will continue indefinitely.
The Trust currently issues shares in one series (the fund), but the Board of
Trustees may establish additional series of shares in the future. When more
than one series of shares is outstanding, shares of all series will vote
together for a single set of Trustees, and on other matters affecting the
entire Trust, with each share entitled to a single vote. On matters affecting
only one series, only the shareholders of that series shall be entitled to
vote. On matters relating to more than one series but affecting the series
differently, separate votes by series are required.
INVESTMENT RESULTS AND RELATED STATISTICS
The fund's yield is 3.73% based on a 30-day (or one month) period ended July
31, 1998, 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, 1998 was 6.18%.
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, 1998, the fund's total return over the past twelve months and
average annual total return over its lifetime were -0.05% and 4.51%,
respectively. Over the fund's lifetime (October 6, 1993 to July 31, 1998), the
Lehman Brothers 7-Year Municipal Bond Index/1/ and the Lipper Intermediate
Municipal Debt Funds Average /2/ had average annual total returns of 5.52% and
5.00%, respectively. The fund's average annual total return at net asset
value over the past twelve months and average annual over its lifetime at July
31, 1998 were 4.95% and 5.56%, respectively.
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.
/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.
/2/ The Lipper Intermediate Municipal Debt Funds Average is comprised of funds
that invest in municipal debt issues with dollar-weighted average maturities of
five to ten years.
In calculating average annual total return, the fund assumes: (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.
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 include, in advertisements or in reports furnished to present or
prospective shareholders, information on its investment results and/or
comparisons of its investment results to various unmanaged indices or results
of other mutual funds or investment or savings vehicles. The fund may also
combine its results with those of other funds in The American Funds Group for
purposes of illustrating investment strategies involving multiple funds.
The fund may also refer to results and surveys compiled by organizations such
as CDA Investment Technologies, Ibbotson Associates, Lipper Analytical Services
("Lipper"), Morningstar, Inc., Wiesenberger Investment Companies Services and
the U.S. Department of Commerce. Additionally, the fund may 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.
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>
<S> <C> <C>
LIMITED TERM TAX-EXEMPT BOND FUND OF AMERICA
INVESTMENT PORTFOLIO
July 31, 1998
Portfolio Composition
California (CA) 10.76%
New York (NY) 10.46%
Michigan (MI) 8.13%
Illinois (IL) 7.21%
Maine (ME) 6.52%
Texas (TX) 5.36%
Washington (WA) 3.98%
North Carolina (NC) 3.70%
Louisiana (LA) 3.54%
Virginia (VA) 2.97%
Other states 34.00%
Cash & Equivalents 3.37%
Key To Abbreviations
Agcy. = Agency
Auth. = Authority
Cert. of Part. = Certificates of Participation
Co. = Company
Dept. = Department
Dev. = Development
Econ. = Economic
Fac. = Facilities
Fin. = Financing
G.O. = General Obligation
Ref. = Revenue
Rev. Ref. = Revenue Refunding
Principal Market
Amount Value
(000) (000)
Tax-Exempt Securities Maturing in More than One Year
One Year - 98.00%
Alabama - 1.37%
Industrial Dev. Board of the City of Butler, Pollution Control Ref. Rev. Bonds $3,000 $3,111
(James River Project), Series 1993, 5.50% 2005 $3,000 $3,111
Alaska - 0.46%
Student Loan Corp., Student Loan Rev. Bonds, 1997 Series A, AMBAC Insured AMT, 5. 1,000 1,036
Arizona - 1.84%
Educational Loan Marketing Corp., 1992 Educational Loan Rev. Bonds:
Series A, 6.70% 2000 3,000 3,112
Series B AMT, 6.95% 2001 1,000 1,059
California - 10.76%
Health Fac. Fin. Auth. Hospital Rev. Bonds (Downey Community Hospital):
Series 1993, 5.00% 2001 1,150 1,172
Series 1993, 5.20% 2003 1,000 1,031
Series 1993, 5.30% 2004 1,010 1,047
Pollution Control Fin. Auth., Solid Waste Disposal Ref. Rev. Bonds (USA Waste
Services, Inc. Project), Series 1998A AMT, 5.10% 2018(1) 3,500 3,508
Statewide Communities Dev. Auth., Apartment Dev. Rev. Ref. Bonds
(Irvine Apartment Communities, LP), Series 1998A AMT, 5.05% 2025 (2008)(1) 1,000 1,008
Association for Bay Area Governments Fin. Auth. for Nonprofit Corporations, Ref. Rev.
Certificates of Participation (Episcopal Homes Foundation), Series 1998, 5.00% 20 1,405 1,432
City of Fremont, Multifamily Housing Rev. Ref. Bonds, Issue A of 1995
(Durham Greens Project), 5.40% 2026 (2006)(1) 1,830 1,925
Long Beach Aquarium of the Pacific, Rev. Bonds (Aquarium
of the Pacific Project), 1995 Series A, 5.75% 2005 3,000 3,182
County of Los Angeles, Cert. of Part., Captial Asset
Leasing Corp. (Marina del Rey), Series A, 6.25% 2003 3,100 3,263
Pleasanton Joint Powers Fin. Auth., Reassessment Rev. Bonds, 1993 Series A, 5.70% 920 958
Sacramento Cogeneration Auth., Cogeneration Project Rev.
Bonds (Procter & Gamble Project),
1995 Series, 7.00% 2004 2,200 2,480
Sacramento Power Auth., Cogeneration Project Rev. Bonds
(Campbell Soup Project), 1995 Series:
6.50% 2004 2,000 2,211
6.50% 2005 1,100 1,219
Colorado - 2.48%
Housing and Finance Auth., Single Family Program Senior Bonds, 1995 Series
C-2, 5.625% 2009 (2000)(1) 805 839
The Regents of the University of Colorado, Refunding Cert. of Part.
(Telecommunications and Cogeneration Projects), Series 1996, AMBAC Insured, 6.00 2,415 2,637
Eaglebend Affordable Housing Corp., Multifamily Housing
Project Rev. Ref. Bonds, Series 1997A:
5.45% 2002 550 558
5.75% 2007 1,585 1,630
Connecticut - 1.93%
Mashantucket (Western) Pequot Tribe, Special Rev. Bonds, 1996 Series A:(2)
6.25% 2002 (Escrowed to Maturity) 500 535
6.25% 2002 500 539
6.375% 2004 (Escrowed to Maturity) 2,010 2,206
6.375% 2004 995 1,104
District of Columbia - 0.46%
G.O. Refunding Bonds, Series 1993D, FGIC Insured:
5.10% 2002 ( Escrowed to Maturity) 42 44
5.10% 2002 958 990
Hospital Rev. Ref. Bonds (Medlantic Healthcare Group, Inc. Issue),
Series 1997 A, MBIA Insured, 6.00% 2006 1,000 1,091
Idaho - 0.58%
Housing and Finance Association, Single Family Mortgage Bonds:
1998 Series C, 5.25% 2011 550 554
1998 Series E-3 AMT, 5.125% 2011 750 753
Illinois - 6.72%
Health Fac. Auth Rev. and Ref. Bonds:
Series 1997A, (Advocate Health Care Network):
5.50% 2004 1,250 1,316
5.10% 2005 1,815 1,871
Series 1998 (Centegra Health System), 5.50% 2007 2,480 2,600
Series 1998 (Northwestern Medical Faculty Foundation, Inc.),
MBIA Insured, 5.25% 2006 1,810 1,892
Series 1993, (OSF Healthcare System), 5.25% 2001 2,300 2,379
Series 1997 A (Victory Health Services), 5.25% 2004 1,755 1,816
Housing Dev. Auth., Multi-Family Housing Bonds, 1992 Series A, 6.55% 2003 1,165 1,252
City of Chicago, G.O. Certificates, Series 1997, 5.25% 2006 2,030 2,130
The County of Cook, G.O. Capital Improvement Bonds,
Series 1996, FGIC Insured, 6.00% 2006 1,000 1,105
Indiana - 0.76%
Employment Dev. Commission, Pollution Control Rev. Bonds (Chrysler Corp. Project),
Series 1985, 5.70% 1999 1,700 1,728
Health Fac. Fin. Auth. Hospital Rev. Bonds Charity Obligation Group, Series 1997D,
5.00% 2026 (2007)(1) 2,500 2,541
Iowa - 0.95%
Student Loan Liquidity Corp., Student Loan Rev. Bonds, Series C AMT, 6.80% 2005 2,000 2,155
Kentucky - 0.89%
Econ. Dev. Finance. Auth., Hospital System Refunding and Improvement Rev. Bonds,
Series 1997 (Appalachian Regional Healthcare, Inc. Project):
5.40% 2006 1,500 1,540
5.50% 2007 465 480
Louisiana - 3.54%
Offshore Terminal Auth., Deepwater Port Ref. Rev. Bonds (LOOP INC. Project),
First Stage, Series E, 7.45% 2004 5,000 5,397
Public Fac. Auth., Hospital Rev. Bonds (Franciscan Missionaries of
Our Lady Health System Project), Series 1998C, MBIA Insured:
5.50% 2005 1,500 1,592
5.25% 2006 1,000 1,047
Maine - 6.52%
Educational Loan Marketing Corp., Senior Student Loan Rev. Bonds:
Series 1991 AMT, 6.90% 2003 2,595 2,727
Series 1994A-4 AMT:
5.95% 2003 1,000 1,071
6.05% 2004 1,500 1,603
Housing Auth., Mortgage Purchase Bonds:
1994 Series C-1, 5.90% 2015(1) 5,965 6,193
1994 Series E, 6.30% 2002 1,650 1,717
Student Loan Rev. Ref. Bonds, Series 1992A-1 AMT:
6.20% 2003 515 549
6.30% 2004 880 940
Maryland - 1.61%
Community Dev. Administration, Dept. of Housing and Community Dev.,
Single Family Program Bonds:
1994 First Series, 5.70% 2017 (2004)(1) 2,405 2,483
1994 Fifth Series AMT, 5.875% 2017 (2001)(1) 1,145 1,180
Massachusetts - 1.07%
The New England Education Loan Marketing Corp., Student Loan Rev. Ref. Bonds:
1992 Senior Issue A, 6.50% 2002 1,000 1,080
1992 Issue C AMT, 6.75% 2002 1,250 1,353
Michigan - 8.13%
Hospital Finance Auth., Rev. Ref. Bonds:
Genesys Health System Obligated Group, Series 1995A, 7.20% 2003 2,375 2,706
(Hackley Hospital Obligated Group), Series 1998A, 4.90% 2007 1,140 1,140
Pontiac Osteopathic, Series A, 5.375% 2006 4,000 4,108
Housing Dev. Auth., Rental Housing Rev. Bonds, 1992
Series A, AMBAC Insured, 6.40% 2005 1,200 1,293
State Hospital Finance Auth., Hospital Rev. Ref. Bonds Mercy Health Services,
Series 1997T, 6.25% 2011 1,000 1,110
City of Detroit, G.O. Refunding Bonds (Unlimited Tax):
Series1995-A:
6.10% 2003 1,800 1,923
6.25% 2004 2,165 2,349
Series 1995-B, 6.75% 2003 3,500 3,834
Minnesota - 0.75%
Housing and Finance Auth., Single Family Mortgage Bonds,
Series Q, 6.25% 2014 (1999)(1) 615 641
Maplewood Health Care Facility, Rev. Bonds (HealthEast Project), 5.80% 2003 1,000 1,054
Nebraska - 0.72%
Hospital Auth. No. 1 of Lancaster County, Rev. Bonds, Series 1991A
(Sisters of charity Health Care Systems, Inc.), MBIA Insured,
6.375% 2005 1,530 1,634
Nevada - 0.00%
Housing Division, Single Family Mortgage Bonds,
1998 Series B-1, 5.20% 2011 1,000 1,008
New Jersey - 1.17%
Econ. Dev. Auth., First Mortgage Rev. Ref. Bonds
(Fellowship Village Project), Series 1998A:
5.00% 2006 1,275 1,278
5.05% 2007 1,375 1,379
Housing and Mortgage Finance Agcy., Home Buyer Rev.
Bonds, 1994 Series I, MBIA Insured, 5.60% 2016(1) 2,900 2,986
New Mexico - 0.00%
Educational Assistance Foundation, Student Loan Rev. Bonds, Subordinate 1
1992 Series One-B AMT, 6.85% 2005 1,110 1,183
New York - 10.46%
Dormitory Auth:
Center for Nursing & Rehabilitation, Inc., FHA Insured Mortgage
Nursing Home Rev. Bonds,Series 1997, 4.75% 2007 1,000 1,007
City University of New York, as Lessee (John Jay College of Criminal
Justice Project Refunding), 5.75% 2005 2,000 2,139
Secured Hospital Rev. Bonds (Saint Agnes Hospital), Series 1998A, 4.80% 2006 1,000 1,007
Secured Hospital Rev. Ref. Bonds, (Wyckoff Heights
Medical Center), Series H, 5.125% 2008 2,000 2,049
State Medical Care Fac. Finance Agcy., Mental Health Services Fac.
Improvement Rev. Bonds, Series B:
5.30% 2004 1,620 1,686
5.30% 2004 2,000 2,089
6.00% 2007 3,000 3,275
State Thruway Auth., Local Highway and Bridge Service Contract Bonds,
Series 1994, MBIA Insured, 5.75% 2008 1,295 1,376
State University Educational Fac., Series 1994B, 5.70% 2004 1,000 1,067
Urban Dev. Corp., Correctional Capital Fac. Rev. Bonds, Series 6, 6.00% 2006 1,500 1,622
Castle Rest Residential Health Care Facility, Mortgage Rev. Bonds,
Series 1997A, FHA Insured, 4.875% 2007 1,400 1,428
City of New York, G.O. Bonds:
Series E, 6.50% 2004 1,000 1,098
Series A-1, AMBAC Insured, 6.25% 2005 1,000 1,110
Series I, 6.25% 2006 1,000 1,104
Fiscal 1996 Series I, 6.50% 2006 1,500 1,678
North Carolina - 3.70%
Municipal Power Agcy. Number 1, Catawba Electric Rev.
Bonds, Series 1992, 6.00% 2004 5,000 5,357
Eastern Municipal Power Agcy., Power System Rev. Bonds:
Refunding Series 1993B, 6.00% 2005 (2003)(1) 1,330 1,417
Refunding Series 1993C, 5.50% 2007 1,550 1,613
Ohio - 0.88%
Housing Finance Agcy., Single Family Mortgage Rev. Bonds, 1992
Series A-2 AMT, 5.70% 2013 (1) 960 994
The Student Loan Funding Corp., Cincinnati, Senior Subordinated Rev. Bonds,
Series 1993A AMT, 5.75% 2003 1,000 1,000
County of Franklin, Hospital Fac. Rev. Ref. and Improvement Bonds
(Doctors Hospital Project), Series 1993, 5.70% 2004 1,120 1,193
Oklahoma - 1.44%
Housing Finance Agcy., Single Family Mortgage Rev. Bonds, (Homeownership
Loan Program), 1994 Series A-1 AMT, 6.25% 2016 (1) 820 852
Industries Auth., Health System Rev. Ref. Bonds (INTEGRIS Health),
Series 1995D, AMBAC Insured:
5.25% 2005 1,000 1,045
5.25% 2006 1,300 1,362
Pennsylvania - 1.00%
Blair County Hospital Auth., Hospital Rev. Bonds (Altoona Hospital Project),
1998 Series A, AMBAC Insured, 5.00% 2005(3) 2,180 2,262
Hospital and Higher Education Fac. Auth. of Philadelphia, Hospital Rev. Bonds
(Jefferson Health System), Series 1997A, 5.50% 2006 1,265 1,342
Rhode Island - 0.00%
Student Loan Auth., Student Loan Rev. Ref. Bonds,
Series 1992B AMT, 6.90% 2003 (2001)(1) 1,300 1,408
South Carolina - 0.00%
Florence County Hospital Rev. Bonds (McLeod Regional Medical Center Project),
MBIA Insured, Series A, 5.50% 2007 2,330 2,496
South Dakota - 1.36%
Housing Dev. Auth., Homeownership Mortgage Bonds, 1996 Series A, 5.50% 2010 915 952
Student Loan Finance Corp., Student Loan Rev. Bonds, Series 1994-A AMT:
5.95% 2001 1,000 1,050
6.35% 2005 1,000 1,079
Tennessee - 0.00%
The Tennessee Energy Acquisition Corp., Gas Rev. Bonds, Series 1998A,
AMBAC Insured, 4.35% 2004 1,500 1,504
Texas - 4.89%
G.O. Bonds, Veterans' Housing Assistance Program, Fund I Series 1994C
Refunding Bonds, 6.25% 2015 (2000)(1) 1,395 1,449
Department of Housing and community Affairs, Single Family Mortgage Rev.
Bonds, Series B, MBIA Insured, 5.55% 2011 (1) 2,615 2,678
Bell County Health Fac. Dev. Corp., Retirement Facility Rev. Bonds
(Buckner Retirement Services, Inc. Obligated Project), Series 1998:
5.00% 2005 1,330 1,347
5.00% 2007 1,470 1,478
Brazos Higher Education Auth. Inc., Student Loan Rev. Ref. Bonds:
Series 1992C-1 AMT, 6.20% 2000 1,000 1,042
Subordinate Series, 1993C-2 AMT, 5.875% 2004 1,955 2,004
Harris County Health Fac. Dev. Corp., Hospital Rev. Ref. Bonds, Children's
Hospital Project, Series 1995, MBIA Insured, 6.00% 2004 1,000 1,086
Tarrant County Health Fac. Dev. Corp., Health Resources Systems Rev.
Bonds, Series 1997A, 5.50% 2007 1,000 1,066
Utah - 1.38%
Housing Finance Agcy.:
Single Family Mortgage Purchase Refunding Bonds, Series 1996
(Federally Insured or Guaranteed Mortgage Loans),
5.45% 2004 1,185 1,242
Series 1997F AMT, 5.50% 2010 1,100 1,120
Single Family Mortgage Bonds (Federally Insured or Guaranteed Mortgage Loans):
1998 Issue D-2 AMT, 5.25% 2012(1) 400 401
1998 Issue E-1 AMT, 5.25% 2012(1),(3) 375 376
Vermont - 0.12%
Housing Finance Agcy., Single Family Housing Bonds, Series 4, 5.75% 2012 (1) 280 287
Virginia - 2.52%
Housing Dev. Auth., Commonwealth Mortgage Bonds, 1995 Series A AMT, Subseries A-1:
6.50% 2003 1,000 1,046
6.60% 2004 1,200 1,255
Blue Ridge Regional Jail Auth., Series 1997, 5.25% 2006 1,150 1,215
Norfolk Industrial Dev. Auth., Rev. Bonds, 6.50% 2007 (2002)(1) 2,000 2,197
Pocahontas Parkway Association, Route 895 Connector Toll Road Rev. Bonds, Senior
Current Interest Bonds, Series 1998A, 5.25% 2007 1,000 1,021
Washington - 3.98%
Health Care Fac. Auth.:
Weekly Rate Demand Rev. Bonds (Virginia Mason Medical Center),
MBIA Insured, 6.00% 2006 1,000 1,098
Rev. Bonds, Series 1997A (Catholic Health Initiatives),
MBIA Insured, 5.50% 2005 1,000 1,065
Public Power Supply System:
Nuclear Project No. 1 Ref. Rev. Bonds, Series 1993A, 6.30% 2001 1,000 1,058
Nuclear Project No. 2 Ref. Rev. Bonds:
Series 1993A, AMBAC Insured, 5.50% 2004 1,000 1,058
Series 1992A, 5.90% 2004 1,500 1,612
Series A, 5.00% 2005 1,000 1,027
Series B, 5.50% 2006 2,000 2,113
West Virginia - 0.00%
The State Building Commission, Lottery Rev. Bonds, 1997
Series A, MBIA Insured, 5.00% 2003 1,000 1,035
Wisconsin - 2.95%
Health and Educational Fac. Auth. Variable Rate Hospital Rev. Bonds
(Charity Obligated Group,Daughters of Charity National Health System),
Series 1997D, 4.90% 2015 (2005)(1) 2,000 2,040
Housing and Econ. Dev. Auth., Housing Rev. Bonds:
Series A, 6.20% 2001 1,500 1,568
Series B AMT, 5.30% 2006 3,000 3,079
-------
219,321
-------
Tax-Exempt Securities Maturing in
One Year or Less - 3.30%
State of Colorado, General Fund Tax and Rev. Anticipation Notes,
Series 1998A, 4.00% 6/25/99 1,000 1,004
State of Kentucky, Asset/Liability Commission, General Fund Tax and Rev.
Anticipation Notes, 1998 Series A, 4.50% 6/25/99 3,100 3,125
State of Mississippi, Claiborne County Adjustable/Fixed-Rate Pollution Control Rev.
Bonds (Middle South Energy, Inc. Project), Series C, 9.875% 2014 (1998)(1) 1,000 1,046
State of New York, Energy Research and Dev. Auth., Pollution Control Ref. Rev.
Bonds (New York State Electric & Gas Corp. Project),
2.90% 2029(4) 1,300 1,300
State of Wisconsin, Operating Notes, 4.50% 6/15/99 1,000 1,007
-------
7,482
-------
TOTAL TAX-EXEMPT SECURITIES (cost: $220,670,000) 226,803
Excess of cash, prepaids and receivables over payables 171
-------
NET ASSETS $226,974
========
(1) Valued on the basis of the effective maturity -- that is, the
date at which the security is
expected to be called or refunded by the issuer.
(2) Purchased in private placement transaction; resale may be limited to
qualified institutional buyers;resale to the public may require registration.
(3) Represents a when-issued security.
(4) Coupon rate changes periodically.
See Notes to Financial Statements
</TABLE>
<TABLE>
<S> <C> <C>
Limited Term Tax-Exempt Bond Fund of America
Financial Statements
Statement of Assets and Liabilities
at July 31, 1998 (dollars in thousands)
Assets:
Tax-exempt securities
(cost: $220,670) $226,803
Cash 39
Prepaid organization expense 1
Receivables for--
Sales of fund's shares $322
Accrued interest 3,215 3,537
------- -------
230,380
Liabilities:
Payables for--
Purchases of investments 2,618
Repurchases of fund's shares 361
Dividends payable 284
Management services 46
Accrued expenses 97 3,406
------- -------
Net Assets at July 31, 1998 --
Equivalent to $14.85 per share on 15,289,245
shares of beneficial interest issued and
outstanding; unlimited shares authorized $226,974
=======
Statement of Operations
for the year ended July 31, 1998
(dollars in thousands)
Investment Income:
Income:
Interest on tax-exempt securities $10,994
Expenses:
Management services fee $830
Distribution expenses 636
Transfer agent fee 65
Reports to shareholders 51
Registration statement and prospectus 95
Postage, stationery and supplies 18
Trustees' fees 17
Auditing and legal fees 33
Custodian fee 1
Taxes other than federal income tax 4
Organization expense 3
Other expenses 11
-------
Total expenses before reimbursement 1,764
Reimbursement of expenses 169 1,595
------- -------
Net investment income 9,399
-------
Realized Gain and Unrealized
Appreciation on Investments:
Net realized gain 1,474
Net unrealized appreciation
on investments:
Beginning of year 6,807
End of year 6,133
-------
Change in unrealized
appreciation on investments (674)
-------
Net realized gain and change in unrealized
appreciation on investments 800
-------
Net Increase in Net Assets
Resulting from Operations $10,199
======
Statement of Changes in Net Assets
(dollars in thousands)
Year ended
July 31,
1998 1997
------- -------
Operations:
Net investment income $9,399 $9,574
Net realized gain (loss) on investments 1,474 (761)
Net change in unrealized appreciation
on investments (674) 6,412
------- -------
Net increase in net assets
resulting from operations 10,199 15,225
------- -------
Dividends Paid from Net
Investment Income (9,406) (9,603)
------- -------
Capital Share Transactions:
Proceeds from shares sold:
6,125,626 and 6,106,012 shares, respectively 90,775 88,463
Proceeds from shares issued in
reinvestment of net investment
income dividends:
436,639 and 465,326 shares, respectively 6,463 6,740
Cost of shares repurchased:
5,009,998 and 6,523,758 shares, respectively (74,180) (94,336)
------- -------
Net increase in net assets
resulting from capital share
transactions 23,058 867
------- -------
Total Increase in Net Assets 23,851 6,489
Net Assets:
Beginning of year 203,123 196,634
------- -------
End of year $226,974 $203,123
====== ======
See Notes to Financial Statements
</TABLE>
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 ten years.
The following paragraphs summarize the significant accounting policies
consistently followed by the fund in the preparation of its financial
statements:
Tax-exempt securities are valued at prices obtained from a pricing service,
when such prices are available; however, in circumstances where the investment
adviser deems it appropriate to do so, such securities will be valued at the
mean quoted bid and asked prices or at prices for securities of comparable
maturity, quality and type. Securities with original maturities of one year or
less having 60 days or less to maturity are amortized to maturity based on
their cost if acquired within 60 days of maturity or, if already held on the
60th day, based on the value determined on the 61st day. Securities and assets
for which representative market quotations are not readily available are valued
at fair value as determined in good faith by a committee appointed by 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. In the event
the fund purchases securities on a delayed delivery or "when-issued" basis, it
will segregate with its custodian liquid assets in an amount sufficient to meet
its payment obligations in these transactions. Realized gains and losses from
securities transactions are reported on an identified cost basis. Interest
income is reported on the accrual basis. Premiums and original issue discounts
on securities purchased are amortized. Amortization of market discounts on
securities is recognized upon disposition, subject to applicable tax
requirements. Dividends to shareholders are declared daily after the
determination of the fund's net investment income and are 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
Capital Research and Management Company (CRMC), the fund's investment advisor,
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 that the fund liquidates prior to the end
of the five-year period, CRMC shall bear any unamortized prepaid organization
expenses.
2. It is the fund's policy to continue to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its net investment income, including any net realized gain on
investments, to its shareholders. Therefore, no federal income tax provision is
required.
As of July 31, 1998, net unrealized appreciation on investments for book and
federal income tax purposes aggregated $6,133,000, of which $6,277,000 related
to appreciated securities and $144,000 related to depreciated securities. There
was no difference between book and tax realized gains on securities
transactions for the year ended July 31, 1998. The fund had available at July
31, 1998 a net capital loss carryforward totaling $2,983,000 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 $220,670,000 at July 31, 1998.
3. The fee of $830,000 for management services was incurred pursuant to an
agreement with Capital Research and Management Company (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; plus 3.00% of the fund's monthly
gross investment income. The Investment Advisory and Service Agreement provides
for a fee reduction to the extent that 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 twelve consecutive months, provided no advances are outstanding, or
October 1, 2003. Expenses that are not subject to these limitations are
interest, taxes, brokerage commissions, transaction costs, and extraordinary
expenses. Fee reductions were $169,000 for the year ended July 31, 1998.
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, 1998,
distribution expenses under the Plan were limited to $636,000. Had no
limitation been in effect, the fund would have paid $810,500 in distribution
expense under the Plan. As of July 31, 1998, accrued and unpaid distribution
expenses were $59,000.
American Funds Service Company (AFS), the transfer agent for the fund, was
paid a fee of $65,000. American Funds Distributors, Inc. (AFD), the principal
underwriter of the fund's shares received $105,000 (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, 1998,
aggregate amounts deferred and earnings thereon were $37,000.
CRMC is owned by The Capital Group Companies, Inc. AFS and AFD are both
wholly owned subsidiaries of CRMC. Certain 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, 1998, accumulated net realized loss on investments was
$2,964,000 paid-in capital was $223,806,000.
The fund made purchases and sales of investment securities excluding
short-term securities, of $96,164,000 and $70,109,000, respectively, during the
year ended July 31, 1998.
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 $1,000 was paid by these credits rather than in cash.
<TABLE>
<S> <C> <C> <C> <C> <C>
Per-Share Data and Ratios
Period
October 6
Year ended July 31 1993(1)
to July
1998 1997 1996 1995 31, 1994
----- ----- ----- ----- -----
Net Asset Value, Beginning of Period $14.79 $14.36 $14.29 $14.10 $14.29
----- ----- ----- ----- -----
Income From Investment Operations:
Net investment income .66 .68 .69 .69 .49
Net realized and unrealized
gain (loss) on investments .06 .43 .07 .19 (.19)
----- ----- ----- ----- -----
Total income from investment operations .72 1.11 .76 .88 .30
----- ----- ----- ----- -----
Less Distributions:
Dividends from net investment income (.66) (.68) (.69) (.69) (.49)
----- ----- ----- ----- -----
Net Asset Value, End of Period $14.85 $14.79 $14.36 $14.29 $14.10
===== ===== ===== ===== =====
Total Return/2/ 4.95% 7.96% 5.39% 6.45% 2.11%(3)
Ratios/Supplemental Data:
Net assets, end of period(in millions) $227 $203 $197 $191 $189
Ratio of expenses to average net assets before fee waiver .83% .83% .85% .90% .73%(3)
Ratio of expenses to average net assets after fee waiver .75% .75% .74% .64% .51%(3)
Ratio of net income to average net assets 4.40% 4.70% 4.77% 4.88% 3.67%(3)
Portfolio turnover rate 34.07% 31.89% 34.95% 45.82% 42.21%(3)
/1/Commencement of operations.
/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.
</TABLE>
