<PAGE>
[LOGO OF THE AMERICAN FUNDS GROUP(R)]
- --------------------------------------------------------------------------------
American High-Income
Municipal Bond Fund
Prospectus
DECEMBER 1, 1996
<PAGE>
================================================================================
AMERICAN HIGH-INCOME MUNICIPAL BOND FUND
333 South Hope Street
Los Angeles, CA 90071
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Expenses 1
................................
Financial Highlights 3
................................
Investment Policies and
Risks 4
................................
Securities and Investment
Techniques 4
................................
Multiple Portfolio
Counselor System 8
Investment Results 9
................................
Dividends, Distributions
and Taxes 10
................................
Fund Organization and
Management 11
................................
Appendix 14
................................
Shareholder Services 16
</TABLE>
The fund's investment objective is to provide investors with a high level of
current income exempt from regular federal income taxes through investments in
municipal bonds. From time to time.income.may.be.subject.to.various.taxes,
including federal alternative minimum and state taxes.
Normally, the fund will invest at least 50% of its total assets in bonds rated
Baa or BBB or below or unrated but determined to be of comparable quality.
Securities rated Ba and BB or below are commonly known as "junk" bonds and are
subject to greater fluctuations in risk and of loss of income and principal.
This prospectus presents information you should know before investing in the
fund. You should keep it on file for future reference.
More detailed information about the fund, including the fund's financial
statements, is contained in the statement of additional information dated
December 1, 1996, which has been filed with the Securities and Exchange
Commission and is available to you without charge, by writing to the Secretary
of the fund at the above address or calling American Funds Service Company.
YOU MAY LOSE MONEY BY INVESTING IN THE FUND. THE LIKELIHOOD OF LOSS IS GREATER
IF YOU INTEND TO INVEST FOR A SHORTER PERIOD OF TIME. YOUR INVESTMENT IN THE
FUND IS NOT A DEPOSIT OR OBLIGATION OF, OR INSURED OR GUARANTEED BY, ANY ENTITY
OR PERSON INCLUDING THE U.S. GOVERNMENT AND THE FEDERAL DEPOSIT INSURANCE
CORPORATION.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
40-010-1296
<PAGE>
================================================================================
EXPENSES
The effect of the expenses described below is reflected in the fund's share
price or return.
You may pay certain shareholder transaction expenses when you buy or sell
shares of the fund. Annual fund operating expenses are paid out of the fund's
assets and are factored into its share price.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
- ------------------------------------------
<S> <C>
Maximum sales charge on purchases
(as a percentage of offering price) 4.75%
</TABLE>
..........................................
SALES CHARGES ARE REDUCED OR ELIMINATED FOR LARGER PURCHASES. The fund has no
sales charge on reinvested dividends, and no deferred sales charge or
redemption or exchange fees. A contingent deferred sales charge of 1% applies
on certain redemptions made within 12 months following purchases without a
sales charge.
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets after fee waiver)
<TABLE>
- ---------------------------------------
<S> <C>
Management fees 0.41%/1/
.......................................
12b-1 expenses 0.26%/2/
.......................................
Other expenses 0.19%
.......................................
Total fund operating expenses 0.86%
</TABLE>
/1/ The Investment Advisory and Service Agreement provides for fee reductions to
the extent that annual operating expenses exceed 0.90% of the average net
assets of the fund. Capital Research and Management Company has been
voluntarily waiving fees to the extent necessary to ensure that the fund's
expenses do not exceed 0.86% of the average daily net assets. Without such a
waiver, fees (as a percentage of average net assets) would have been 0.88%.
Under certain circumstances, as described in the statement of additional
information, the fund may be required to repay amounts waived.
/2/ 12b-1 expenses may not exceed 0.30% of the fund's average net assets
annually. Due to these distribution expenses, long-term shareholders may pay
more than the economic equivalent of the maximum front-end sales charge
permitted by the National Association of Securities Dealers, Inc.
AMERICAN HIGH-INCOME MUNICIPAL BOND FUND / PROSPECTUS 1996 1
<PAGE>
===============================================================================
EXAMPLES
Assuming a hypothetical annual return of 5% and shareholder transaction and
operating expenses as described above, for every $1,000 you invested, you would
pay the following total expenses over the following periods:
- -----------------
<TABLE>
<S> <C>
One year $ 56
.................
Three years $ 74
.................
Five years $ 93
.................
Ten years $149
</TABLE>
THESE EXAMPLES ARE NOT MEANT TO REPRESENT YOUR ACTUAL INVESTMENT RESULTS OR
EXPENSES, WHICH MAY VARY.
2 AMERICAN HIGH-INCOME MUNICIPAL BOND FUND / PROSPECTUS 1996
<PAGE>
================================================================================
FINANCIAL HIGHLIGHTS
The following information has been derived from the fund's financial statements
which have been audited by Price Waterhouse LLP, independent accountants. This
table should be read together with the financial statements which are included
in the statement of additional information and the annual report. In addition,
more detailed information regarding the fund's investment strategies and
results is contained in the fund's annual report which may be obtained without
charge by writing to the Secretary of the fund at the address indicated on the
cover of this prospectus.
SELECTED PER-SHARE DATA
<TABLE>
<CAPTION>
YEARS ENDED JULY 31
.......................
1996 1995 /1/
----------------------
<S> <C> <C>
Net Asset Value,
Beginning of Period $15.14 $14.29
- ----------------------------------------------------
INCOME FROM
INVESTMENT
OPERATIONS:
Net investment income .88 .76
....................................................
Net realized and
unrealized gain on
investments .37 .85
....................................................
Total income from
investment operations 1.25 1.61
- ----------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net
investment income (.88) (.76)
....................................................
From net realized gains (.28) --
....................................................
Total distributions (1.16) (.76)
....................................................
Net Asset Value, End of
Period $15.23 $15.14
....................................................
Total Return /2/ 8.48% 11.62% /3/
- ----------------------------------------------------
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
period (in millions) $ 217 $ 157
....................................................
Ratio of expenses to
average net assets .86% /4/ .62% /3/,/4/
....................................................
Ratio of net income to
average net assets 5.74% 5.66% /3/
....................................................
Portfolio turnover rate 35.22% 46.42% /3/
</TABLE>
/1/ The period ended July 31, 1995 represents the initial period of operations
from September 26, 1994 to July 31, 1995.
/2/ Excludes maximum sales charge of 4.75%.
/3/ Based on operations for the period shown and, accordingly, not
representative of a full year's operations.
/4/ Had Capital Research and Management Company not waived fees, the fund's
ratio of expenses to average net assets would have been 0.88% and 0.94%,
respectively for the periods shown.
AMERICAN HIGH-INCOME MUNICIPAL BOND FUND / PROSPECTUS 1996 3
<PAGE>
===============================================================================
INVESTMENT POLICIES AND RISKS
The fund's investment objective is to provide shareholders with a high level of
current income exempt from regular federal income taxes.
In seeking to achieve its investment objective, the fund may forego
opportunities that would result in capital gains and may accept prudent risks
to capital value, in each case to take advantage of opportunities for higher
current income. Under normal market conditions, at least 80% of the fund's
total assets will be invested in tax-exempt securities with at least 65% in
bonds rated A or below or unrated but determined to be of comparable quality,
and at least 50% in securities rated Baa or BBB or below or unrated but
determined to be of comparable quality. For these purposes, bonds are
considered to be any debt securities having maturities in excess of one year.
The fund may invest without limitation 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. When in the
opinion of Capital Research and Management Company abnormal market conditions
require a temporary defensive position, the fund may invest in taxable short-
term fixed-income securities (generally, securities with original or remaining
maturities of one year or less). The fund's investment policies are described
below. A COMPLETE DESCRIPTION OF THE INVESTMENT POLICIES IS CONTAINED IN THE
FUND'S STATEMENT OF ADDITIONAL INFORMATION.
The fund's investment restrictions (which are described in the statement of
additional information as fundamental) and objective may not be changed without
shareholder approval. All other investment practices may be changed by the
fund's board of directors.
ACHIEVEMENT OF THE FUND'S INVESTMENT OBJECTIVE CANNOT, OF COURSE, BE ASSURED
DUE TO THE RISK OF CAPITAL LOSS FROM FLUCTUATING PRICES INHERENT IN ANY
INVESTMENT IN SECURITIES.
- --------------------------------------------------------------------------------
SECURITIES AND INVESTMENT TECHNIQUES
DEBT SECURITIES
Bonds and other debt securities are used by issuers to borrow money. The issuer
pays the investor a fixed or variable rate of interest, and must repay the
amount
4 AMERICAN HIGH-INCOME MUNICIPAL BOND FUND / PROSPECTUS 1996
<PAGE>
================================================================================
borrowed at maturity. Some debt securities, such as zero coupon bonds, do not
pay current interest, but are purchased at a discount from their face values.
In general, bond prices rise when interest rates fall, and vice versa. Debt
securities have varying levels of sensitivity to changes in interest rates and
varying degrees of quality as measured by Moody's Investors Service, Inc.
(which rates bonds from Aaa to C) or Standard & Poor's Corporation (which rates
bonds from AAA to D) or as rated by the fund's investment adviser. Longer-term
bonds are generally more sensitive to interest rate changes than short-term
bonds.
The fund may invest its assets in securities rated Ba or BB or below. These
securities are commonly known as "high-yield, high-risk" or "junk" bonds. High-
yield, high-risk bonds have speculative characteristics and involve greater
risk of default or price changes due to changes in the issuer's
creditworthiness, or they may already be in default. The market prices of these
securities may fluctuate more than higher-quality securities and may decline
significantly. It may be more difficult to dispose of, or to determine the
value of, high-yield, high-risk bonds.
High-yield, high-risk bonds may be very sensitive to adverse economic changes
and may be less sensitive to interest rate changes. In addition, periods of
economic uncertainty and changes may increase volatility of market prices and
yields of high-yield high-risk bonds and in turn the fund's net asset value.
High-yield, high-risk bonds may contain redemption or call provisions which, if
exercised during a period of declining interest rates, may cause the fund to
have to replace the security with a lower yielding security, resulting in a
decreased return for investors. Furthermore, 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.
Up to 5% of the fund's total assets may be invested in high-yield, high-risk
bonds rated C by Moody's or D by S&P. Bonds rated C or D are described by the
rating agencies as "having extremely poor prospects of ever attaining any real
investment standing" or "in default and payment of interest and/or repayment of
principal is in arrears," respectively. See the Appendix for a complete
description of the bond ratings.
Capital Research and Management Company attempts to reduce the risks described
above through diversification of the portfolio and by credit analysis of each
issuer as well as by monitoring broad economic trends and corporate and
legislative developments.
AMERICAN HIGH-INCOME MUNICIPAL BOND FUND / PROSPECTUS 1996 5
<PAGE>
===============================================================================
The average monthly composition of the fund's portfolio based on the higher of
Moody's or S&P ratings for the fiscal year ended July 31, 1996 was as follows:
<TABLE>
- -----------------
<S> <C>
Aaa/AAA 3.91%
.................
A/A 6.74%
.................
Baa/BBB 43.20%
.................
Ba/BB 5.40%
.................
Non-rated 33.55%
</TABLE>
Some or all of these non-rated securities were determined to be equivalent to
securities rated by Moody's or S&P as follows:
<TABLE>
- -----------------
<S> <C>
Baa/BBB 9.20%
.................
Ba/BB 17.85%
.................
B/B 6.50%
</TABLE>
Money market instruments and cash made up an average of 7.20% of the fund's
portfolio.
MUNICIPAL BONDS
Municipal bonds are debt obligations generally issued to obtain funds for
various public purposes, including the construction of public facilities. The
interest on these obligations is generally not included in gross income for
federal income tax purposes. Opinions relating to the validity of municipal
bonds and to the exclusion from gross income for federal income tax purposes
and, where applicable, the exemption from state and local income tax are
rendered by bond counsel to the respective issuing authorities at the time of
issuance.
The two principal classifications of municipal bonds are general obligation and
limited obligation, or revenue, bonds. General obligation bonds are secured by
the issuer's pledge of its full faith and credit including, if available, its
taxing power for the payment of principal and interest. Issuers of general
obligation bonds include states, counties, cities, towns and various regional
or special districts. Limited obligation or revenue bonds are secured by 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. 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.
6 AMERICAN HIGH-INCOME MUNICIPAL BOND FUND / PROSPECTUS 1996
<PAGE>
===============================================================================
There are, in addition, a variety of hybrid and special types of municipal
obligations, such as zero coupon and pre-refunded bonds, as well as numerous
differences in the security of municipal bonds, both within and between the two
primary classifications described above.
The amount of information about the financial condition of an issuer of
municipal bonds may not be as extensive as that which is made available by
corporations whose equity securities are publicly traded.
FORWARD COMMITMENTS
The fund may purchase securities on a when-issued or delayed-delivery basis or
sell them on a delayed-delivery basis and enter into firm commitment
agreements. These are trading practices in which payment and delivery for the
securities take place at a future date. When the fund purchases such securities
it assumes the risk of any decline in value of the security beginning on the
date of the agreement or purchase. When the fund sells such securities, it does
not participate in further gains or losses with respect to the security. If the
other party to a delayed delivery transaction fails to deliver or pay for the
securities, the fund could miss a favorable price or yield opportunity, or
could experience a loss.
VARIABLE AND FLOATING RATE OBLIGATIONS
The fund may invest in variable and floating rate obligations which have
interest rates that are adjusted at designated intervals, or whenever there are
changes in the market rates of interest on which the interest rates are based.
The rate adjustment feature tends to limit the extent to which the market value
of the obligation will fluctuate.
MATURITY
There are no restrictions on the maturity composition of the portfolio,
although it is anticipated that the fund normally will be invested
substantially in securities with maturities in excess of three years.
CONCENTRATION OF INVESTMENTS
The fund may invest more than 25% of its assets in municipal obligations of
issuers located in the same state or in municipal obligations of the same type
which pay interest on their obligations from revenue of similar projects. This
may make the fund more susceptible to similar economic, political, or
regulatory occurrences such as changes in healthcare regulations, environmental
AMERICAN HIGH-INCOME MUNICIPAL BOND FUND / PROSPECTUS 1996 7
<PAGE>
================================================================================
considerations related to construction, construction cost increases and labor
problems, failure of healthcare facilities to maintain adequate occupancy
levels, and inflation. As the similarity in issuers increases, the potential
for fluctuation of the net asset value of shares of the fund also increases.
The fund will not invest 25% or more of its assets in municipal securities of
the same project type issued by non-governmental entities.
TEMPORARY INVESTMENTS
The fund may invest all or a portion of its assets in short-term municipal
obligations of up to one year in maturity for temporary defensive purposes.
Generally, the income for all such securities is exempt from federal income
tax. 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 when, for economic reasons, these
investments are considered advisable.
- --------------------------------------------------------------------------------
MULTIPLE PORTFOLIO COUNSELOR SYSTEM
The basic investment philosophy of Capital Research and Management Company is
to seek fundamental values at reasonable prices, using a system of multiple
portfolio counselors in managing mutual fund assets. Under this system the
portfolio of the fund is divided into segments which are managed by individual
counselors. Counselors decide how their respective segments will be invested
(within the limits provided by the fund's objective and policies and by Capital
Research and Management Company's investment committee). In addition, Capital
Research and Management Company's research professionals make investment
decisions with respect to a portion of the fund's portfolio. The primary
individual portfolio counselors for the fund are listed on the following page.
8 AMERICAN HIGH-INCOME MUNICIPAL BOND FUND / PROSPECTUS 1996
<PAGE>
<TABLE>
<CAPTION>
YEARS OF EXPERIENCE AS
INVESTMENT PROFESSIONAL
(APPROXIMATE)
.........................
PORTFOLIO
COUNSELORS YEARS OF EXPERIENCE WITH CAPITAL
FOR AMERICAN AS PORTFOLIO COUNSELOR FOR RESEARCH AND
HIGH-INCOME AMERICAN HIGH-INCOME MANAGEMENT
MUNICIPAL MUNICIPAL BOND FUND COMPANY OR
BOND FUND PRIMARY TITLE(S) (APPROXIMATE) ITS AFFILIATES TOTAL YEARS
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DAVID A. Vice President, Less than 1 5 years 9 years
HOAG Capital year
Research
Company*
- -------------------------------------------------------------------------------------
NEIL L. Senior Vice Since the fund 18 years 18 years
LANGBERG President of began
the fund. Vice operations**
President--
Investment
Management
Group, Capital
Research and
Management
Company
- -------------------------------------------------------------------------------------
MARK R. Vice President Since the fund 2 years 11 years
MACDONALD of the fund. began
Vice operations**
President--
Investment
Management
Group, Capital
Research and
Management
Company
</TABLE>
* A wholly owned subsidiary of Capital Research and Management Company
** The fund began operations on September 26, 1994
- --------------------------------------------------------------------------------
INVESTMENT RESULTS
The fund may from time to time compare investment results to various indices or
other mutual funds. Fund results may be calculated on a total return, yield,
and/or distribution rate basis. Results calculated without a sales charge will
be higher.
X TOTAL RETURN is the change in value of an investment in the fund over a
given period, assuming reinvestment of any dividends and capital gain
distributions.
X YIELD refers to the income the fund expects to earn based on its current
portfolio over a given period of time, expressed as an annual percentage
rate. Because yield is calculated using a formula mandated by the Securities
and Exchange Commission, this yield may be different than the income
actually paid to shareholders.
X DISTRIBUTION RATE reflects dividends that were paid by the fund. The
distribution rate is calculated by annualizing the current month's dividend
AMERICAN HIGH-INCOME MUNICIPAL BOND FUND / PROSPECTUS 1996 9
<PAGE>
================================================================================
and dividing by the average price for the month. The SEC yield reflects
income the fund expects to earn based on its current portfolio of
securities, while the distribution rate is based solely on the fund's past
dividends. Accordingly, the fund's SEC yield and distribution rate may
differ.
<TABLE>
<CAPTION>
AVERAGE ANNUAL COMPOUND RETURNS
(AS OF SEPTEMBER 30, 1996)
................................
THE FUND AT NET THE FUND AT MAXIMUM
ASSET VALUE SALES CHARGE* LEHMAN INDEX+
- ----------------------------------------------------------------
<S> <C> <C> <C>
One year +8.05% +2.95% +6.04%
................................................................
Lifetime++ +10.94% +8.29% +8.53%
- ----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
OTHER RETURNS*
(AS OF SEPTEMBER 30, 1996)
........................................
<S> <C> <C>
30 days Yield: 5.42% Distribution Rate: 5.46%
- ----------------------------------------------------
</TABLE>
* These fund results were calculated according to a standard that is required
for all stock and bond funds. The maximum sales charge has been deducted.
+ Lehman Brothers Municipal Bond Index represents the long-term investment
grade municipal bond market. This index is unmanaged and does not reflect
sales charges, commissions or expenses.
++ The fund began investment operations September 26, 1994.
The fund's past results are not an indication of future results and reflect a
fee waiver. See "Expenses."
- --------------------------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
The fund declares dividends from its net investment income daily and
distributes the accrued dividends to shareholders each month. Dividends begin
accruing one day after payment for shares is received by the fund or American
Funds Service Company. Capital gains, if any, are usually distributed in
November or December. When a capital gain is distributed, the net asset value
per share is reduced by the amount of the payment.
TAXES
In any fiscal year in which the fund qualifies as a regulated investment
company and distributes to shareholders all of its net investment income and
net capital gains, the fund itself is relieved of federal income tax. The fund
is permitted to pass through to its shareholders federally tax-exempt income
subject to certain requirements. However, the fund may invest in obligations
which pay interest
10 AMERICAN HIGH-INCOME MUNICIPAL BOND FUND / PROSPECTUS 1996
<PAGE>
================================================================================
that is subject to state and local taxes when distributed by the fund.
Dividends derived from taxable interest income, distributions of capital gains
and dividends on gains from the disposition of certain market discount bonds
will not be exempt from federal, state or local income tax.
Capital gains are taxable whether they are reinvested or received in cash--
unless you are exempt from taxation or entitled to tax deferral. Early each
year, you will be notified as to the amount and tax status of all income
distributions paid during the prior year. You are required by the Internal
Revenue Code to report to the federal government all fund exempt-interest
dividends (and all other tax-exempt interest).
YOU MUST PROVIDE THE FUND WITH A CERTIFIED CORRECT TAXPAYER IDENTIFICATION
NUMBER (GENERALLY YOUR SOCIAL SECURITY NUMBER) AND CERTIFY THAT YOU ARE NOT
SUBJECT TO BACKUP WITHHOLDING. IF YOU FAIL TO DO SO THE IRS CAN REQUIRE THE
FUND TO WITHHOLD 31% OF YOUR TAXABLE DISTRIBUTIONS AND REDEMPTIONS. Federal law
also requires the fund to withhold 30% or the applicable tax treaty rate from
certain dividends paid to nonresident alien, non-U.S. partnership and non-U.S.
corporation shareholder accounts.
This is a brief summary of some of the tax laws that affect your investment in
the fund. Please see the statement of additional information and your tax
adviser for further information.
- --------------------------------------------------------------------------------
FUND ORGANIZATION AND MANAGEMENT
FUND ORGANIZATION AND VOTING RIGHTS
The fund, an open-end, diversified management investment company, was organized
as a Maryland corporation on June 14, 1994. All fund operations are supervised
by the fund's board of directors who meet periodically and perform duties
required by applicable state and federal laws. Members of the board who are not
employed by Capital Research and Management Company or its affiliates are paid
certain fees for services rendered to the fund as described in the statement of
additional information. They may elect to defer all or a portion of these fees
through a deferred compensation plan in effect for the fund. The fund does not
hold annual meetings of shareholders. However, significant corporate matters
which require shareholder approval, such as certain elections of board members
or a change in a fundamental investment policy, will be presented to
shareholders at a meeting called for such purpose. Shareholders have one vote
per share owned.</r.
AMERICAN HIGH-INCOME MUNICIPAL BOND FUND / PROSPECTUS 1996 11
<PAGE>
===============================================================================
THE INVESTMENT ADVISER
Capital Research and Management Company, a large and experienced investment
management organization founded in 1931, is the investment adviser to the fund
and other funds, including those in The American Funds Group. Capital Research
and Management Company, a wholly owned subsidiary of The Capital Group
Companies, Inc., is headquartered at 333 South Hope Street, Los Angeles, CA
90071. Capital Research and Management Company manages the investment portfolio
and business affairs of the fund. The management fee paid by the fund to
Capital Research and Management Company is composed of a basic management fee
which may not exceed 0.30% of the fund's average net assets annually and
declines at certain asset levels, plus 3% of the fund's annual gross income.
The total management fee paid by the fund as a percentage of average net assets
for the previous fiscal year is listed above under "Expenses."
Capital Research and Management Company and its affiliated companies have
adopted a personal investing policy that is consistent with the recommendations
contained in the May 9, 1994 report issued by the Investment Company
Institute's Advisory Group on Personal Investing. (See the statement of
additional information.) This policy has also been incorporated into the fund's
"code of ethics" which is available from the fund's Secretary upon request.
PLAN OF DISTRIBUTION
The fund has a Plan of Distribution or "12b-1 Plan" under which it may finance
activities primarily intended to sell shares, provided the categories of
expenses are approved in advance by the board and the expenses paid under the
plan were incurred within the preceding 12 months and accrued while the plan is
in effect. The 12b-1 fee paid by the fund as a percentage of average net assets
for the last fiscal year is listed above under "Expenses."
PORTFOLIO TRANSACTIONS
Orders for the fund's portfolio securities transactions are placed by Capital
Research and Management Company, which strives to obtain the best available
prices, taking into account the costs and quality of executions. Fixed-income
securities are generally traded on a "net" basis with a dealer acting as
principal for its own account without a stated commission, although the price
of the security usually includes a profit to the dealer. In underwritten
offerings, securities are usually purchased at a fixed price which includes an
amount of compensation to the underwriter, generally referred to as a
concession or discount. On occasion, securities may be purchased directly from
an issuer, in
12 AMERICAN HIGH-INCOME MUNICIPAL BOND FUND / PROSPECTUS 1996
<PAGE>
================================================================================
which case no commissions or discounts are paid. In the over-the-counter
market, purchases and sales are transacted directly with principal market-
makers except in those circumstances where it appears better prices and
executions are available elsewhere.
Subject to the above policy, when two or more brokers are in a position to
offer comparable prices and executions, preference may be given to brokers who
have sold shares of the fund or have provided investment research, statistical,
and other related services for the benefit of the fund and/or other funds
served by Capital Research and Management Company.
PRINCIPAL UNDERWRITER AND TRANSFER AGENT
American Funds Distributors, Inc. and American Funds Service Company serve as
the principal underwriter and transfer agent for the fund, respectively. They
are headquartered at 333 South Hope Street, Los Angeles, CA 90071 and 135 South
State College Boulevard, Brea, CA 92821, respectively.
AMERICAN FUNDS SERVICE COMPANY SERVICE AREAS
[MAP OF UNITED STATES OF AMERICA]
AMERICAN HIGH-INCOME MUNICIPAL BOND FUND / PROSPECTUS 1996 13
<PAGE>
================================================================================
APPENDIX
Moody's Investors Service, Inc. rates the long-term debt securities issued by
various entities in categories ranging from "Aaa" to "C," according to quality
as described below.
"Aaa--Best quality. These securities 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 shares."
"Aa--High quality by all standards. They are rated lower than the best bond
because margins of protection may not be as large as in Aaa securities,
fluctuation of protective elements may be of greater amplitude, or there may be
other elements present which make the long-term risks appear somewhat greater."
"A--Upper medium grade obligations. These bonds possess many favorable
investment attributes. 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."
"Baa--Medium grade obligations. 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."
"Ba--Have speculative elements; future cannot be considered as well assured.
The protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the future.
Bonds in this class are characterized by uncertainty of position."
14 AMERICAN HIGH-INCOME MUNICIPAL BOND FUND / PROSPECTUS 1996
<PAGE>
===============================================================================
"B--Generally lack characteristics of the desirable investment; assurance of
interest and principal payments or of maintenance of other terms of the
contract over any long period of time may be small."
"Caa--Of poor standing. Issues may be in default or there may be present
elements of danger with respect to principal or interest."
"Ca--Speculative in a high degree; often in default or having other marked
shortcomings."
"C--Lowest rated class of bonds; can be regarded as having extremely poor
prospects of ever attaining any real investment standing."
Standard & Poor's Corporation rates the long-term debt securities issued by
various entities in categories ranging from "AAA" to "D," according to quality
as described below.
"AAA--Highest rating. Capacity to pay interest and repay principal is extremely
strong."
"AA--High grade. Very strong capacity to pay interest and repay principal.
Generally, these bonds differ from AAA issues only in a small degree."
"A--Have a strong capacity to pay interest and repay principal, although they
are somewhat more susceptible to the adverse effects of change in circumstances
and economic conditions, than debt in higher rated categories."
"BBB--Regarded as having adequate capacity to pay interest and repay principal.
These bonds normally exhibit adequate protection parameters, but adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal than for debt in higher
rated categories."
"BB, B, CCC, CC, C--Regarded, on balance, as predominantly speculative with
respect to capacity to pay interest and repay principal in accordance with the
terms of the obligation. BB indicates the lowest degree of speculation and C
the highest degree of speculation. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions."
"C1--Reserved for income bonds on which interest is being paid."
"D--In default and payment of interest and/or repayment of principal is in
arrears."
AMERICAN HIGH-INCOME MUNICIPAL BOND FUND / PROSPECTUS 1996 15
<PAGE>
================================================================================
SHAREHOLDER SERVICES
The fund offers you a valuable array of services you can use to alter your
investment program as your needs and circumstances change. These services,
which are summarized below, are available only in states where they may be
legally offered and may be terminated or modified at any time upon 60 days'
written notice. A COMPLETE DESCRIPTION OF SHAREHOLDER SERVICES AND ACCOUNT
POLICIES IS CONTAINED IN THE FUND'S STATEMENT OF ADDITIONAL INFORMATION. In
addition, an easy-to-read guide to owning a fund in The American Funds Group
titled "Welcome to the Family" is sent to new shareholders and is available by
writing or calling American Funds Service Company.
- --------------------------------------------------------------------------------
PURCHASING SHARES
HOW TO PURCHASE SHARES
You may open an account by contacting any investment dealer authorized to sell
the fund's shares. You may add to your account through your dealer or directly
through American Funds Service Company by mail, wire, or bank debit. You may
also establish or add to your account by exchanging shares from any of your
other accounts in The American Funds Group. The fund and American Funds
Distributors reserve the right to reject any purchase order.
Various purchase options are available as described below subject to certain
investment minimums and limitations described in the statement of additional
information and "Welcome to the Family."
X Automatic Investment Plan
You may invest monthly or quarterly through automatic withdrawals from your
bank account.
X Automatic Reinvestment
You may reinvest your dividends and capital gain distributions into the
fund (with no sales charge). This will be done automatically unless you
elect to have the dividends and/or capital gain distributions paid to you
in cash.
X Cross-Reinvestment
You may invest your dividend and capital gain distributions into any other
fund in The American Funds Group.
16 AMERICAN HIGH-INCOME MUNICIPAL BOND FUND / PROSPECTUS 1996
<PAGE>
===============================================================================
X Exchange Privilege
You may exchange your shares into other funds in The American Funds Group
generally with no sales charge. Exchanges of shares from the money market
funds that were initially purchased with no sales charge will generally be
subject to the appropriate sales charge. You may also elect to
automatically exchange shares among any of the funds in The American Funds
Group. Exchange requests may be made in writing, by telephone including
American FundsLine (R) (see below) or by fax. EXCHANGES HAVE THE SAME TAX
CONSEQUENCES AS ORDINARY SALES AND PURCHASES.
X Retirement Plans
You may invest in the funds through various retirement plans. For further
information contact your investment dealer or American Funds Distributors.
SHARE PRICE
The fund's share price, also called net asset value, is determined as of the
close of trading (normally 4:00 p.m., Eastern time) every day the New York
Stock Exchange is open. The fund calculates its net asset value per share,
generally using market prices, by dividing the total value of its assets after
subtracting liabilities by the number of its shares outstanding. Shares are
purchased at the offering price next determined after your investment is
received and accepted by American Funds Service Company. The offering price is
the net asset value plus a sales charge, if applicable.
SHARE CERTIFICATES
Shares are credited to your account and certificates are not issued unless you
request them by writing to American Funds Service Company.
INVESTMENT MINIMUMS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
To establish an account $1,000
To add to an account $ 50
</TABLE>
AMERICAN HIGH-INCOME MUNICIPAL BOND FUND / PROSPECTUS 1996 17
<PAGE>
==============================================================================
SALES CHARGES
A sales charge may apply, as described below, when purchasing shares. Sales
charges may be reduced for larger purchases as indicated below.
<TABLE>
<CAPTION>
SALES CHARGE AS A
PERCENTAGE OF
..................
DEALER
NET CONCESSION AS
OFFERING AMOUNT % OF OFFERING
INVESTMENT PRICE INVESTED PRICE
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $25,000 4.75% 4.99% 4.00%
........................................................................
$25,000 but less than $50,000 4.50% 4.71% 3.75%
........................................................................
$50,000 but less than $100,000 4.00% 4.17% 3.25%
........................................................................
$100,000 but less than $250,000 3.50% 3.63% 2.75%
........................................................................
$250,000 but less than $500,000 2.50% 2.56% 2.00%
........................................................................
$500,000 but less than $1 million 2.00% 2.04% 1.60%
........................................................................
$1 million or more and certain other
investments described below see below see below see below
</TABLE>
PURCHASES NOT SUBJECT TO SALES CHARGES
Investments of $1 million or more and investments made by employer-sponsored
defined contribution-type plans with 200 or more eligible employees are sold
with no initial sales charge. A 1% CONTINGENT DEFERRED SALES CHARGE MAY BE
IMPOSED ON CERTAIN REDEMPTIONS MADE WITHIN ONE YEAR OF PURCHASE BY THESE
ACCOUNTS. A dealer concession of up to 1% may be paid by the fund from its Plan
of Distribution on these investments. Investments by retirement plans with $100
million or more in assets may be made with no sales charge and are not subject
to a contingent deferred sales charge. A dealer concession of up to 1% may be
paid by American Funds Distributors on these investments. Investments by
certain individuals and entities including employees and other associated
persons of dealers authorized to sell shares of the fund and Capital Research
and Management Company and its affiliated companies are not subject to a sales
charge.
18 AMERICAN HIGH-INCOME MUNICIPAL BOND FUND / PROSPECTUS 1996
<PAGE>
================================================================================
ADDITIONAL DEALER COMPENSATION
In addition to the concessions listed, up to 0.25% of average net assets is
paid annually to qualified dealers for providing certain services pursuant to
the fund's Plan of Distribution. During 1997, American Funds Distributors will
also provide additional compensation to the top one hundred dealers who have
sold shares of funds in The American Funds Group based on the pro rata share of
a qualifying dealer's sales.
REDUCING YOUR SALES CHARGE
You and your immediate family may combine investments to reduce your costs. You
must let your investment dealer or American Funds Service Company know if you
qualify for a reduction in your sales charge using one or any combination of
the methods described below.
X Aggregation
Investments that may be aggregated include those made by you, your spouse
and your children under the age of 21, if all parties are purchasing shares
for their own account(s), including any business account solely "controlled
by", as well as any retirement plan or trust account solely for the
benefit, of these individuals. Investments made for multiple employee
benefit plans of a single employer or "affiliated" employers may be
aggregated provided they are not also aggregated with individual accounts.
Finally, investments made by a common trust fund or other diversified
pooled account not specifically formed for the purpose of accumulating fund
shares may be aggregated.
Purchases made for nominee or street name accounts will generally not be
aggregated with those made for other accounts unless qualified as described
above.
X Concurrent Purchases
You may combine concurrent purchases of two more funds in The American
Funds Group, except direct purchases of the money market funds. Shares of
the money market funds purchased through an exchange, reinvestment or
cross-reinvestment from a fund having a sales charge do qualify.
X Right of Accumulation
You may take into account the current value of your existing holdings in
The American Funds Group to determine your sales charge. Direct purchases
of the money market funds are excluded.
AMERICAN HIGH-INCOME MUNICIPAL BOND FUND / PROSPECTUS 1996 19
<PAGE>
===============================================================================
X Statement of Intention
You may enter into a non-binding commitment to invest a certain amount in
non-money market fund shares over a 13-month period. A portion of your
account may be held in escrow to cover additional sales charges which may
be due if your total investments over the statement period are insufficient
to qualify for the applicable sales charge reduction.
- --------------------------------------------------------------------------------
SELLING SHARES
HOW TO SELL SHARES
You may sell (redeem) shares in your account by contacting your investment
dealer or American Funds Service Company. You may also use American
FundsLine(R) (see below). You may also sell shares in amounts of $50 or more
automatically. If you sell shares through your investment dealer you may be
charged for this service. Shares held for you in your dealer's street name must
be sold through the dealer.
Shares are sold at the net asset value next determined after your request is
received and accepted by American Funds Service Company. Sale requests may be
made in writing, by telephone including American FundsLine(R) (see below) or by
fax. Sales by telephone or fax are limited to $10,000 in accounts registered to
individual(s) (including non-retirement trust accounts). In addition, checks
must be made payable to the registered shareholder(s) and mailed to an address
of record that has been used with the account for at least 15 days. Proceeds
will not be mailed until sufficient time has passed to provide reasonable
assurance that checks or drafts (including certified or cashier's check) for
shares purchased have cleared (which may take up to 15 calendar days from the
purchase date). Except for delays relating to clearance of checks for share
purchases or in extraordinary circumstances (and as permissible under the
Investment Company Act of 1940), sale proceeds will be paid on or before the
seventh day following receipt and acceptance of an order. The fund may, with 60
days' written notice, close your account if due to a sale of shares the account
has a value of less than the minimum required initial investment.
Generally, written requests to sell shares must be signed by you and must
include any shares you wish to sell that are in certificate form. Your
signature must be guaranteed by a bank, savings association, credit union, or
member firm of a domestic stock exchange or the National Association of
Securities Dealers, Inc., that is an eligible guarantor institution. A
signature guarantee is
20 AMERICAN HIGH-INCOME MUNICIPAL BOND FUND / PROSPECTUS 1996
<PAGE>
================================================================================
not currently required for any sale of $50,000 or less provided the check is
made payable to the registered shareholder(s) and is mailed to the address of
record on the account, provided the address has been used with the account for
at least 15 days. Additional documentation may be required for sale of shares
held in corporate, partnership or fiduciary accounts.
You may reinvest proceeds from a redemption or a dividend or capital gain
distribution without a sales charge in any fund in The American Fund Group
within 90 days after the date of the redemption or distribution. Reinvestment
will be at the next calculated net asset value after receipt and acceptance by
American Funds Service Company.
- --------------------------------------------------------------------------------
OTHER IMPORTANT THINGS TO REMEMBER
AMERICAN FUNDSLINE(R)
You may check your share balance, the price of your shares, or your most recent
account transactions, sell shares (up to $10,000 per fund, per account each
day), or exchange shares around the clock with American FundsLine(R). To use
this service, call 800/325-3590 from a TouchTone(TM) telephone.
TELEPHONE PURCHASES, SALES AND EXCHANGES
Unless you opt out of the telephone (including American FundsLine(R)) or fax
purchase, sale and/or exchange options (see below), you agree to hold the fund,
American Funds Service Company, any of its affiliates or mutual funds managed
by such affiliates, and each of their respective directors, trustees, officers,
employees and agents harmless from any losses, expenses, costs or liability
(including attorney fees) which may be incurred in connection with the exercise
of these privileges provided American Funds Service Company employs reasonable
procedures to confirm that the instructions received from any person with
appropriate account information are genuine. If reasonable procedures are not
employed, the fund may be liable for losses due to unauthorized or fraudulent
instructions.
Generally, all shareholders are automatically eligible to use these options.
However, you may elect to opt out of these options by writing American Funds
Service Company. (You may also reinstate them at any time by writing to
American Funds Service Company.)
ACCOUNT STATEMENTS
You will receive regular confirmation statements reflecting transactions in
your account. Purchases through automatic investment plans and certain
retirement plans will be confirmed at least quarterly.
AMERICAN HIGH-INCOME MUNICIPAL BOND FUND / PROSPECTUS 1996 21
<PAGE>
===============================================================================
NOTES
PHONE NUMBERS TO CALL FOR SERVICE AND INFORMATION
Call American Funds Call American Funds Call American
Service Company Distributors FundsLine (R) for
for shareholder services for dealer services 24-hour information
800/421-0180 ext. 1 800/421-9900 ext. 11 800/325-3590
Telephone conversations may be recorded or monitored for verification,
recordkeeping and quality assurance purposes.
This prospectus has been printed on recycled paper using soy-based ink.
[LOGO OF RECYCLED PAPER]
22 AMERICAN HIGH-INCOME MUNICIPAL BOND FUND / PROSPECTUS 1996
<PAGE>
AMERICAN HIGH-INCOME MUNICIPAL BOND FUND, INC.
Part B
Statement of Additional Information
December 1, 1996
This document is not a prospectus but should be read in conjunction with
the current prospectus dated December 1, 1996 of American High-Income Municipal
Bond Fund, Inc. (the "fund"). The prospectus may be obtained from your
investment dealer or financial planner or by writing to the fund at the
following address:
American High-Income Municipal Bond Fund, Inc.
Attention: Secretary
333 South Hope Street
Los Angeles, CA 90071
(213) 486-9200
Table of Contents
<TABLE>
<CAPTION>
ITEM Page No.
<S> <C>
Description of Securities and Investment Techniques 1
Investment Restrictions 6
Fund Officers and Directors 9
Management 12
Dividends and Distributions 15
Additional Information Concerning Taxes 15
Purchase of Shares 19
Redeeming Shares 25
Shareholder Account Services and Privileges 26
Redemption of Shares 28
Execution of Portfolio Transactions 28
General Information 28
Investment Results 30
Financial Statements attached
</TABLE>
DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES
The descriptions below are intended to supplement the material in the
prospectus under "Investment Policies and Risks."
CERTAIN RISK FACTORS RELATING TO HIGH-YIELD, HIGH-RISK BONDS
SENSITIVITY TO INTEREST RATE AND ECONOMIC CHANGES -- The fund may invest in
bonds that are rated Ba or below by Moody's and BB or below by S&P or
determined to be of comparable quality, commonly known as "high-yield,
high-risk" or "junk" bonds. High-yield, high-risk bonds can be very sensitive
to adverse economic changes and political and corporate developments and may be
less sensitive to interest rate changes. During an economic downturn or
substantial period of rising interest rates, highly leveraged issuers may
experience financial stress that would adversely affect their ability to
service their principal and interest payment obligations, to meet projected
business goals, and to obtain additional financing. If the issuer of a bond
defaulted on its obligations to pay interest or principal or entered into
bankruptcy proceedings, the fund may incur losses or expenses in seeking
recovery of amounts owed to it. In addition, periods of economic uncertainty
and changes can be expected to result in increased volatility of market prices
and yields of high-yield, high-risk bonds and the fund's net asset value. From
time to time legislation has been proposed that would limit the use of
high-yield, high-risk bonds in certain instances. The impact that such
legislation, if enacted, could have on the market for such bonds cannot be
predicted.
PAYMENT EXPECTATIONS -- High-yield, high-risk bonds may contain redemption or
call provisions. If an issuer exercised these provisions in a declining
interest rate market, the fund would have to replace the security with a lower
yielding security, resulting in a decreased return for investors. Conversely, a
high-yield, high-risk bond's value will decrease in a rising interest rate
market, as will the value of the fund's assets. If the fund experiences
unexpected net redemptions, this may force it to sell high-yield, high-risk
bonds without regard to their investment merits, thereby decreasing the asset
base upon which expenses can be spread and possibly reducing the fund's rate of
return.
LIQUIDITY AND VALUATION -- There may be little trading in the secondary market
for particular bonds, which may affect adversely the fund's ability to value
accurately or dispose of such bonds. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may decrease the
values and liquidity of high-yield, high-risk bonds, especially in a thin
market.
MUNICIPAL BONDS -- Municipal bonds are debt obligations generally issued to
obtain funds for various public purposes, including the construction of public
facilities. Municipal bonds may be used to refund outstanding obligations, to
obtain funds for general operating expenses or for public improvements or for
lending private institutions or corporations funds for the construction of
educational facilities, hospitals, housing, industrial facilities or for other
public purposes. The interest on these obligations is generally not included
in gross income for federal income tax purposes. See "Additional Information
Concerning Taxes" below. Opinions relating to the validity of municipal bonds
and to the exclusion from gross income for federal income tax purposes and,
where applicable, the exemption from state and local income tax are rendered by
bond counsel to the respective issuing authorities at the time of issuance.
The two principal classifications of municipal bonds are general
obligation and limited obligation, or revenue, bonds. General obligation bonds
are secured by the issuer's pledge of its full faith and credit including, if
available, its taxing power for the payment of principal and interest. Issuers
of general obligation bonds include states, counties, cities, towns and various
regional or special districts. The proceeds of these obligations are used to
fund a wide range of public facilities such as the construction or improvement
of schools, highways and roads, water and sewer systems and facilities for a
variety of other public purposes. Lease revenue bonds or certificates of
participation in leases are payable from annual lease rental payments from a
state or locality. Annual rental payments are payable to the extent such
rental payments are appropriated annually.
Typically, the only security for a limited obligation or revenue bond is
the net revenue derived from a particular facility or class of facilities
financed thereby or, in some cases, from the proceeds of a special tax or other
special revenues. Revenue bonds have been issued to fund a wide variety of
revenue-producing public capital projects including: electric, gas, water and
sewer systems; highways, bridges and tunnels; port and airport facilities;
colleges and universities; hospitals; and convention, recreational and housing
facilities. Although the security behind these bonds varies widely, many
provide additional security in the form of a debt service reserve fund which
may also be used to make principal and interest payments on the issuer's
obligations. In addition, some revenue obligations (as well as general
obligations) are insured by a bond insurance company or backed by a letter of
credit issued by a banking institution.
Revenue bonds also include, for example, pollution control, health care
and housing bonds, which, although nominally issued by municipal authorities,
are generally not secured by the taxing power of the municipality but by the
revenues of the authority derived from payments by the private entity which
owns or operates the facility financed with the proceeds of the bonds.
Obligations of housing finance authorities have a wide range of security
features including reserve funds and insured or subsidized mortgages, as well
as the net revenues from housing or other public projects. Most of these bonds
do not generally constitute the pledge of the credit of the issuer of such
bonds. The credit quality of such revenue bonds is usually directly related to
the credit standing of the user of the facility being financed or of an
institution which provides a guarantee, letter of credit, or other credit
enhancement for the bond issue.
There are, in addition, a variety of hybrid and special types of municipal
obligations as well as numerous differences in the security of municipal bonds,
both within and between the two primary classifications described above.
The amount of information about the financial condition of an issuer of
municipal bonds may not be as extensive as that which is made available by
corporations whose equity securities are publicly traded.
MUNICIPAL LEASE OBLIGATIONS -- The fund may invest in municipal lease revenue
obligations, some of which may be considered illiquid. The fund may purchase,
without limitation, municipal lease revenue obligations that are determined to
be liquid by Capital Research and Management Company. In determining whether
these securities are liquid, Capital Research and Management Company will
consider among other things, the credit quality and support, including
strengths and weaknesses of the issuers and lessees, the terms of the lease,
frequency and volume of trading and number of dealers.
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 interest rates payable on certain
securities in which the fund may invest may not be fixed but may fluctuate
based upon changes in market rates. Variable and floating rate obligations
bear coupon rates that are adjusted at designated intervals, based on the then
current market rates of interest on which the coupon rates are based. Variable
and floating rate obligations only ensure the current interest rate for only
the period until the next scheduled rate adjustment, but the rate adjustment
feature tends to limit the extent to which the market value of the obligation
will fluctuate.
LOANS OF PORTFOLIO SECURITIES -- Although the fund has no current intention to
do so during the next 12 months, the fund is authorized to lend portfolio
securities to selected securities dealers or other institutional investors
whose financial condition is monitored by Capital Research and Management
Company (the "Investment Adviser"). The borrower must maintain with the fund's
custodian collateral consisting of cash, cash equivalents or U.S. Government
securities equal to at least 100% of the value of the borrowed securities, plus
any accrued interest. The Investment Adviser will monitor the adequacy of the
collateral on a daily basis. The fund may at any time call a loan of its
portfolio securities and obtain the return of the loaned securities. The fund
will receive any interest paid on the loaned securities and a fee or a portion
of the interest earned on the collateral. The fund will limit its loans of
portfolio securities to an aggregate of 33$% of the value of its total assets,
taken at the time any such loan is made.
WHEN-ISSUED SECURITIES AND FIRM COMMITMENT AGREEMENTS -- The fund may purchase
securities on a when-issued or delayed delivery basis or sell them on a
delayed-delivery basis. These are trading practices in which payment and
delivery for the securities take place at a future date. When the fund
purchases such securities it assumes the risk of any decline in value of the
security beginning on the date of the agreement or purchase. When the fund
sells such securities it does not participate in further gains or losses with
respect to the security. If the other party to a delayed delivery transaction
fails to deliver or pay for the securities, the fund could miss a favorable
price or yield opportunity, or could experience a loss. The fund as purchaser
assumes the risk of any decline in value of the security beginning on the date
of the agreement or purchase. As the fund's aggregate commitments under these
transactions increase, the opportunity for leverage similarly increases.
The fund will identify liquid assets which will be marked to market daily
in an amount sufficient to meet its payment obligations in these transactions.
Although these transactions will not be entered into for leveraging purposes,
to the extent the fund's aggregate commitments under these transactions exceed
its segregated assets, the fund temporarily could be in a leveraged position
(because it may have an amount greater than its net assets subject to market
risk). Should market values of the fund's portfolio securities decline while
the fund is in a leveraged position, greater depreciation of its net assets
would likely occur than were it not in such a position. The fund will not
borrow money to settle these transactions and, therefore, will liquidate other
portfolio securities in advance of settlement if necessary to generate
additional cash to meet its obligations thereunder.
PRIVATE PLACEMENTS -- Generally, municipal securities acquired in private
placements are subject to contractual restrictions on resale. Accordingly, all
private placements will be considered illiquid unless they have been
specifically determined to be liquid taking into account factors such as the
frequency and volume of trading and the commitment of dealers to make markets
under procedures adopted by the fund's board of trustees.
TEMPORARY INVESTMENTS -- The fund may invest in short-term municipal
obligations of up to one year in maturity during periods of temporary defensive
strategy resulting from abnormal market conditions, or when such investments
are considered advisable for liquidity. Generally, the income from all such
securities is exempt from federal income tax. See "Additional Information
Concerning Taxes" below. Further, a portion of the fund's assets, which will
normally be less than 20%, may be held in cash or invested in high-quality
taxable short-term securities of up to one year in maturity. Such investments
may include: (1) obligations of the U.S. Treasury; (2) obligations of agencies
and instrumentalities of the U.S. Government; and (3) money market instruments,
such as certificates of deposit issued by domestic banks, corporate commercial
paper, and bankers' acceptances; and (4) repurchase agreements (which are
subject to the limitations described below).
REPURCHASE AGREEMENTS -- Although the fund has no current intention to do so
during the next 12 months, the fund may enter on a temporary basis into
repurchase agreements, under which the fund buys a security and obtains a
simultaneous commitment from the seller to repurchase the security at a
specified time and price. The seller must maintain with the fund's custodian
collateral equal to at least 100% of the repurchase price including accrued
interest, as monitored daily by the Investment Adviser. The fund will only
enter into repurchase agreements involving securities in which it could
otherwise invest and with selected banks and securities dealers whose financial
condition is monitored by the Investment Adviser. If the seller under the
repurchase agreement defaults, the fund may incur a loss if the value of the
collateral securing the repurchase agreement has declined and may incur
disposition costs in connection with liquidating the collateral. If bankruptcy
proceedings are commenced with respect to the seller, liquidation of the
collateral by the fund may be delayed or limited.
ADJUSTMENT OF MATURITIES -- The Investment Adviser seeks to anticipate
movements in interest rates and adjusts the maturity distribution of the
portfolio accordingly. Longer term securities ordinarily yield more than
shorter term securities but are subject to greater and more rapid price
fluctuation. Keeping in mind the fund's objective of producing a high level of
current income, the Investment Adviser will increase the fund's exposure to
this price volatility only when it appears likely to increase current income
without undue risk to capital.
ISSUE CLASSIFICATION -- Securities with the same general quality rating and
maturity characteristics, but which vary according to the purpose for which
they were issued, often tend to trade at different yields. These yield
differentials tend to fluctuate in response to political and economic
developments, as well as temporary imbalances in normal supply/demand
relationships. The Investment Adviser monitors these fluctuations closely, and
will attempt to adjust portfolio concentrations in various issue
classifications according to the value disparities brought about by these yield
relationship fluctuations.
QUALITY -- Securities issued for similar purposes and with the same general
maturity characteristics, but which vary according to the creditworthiness of
their respective issuers, tend to trade at different yields. These yield
differentials also tend to fluctuate in response to political, economic and
supply/demand factors. The Investment Adviser will attempt to take advantage
of these fluctuations by adjusting the concentration of portfolio securities in
any given quality category according to the value disparities produced by these
yield relationship fluctuations.
The Investment Adviser believes that, in general, the market for municipal
bonds is less liquid than that for taxable fixed-income securities.
Accordingly, the ability of the fund to make purchases and sales of securities
in the foregoing manner may, at any particular time and with respect to any
particular securities, be limited (or non-existent.)
PORTFOLIO TURNOVER -- Portfolio changes will be made without regard to the
length of time particular investments may have been held. High portfolio
turnover involves correspondingly greater transaction costs in the form of
dealer spreads or brokerage commissions, and may result in the realization of
net capital gains, which are taxable when distributed to shareholders.
Fixed-income securities are generally traded on a net basis and usually neither
brokerage commissions nor transfer taxes are involved. The fund does not
anticipate its portfolio turnover to exceed 100% annually. The fund's
portfolio turnover rate would equal 100% if each security in the fund's
portfolio were replaced once per year. See "Financial Highlights" in the
prospectus for the fund's annual portfolio turnover over its lifetime.
SPECIAL CONSIDERATIONS -- The fund may invest without limitation 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.
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 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. These restrictions provide that the fund
may not:
1. With respect to 75% of the fund's total assets, purchase the security of
any issuer (other than securities issued or guaranteed by the U.S. Government
or its agencies or instrumentalities) if, as a result, (a) more than 5% of the
fund's total assets would be invested in securities of that issuer, or (b) the
fund would hold more than 10% of the outstanding voting securities of that
issuer. For the purpose of this restriction, the fund will regard each state,
each political subdivision, agency or instrumentality of such state, each
multi-state agency of which such state is a member, and each public authority
which issues industrial development bonds on behalf of a private entity as a
separate issuer;
2. Invest in companies for the purpose of exercising control or management;
3. Purchase or sell real estate (including real estate limited partnerships)
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);
4. Purchase or sell commodities unless acquired as a result of ownership of
securities or other instruments or engage in futures transactions;
5. 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. Make loans in an aggregate amount in excess of 33$% of the value of the
fund's total assets, taken at the time any loan is made, provided that the
purchase of debt securities pursuant to the fund's investment objective and
entering into repurchase agreements maturing in seven days or less shall not be
deemed loans for the purposes of this restriction and that loans of portfolio
securities may be made;
7. Issue senior securities, except as permitted under the Investment Company
Act of 1940;
8. Borrow money, except from banks for temporary or emergency purposes not to
exceed one-third of the value of the fund's total assets. Moreover, in the
event that the asset coverage for the fund's borrowings falls below 300%, the
fund will reduce, within three days (excluding Sundays and holidays), the
amount of its borrowings in order to provide for 300% asset coverage;
9. Pledge, or hypothecate any of its assets, except in an amount up to
one-third of the value of its total assets, but only to secure borrowings for
temporary or emergency purposes;
10. Invest in interests in oil, gas, or other mineral exploration or
development programs (or leases);
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);
12. Invest 25% or more of its assets in municipal securities of the same
project type issued by non-governmental entities. However, the fund may invest
more than 25% of its assets in municipal obligations of issuers located in the
same state or in municipal obligations of the same type, including without
limitation the following: general obligations of states and localities; lease
rental obligations of state and local authorities; obligations of state and
local housing finance authorities, municipal utilities systems or public
housing authorities; or industrial development or pollution control bonds
issued for hospitals, electric utility systems, life care facilities or other
purposes. As a result, the fund may be more susceptible to adverse economic,
political, or regulatory occurrences affecting a particular category of
issuers. As the concentration in the securities of a particular category of
issuer increases, the potential for fluctuation in the value of the fund's
shares also increases; nor
13. 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.
For the purposes 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.
NON-FUNDAMENTAL POLICIES -- The fund has adopted the following non-fundamental
investment policies, which may be changed by action of the Board of Directors
without shareholder approval:
1. The fund does not currently intend to lend portfolio securities. However,
if such action is authorized by the Board of Directors, loans of portfolio
securities as described under "Loans of Portfolio Securities" shall be made in
accordance with the terms and conditions therein set forth and consistent with
fundamental investment restriction #6;
2. The fund will not 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), nor invest more than 5% of its net assets in
restricted securities (excluding Rule 144A securities);
3. The fund will not invest more than 15% of its total assets in the
securities of issuers (excluding securities issued or guaranteed by the U.S.
government or its agencies or instrumentalities) which together with any
predecessors have a record of less than three years continuous operation;
4. The fund does not currently intend to purchase or retain the securities of
any issuer, if those individual officers and Directors of the fund, its
investment adviser, or principal underwriter who individually own more than 1/2
of 1% of the securities of such issuer, together own more than 5% of such
issuer's securities;
5. The fund does not currently intend to invest in the securities of other
registered management investment companies, except in connection with a merger,
consolidation, acquisition, reorganization, or in connection with the
implementation of any deferred compensation plan as adopted by the Board of
Directors;
6. The fund will not invest more than 5% of its net assets, valued at the
lower of cost or market at the time of purchase, in warrants, including not
more than 2% of such net assets in warrants that are not listed on a major
stock exchange. However, warrants acquired in units or attached to securities
may be deemed to be without value for the purpose of this restriction; and
7. The fund does not currently intend to purchase securities in the event its
borrowings exceed 5% of total assets.
FUND OFFICERS AND DIRECTORS
Directors and Director Compensation
<TABLE>
<CAPTION>
NAME, ADDRESS AND POSITION PRINCIPAL AGGREGATE TOTAL TOTAL
AGE WITH OCCUPATION(S) DURING COMPENSATION COMPENSATION NUMBER
REGISTRANT PAST 5 YEARS (INCLUDING FROM ALL FUNDS OF FUND
(POSITIONS WITHIN VOLUNTARILY MANAGED BY BOARDS
THE ORGANIZATIONS DEFERRED CAPITAL ON
LISTED MAY HAVE COMPENSATION/1/) RESEARCH AND WHICH
CHANGED DURING THIS FROM THE MANAGEMENT DIRECTOR
PERIOD) COMPANY COMPANY/2/ SERVES/2/
DURING FOR THE YEAR
FISCAL YEAR ENDED
ENDED JULY 31, 1996
JULY 31, 1996
<S> <C> <C> <C> <C> <C>
++H. Frederick Director Private Investor. $2,200/3/ $143,150 18
Christie The Mission
P.O. Box 144 Group (non-utility
Palos Verdes holding
Estates, CA Company, subsidiary
90274 of Southern
Age: 63 California Edison
Company),
former President and Chief
Executive Officer
Diane C. Creel Director CEO and President, $2,400 $37,750 12
100 W. Broadway The Earth Technology Corporation
Suite 5000 (international consulting
Long Beach, CA engineering)
90802
Age: 47
Martin Fenton, Director Chairman, Senior $2,600 $115,150 16
Jr. Resource Group
4350 Executive (management of
Drive senior living
Suite 101 centers)
San Diego, CA
92121-2116
Age: 61
Leonard R. Fuller Director President, Fuller & $2,200 $40,150 12
4337 Marina City Company, Inc.
Drive (financial
Suite 841 ETN management
Marina del Rey, consulting
CA 90292 firm)
Age: 50
+*Abner D. President, Capital Research and none/4/ none/4/ 12
Goldstine PEO and Management
Age: 66 Director Company, Senior Vice
President
and Director
+**Paul G. Haaga, Chairman of Capital Research and none/4/ none/4/ 14
Jr. the Board Management
Age: 47 Company, Senior Vice
President
and Director
Herbert Hoover Director Private Investor $2,000 $63,350 14
III
1520 Circle Drive
San Marino, CA
91108
Age: 68
Richard G. Newman Director Chairman, President $2,600/3/ $62,150 13
3250 Wilshire and CEO,
Boulevard AECOM Technology
Los Angeles, CA Corporation
90010-1599 (architectural
Age: 61 engineering)
Peter Valli Director Chairman, BW/IP $2,600/3/ $38,350 12
45 Sea Isle Drive International Inc.
Long Beach, CA (industrial
90803 manufacturing)
Age: 69
</TABLE>
+ Directors who are considered "interested persons" as defined in the
Investment Company Act of 1940, as amended (the "1940 Act"), on
the basis of their affiliation with the fund's Investment Adviser, Capital
Research and Management Company.
++ May be deemed an "interested person" of the fund due to membership on the
board of directors of the parent company of a registered broker-dealer.
* Address is 11100 Santa Monica Boulevard, Los Angeles, CA 90025
** Address is 333 South Hope Street, Los Angeles, CA 90071
/1/ Amounts may be deferred by eligible directors under a non-qualified
deferred compensation plan adopted by the Fund in 1994. Deferred amounts
accumulate at an earnings rate determined by the total return of one or more
funds in The American Funds Group as designated by the Director.
/2/ Capital Research and Management Company manages The American Funds Group
consisting of 28 funds: AMCAP Fund, Inc., American Balanced Fund, Inc.,
American High-Income Municipal Bond Fund, Inc., American High-Income Trust,
American Mutual Fund, Inc., The Bond Fund of America, Inc., The Cash Management
Trust of America, Capital Income Builder, Inc., Capital World Growth and Income
Fund, Inc., Capital World Bond Fund, Inc., EuroPacific Growth Fund, Fundamental
Investors, Inc., The Growth Fund of America, Inc., The Income Fund of America,
Inc., Intermediate Bond Fund of America, The Investment Company of America,
Limited Term Tax-Exempt Bond Fund of America, The New Economy Fund, New
Perspective Fund, Inc., SMALLCAP World Fund, Inc., The Tax-Exempt Bond Fund of
America, Inc., The Tax-Exempt Fund of California, The Tax-Exempt Fund of
Maryland, The Tax-Exempt Fund of Virginia, The Tax-Exempt Money Fund of
America, The U. S. Treasury Money Fund of America, U.S. Government Securities
Fund and Washington Mutual Investors Fund, Inc. Capital Research and
Management Company also manages American Variable Insurance Series and Anchor
Pathway Fund which serve as the underlying investment vehicle for certain
variable insurance contracts; and Bond Portfolio for Endowments, Inc. and
Endowments, Inc. whose shares may be owned only by tax-exempt organizations.
/3/ Since the plan's adoption, the total amount of deferred compensation
accrued by the fund (plus earnings thereon) for participating Directors is as
follows: H. Frederick Christie ($4,118), Richard G. Newman ($4,464) and Peter
C. Valli ($4,381). Amounts deferred and accumulated earnings thereon are not
funded and are general unsecured liabilities of the fund until paid to the
Director.
/4/ Paul G. Haaga, Jr. and Abner D. Goldstine are affiliated with the
Investment Adviser and, accordingly, receive no compensation from the Fund.
OFFICERS
*** Neil L. Langberg, SENIOR VICE PRESIDENT. Capital Research and Management
Company, Vice President - Investment Management Group
** Mary C. Hall, VICE PRESIDENT. Capital Research and Management Company,
Senior Vice President - Fund Business Management Group
* Michael J. Downer, VICE PRESIDENT. Capital Research and Management Company,
Senior Vice President - Fund Business Management Group
* Julie F. Williams, SECRETARY. Capital Research and Management Company,
Vice President - Fund Business Management Group
** Anthony W. Hynes, Jr., TREASURER. Capital Research and Management Company,
Vice President - Fund Business Management Group
* Kimberly S. Verdick, ASSISTANT SECRETARY. Capital Research and Management
Company, Assistant Vice President - Fund Business Management Group
* Address is 333 South Hope Street, Los Angeles, CA 90071.
** Address is 135 South State College Boulevard, Brea, CA 92821.
*** Address is 11100 Santa Monica Boulevard, Los Angeles, CA 90025.
No compensation is paid by the fund to any officer or Director who is a
director or officer of the Investment Adviser. The fund pays annual fees of
$900 to Directors who are not affiliated with the Investment Adviser, plus $200
for each Board of Directors meeting attended, plus $200 for each meeting
attended as a member of a committee of the Board of Directors. The Directors
may elect, on a voluntary basis, to defer all or a portion of their fees
through a deferred compensation plan in effect for the fund. The fund also
reimburses certain expenses of the Directors who are not affiliated with the
Investment Adviser. As of November 1, 1996 the officers and Directors and
their families as a group owned beneficially or of record less than 1% of the
outstanding shares of the fund.
MANAGEMENT
INVESTMENT ADVISER -- The Investment Adviser, founded in 1931, maintains
research facilities in the U.S. and abroad (Los Angeles, San Francisco, New
York, Washington D.C., London, Geneva, Singapore, Hong Kong and Tokyo), with a
staff of professionals, many of whom have years of investment experience. The
Investment Adviser is located at 333 South Hope Street, Los Angeles, CA 90071,
and at 135 South State College Boulevard, Brea, CA 92821. The Investment
Adviser's research professionals travel several million miles a year, making
more than 5,000 research visits in more than 50 countries around the world.
The Investment Adviser believes that it is able to attract and retain quality
personnel. The Investment Adviser is a wholly owned subsidiary of The Capital
Group Companies, Inc.
An affiliate of the Investment Adviser compiles indices for major stock
markets around the world and compiles and edits the Morgan Stanley Capital
International Perspective, providing financial and market information about
more than 2,400 companies around the world.
The Investment Adviser is responsible for more than $100 billion of
stocks, bonds and money market instruments and serves over five million
investors of all types throughout the world. These investors include privately
owned businesses and large corporations as well as schools, colleges,
foundations and other non-profit and tax-exempt organizations.
INVESTMENT ADVISORY AND SERVICE AGREEMENT -- The Investment Advisory and
Service Agreement (the "Agreement"), between the fund and the Investment
Adviser will continue in effect until May 31, 1997, unless sooner terminated,
and may be renewed from year to year thereafter, provided that any such renewal
has been specifically approved at least annually by (i) the Board of Directors
or by the vote of a majority (as defined in the 1940 Act) of the outstanding
voting securities of the fund, and (ii) the vote of a majority of Directors who
are not parties to the Agreement or interested persons (as defined in the 1940
Act) of any such party, cast in person, at a meeting called for the purpose of
voting on such approval. The Agreement provides that the Investment Adviser
has no liability to the fund for its acts or omissions in the performance of
its obligations to the fund not involving willful misconduct, bad faith, gross
negligence or reckless disregard of its obligations under the Agreement. The
Agreement also provides that either party has the right to terminate 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 the annual rate of 0.30% on the
first $60 million of average net assets, plus 0.21% on net assets over $60
million, plus 3% of gross investment income. Assuming net assets of $200
million and gross investment income levels of 3%, 4%, 5%, 6% and 7%, management
fees would be 0.33%, 0.36%, 0.39%, 0.42% and 0.45%, respectively.
For the purposes of such computations under the Agreement, the fund's
gross investment income does not reflect any net realized gains or losses on
the sale of portfolio securities but does include original-issue discount as
defined for federal income tax purposes.
The Investment Adviser, in addition to providing investment advisory
services, furnishes the services and pays the compensation and travel expenses
of qualified persons to perform the executive and related administrative,
clerical and bookkeeping functions of the fund, provides suitable office space,
necessary small office equipment and general purpose accounting forms,
supplies, and postage used at the offices of the fund. The fund pays all
expenses not assumed by the Investment Adviser, including, but not limited to,
custodian, stock transfer and dividend disbursing fees and expenses; costs of
the designing, printing and mailing of reports, prospectuses, proxy statements,
and notices to its shareholders, taxes; expenses of the issuance and redemption
of shares (including stock certificates, registration and qualification fees
and expenses); legal and auditing expenses; compensation, fees, and expenses
paid to directors unaffiliated with the Investment Adviser; association dues;
and costs of stationery and forms prepared exclusively for the fund.
The Investment Adviser has agreed to waive its fees by any amount
necessary to assure that such expenses do not exceed applicable expense
limitations in any state in which the funds' shares are being offered for
sale.
The Investment Adviser has agreed to bear any fund expenses (with the
exception of interest, taxes, brokerage costs and extraordinary expenses such
as litigation and acquisitions) in excess of 0.90% 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, 2004. 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 0.90%, the fund will
reimburse the Investment Adviser until the fund's annualized expense ratio
equals 0.90% or the debt is repaid, whichever comes first. Captial Research
and Management Company has also voluntarily agreed to waive its fees to the
extent necessary to ensure that the fund's expenses do not exceed 0.86% of the
average daily net assets. There can be no assurance that this voluntary fee
waiver will continue in the future. During the period, the Investment
Adviser's total fees amounted to $838,000. Voluntary fee waivers amounted to
$41,000 for the period ended July 31, 1996.
PRINCIPAL UNDERWRITER -- American Funds Distributors, Inc. (the "Principal
Underwriter") is the principal underwriter of the fund's shares. The Principal
Underwriter is located at 333 South Hope Street, Los Angeles, CA 90071, 135
South State College Boulevard, Brea, CA 92821, 8000 IH-10 West, San Antonio, TX
78230, 8332 Woodfield Crossing Boulevard, Indianapolis, IN 46240, and 5300
Robin Hood Road, Norfolk, VA 23513. The fund has adopted a Plan of Distribution
(the "Plan"), pursuant to rule 12b-1 under the 1940 Act. The Principal
Underwriter receives amounts payable pursuant to the Plan (see below) and
commissions consisting of that portion of the sales charge remaining after the
discounts which it allows to investment dealers. Commissions retained by the
Principal Underwriter on sales of fund shares during the period ended July 31,
1996 amounted to $348,000 after allowance of $1,467,000 to dealers. During the
fiscal year ended 1995, the Principal Underwriter received $266,000, after
allowance of $2,846,000.
As required by rule 12b-1 the Plan (together with the Principal
Underwriting Agreement) has been approved by the full Board of Directors and
separately by a majority of the Directors who are not interested persons of the
fund and who have no direct or indirect financial interest in the operation of
the Plan or the Principal Underwriting Agreement, and the Plan has been
approved by a vote of a majority of the outstanding voting securities of the
fund. The officers and directors who are "interested persons" of the fund due
to present or past affiliations with the Investment Adviser and related
companies may be considered to have a direct or indirect financial interest in
the operation of the Plan. Potential benefits of the Plan to the fund include
improved shareholder services, savings to the fund in transfer agency costs,
savings to the fund in advisory fees and other expenses, benefits to the
investment process from growth or stability of assets and maintenance of a
financially healthy management organization. The selection and nomination of
directors who are not "interested persons" of the fund shall be committed to
the discretion of the directors who are not "interested persons" during the
existence of the Plan. The Plan is reviewed quarterly and must be renewed
annually by the Board of Directors.
Under the Plan the fund may expend up to 0.30% 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 Directors has approved the
category of expenses for which payment is made. These include service fees for
qualified dealers and dealers commissions and wholesaler compensation on sales
of shares exceeding $1 million (including purchases by any employer-sponsored
403(b) plan or purchases by any defined contribution plan qualified under
Section 401(a) of the Internal Revenue Code including a "401(k)" plan with 200
or more eligible employees). Only expenses incurred during the preceding 12
months and accrued while the Plan is in effect may be paid by the fund. During
the period, the fund paid $496,000 under the Plan as compensation to dealers.
As of July 31, 1996, accrued and unpaid distribution expenses were $50,000.
The Glass-Steagall Act and other applicable laws, among other things,
generally prohibit federally chartered or supervised banks from engaging in the
business of underwriting, selling or distributing securities, but permit banks
to make shares of mutual funds available to their customers and to perform
administrative and shareholder servicing functions. However, judicial or
administrative decisions or interpretations of such laws, as well as changes in
either federal or state statutes or regulations relating to the permissible
activities of banks or their subsidiaries of affiliates, could prevent a bank
from continuing to perform all or a part of its servicing activities. If a
bank were prohibited from so acting, shareholder clients of such bank would be
permitted to remain shareholders of the fund and alternate means for continuing
the servicing of such shareholders would be sought. In such event, changes in
the operation of the fund might occur and shareholders serviced by such bank
might no longer be able to avail themselves of any automatic investment or
other services then being provided by such bank. It is not expected that
shareholders would suffer with adverse financial consequences as a result of
any of these occurrences.
In addition, state securities laws on this issue may differ from the
interpretations of federal law expressed herein and certain banks and financial
institutions may be required to be registered as dealers pursuant to state law.
DIVIDENDS AND DISTRIBUTIONS
DIVIDENDS AND DISTRIBUTIONS -- The fund declares dividends from its net
investment income daily and distributes the accrued dividends to shareholders
each month. The percentage of the distribution that is tax-exempt may vary
from year to year. For the purpose of calculating dividends, daily net
investment income of the fund consists of: (a) all interest income accrued on
the fund's investments including any original issue discount or market premium
ratably amortized to the date of maturity or determined in such other manner as
may be deemed appropriate; minus (b) all liabilities accrued, including
interest, taxes and other expense items, amounts determined and declared as
dividends or distributions and reserves for contingent or undetermined
liabilities, all determined in accordance with generally accepted accounting
principles.
ADDITIONAL INFORMATION CONCERNING TAXES
The following is only a summary of certain additional federal, state and
local tax considerations generally affecting the fund and its shareholders. No
attempt is made to present a detailed explanation of the tax treatment of the
fund or its shareholders, and the discussion here and in the fund's Trustee is
not intended as a substitute for careful tax planning. Investors are urged to
consult their tax advisers with specific reference to their own tax situations.
The fund is not intended to constitute a balanced investment program and
is not designed for investors seeking capital appreciation or maximum
tax-exempt income irrespective of fluctuations in principal. Shares of the
fund would generally not be suitable for tax-exempt institutions or
tax-deferred retirement plans (e.g., plans qualified under Section 401 of the
Internal Revenue Code, Keogh-type plans and individual retirement accounts.)
Such retirement plans would not gain any benefit from the tax-exempt nature of
the fund's dividends because such dividends would be ultimately taxable to
beneficiaries when distributed to them. In addition, the fund may not be an
appropriate investment for entities which are "substantial users" of facilities
financed by private activity bonds or "related persons" thereof. "Substantial
user" is defined under U.S. Treasury Regulations to include a non-exempt person
who regularly uses a part of such facilities in his trade or business and whose
gross revenues derived with respect to the facilities financed by the issuance
of bonds are more than 5% of the total revenues derived by all users of such
facilities, or who occupies more than 5% of the usable area of such facilities
or for whom such facilities or a part thereof were specifically constructed,
reconstructed or acquired. "Related persons" include certain related natural
persons, affiliated corporations, a partnership and its partners and an S
Corporation and its shareholders.
The fund intends to meet all the requirements and has elected the tax
status of a "regulated investment company" under the provisions of Subchapter M
of the Internal Revenue Code of 1986 (the "Code"). Under Subchapter M, if the
fund distributes within specified times at least 90% of its taxable and
tax-exempt net investment income, it will be taxed only on that portion, if
any, which it retains.
To qualify, the fund must (a) derive at least 90% of its gross income from
dividends, interest, payments with respect to securities loans, and gains from
the sale or other disposition of stock, securities, currencies, or other income
derived with respect to its business of investing in such stock, securities, or
currencies; (b) derive less than 30% of its gross income from the gains on sale
or other disposition of stock or securities held less than three months; and
(c) diversify its holdings so that, at the end of each fiscal quarter, (i) at
least 50% of the market value of the fund's assets is represented by cash, cash
items, U.S. Government securities, securities of other regulated investment
companies, and other securities which must be limited, in respect of any one
issuer to an amount not greater than 5% of the fund's assets and 10% of the
outstanding voting securities of such issuer, and (ii) not more than 25% of the
value of its assets is invested in the securities of any one issuer (other than
U.S. Government securities or the securities of other regulated investment
companies) or in two or more issuers which the fund controls and which are
engaged in the same or similar trades or businesses or related trades or
businesses.
The percentage of total dividends paid by the fund with respect to any
taxable year which qualify for exclusion from gross income ("exempt-interest
dividends") will be the same for all shareholders receiving dividends during
such year. In order for the fund to pay exempt-interest dividends during any
taxable year, at the close of each fiscal quarter at least 50% of the aggregate
value of the fund's assets must consist of tax-exempt obligations. Not later
than 60 days after the close of its taxable year, the fund will notify each
shareholder of the portion of the dividends paid by the fund to the shareholder
with respect to such taxable year which constitutes exempt-interest dividends.
The aggregate amount of dividends so designated cannot, however, exceed the
excess of the amount of interest excludable from gross income from tax under
Section 103 of the Code received by the fund during the taxable year over any
amounts disallowed as deductions under Sections 265 and 171(a)(2) of the Code.
Interest on indebtedness incurred by a shareholder to purchase or carry
fund shares is not deductible for federal income tax purposes if the fund
distributes exempt-interest dividends during the shareholder's taxable year.
If a shareholder receives an exempt-interest dividend with respect to any share
and such share is held for six months or less, any loss on the sale or exchange
of such share will be disallowed to the extent of the amount of such
exempt-interest dividend.
While the fund does not expect to realize substantial long-term capital
gains, any net realized long-term capital gains will be distributed annually.
The fund will have no tax liability with respect to such gains, and the
distributions will be taxable to shareholders as long-term capital gains,
regardless of how long a shareholder has held fund shares. Such distributions
will be designated as a capital gains distribution in a written notice, in the
form of the fund's annual report, 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 without
limitation 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% 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 (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 tax rate applicable to ordinary income is 39.6% (effective
tax rates may be higher for some individuals due to phase out of exemptions and
elimination of deductions); the maximum individual tax rate applicable to net
capital gains is 28%; and the maximum corporate tax applicable to ordinary
income and net capital gains is 35%. However, to eliminate the benefit of
lower marginal corporate income tax rates, corporations which have taxable
income in excess of $100,000 for a taxable year will be required to pay an
additional amount of income tax of up to $11,750 and corporations which have
taxable income in excess of $15,000,000 for a taxable year will be required to
pay an additional amount of income tax of up to $100,000. Naturally, the
amount of tax payable by a taxpayer will be affected by a combination of tax
law rules covering deductions, credits, deferrals, exemptions, sources of
income and other matters.
Under the Code, distributions of net investment income by the Fund to a
resident alien individual, nonresident alien fiduciary of a trust or estate,
foreign corporation, or foreign partnership (a "foreign shareholder") will be
subject to U.S. withholding tax (at a rate of 30% or a lower treaty rate, if
applicable). Withholding will not apply if a dividend paid by the fund is
"effectively connected" with a U.S. trade or business, in which case the
reporting and withholding requirements applicable to U.S. citizens, U.S.
residents, or domestic corporations will apply.
PURCHASE OF SHARES
<TABLE>
<CAPTION>
<S> <C> <C>
METHOD INITIAL INVESTMENT ADDITIONAL INVESTMENTS
See "Investment Minimums and $50 minimum (except where a lower
Fund Numbers" for initial minimum is noted under "Investment
investment minimums. Minimums and Fund Numbers").
By contacting Visit any investment dealer who Mail directly to your investment
your is registered in the state where dealer's address printed on your
investment the purchase is made and who account statement.
dealer has a sales agreement with
American Funds Distributors.
By mail Make your check payable to the Fill out the account additions form at the
fund and mail to the address bottom of a recent account statement, make
indicated on the account your check payable to the fund, write your
application. Please indicate an account number on your check, and mail
investment dealer on the account the check and form in the envelope
application. provided with your account statement.
By telephone Please contact your investment Complete the "Investments by Phone"
dealer to open account, then section on the account application or
follow the procedures for American FundsLink Authorization Form.
additional investments. Once you establish the privilege, you, your
financial advisor or any person with your
account information can call American
FundsLineR and make investments by
telephone (subject to conditions noted in
"Telephone Purchases, Redemptions and
Exchanges" below).
By wire Call 800/421-0180 to obtain Your bank should wire your additional
your account number(s), if investments in the same manner as
necessary. Please indicate an described under "Initial Investment."
investment dealer on the
account. Instruct your bank to
wire funds to:
Wells Fargo Bank
155 Fifth Street
Sixth Floor
San Francisco, CA 94106
(ABA #121000248)
For credit to the account of:
American Funds Service
Company
a/c #4600-076178
(fund name)
(your fund acct. no.)
THE FUNDS AND AMERICAN FUNDS DISTRIBUTORS RESERVE THE RIGHT TO REJECT ANY PURCHASE ORDER.
</TABLE>
PRICE OF SHARES -- Purchases of shares are made at the offering price next
determined after the purchase order is received by the fund or American Funds
Service Company; this offering price is effective for orders received prior to
the time of determination of the net asset value and, in the case of orders
placed with dealers, accepted by the Principal Underwriter prior to its close
of business. In the case of orders sent directly to the fund or American Funds
Service Company, an investment dealer MUST be indicated. The dealer is
responsible for promptly transmitting purchase orders to the Principal
Underwriter. Orders received by the investment dealer, the Transfer Agent, or
the fund after the time of the determination of the net asset value will be
entered at the next calculated offering price. Prices which appear in the
newspaper are not always indicative of prices at which you will be purchasing
and redeeming shares of the fund, since such prices generally reflect the
previous day's closing price whereas purchases and redemptions are made at the
next calculated closing price. The net asset value per share of the money
market funds normally will remain constant at $1.00 based on the fund's current
practice of valuing their shares using the penny-rounding method in accordance
with rules of the Securities and Exchange Commission.
The price you pay for fund 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) as set forth below each day the
New York Stock Exchange is open. The New York Stock Exchange is currently
closed on weekends and on the following holidays: New Year's Day, President's
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas Day. The net asset value per share is determined as follows:
1. Municipal bonds and notes and any other securities with more than 60 days
remaining to maturity normally are valued at prices obtained from a national
municipal bond pricing service, except that, where such prices are not
available or determined by the fund's officers not to represent market value,
they are valued at prices representing the mean between bid and asked
quotations (on the sale of similar issues) obtained from one or more
broker/dealers dealing in such municipal bonds and notes.
All securities with 60 days or less to maturity are amortized to maturity
based on their cost to the fund if acquired within 60 days of maturity or, if
already held by the fund on the 60th day, based on the value determined on the
61st day. The maturities of variable or floating rate instruments, or
instruments with the right to sell them at par to the issuer or dealer, are
deemed to be the time remaining until the next interest adjustment date or
until they can be redeemed at par.
Where market prices or market quotations are not readily available,
securities are valued at fair value as determined in good faith by the Board of
Directors or a committee thereof. The fair value of all other assets is added
to the value of securities to arrive at the total assets;
2. There are deducted from the total assets, thus determined, the liabilities,
including proper accruals of expense items; and
3. The value of the net assets so obtained are then divided by the total
number of shares outstanding and the result, rounded to the nearer cent, is the
net asset value per share.
Any purchase order may be rejected by the Principal Underwriter or by the
fund. The fund will not knowingly sell fund shares (other than for the
reinvestment of dividends or capital gain distributions) directly or indirectly
or through a unit investment trust to any other investment company, person or
entity, where, after the sale, such investment company, person, or entity would
own beneficially directly, indirectly, or through a unit investment trust more
than 4.5% of the outstanding shares of the fund without the consent of a
majority of the Board of Directors.
INVESTMENT MINIMUMS AND FUND NUMBERS -- Here are the minimum initial
investments required by the funds in The American Funds Group along with fund
numbers for use with our automated phone line, American FundsLineR (see
description below):
<TABLE>
<CAPTION>
<S> <C> <C>
FUND MINIMUM FUND
INITIAL NUMBER
INVESTMENT
STOCK AND STOCK/BOND FUNDS
AMCAP FundR 02
$1,000
American Balanced FundR 11
500
American Mutual FundR 03
250
Capital Income BuilderR 12
1,000
Capital World Growth and Income Fundsm 33
1,000
EuroPacific Growth FundR 16
250
Fundamental Investorssm 10
250
The Growth Fund of AmericaR 05
1,000
The Income Fund of AmericaR 06
1,000
The Investment Company of AmericaR 04
250
The New Economy FundR 14
1,000
New Perspective FundR 07
250
SMALLCAP World Fundsm 35
1,000
Washington Mutual Investors Fundsm 01
250
BOND FUNDS
American High-Income Municipal Bond Fundsm 40
1,000
American High-Income TrustR 21
1,000
The Bond Fund of Americasm 08
1,000
Capital World Bond FundR 31
1,000
Intermediate Bond Fund of AmericaR 23
1,000
Limited Term Tax-Exempt Bond Fund of Americasm 43
1,000
The Tax-Exempt Bond Fund of Americasm 19
1,000
The Tax-Exempt Fund of CaliforniaR* 20
1,000
The Tax-Exempt Fund of MarylandR* 24
1,000
The Tax-Exempt Fund of VirginiaR* 25
1,000
U.S. Government Securities Fundsm 22
1,000
MONEY MARKET FUNDS
The Cash Management Trust of AmericaR 09
2,500
The Tax-Exempt Money Fund of Americasm 39
2,500
The U.S. Treasury Money Fund of Americasm 49
2,500
___________
*Available only in certain states.
</TABLE>
For retirement plan investments, the minimum is $250, except that the
money market funds have a minimum of $1,000 for individual retirement accounts
(IRAs). Minimums are reduced to $50 for purchases through "Automatic
Investment Plans" (except for the money market funds) or to $25 for purchases
by retirement plans through payroll deductions and may be reduced or waived for
shareholders of other funds in The American Funds Group. TAX-EXEMPT FUNDS
SHOULD NOT SERVE AS RETIREMENT PLAN INVESTMENTS. The minimum is $50 for
additional investments (except as noted above).
STATEMENT OF INTENTION -- The reduced sales charges and offering prices set
forth in the prospectus apply to purchases of $25,000 or more made within a
13-month period subject to the following statement of intention (the
"Statement") terms. The Statement is not a binding obligation to purchase the
indicated amount. When a shareholder elects to utilize the Statement in order
to qualify for a reduced sales charge, shares equal to 5% of the dollar amount
specified in the Statement will be held in escrow in the shareholder's account
out of the initial purchase (or subsequent purchases, if necessary) by the
Transfer Agent. All dividends and capital gain distributions on these 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 must remit to the Principal
Underwriter the difference between the sales charge actually paid and the sales
charge which would have been paid if the total purchases had been made at a
single time. If the difference is not paid within 45 days after written
request by the Principal Underwriter or the investment dealer, the appropriate
number of escrowed shares will be redeemed to pay such difference. If the
proceeds from this redemption are inadequate, the purchaser will be liable to
the Principal Underwriter for the balance still outstanding. The Statement may
be revised upward at any time during the 13-month period, and such a revision
will be treated as a new Statement, except that the 13-month period during
which the purchase must be made will remain unchanged and there will be no
retroactive reduction of the sales charges paid on prior purchases. Existing
holdings eligible for rights of accumulation (see the prospectus and account
application) may be credited toward satisfying the Statement. During the
Statement period reinvested dividends and capital gain distributions,
investments in money market funds, and investments made under a right of
reinstatement will not be credited toward satisfying the Statement.
In the case of purchase orders by the trustees of certain retirement plans
by payroll deduction, the sales charge for the investments made during the
13-month period will be handled as follows: The regular monthly payroll
deduction investment will be multiplied by 13 and then multiplied by 1.5. The
current value of existing American Funds investments (other than money market
fund investments) and any rollovers or transfers reasonably anticipated to be
invested in non-money market American Funds during the 13-month period are
added to the figure determined above. The sum is the Statement amount and
applicable breakpoint level. On the first investment and all other investments
made pursuant to the Statement, a sales charge will be assessed according to
the sales charge breakpoint thus determined. There will be no retroactive
adjustments in sales charges on investments previously made during the 13-month
period.
Shareholders purchasing shares at a reduced sales charge under a Statement
indicate their acceptance of these terms with their first purchase.
DEALER COMMISSIONS -- The sales charges you pay when purchasing the stock,
stock/bond, and bond funds of The American Funds Group are set forth below.
The money market funds of The American Funds Group are offered at net asset
value.
(See "Investment Minimums and Fund Numbers" for a listing of the funds.)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SALES CHARGE AS DEALER
PERCENTAGE OF THE: CONCESSION
AMOUNT OF PURCHASE AS PERCENTAGE
AT THE OFFERING PRICE OF THE
OFFERING
PRICE
NET AMOUNT OFFERING
INVESTED PRICE
STOCK AND STOCK/BOND FUNDS
Less than $50,000
6.10% 5.75% 5.00%
$50,000 but less than $100,000
4.71 4.50 3.75
BOND FUNDS
Less than $25,000
4.99 4.75 4.00
$25,000 but less than $50,000
4.71 4.50 3.75
$50,000 but less than $100,000
4.17 4.00 3.25
STOCK, STOCK/BOND, AND BOND FUNDS
$100,000 but less than $250,000
3.63 3.50 2.75
$250,000 but less than $500,000
2.56 2.50 2.00
$500,000 but less than $1,000,000
2.04 2.00 1.60
$1,000,000 or more (see below)
none none
</TABLE>
Commissions of up to 1% will be paid, to dealers who initiate
and are responsible for purchases of $1 million or more, for purchases by
any employer-sponsored 403(b)plan or purchases by any defined contribution
plan qualified under Section 401(a) of the Internal Revenue
Code including a "401(k)" plan with 200 or more eligible employees, and
for purchases made at net asset value by certain retirement plans
of organizations with collective retirement plan assets of $100 million or
more: 1.00% on amounts of $1 million to $2 million, 0.80% on amounts
over $2 million to $3 million, 0.50% on amounts over $3 million to $50
million, 0.25% on amounts over $50 million to $100 million, and 0.15% on
amounts over $100 million. The level of dealer commissions will be
determined based on sales made over a 12-month period commencing from
the date of the first sale at net asset value.
American Funds Distributors, at its expense (from a designated
percentage of its income), will, during calendar year 1997, provide additional
compensation to dealers. Currently these payments are limited to the top one
hundred dealers who have sold shares of the fund or other funds in The American
Funds Group. These payments will be based on a pro rata share of a qualifying
dealer's sales. American Funds Distributors will, on an annual basis, determine
the advisability of continuing these payments.
Any employer-sponsored 403(b) plan or defined contribution plan qualified
under Section 401(a) of the Internal Revenue Code including a "401(k)" plan
with 200 or more eligible employees or any other purchaser investing at least
$1 million in shares of the fund (or in combination with shares of other funds
in The American Funds Group other than the money market funds) may purchase
shares at net asset value; however, a contingent deferred sales charge of 1% is
imposed on certain redemptions made within twelve months of the purchase. (See
"Redeeming Shares--Contingent Deferred Sales Charge.")
Qualified dealers currently are paid a continuing service fee not to
exceed 0.25% of average net assets (0.15% in the case of the money market
funds) annually in order to promote selling efforts and to compensate them for
providing certain services. These services include processing purchase and
redemption transactions, establishing shareholder accounts and providing
certain information and assistance with respect to the fund.
NET ASSET VALUE PURCHASES -- The stock, stock/bond and bond funds may sell
shares at net asset value to: (1) current or retired directors, trustees,
officers and advisory board members of the funds managed by Capital Research
and Management Company, employees of Washington Management Corporation,
employees and partners of The Capital Group Companies, Inc. and its affiliated
companies, certain family members of the above persons, and trusts or plans
primarily for such persons; (2) current registered representatives, retired
registered representatives with respect to accounts established while active,
or full-time employees (and their spouses, parents, and children) of dealers
who have sales agreements with American Funds Distributors (or who clear
transactions through such dealers) and plans for such persons or the dealers;
(3) companies exchanging securities with the fund through a merger, acquisition
or exchange offer; (4) trustees or other fiduciaries purchasing shares for
certain retirement plans of organizations with retirement plan assets of $100
million or more; (5) insurance company separate accounts; (6) accounts managed
by subsidiaries of The Capital Group Companies, Inc.; and (7) The Capital Group
Companies, Inc., its affiliated companies and Washington Management
Corporation. Shares are offered at net asset value to these persons and
organizations due to anticipated economies in sales effort and expense.
AGGREGATION -- Sales charge discounts are available for certain aggregated
investments. Qualifying investments include those by you, your spouse and your
children under the age of 21, if all parties are purchasing shares for their
own account(s), which may include purchases through employee benefit plan(s)
such as an IRA, individual-type 403(b) plan or single-participant Keogh-type
plan or by a business solely controlled by these individuals (for example, the
individuals own the entire business) or by a trust (or other fiduciary
arrangement) solely for the benefit of these individuals. Individual purchases
by a trustee(s) or other fiduciary(ies) may also be aggregated if the
investments are (1) for a single trust estate or fiduciary account, including
an employee benefit plan other than those described above or (2) made for two
or more employee benefit plans of a single employer or of affiliated employers
as defined in the Investment Company Act of 1940, again excluding employee
benefit plans described above, or (3) for a diversified common trust fund or
other diversified pooled account not specifically formed for the purpose of
accumulating fund shares. Purchases made for nominee or street name accounts
(securities held in the name of an investment dealer or another nominee such as
a bank trust department instead of the customer) may not be aggregated with
those made for other accounts and may not be aggregated with other nominee or
street name accounts unless otherwise qualified as described above.
REDEEMING SHARES
<TABLE>
<CAPTION>
<S> <C>
By writing to American Funds Send a letter of instruction specifying the name of the fund, the
Service Company (at the number of shares or dollar amount to be sold, your name and
appropriate address indicated account number. You should also enclose any share certificates
under "Fund Organization and you wish to redeem. For redemptions over $50,000 and for
Management - Principal certain redemptions of $50,000 or less (see below), your signature
Underwriter and Transfer must be guaranteed by a bank, savings association, credit union, or
Agent" in the prospectus) member firm of a domestic stock exchange or the National
Association of Securities Dealers, Inc. that is an eligible guarantor
institution. You should verify with the institution that it is an
eligible guarantor prior to signing. Additional documentation may
be required for redemption of shares held in corporate, partnership
or fiduciary accounts. Notarization by a Notary Public is not an
acceptable signature guarantee.
By contacting your investment If you redeem shares through your investment dealer, you may be
dealer charged for this service. SHARES HELD FOR YOU IN YOUR INVESTMENT
DEALER'S STREET NAME MUST BE REDEEMED THROUGH THE DEALER.
You may have a redemption You may use this option, provided the account is registered in the
check sent to you by using name of an individual(s), a UGMA/UTMA custodian, or a non-retirement
plan trust. These redemptions may not exceed $10,000
American FundsLineR or by per day, per fund account and the check must be made payable to
telephoning, faxing, or the shareholder(s) of record and be sent to the address of record
telegraphing American Funds provided the address has been used with the account for at least 10
Service Company (subject to days. See "Transfer Agent" and "Exchange Privilege" below for
the conditions noted in this the appropriate telephone or fax number.
section and in "Telephone
Purchases, Redemptions and
Exchanges" below)
In the case of the money Upon request (use the account application for the money market
market funds, you may have funds) you may establish telephone redemption privileges (which
redemptions wired to your will enable you to have a redemption sent to your bank account)
bank by telephoning American and/or check writing privileges. If you request check writing
Funds Service Company privileges, you will be provided with checks that you may use to
($1,000 or more) or by writing draw against your account. These checks may be made payable to
a check ($250 or more) anyone you designate and must be signed by the authorized
number of registered shareholders exactly as indicated on your
checking account signature card.
</TABLE>
A SIGNATURE GUARANTEE IS NOT CURRENTLY REQUIRED FOR ANY REDEMPTION OF
$50,000 OR LESS PROVIDED THE REDEMPTION CHECK IS MADE PAYABLE TO THE REGISTERED
SHAREHOLDER(S) AND IS MAILED TO THE ADDRESS OF RECORD, PROVIDED THE ADDRESS HAS
BEEN USED WITH THE ACCOUNT FOR AT LEAST 10 DAYS.
CONTINGENT DEFERRED SALES CHARGE -- A contingent deferred sales charge of
1% applies to certain redemptions made within twelve months of purchase on
investments of $1 million or more and on any investment made with no initial
sales charge by any employer-sponsored 403(b) plan or defined contribution plan
qualified under Section 401(a) of the Internal Revenue Code including a
"401(k)" plan with 200 or more eligible employees. The charge is 1% of the
lesser of the value of the shares redeemed (exclusive of reinvested dividends
and capital gain distributions) or the total cost of such shares. Shares held
for the longest period are assumed to be redeemed first for purposes of
calculating this charge. The charge is waived for exchanges (except if shares
acquired by exchange were then redeemed within 12 months of the initial
purchase); for distributions from qualified retirement plans and other employee
benefit plans; for redemptions resulting from participant-directed switches
among investment options within a participant-directed employer-sponsored
retirement plan; for distributions from 403(b) plans or IRAs due to death,
disability or attainment of age 59 1/2; for tax-free returns of excess
contributions to IRAs; for redemptions through certain automatic withdrawals
not exceeding 10% of the amount that would otherwise be subject to the charge;
and for redemptions in connection with loans made by qualified retirement
plans.
SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES
AUTOMATIC INVESTMENT PLAN -- The automatic investment plan enables
shareholders to make regular monthly or quarterly investments in shares through
automatic charges to their bank accounts. With shareholder authorization and
bank approval, the Transfer Agent will automatically charge the bank account
for the amount specified ($50 minimum), which will be automatically invested in
shares at the offering price on or about the 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 the Transfer
Agent.
AUTOMATIC REINVESTMENT -- Dividends and capital gain distributions are
reinvested in additional shares at no sales charge unless you indicate
otherwise on the account application. You also may elect to have dividends
and/or capital gain distributions paid in cash by informing the fund, American
Funds Service Company or your investment dealer.
AUTOMATIC WITHDRAWALS -- Withdrawal payments are not to be considered as
dividends, yield or income. Automatic investments may not be made into a
shareholder account from which there are automatic withdrawals. Withdrawals of
amounts exceeding reinvested dividends and distributions and increases in share
value would reduce the aggregate value of the shareholder's account. The
Transfer Agent arranges for the redemption by the fund of sufficient shares,
deposited by the shareholder with the Transfer Agent, to provide the withdrawal
payment specified.
CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS -- A shareholder in one fund
may elect to cross-reinvest dividends or dividends and capital gain
distributions paid by that fund (the "paying fund") into any other fund in The
American Funds Group (the "receiving fund") subject to the following
conditions: (i) the aggregate value of the shareholder's account(s) in the
paying fund(s) must equal or exceed $5,000 (this condition is waived if the
value of the account in the receiving fund equals or exceeds that fund's
minimum initial investment requirement), (ii) as long as the value of the
account in the receiving fund is below that fund's minimum initial investment
requirement, dividends and capital gain distributions paid by the receiving
fund must be automatically reinvested in the receiving fund, and (iii) if this
privilege is discontinued with respect to a particular receiving fund, the
value of the account in that fund must equal or exceed the fund's minimum
initial investment requirement or the fund shall have the right, if the
shareholder fails to increase the value of the account to such minimum within
90 days after being notified of the deficiency, automatically to redeem the
account and send the proceeds to the shareholder. These cross-reinvestments of
dividends and capital gain distributions will be at net asset value (without
sales charge).
EXCHANGE PRIVILEGE -- You may exchange shares into other funds in The American
Funds Group. Exchange purchases are subject to the minimum investment
requirements of the fund purchased and no sales charge generally applies.
However, exchanges of shares from the money market funds are subject to
applicable sales charges on the fund being purchased, unless the money market
fund shares were acquired by an exchange from a fund having a sales charge, or
by reinvestment or cross-reinvestment of dividends or capital gain
distributions.
You may exchange shares by writing to American Funds Service Company (see
"Redeeming Shares"), by contacting your investment dealer, by using American
FundsLineR (see "American FundsLineR" below), or by telephoning 800/421-0180
toll-free, faxing (see "Transfer Agent" below for the appropriate fax numbers)
or telegraphing American Funds Service Company. (See "Telephone Redemptions and
Exchanges" below.) Shares held in corporate-type retirement plans for which
Capital Guardian Trust Company serves as trustee may not be exchanged by
telephone, fax or telegraph. Exchange redemptions and purchases are processed
simultaneously at the share prices next determined after the exchange order is
received. (See "Purchase of Shares--Price of Shares.") THESE TRANSACTIONS HAVE
THE SAME TAX CONSEQUENCES AS ORDINARY SALES AND PURCHASES.
AUTOMATIC EXCHANGES -- You may automatically exchange shares (in amounts of $50
or more) among any of the funds in The American Funds Group on any day (or
preceding business day if the day falls on a non-business day) of each month
you designate. You must either meet the minimum initial investment requirement
for the receiving fund OR the originating fund's balance must be at least
$5,000 and the receiving fund's minimum must be met within one year.
ACCOUNT STATEMENTS -- Your account is opened in accordance with your
registration instructions. Transactions in the account, such as additional
investments and dividend reinvestments, will be reflected on regular
confirmation statements from American Funds Service Company. Purchases through
automatic investment plans and certain retirement plans will be confirmed at
least quarterly.
AMERICAN FUNDSLINER -- You may check your share balance, the price of your
shares, or your most recent account transaction, redeem shares (up to $10,000
per fund, per account each day), or exchange shares around the clock with
American FundsLineR. To use this service, call 800/325-3590 from a TouchTonet
telephone. Redemptions and exchanges through American FundsLineR are subject
to the conditions noted above and in "Redeeming Shares--Telephone Redemptions
and Exchanges" below. You will need your fund number (see the list of funds in
The American Funds Group under "Purchase of Shares--Investment Minimums and
Fund Numbers"), personal identification number (the last four digits of your
Social Security number or other tax identification number associated with your
account) and account number.
TELEPHONE REDEMPTIONS AND EXCHANGES -- By using the telephone (including
American FundsLineR), fax or telegraph redemption and/or exchange options, you
agree to hold the fund, American Funds Service Company, any of its affiliates
or mutual funds managed by such affiliates, and each of their respective
directors, trustees, officers, employees and agents harmless from any losses,
expenses, costs or liability (including attorney fees) which may be incurred in
connection with the exercise of these privileges. Generally, all shareholders
are automatically eligible to use these options. However, you may elect to opt
out of these options by writing American Funds Service Company (you may
reinstate them at any time also by writing American Funds Service Company). If
American Funds Service Company does not employ reasonable procedures to confirm
that the instructions received from any person with appropriate account
information are genuine, the fund may be liable for losses due to unauthorized
or fraudulent instructions. In the event that shareholders are unable to reach
the fund by telephone because of technical difficulties, market conditions, or
a natural disaster, redemption and exchange requests may be made in writing
only.
REDEMPTION OF SHARES
The Transfer Agent may redeem the shares of any shareholder if the shares
owned by such shareholder through redemptions, market decline or otherwise,
have a value of less than the minimum initial investment amount required of new
shareholders of that series or Class, (determined, for this purpose only as the
greater of the shareholder's cost or the current net asset value of the shares,
including any shares acquired through reinvestment of income dividends and
capital gain distributions). Prior notice of at least 60 days will be given to
a shareholder before the involuntary redemption provision is made effective
with respect to the shareholder's account. The shareholder will have not less
than 30 days from the date of such notice within which to bring the account up
to the minimum determined as set forth above.
EXECUTION OF PORTFOLIO TRANSACTIONS
There are occasions on which portfolio transactions for the fund may be
executed as part of concurrent authorizations to purchase or sell the same
security for other funds served by the Investment Adviser, or for trusts or
other accounts served by affiliated companies of the Investment Adviser.
Although such concurrent authorizations potentially could be either
advantageous or disadvantageous to the fund, they are effected only when the
Investment Adviser believes that to do so is in the interest of the fund. When
such concurrent authorizations occur, the objective is to allocate the
executions in an equitable manner. The fund does not intend to pay a mark-up
in exchange for research in connection with principal transactions.
GENERAL INFORMATION
CUSTODIAN OF ASSETS -- Securities and cash owned by the fund, including
proceeds from the sale of shares of the fund and of securities in the fund's
portfolio, are held by The Chase Manhattan Bank, One Chase Manhattan Plaza, New
York, NY 10081, as Custodian.
TRANSFER AGENT -- American Funds Service Company, 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 $90,000 for the fiscal
year ended July 31, 1996.
AMERICAN FUNDS SERVICE COMPANY SERVICE AREAS
<TABLE>
<CAPTION>
<S> <C> <C>
SERVICE AREA ADDRESS AREAS SERVED
WESTERN P.O. Box 2205 AK, AZ, CA, HI, ID, MT, NV, OR, UT,
Brea, CA 92822-2205 WA and outside the U.S.
Fax: 714/671-7080
WESTERN- P.O. Box 659522 AR, CO, IA, KS, LA, MN, MO, ND, NE,
CENTRAL San Antonio, TX 78265-9522 NM, OK, SD, TX and WY
Fax: 210/530-4050
EASTERN-CENTRAL P.O. Box 6007 AL, IL, IN, KY, MI, MS, OH, TN and WI
Indianapolis, IN 46206-6007
Fax: 317/735-6620
EASTERN P.O. Box 2280 CT, DE, FL, GA, MA, MD, ME, NC, NH,
Norfolk, VA 23501-2280 NJ, NY, PA, RI, SC, VA, VT, WV and
Fax: 804/670-4773 Washington, D.C.
All shareholders may call American Funds Service Company at 800/421-0180 for service.
</TABLE>
INDEPENDENT ACCOUNTANTS -- Price Waterhouse LLP, 400 South Hope Street, Los
Angeles, CA 90071, provides audit services, preparation of tax returns and
review of certain documents to be filed with the Securities and Exchange
Commission. The Financial Statements included in this statement of additional
information have been so included in reliance on the report of the independent
accountants given on the authority of said firm as experts in accounting and
auditing.
REMOVAL OF DIRECTORS BY SHAREHOLDERS -- At any meeting of shareholders, duly
called and at which a quorum is present, the shareholders may, by the
affirmative vote of the holders of a majority of the votes entitled to be cast
thereon, remove any director or directors from office and may elect a successor
or successors to fill any resulting vacancies for the unexpired terms of
removed directors. The fund has made an undertaking, at the request of the
staff of the Securities and Exchange Commission, to apply the provisions of
section 16(c) of the 1940 Act with respect to the removal of directors, as
though the fund were a common-law trust. Accordingly, the directors of the
fund shall promptly call a meeting of shareholders for the purpose of voting
upon the question of removal of any director when requested in writing to do so
by the record holders of not less than 10% of the outstanding shares.
REPORTS TO SHAREHOLDERS -- The fund's fiscal year ends on July 31.
Shareholders are provided at least semiannually with reports showing the
investment portfolio, financial statements and other information audited
annually by the fund's independent accountants, Price Waterhouse LLP, whose
selection is determined annually by the Board of Directors.
PERSONAL INVESTING POLICY -- Capital Research and Management Company and its
affiliated companies have adopted a personal investing policy consistent with
Investment Company Institute guidelines. This policy includes: a ban on
acquisitions of securities pursuant to an initial public offering; restrictions
on acquisitions of private placement securities; pre-clearance and reporting
requirements; review of duplicate confirmation statements; annual
recertification of compliance with codes of ethics; disclosure of personal
holdings by certain investment personnel prior to recommendation for purchase
for the fund; blackout periods on personal investing for certain investment
personnel; ban on short-term trading profits for investment personnel;
limitations on service as a director of publicly traded companies; and
disclosure of personal securities transactions.
The financial statements including the investment portfolio and the report
of independent accountants contained in the annual report are included in this
statement of additional information. The following information is not included
in the annual report:
<TABLE>
<CAPTION>
DETERMINATION OF NET ASSET VALUE, REDEMPTION PRICE AND
<S> <C>
MAXIMUM OFFERING PRICE PER SHARE -- JULY 31, 1996
Net asset value and redemption price per share
(Net assets divided by shares outstanding) $ 15.23
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) $ 15.99
</TABLE>
INVESTMENT RESULTS
The fund's yield is 5.57% based on a 30-day (or one month) period ended
July 31, 1996, computed by dividing the net investment income per share earned
during the period by the maximum offering price per share on the last day of
the period, according to the following formula:
YIELD = 2[(a-b/cd + 1)/6/ -1]
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the period that were
entitled to receive dividends.
d = the maximum offering price per share on the last day of the period.
The fund may also calculate a tax equivalent yield based on a 30-day (or
one month) period ended no later than the date of the most recent balance sheet
included in the registration statement, computed by dividing that portion of
the yield (as computed by the formula stated above) which is tax-exempt by one
minus a stated income tax rate and adding the product to that portion, if any,
of the yield that is not tax-exempt. The fund's tax equivalent yield based on
the maximum individual effective federal tax rate of 39.6% for the 30-day (or
one month) period ended July 31, 1996 was 9.22%.
The fund may also calculate a distribution rate on a taxable and tax
equivalent basis. The distribution rate is computed by annualizing the current
month's dividend and dividing by the average net asset value or maximum
offering price for the month. The distribution rate may differ from the yield.
As of July 31, 1996, the fund's total return over the past twelve months and
average annual total return over its lifetime were 3.29% and 8.04%,
respectively. Over the fund's lifetime (September 26, 1994 to July 31, 1996)
the Lehman Brothers Municipal Bond Index/1/ had an average annual total return
of 8.52%.
The fund's average annual total return ("T") will be computed by equating
the value at the end of the period ("ERV") with a hypothetical initial
investment of $1,000 ("P") over a number of years ("n") according to the
following formula as required by the Securities and Exchange Commission:
P(1+T)/n/=ERV.
The following assumptions will be reflected in computations made in
accordance with the formula stated above: (1) deduction of the maximum sales
load of 4.75% from the $1,000 initial investment; (2) reinvestment of dividends
and distributions at net asset value on the reinvestment date determined by the
Board; and (3) a complete redemption at the end of any period illustrated. The
fund will calculate total return for one, five and ten-year periods after such
a period has elapsed.
EXPERIENCE OF INVESTMENT ADVISER -- Capital Research and Management Company
manages nine common stock funds that are at least 10 years old. In all of the
10-year periods since January 1, 1966 during which those funds were managed by
Capital Research and Management Company (121 in all), those funds have had
better total returns than the Standard and Poor's 500 Stock Composite Index in
94 of the 121 periods.
Note that past results are not an indication of future investment results.
Also, the fund has different investment policies than the funds mentioned
above. These results are included solely for the purpose of informing
investors about the experience and history of Capital Research and Management
Company.
The fund may also refer to results compiled by organizations such as
Lipper Analytical Services, Morningstar, Inc. and Wiesenberger Investment
Companies Services. Additionally, the fund may, from time to time, refer to
results published in various newspapers or periodicals, including Barrons,
Forbes, Fortune, Institutional Investor, Kiplinger's Personal Finance Magazine,
Money, U.S. News and World Report and The Wall Street Journal.
/1/The Lehman Brothers 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.
<TABLE>
AMERICAN HIGH-INCOME MUNICIPAL BOND FUND
Investment Portfolio, July 31, 1996
Quality Ratings
<S> <C> <C>
AAA: 3.59%
A: 8.05%
BBB: 48.22%
BB: 23.59%
B: 10.03%
Cash Equivalents: 6.52%
Principal Market
Amount Value
(000) (000)
Tax-Exempt Securities Maturing in More than
One Year - 93.48%
Alabama - 0.48%
The Industrial Development Board of the City of
Mobile, Solid Waste Revenue Refunding
Bonds (Mobile Energy Services Company, L.L.C.
Projects), Series 1995, 6.95% 2020 $1,000 $1,045
California - 10.28%
Resource Recovery Revenue Bonds,
Waste Management Inc., Guarantee Bond, Series A AMT,
7.15% 2011 2,000 2,132
Rural Home Mortgage Finance Authority,
Single Family Mortgage Revenue Bonds
(Mortgage-Backed Securities Program),
1995 Series B AMT, 7.75% 2026 995 1,113
Student Education Loan Marketing Corp. (A
Non-Profit Public Benefit Corp. Organized Under
the Laws of the State of California) AMT, Student
Loan Program Revenue Bonds:
7.00% 2005 1,000 1,038
7.00% 2010 2,000 2,081
Central Valley Financing Authority, Cogeneration
Project Revenue Bonds (Carson Ice-Gen Project),
1993 Series, 6.10% 2013 1,400 1,393
Long Beach Aquarium of the Pacific, Revenue Bonds
(Aquarium of the Pacific Project), 1995 Series A:
6.10% 2010 1,000 987
6.125% 2015 1,000 957
6.125% 2023 1,500 1,410
Los Angeles County Capital Asset Leasing
Corporation, Certificates of Participation
(Marina del Rey), Series A, 6.25% 2003 3,715 3,824
Pleasanton Joint Powers Financing Authority,
Subordinate Reassessment Revenue Bonds,
1993 Series B, 6.125% 2002 4,505 4,570
Redding Joint Powers Financing Authority, Solid
Waste and Corporation Yard Revenue Bonds, 1993
Series A, 5.00% 2023 1,000 829
Sacramento Cogeneration Authority, Cogeneration
Project Revenue Bonds, 6.00% 2003 1,000 1,010
South Tahoe Joint Powers Financing Authority,
Refunding Revenue Bonds (South Tahoe
Redevelopment Project Area No.1), 1995 Series B,
6.25% 2020 1,000 987
Colorado - 5.49%
Student Obligation Bond Authority,
Student Loan Asset-Backed Bonds, Senior
Subordinate 1995 Series II-B AMT, 6.20% 2008 1,000 1,012
Arapahoe County, Capital Improvement
Trust Fund Highway Revenue Bonds (E-470 Project):
6.90% 2015 1,250 1,315
6.95% 2020 4,500 4,735
City and County of Denver, Airport System
Revenue Bonds:
Series 1991D AMT, 7.75% 2013 1,000 1,180
Series 1992C AMT:
6.55% 2003 2,000 2,105
6.75% 2013 1,000 1,031
Series 1994A, 7.50% 2023 500 550
Connecticut - 1.12%
Eastern Connecticut Resource Recovery Authority,
Solid Waste Revenue Bonds (Wheelabrator Lisbon
Project) Series 1993 A AMT, 5.50% 2020 2,700 2,429
District of Columbia - 0.72%
Hospital Revenue Refunding Bonds (Washington
Hospital Center Issue), Series 1992A,
7.00% 2005 1,500 1,574
Florida - 4.70%
The Crossings at Fleming Island Community
Development District (Clay County), Special
Assessment Bonds, Series 1995, 8.25% 2016 5,000 5,298
Meadow Pointe II, Community Development District
(Pasco County) Capital Improvement
Revenue Bonds, Series 1995, 7.25% 2002 4,845 4,901
Illinois - 10.95%
Health Facilities Authority:
Revenue Refunding Bonds (Edward Hospital
Project), Series 1993A, 6.00% 2019 1,000 974
Revenue Bonds (Fairview Obligated Group Project),
Series 1992A:
9.50% 2022 (Prerefunded 2002) 2,750 3,429
7.40% 2023 2,630 2,630
City of Chicago:
Chicago-O'Hare International
Airport, Special Facility Revenue Bonds
(United Air Lines, Inc. Project):
Series 1988A AMT:
8.95% 2018 1,895 2,128
7.875% 2025 1,000 1,073
Series 1988B, 8.85% 2018 1,155 1,299
City of Chicago:
Skyway Toll Bridge Refunding
Revenue Bonds, Series 1994:
6.50% 2010 1,500 1,540
6.75% 2017 1,500 1,536
Village of Robbins, Cook County, Resource
Recovery Revenue Bonds (Robbins Resource
Recovery Partners, L.P. Project), Series 1994A AMT:
8.75% 2005 1,000 957
9.25% 2014 8,430 8,219
Indiana - 1.86%
City of East Chicago, Pollution Control
Refunding Revenue Bonds:
(Inland Steel Company Project No. 10),
Series 1993, 6.80% 2013 1,000 1,003
(Inland Steel Company Project No. 11),
Series 1994, 7.125% 2007 2,000 2,048
City of Sullivan, Pollution Control Revenue
Refunding Bonds (Indiana Michigan Power Company
Project), Series C, 5.95% 2009 1,000 984
Kentucky - 3.38%
Kenton County Airport Board, Special Facilities
Revenue Bonds (Delta Air Lines, Inc. Project),
1992 Series A AMT:
6.75% 2002 2,000 2,084
7.50% 2012 2,225 2,374
6.125% 2022 3,000 2,877
Louisiana - 3.31%
Housing Finance Agency, Single Family Mortgage
Revenue Bonds, Series 1995A-2 AMT, 7.80% 2026 2,920 3,254
Orleans Levee District, Levee Improvement Fixed-
Rate Refunding Bonds, Series 1987A, 8.25% 2014 3,900 3,939
Maine - 0.50%
Educational Loan Marketing Corp., Student Loan Revenue
Refunding Bonds, Series 1991 AMT, 6.90% 2003 1,000 1,077
Maryland - 1.54%
Health and Higher Educational Facilities
Authority, Revenue Bonds, Howard County General
Hospital Issue, Series 1993, 5.50% 2021 2,000 1,764
Housing Opportunities Commission of Montgomery
County, Multifamily Revenue Bonds (Strathmore
Court at White Flint), 1994 Issue A-2:
7.50% 2024 1,000 1,050
7.50% 2027 500 528
Massachusetts - 2.50%
Industrial Finance Agency Revenue
Bonds, Edgewood Retirement Community Project,
Series 1995A, 9.00% 2025 5,300 5,437
Michigan - 9.75%
Hospital Finance Authority,
Hospital Revenue Refunding Bonds:
Sinai Hospital of Greater Detroit, Series 1995
6.625% 2016 2,755 2,724
Genesys Health System Obligated Group,
Series 1995A:
8.00% 2005 2,000 2,210
7.50% 2027 2,200 2,287
City of Detroit:
Limited Tax General Obligation:
Series 1995 B, 6.75% 2003 1,000 1,061
Series 1995 A, 6.40% 2005 1,145 1,189
Downtown Development Authority, Tax
Increment Bonds (Development Area No.1 Projects),
Series 1996C, 6.20% 2017 1,000 1,010
The Economic Development Corporation of the
County of Midland, Subordinated Pollution
Control Limited Obligation Revenue Refunding
Bonds (Midland Cogeneration Project),
Series 1990B AMT, 9.50% 2009 6,600 7,147
Charter County of Wayne, Special
Airport Facilities Revenue Refunding Bonds,
(Northwest Airlines, Inc., Facilities),
Series 1995, 6.75% 2015 3,500 3,540
Nevada - 2.57%
City of Henderson, Local Improvement
District No. T-10 (Seven Hills) Limited Obligation
Improvement Bonds, 7.50% 2015 5,500 5,585
New Jersey - 3.92%
Economic Development Authority, First Mortgage
Revenue Fixed-Rate Bonds:
Fellowship Village Project,
Series 1995A, 9.25% 2025 3,000 3,290
Winchester Gardens at Ward Homestead Project,
Series 1996A:
8.50% 2016 1,000 1,022
8.625% 2025 1,000 1,022
The Union County Utilities Authority, Solid Waste
System Revenue Bonds, 1991 Series A AMT, 7.10% 2006 3,090 3,177
New York - 12.92%
State Environmental Facilities Corp. AMT,
Solid Waste Disposal Revenue Bonds, (Occidental
Petroleum Corp. Project), Series 1993 Subseries A:
5.50% 2003 2,500 2,469
5.70% 2028 1,235 1,101
New York State Thruway Authority, Local Highway and
Bridge Service Contract Bonds, Series 1992,
6.25% 2006 1,000 1,040
The City of New York, General Obligation Bonds:
Fiscal 1996 Series C, 6.40% 2003 1,000 1,036
Fiscal 1996 Series E, 6.50% 2004 3,000 3,140
Fiscal 1995 Series H, 6.50% 2005 1,650 1,724
Fiscal 1995 Series B, 7.00% 2016 1,000 1,054
New York City Industrial Development Agency, Solid
Waste Disposal Revenue Bonds (1995 Visy Paper
(NY), Inc. Project) AMT, 7.55% 2005 9,000 9,286
The Port Authority of New York and New Jersey, Special
Project Bonds, Series 4 AMT, KIAC Partners Project:
7.00% 2007 3,000 3,164
6.75% 2011 4,000 4,032
Ohio - 2.71%
Solid Waste Revenue Bonds (Republic Engineered Steel,
Inc. Project), Series 1996 AMT, 9.00% 2021 4,000 4,136
The Student Loan Funding Corporation,
Cincinnati, Student Loan Revenue
Refunding Bonds,Series 1991A AMT, 7.20% 2003 1,630 1,739
Pennsylvania - 4.09%
Economic Development Financing Authority,
Resource Recovery Revenue Bonds (Colver Project),
Series 1994 D AMT, 7.15% 2018 3,000 3,170
Cambria County Industrial Development Authority,
Pollution Control Revenue Refunding Bonds
(Bethlehem Steel Corporation Project),
Series 1994, 7.50% 2015 1,250 1,285
The Hospitals Authority of Philadelphia,
Hospital Revenue Bonds (Temple University
Hospital), Series of 1983, 6.625% 2023 1,000 1,015
Schuylkill County Industrial Development
Authority, Resource Recovery Revenue Refunding
Bonds (Schuylkill Energy Resources, Inc.
Project), Series 1993 AMT, 6.50% 2010 3,425 3,410
South Carolina - 1.20%
York County, Pollution Control Facilities
Revenue Bonds (Bowater Incorporated Project),
Series 1990 AMT, 7.625% 2006 2,300 2,609
Tennessee - 1.28%
Memphis-Shelby County Airport Authority, Special
Facilities Revenue Bonds (Federal Express
Corporation), Series 1984, 7.875% 2009 2,500 2,778
Texas - 6.68%
Alliance Airport Authority, Inc., Special
Facilities Revenue Bonds (American Airlines,
Inc. Project), Series 1990 AMT, 7.00% 2011 5,250 5,657
Hidalgo County Health Services Corp., Hospital Revenue
Bonds (Mission Hospital, Inc. Project), Series 1996:
7.00% 2008 2,365 2,448
6.75% 2016 1,000 986
Tomball Hospital Authority, Hospital Revenue
Refunding Bonds, Series 1993, 6.125% 2023 5,740 5,419
Virginia - 0.48%
Virginia College Building Authority, Educational
Facilities Revenue Bonds (Marymount University
Project) Series of 1992, 7.00% 2022 1,000 1,037
West Virginia - 1.05%
City of South Charleston, Pollution Control
Revenue Refunding Bonds (Union Carbide
Corporation Project), Series 1985, 7.625% 2005 2,000 2,276
---------
202,985
---------
Tax-Exempt Securities Maturing in
One Year or Less - 5.20%
State of Colorado, General Fund Tax and Revenue
Anticipation Notes, Series 1996A, 4.50% 6/27/97 1,300 1,306
County of Los Angeles, California, 1996-97 Tax and
Revenue Anticipation Notes, Series A, 4.50% 6/30/97 3,900 3,919
State of Michigan, Full Faith and Credit General
Obligation Notes, 4.00% 9/30/96 3,250 3,251
State of Texas, Tax and Revenue Anticipation
Notes, Series 1995 A, 4.75% 8/30/96 2,820 2,823
---------
11,299
---------
TOTAL TAX-EXEMPT SECURITIES (cost: $206,710,000) 214,284
Excess of cash, prepaids and receivables over
payables 2,856
---------
NET ASSETS $217,140
=========
See Notes to Financial Statements
</TABLE>
<PAGE>
<TABLE>
American High-Income Municipal Bond Fund
Financial Statements
Statement of Assets and Liabilities
at July 31, 1996 (dollars in thousands)
<S> <C> <C>
Assets:
Tax-exempt securities
(cost: $206,710) $214,284
Cash 39
Prepaid organization expense 8
Receivables for--
Sales of fund's shares $684
Accrued interest 3,742 4,426
--------- ---------
218,757
Liabilities:
Payables for--
Purchases of investments 1,067
Repurchases of fund's shares 30
Dividends payable 371
Management services 83
Accrued Expenses 66 1,617
--------- ---------
Net Assets at July 31, 1996--
Equivalent to $15.23 per share on 14,261,553
shares of $0.01 par value capital stock
outstanding (authorized capital stock - $217,140
200,000,000 shares) =========
Statement of Operations
for the year ended July 31, 1996
(dollars in thousands)
Investment Income:
Income:
Interest on tax-exempt securities $12,681
---------
Expenses:
Management services fee $838
Distribution expenses 496
Transfer agent fee 90
Report to shareholders 71
Registration statement and prospectus 90
Postage, stationery and supplies 23
Director's fees 18
Auditing and legal fees 30
Custodian fee 10
Taxes other than federal income tax 3
Organization expense 12
Other expenses 8
---------
Total expenses before reimbursement 1,689
Reimbursement of expenses 41 1,648
--------- ---------
Net investment income 11,033
---------
Realized Gain and Unrealized
Appreciation on Investments:
Net realized gain 3,233
Net unrealized appreciation
on investments:
Beginning of year 6,791
End of year 7,574
---------
Net increase in unrealized appreciation
on investments 783
Net realized gain and unrealized ---------
appreciation on investments 4,016
Net Increase in Net Assets Resulting ---------
from Operations $15,049
=========
Statement of Changes in Net Assets
(dollars in thousands) Period
September 26
Year Ended 1994* to
July 31, July 31,
1996 1995
Operations:
Net investment income $11,033 $5,381
Net realized gain on investments 3,233 2,246
Net unrealized appreciation
on investments 783 6,791
--------- ---------
Net increase in net assets
resulting from operations 15,049 14,418
--------- ---------
Dividends and Distributions Paid to
Shareholders:
Dividends Paid from net
investment income (11,032) (5,381)
Distributions from net realized gain on
investments (3,336) -
--------- ---------
Total dividends and distributions (14,368) (5,381)
--------- ---------
Capital Share Transactions:
Proceeds from shares sold:
6,164,069 and 11,466,307 shares, respecti 93,928 164,049
Proceeds from shares issued in reinvestment
of net investment income dividends and distributions
of net realized gain on investments:
645,325 and 239,900 shares, respectively 9,858 3,535
Cost of shares repurchased: 2,910,852 and
1,350,194 shares, respectively (44,191) (19,857)
--------- ---------
Net increase in net assets
resulting from capital share
transactions 59,595 147,727
--------- ---------
Total Increase in Net Assets 60,276 156,764
Net Assets:
Beginning of period 156,864 100
--------- ---------
End of period 217,140 156,864
========= =========
*Commencement of operations
See Notes to Financial Statements
</TABLE>
<PAGE>
AMERICAN HIGH-INCOME MUNICIPAL BOND FUND
NOTES TO FINANCIAL STATEMENTS
1. American High-Income Municipal Bond Fund, Inc. (the "fund") is registered
under the Investment Company Act of 1940 as an open-end, diversified management
investment company. The fund seeks a high level of current income exempt from
regular federal income taxes through a diversified, carefully researched
portfolio of higher yielding, lower rated, higher risk municipal bonds. The
following paragraphs summarize the significant accounting policies consistently
followed by the fund in the preparation of its financial statements:
Tax-exempt securities with original or remaining maturities in excess of 60
days are valued at prices obtained from a national municipal bond pricing
service. The pricing service takes into account various factors such as
quality, yield and maturity of tax-exempt securities comparable to those held
by the fund, as well as actual bid and asked prices on a particular day. Other
securities with original or remaining maturities in excess of 60 days,
including securities for which pricing service values are not available, are
valued at the mean of their quoted bid and asked prices. However, in
circumstances where the investment adviser deems it appropriate to do so,
securities will be valued at the mean of their representative quoted bid and
asked prices, or, if such prices are not available, at the mean of such prices
for securities of comparable maturity, quality and type. All securities with 60
days or less to maturity are valued at amortized cost, which approximates
market value. Securities for which market quotations are not readily available
are valued at fair value as determined in good faith by the Valuation Committee
of the Board of Directors.
As is customary in the mutual fund industry, securities transactions are
accounted for on the date the securities are purchased or sold. Realized gains
and losses from securities transactions are reported on an identified cost
basis. Interest income is reported on the accrual basis. Premiums and original
issue discounts on securities purchased are amortized over the life of the
respective securities. Amortization of market discounts on securities is
recognized upon disposition, subject to applicable tax requirements. Dividends
to shareholders are declared daily after determination of the fund's net
investment income and paid to shareholders monthly.
Prepaid organization expenses are amortized over the estimated period of
benefit, not to exceed five years from commencement of operations. In the event
that Capital Research and Management Company (CRMC), the fund's investment
adviser, redeems any of its original shares prior to the end of the five-year
period, the proceeds of the redemption payable with respect to such shares
shall be reduced by the pro rata share (based on the proportionate share of the
original shares redeemed to the total number of original shares outstanding at
the time of such redemption) of the unamortized prepaid organization expenses
as of the date of such redemption. In the event the fund liquidates prior to
the end of the five-year period, CRMC shall bear any unamortized prepaid
organization expenses.
Pursuant to the custodian agreement, the fund receives credits against its
custodian fee for imputed interest on certain balances with the custodian bank.
The custodian fee of $10,000 includes $7,000 that was paid by these credits
rather than in cash.
2. It is the fund's policy to continue to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its net taxable income, including any net realized gain on
investments, to its shareholders. Therefore, no federal income tax provision is
required.
As of July 31, 1996, net unrealized appreciation on investments for book and
federal income tax purposes aggregated $7,574,000, of which $7,845,000 related
to appreciated securities and $271,000 related to depreciated securities. There
was no difference between book and tax realized gains on securities
transactions for the year ended July 31, 1996. The cost of portfolio securities
for book and federal income tax purposes was $206,710,000 at July 31, 1996.
3. The fee of $838,000 for management services was paid pursuant to an
agreement with CRMC, with which certain officers and Directors of the fund are
affiliated. The Investment Advisory and Service Agreement provides for monthly
fees, accrued daily, based on an annual rate of 0.30% of the first $60 million
of average net assets; 0.21% of such assets in excess of $60 million; and 3.00%
of the fund's monthly gross investment income. The Investment Advisory and
Service Agreement provides for fee reductions to the extent annual operating
expenses exceed 0.90% of the average daily net assets of the fund, during a
period which will terminate at the earlier of such time as no reimbursement has
been required for a period of 12 consecutive months, provided no advances are
outstanding, or October 1, 2004. CRMC has also voluntarily agreed to waive its
fees to the extent necessary to ensure the fund's expenses do not exceed 0.86%
of the average daily net assets. Expenses that are not subject to these
limitations are interest, taxes, brokerage commissions, transaction costs, and
extraordinary expenses. Fee reductions were $41,000 for the year ended July 31,
1996. There can be no assurance that this voluntary fee waiver will continue in
the future.
Pursuant to a Plan of Distribution, the fund may expend up to 0.30% of its
average net assets annually for any activities primarily intended to result in
sales of fund shares, provided the categories of expenses for which
reimbursement is made are approved by the fund's Board of Directors. Fund
expenses under the Plan include payments to dealers to compensate them for
their selling and servicing efforts. During the year ended July 31, 1996,
distribution expenses under the Plan were $496,000. As of July 31, 1996,
accrued and unpaid distribution expenses were $50,000.
American Funds Service Company (AFS), the transfer agent for the fund, was
paid a fee of $90,000. American Funds Distributors, Inc. (AFD), the principal
underwriter of the fund's shares, received $348,000 (after allowances to
dealers) as its portion of the sales charges paid by purchasers of the fund's
shares. Such sales charges are not an expense of the fund and, hence, are not
reflected in the accompanying statement of operations.
Directors who are unaffiliated with CRMC may elect to defer part or all of
the fees earned for services as members of the Board. Amounts deferred are not
funded and are general unsecured liabilities of the fund. As of July 31, 1996,
aggregate amounts deferred and earnings thereon were $13,000.
CRMC is owned by The Capital Group Companies, Inc. AFS and AFD are both
wholly owned subsidiaries of CRMC. Certain Directors and officers of the fund
are or may be considered to be affiliated with CRMC, AFS, and AFD. No such
persons received any remuneration directly from the fund.
4. As of July 31, 1996, accumulated undistributed net realized gain on
investments was $2,143,000 and additional paid-in capital was $193,160,000.
The fund made purchases and sales of investment securities excluding
short-term securities, of $118,315,000 and $62,577,000, respectively, during
the year ended July 31, 1996.
<PAGE>
<TABLE>
Per-Share Data and Ratios
Period
September 26
Year Ended 1994 /1/ to
July 31, July 31,
1996 1995
Net Asset Value, Beginning
of Period $15.14 $14.29
------------ ------------
<S> <C> <C>
Income From Investment
Operations:
Net investment income .88 .76
Net realized and
unrealized gain
on investments .37 .85
------------ ------------
Total income from investment operations 1.25 1.61
------------ ------------
Less Distributions:
Dividends from net investment income (.88) (.76)
Distributions from net realized gains (.28) --
------------ ------------
Total distributions (1.16) (.76)
------------ ------------
Net Asset Value, End of Period $15.23 $15.14
============ ============
Total Return /2/ 8.48% 11.62% /3/
Ratios/Supplemental Data:
Net assets, end of period (in millions) $217 $157
Ratio of expenses to average net assets .86% /4/ .62% /3/ /4/
Ratio of net income to average net assets 5.74% 5.66% /3/
Portfolio turnover rate 35.22% 46.42% /3/
/1/ Commencement of operations.
/2/ Calculated without deducting a sales charge. The
maximum sales charge is 4.75% of the fund's offering price.
/3/ Based on operations for the period shown and, accordingly,
not representative of a full year's operations.
/4/ Had CRMC not waived fees, the fund's ratios of expenses to
average net assets would have been 0.88% and 0.94%, respectively,
for the periods shown.
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
American High-Income Municipal Bond Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities,
including the investment portfolio, and the related statements of operations
and of changes in net assets and the per-share data and ratios present fairly,
in all material respects, the financial position of American High-Income
Municipal Bond Fund, Inc. (the "Fund") at July 31, 1996, the results of its
operations, the changes in its net assets and the per-share data and ratios for
the periods indicated, in conformity with generally accepted accounting
principles. These financial statements and per-share data and ratios
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards,
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at July 31, 1996 by correspondence with the
custodian and broker, provide a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
Los Angeles, California
August 30, 1996
Tax Information (unaudited)
During the fiscal year ended July 31, 1996 the fund paid 87.5 cents per share
of exempt-interest distributions within the meaning of Section 852(b)(5)(A) of
the Internal Revenue Code.
This information is given to meet certain requirements of the Internal Revenue
Code and should not be used by shareholders for preparing their income tax
returns. For tax return preparation purposes, please refer to the calendar
year-end information you receive from the fund's transfer agent.
