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[LOGO OF AMERICAN FUNDS GROUP APPEARS HERE]
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American High-Income Municipal Bond Fund(R)
Prospectus
OCTOBER 1, 1997
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AMERICAN HIGH-INCOME MUNICIPAL BOND FUND
333 South Hope Street
Los Angeles, CA 90071
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TABLE OF CONTENTS
Expenses 3
................................................................................
Financial Highlights 4
................................................................................
Investment Policies and Risks 5
................................................................................
Securities and Investment Techniques 6
................................................................................
Multiple Portfolio Counselor System 9
................................................................................
Investment Results 10
................................................................................
Dividends, Distributions and Taxes 12
................................................................................
Fund Organization and Management 13
................................................................................
Appendix 16
................................................................................
Shareholder Services 18
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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 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.
YOU MAY LOSE MONEY BY INVESTING IN THE FUND. THE LIKELIHOOD OF LOSS IS GREATER
IF YOU 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.
40-010-1097
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EXPENSES
The effect of the expenses described below is reflected in the fund's share
price and return.
You may pay certain shareholder transaction expenses when you buy or sell
shares of the fund. Fund operating expenses are paid out of the fund's assets
and are factored into its share price.
SHAREHOLDER TRANSACTION EXPENSES
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<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. There is 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.
FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
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<S> <C>
Management fees 0.42%
................................................................................
12b-1 expenses 0.29%/1/
................................................................................
Other expenses 0.16%
................................................................................
Total fund operating expenses 0.87%
</TABLE>
/1/ 12b-1 expenses may not exceed 0.30% of the fund's average net assets
annually.
EXAMPLES
Assuming a hypothetical annual return of 5% and shareholder transaction and
operating expenses as described above, for every $1,000 you invested, you would
pay the following total expenses over the following periods:
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<TABLE>
<S> <C>
One year $ 56
................................................................................
Three years $ 75
................................................................................
Five years $ 95
................................................................................
Ten years $153
</TABLE>
THESE EXAMPLES ARE NOT MEANT TO REPRESENT YOUR ACTUAL INVESTMENT RESULTS OR
EXPENSES, WHICH MAY VARY. YOUR EXPENSES WILL BE LESS IF YOU QUALIFY TO PURCHASE
SHARES AT A REDUCED OR NO SALES CHARGE.
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AMERICAN HIGH-INCOME MUNICIPAL BOND FUND / PROSPECTUS 3
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FINANCIAL HIGHLIGHTS
The following information has 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.
SELECTED PER-SHARE DATA
<TABLE>
<CAPTION>
YEAR ENDED JULY 31
..................
1997 1996 1995/1/
-------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $15.23 $15.14 $14.29
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INCOME FROM
INVESTMENT
OPERATIONS:
Net investment income .87 .88 .76
...........................................................................
Net realized and unrealized gain on investments .80 .37 .85
...........................................................................
Total income from investment operations 1.67 1.25 1.61
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LESS DISTRIBUTIONS:
Dividends from net investment income (.86) (.88) (.76)
...........................................................................
From net realized gains (.14) (.28) --
...........................................................................
Total distributions (1.00) (1.16) (.76)
...........................................................................
Net Asset Value, End of Period $15.90 $15.23 $15.14
...........................................................................
Total Return /2/ 11.36% 8.48% 11.62% /3/
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RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of period (in millions) $ 316 $ 217 $ 157
...........................................................................
Ratio of expenses to average net assets before fee .87% .88% .94%
waiver
...........................................................................
Ratio of expenses to average net assets after fee .87% .86% .62% /3/
waiver
...........................................................................
Ratio of net income to average net assets 5.51% 5.74% 5.66% /3/
...........................................................................
Portfolio turnover rate 15.31% 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.
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4 AMERICAN HIGH-INCOME MUNICIPAL BOND FUND / PROSPECTUS
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INVESTMENT POLICIES AND RISKS
The fund's investment objective is to provide you 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
assets will be invested in tax-exempt securities (including securities subject
to alternative minimum taxes), and at least 65% in bonds. For these purposes,
bonds are considered to be any debt securities having initial maturities in
excess of one year. In addition, at least 65% of the fund's assets will be
invested in debt securities rated A or below by Moody's Investors Service, Inc.
or Standard and Poor's Corporation or unrated but determined to be of
comparable quality, and at least 50% in debt securities rated Baa by Moody's or
BBB by S&P or below or unrated but determined to be of comparable quality.
The fund may invest without limitation in tax-exempt securities, the interest
on which would constitute an item of tax preference subject to federal
alternative minimum taxes; therefore, while the fund's distributions 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, the fund's
investment adviser, abnormal market conditions require a temporary defensive
position, the fund may invest in taxable short-term fixed-income securities
(generally, securities with maturities of one year or less). The fund's
investment policies are described below. Limits on the fund's investment
policies are determined at the time of purchase and are based on the fund's net
assets unless otherwise stated. MORE INFORMATION ON THE FUND'S INVESTMENT
POLICIES IS CONTAINED IN ITS STATEMENT OF ADDITIONAL INFORMATION.
The fund's fundamental investment restrictions (described in the statement of
additional information) and objective may not be changed without shareholder
approval.
THE FUND MAY NOT ACHIEVE ITS INVESTMENT OBJECTIVE DUE TO MARKET CONDITIONS AND
OTHER FACTORS.
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AMERICAN HIGH-INCOME MUNICIPAL BOND FUND / PROSPECTUS 5
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SECURITIES AND INVESTMENT TECHNIQUES
DEBT SECURITIES
Bonds and other debt securities are used by issuers to borrow money. Issuers
pay investors interest and generally must repay the amount borrowed at
maturity. Some debt securities, such as zero coupon bonds, do not pay current
interest, but are purchased at a discount from their face values. The prices of
debt securities fluctuate depending on such factors as interest rates, credit
quality, and maturity. In general their prices decline when interest rates rise
and vice versa.
The fund may invest in debt securities rated Ba and BB or below by Moody's or
S&P or in unrated securities that are determined to be of equivalent quality by
Capital Research and Management Company. These securities are commonly known as
"high-yield, high-risk" or "junk" bonds. High-yield, high-risk bonds are
described by the rating agencies as speculative 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.
The fund may invest in bonds rated as low as C by Moody's or D by S&P. 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.
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6 AMERICAN HIGH-INCOME MUNICIPAL BOND FUND / PROSPECTUS
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PORTFOLIO COMPOSITION
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, 1997 was as follows:
<TABLE>
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<S> <C>
Aaa/AAA 4.07%
................................................................................
Aa/AA 1.87%
................................................................................
A/A 4.89%
................................................................................
Baa/BBB 44.46%
................................................................................
Ba/BB 2.84%
................................................................................
B/B 0.03%
................................................................................
Non-rated 34.99%
</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>
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<S> <C>
Baa/BBB 3.09%
................................................................................
Ba/BB 20.00%
................................................................................
B/B 11.89%
................................................................................
C/C 0.01%
</TABLE>
Money market instruments and cash made up an average of 6.85% 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.
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AMERICAN HIGH-INCOME MUNICIPAL BOND FUND / PROSPECTUS 7
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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.
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 enter into commitments to purchase or sell securities at a future
date. When the fund agrees to purchase such securities, it assumes the risk of
any decline in value of the securities beginning on the date of the agreement.
When the fund agrees to sell such securities, it does not participate in
further gains or losses with respect to the securities beginning on the date of
the agreement. If the other party to such a 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 interest
rates change. 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
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8 AMERICAN HIGH-INCOME MUNICIPAL BOND FUND / PROSPECTUS
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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.
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.
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MULTIPLE PORTFOLIO COUNSELOR SYSTEM
The basic investment philosophy of Capital Research and Management Company is
to seek fundamental values at reasonable prices, using a system of multiple
portfolio counselors in managing mutual fund assets. Under this system the
portfolio of the fund is divided into segments which are managed by individual
counselors. Counselors decide how their respective segments will be invested
(within the limits provided by the fund's objective and policies and by Capital
Research and Management Company's investment committee). In addition, Capital
Research and Management Company's research professionals may make investment
decisions with respect to a portion of the fund's portfolio. The primary
individual portfolio counselors for the fund are listed on the following page.
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AMERICAN HIGH-INCOME MUNICIPAL BOND FUND / PROSPECTUS 9
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<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
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<S> <C> <C> <C> <C>
NEIL L. Senior Vice 3 years (since 19 years 19 years
LANGBERG President of the fund began
the fund. Vice operations)
President--
Investment
Management
Group, Capital
Research and
Management
Company
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MARK R. Vice President 3 years (since 3 years 12 years
MACDONALD of the fund. the fund began
Vice operations)
President--
Investment
Management
Group, Capital
Research and
Management
Company
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DAVID A. Vice President, 1 year 6 years 9 years
HOAG Capital
Research
Company*
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</TABLE>
The fund began operations on September 26, 1994
* A wholly owned subsidiary of Capital Research and Management Company
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INVESTMENT RESULTS
The fund may from time to time compare investment results on a taxable and tax
equivalent basis 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 is computed by dividing the net investment income per share earned by
the fund over a given period of time by the maximum offering price per share
on the last day of the period, according to a formula mandated by the
Securities and Exchange Commission. A yield calculated using this formula may
be different than the income actually paid to shareholders.
X DISTRIBUTION RATE reflects dividends that were paid by the fund. The
distribution rate is calculated by annualizing the current month's dividend
and dividing by the average price for the month.
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10 AMERICAN HIGH-INCOME MUNICIPAL BOND FUND / PROSPECTUS
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INVESTMENT RESULTS
(FOR PERIODS ENDED JUNE 30, 1997)
<TABLE>
<CAPTION>
AVERAGE
ANNUAL
TOTAL THE FUND AT NET THE FUND AT MAXIMUM LIPPER
RETURNS: ASSET VALUE/1/ SALES CHARGE/1/,/2/ LEHMAN INDEX/3/ AVERAGE/4/
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<S> <C> <C> <C> <C>
One year 9.88% 4.63% 8.25% 8.53
................................................................................
Lifetime/5/ 10.47% 8.55% 8.35% 7.86
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</TABLE>
Yield/1/,/2/: 4.90%
Distribution Rate: 5.08%
/1/These fund results were calculated according to a standard that is required
for all stock and bond funds.
/2/The maximum sales charge has been deducted.
/3/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.
/4/The Lipper High Yield Municipal Debt Average is comprised of funds that
invest at least 50% of their assets in lower rated municipal debt issues.
/5/The fund began investment operations on September 26, 1994.
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AMERICAN HIGH-INCOME MUNICIPAL BOND FUND / PROSPECTUS 11
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[GRAPH APPEARS HERE]
Here are the fund's annual total returns calculated without a sales charge.
This information is being supplied on a calendar year basis.
1994 -0.09
1995 19.05
1996 6.45
Past results are not an indication of future results and may reflect a fee
waiver. See "Expenses."
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DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
The fund declares dividends from its net investment income daily and
distributes the accrued dividends to shareholders each month. Dividends begin
accruing one day after payment for shares is received by the fund or American
Funds Service Company. Capital gains, if any, are usually distributed in
November or December. When a capital gain is distributed, the net asset value
per share is reduced by the amount of the payment.
TAXES
In any fiscal year in which the fund qualifies as a regulated investment
company and distributes to shareholders all of its net investment income and
net capital gains, the fund itself is relieved of federal income tax. The fund
is permitted to pass through to its shareholders federally tax-exempt income
subject to certain requirements. However, the fund may invest in obligations
which pay interest that is subject to state and local taxes when distributed by
the fund. Dividends derived from taxable interest income, distributions of
capital gains and
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12 AMERICAN HIGH-INCOME MUNICIPAL BOND FUND / PROSPECTUS
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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.
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FUND ORGANIZATION AND MANAGEMENT
FUND ORGANIZATION AND VOTING RIGHTS
The fund, an open-end, diversified management investment company, was organized
as a 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 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.
At the request of the holders of at least 10% of the shares, the fund will hold
a meeting at which any member of the Board could be removed by a majority vote.
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AMERICAN HIGH-INCOME MUNICIPAL BOND FUND / PROSPECTUS 13
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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 discussed earlier 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. This policy has also been
incorporated into the fund's code of ethics.
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 discussed earlier under "Expenses."
PORTFOLIO TRANSACTIONS
Orders for the fund's portfolio securities transactions are placed by Capital
Research and Management Company, which strives to obtain the best available
prices, taking into account the costs and quality of executions. Fixed-income
securities are generally traded on a "net" basis with a dealer acting as
principal for its own account without a stated commission, although the price
of the security usually includes a profit to the dealer. In underwritten
offerings, securities are usually purchased at a fixed price which includes an
amount of compensation to the underwriter, generally referred to as a
concession or discount. On occasion, securities may be purchased directly from
an issuer, in which case no commissions or discounts are paid. In the over-the-
counter market, purchases and sales are transacted directly with principal
market-makers except in those circumstances where it appears better prices and
executions are available elsewhere.
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14 AMERICAN HIGH-INCOME MUNICIPAL BOND FUND / PROSPECTUS
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<PAGE>
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Subject to the above policy, when two or more brokers (either directly or
through their correspondent clearing agents) 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
CALL TOLL-FREE FROM ANYWHERE IN THE U.S.
(8 A.M. TO 8 P.M. ET);
800/421-0180
[REGIONAL MAP OF THE UNITED STATES APPEARS HERE]
Western Service Center
American Funds Service Company
P.O. Box 2205
Brea, California
92822-2205
Fax: 714/671-7080
Western Central Service Center
American Funds Service Company
P.O. Box 659522
San Antonio, Texas
78265-9522
Fax: 210/530-4050
Eastern Central Service Center
American Funds Service Company
P.O. Box 6007
Indianapolis, Indiana
46206-6007
Fax: 317/735-6620''Eastern Service Center
American Funds Service Company
P.O. Box 2280
Norfolk, Virginia
23501-2280
Fax: 804/670-4773
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AMERICAN HIGH-INCOME MUNICIPAL BOND FUND / PROSPECTUS 15
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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."
"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."
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16 AMERICAN HIGH-INCOME MUNICIPAL BOND FUND / PROSPECTUS
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<PAGE>
================================================================================
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."
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AMERICAN HIGH-INCOME MUNICIPAL BOND FUND / PROSPECTUS 17
- --------------------------------------------------------------------------------
<PAGE>
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SHAREHOLDER SERVICES
The fund offers you a valuable array of services you can use to alter your
investment program as your needs and circumstances change. These services,
which are summarized below, are available only in states where they may be
legally offered and may be terminated or modified at any time upon 60 days'
written notice. A COMPLETE DESCRIPTION OF SHAREHOLDER SERVICES AND ACCOUNT
POLICIES IS CONTAINED IN THE FUND'S STATEMENT OF ADDITIONAL INFORMATION. In
addition, an easy-to-read guide to owning a fund in The American Funds Group
titled "Welcome to the Family" is sent to new shareholders and is available by
writing or calling American Funds Service Company.
THE SERVICES DESCRIBED MAY NOT BE AVAILABLE THROUGH SOME RETIREMENT PLANS OR
ACCOUNTS HELD BY INVESTMENT DEALERS. IF YOU ARE INVESTING IN SUCH A MANNER, YOU
SHOULD CONTACT YOUR PLAN ADMINISTRATOR/TRUSTEE OR DEALER ABOUT WHAT SERVICES
ARE AVAILABLE AND WITH QUESTIONS ABOUT YOUR ACCOUNT.
================================================================================
PURCHASING SHARES
HOW TO PURCHASE SHARES
Generally, 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, computer,
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 for any reason. This includes the exchange purchase orders that
may place an unfair burden on other shareholders due to their frequency.
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.
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18 AMERICAN HIGH-INCOME MUNICIPAL BOND FUND / PROSPECTUS
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<PAGE>
================================================================================
X Cross-Reinvestment
You may invest your dividends and capital gain distributions into any other
fund in The American Funds Group.
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 or computer including American
FundsLine (R) or American FundsLine OnLine (SM) (see below), or by fax.
EXCHANGES HAVE THE SAME TAX CONSEQUENCES AS ORDINARY SALES AND PURCHASES.
X Retirement Plans
Tax-exempt funds should not serve as retirement plan investments.
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>
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AMERICAN HIGH-INCOME MUNICIPAL BOND FUND / PROSPECTUS 19
- --------------------------------------------------------------------------------
<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 100 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 and/or by American Funds Distributors on these investments.
Investments by retirement plans, foundations or endowments with $50 million or
more in assets may be made with no sales charge and are not subject to a
contingent deferred sales charge. A dealer concession of up to 1% may be paid
by the fund from its Plan of Distribution and/or by American Funds Distributors
on these investments. Investments by certain individuals and entities including
employees and other associated persons of dealers authorized to sell shares of
the fund and Capital Research and Management Company and its affiliated
companies are not subject to a sales charge.
ADDITIONAL DEALER COMPENSATION
In addition to the concessions listed, up to 0.25% of average net assets is
paid annually to qualified dealers for providing certain services pursuant to
the fund's Plan of Distribution. During the current fiscal year, American Funds
Distributors will also provide additional compensation to the top one hundred
- --------------------------------------------------------------------------------
20 AMERICAN HIGH-INCOME MUNICIPAL BOND FUND / PROSPECTUS
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<PAGE>
================================================================================
dealers who have sold shares of funds in The American Funds Group based on the
pro rata share of a qualifying dealer's sales.
REDUCING YOUR SALES CHARGE
You and your immediate family may combine investments to reduce your costs. You
must let your investment dealer or American Funds Service Company know if you
qualify for a reduction in your sales charge using one or any combination of
the methods described below.
X Aggregation
Investments that may be aggregated include those made by you, your spouse
and your children under the age of 21, if all parties are purchasing shares
for their own account(s), including any business account solely "controlled
by", as well as any retirement plan or trust account solely for the benefit
of, these individuals. Investments made for multiple employee benefit plans
of a single employer or "affiliated" employers may be aggregated provided
they are not also aggregated with individual accounts. Finally, investments
made by a common trust fund or other diversified pooled account not
specifically formed for the purpose of accumulating fund shares may be
aggregated.
Purchases made for nominee or street name accounts will generally not be
aggregated with those made for other accounts unless qualified as described
above.
X Concurrent Purchases
You may combine concurrent purchases of two or more funds in The American
Funds Group, except direct purchases of the money market funds. Shares of
the money market funds purchased through an exchange, reinvestment or cross-
reinvestment from a fund having a sales charge do qualify.
X Right of Accumulation
You may take into account the current value of your existing holdings in The
American Funds Group to determine your sales charge. Direct purchases of the
money market funds are excluded.
X Statement of Intention
You may enter into a non-binding commitment to invest a certain amount
(which at your request, may include purchases made during the previous
90 days) 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.
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AMERICAN HIGH-INCOME MUNICIPAL BOND FUND / PROSPECTUS 21
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
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) or American FundsLine OnLine(SM) (see below). In addition, you may
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 in good order by American Funds Service Company. Sale requests may be
made in writing, by telephone or computer, including American FundsLine(R) or
American FundsLine OnLine(SM) (see below), or by fax. Sales by telephone,
computer or fax are limited to $50,000 in accounts registered to individual(s)
(including non-retirement trust accounts). In addition, checks must be made
payable to the registered shareholder(s) and mailed to an address of record
that has been used with the account for at least 10 days.
Proceeds will not be mailed until sufficient time has passed to provide
reasonable assurance that checks or drafts (including certified or cashier's
checks) for shares purchased have cleared (which may take up to 15 calendar
days from the purchase date). Except for delays relating to clearance of checks
for share purchases or in extraordinary circumstances (and as permissible under
the Investment Company Act of 1940), sale proceeds will be paid on or before
the seventh day following receipt and acceptance of an order. Interest will not
accrue or be paid on amounts that represent uncashed distribution or redemption
checks.
The fund may, with 60 days' written notice, close your account if due to a sale
of shares the account has a value of less than the minimum required initial
investment.
Generally, written requests to sell shares must be signed by you and must
include any shares you wish to sell that are in certificate form. Your
signature must be guaranteed by a bank, savings association, credit union, or
member firm of a domestic stock exchange or the National Association of
Securities Dealers, Inc., that is an eligible guarantor institution. A
signature guarantee is not currently required for any sale of $50,000 or less
provided the check is made payable to the registered shareholder(s) and is
mailed to the address of record on the account, and provided the address has
been used with the account for at least 10 days. Additional documentation may
be required for sale of shares held in corporate, partnership or fiduciary
accounts.
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22 AMERICAN HIGH-INCOME MUNICIPAL BOND FUND / PROSPECTUS
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<PAGE>
================================================================================
You may reinvest proceeds from a redemption or a dividend or capital gain
distribution without a sales charge (any contingent deferred sales charge paid
will be credited to your account) in any fund in The American Funds Group
within 90 days after the date of the redemption or distribution. Redemption
proceeds of shares representing direct purchases in the money market funds are
excluded. 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) AND AMERICAN FUNDSLINE ONLINE(SM)
You may check your share balance, the price of your shares, or your most recent
account transactions, sell shares (up to $50,000 per shareholder each day), or
exchange shares around the clock with American FundsLine(R) or American
FundsLine OnLine(SM). To use this service, call 800/325-3590 from a
TouchTone(TM) telephone or access the American Funds Web site on the Internet at
www.americanfunds.com.
TELEPHONE AND COMPUTER PURCHASES, SALES AND EXCHANGES
Unless you opt out of the telephone or computer (including American
FundsLine(R) at American FundsLine OnLine(SM) 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 liabilities
(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, dividend and
capital gain reinvestments, and certain retirement plans will be confirmed at
least quarterly.
- --------------------------------------------------------------------------------
AMERICAN HIGH-INCOME MUNICIPAL BOND FUND / PROSPECTUS 23
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
FOR SHAREHOLDER SERVICES FOR DEALER SERVICES
<S> <C>
American Funds American Funds
Service Company Distributors
800/421-0180 ext. 1 800/421-9900 ext. 11
FOR 24-HOUR INFORMATION
American American Funds
FundsLine(R) Internet Web site
800/325-3590 http://www.americanfunds.com
</TABLE>
Telephone conversations may be recorded or monitored for
verification, recordkeeping and quality assurance purposes.
============================================================================
OTHER FUND INFORMATION
ANNUAL/SEMI-ANNUAL STATEMENT OF ADDITIONAL
REPORT TO SHAREHOLDERS INFORMATION (SAI)
Includes financial Contains more detailed
statements, detailed information on all aspects
performance information, of the fund, including the
portfolio holdings, a fund's financial statements.
statement from portfolio
management and the
independent accountants'
report (in the annual
report).
CODE OF ETHICS A current SAI has been filed
with the Securities and
Includes a description of the fund's Exchange Commission ("SEC").
personal investing policy. It is incorporated by
reference into this
prospectus and is available
along with other related
materials on the SEC's
Internet Web site at
http://www.sec.gov.
To request a free copy of any of the documents above:
Call American Funds or Write to the Secretary of
Service Company the fund 333 South Hope Street
800/421-0180 ext. 1 Los Angeles, CA 90071
[LOGO FOR RECYCLING APPEARS HERE]
This prospectus has been printed on recycled paper.
- --------------------------------------------------------------------------------
24 AMERICAN HIGH-INCOME MUNICIPAL BOND FUND / PROSPECTUS
- --------------------------------------------------------------------------------
AMERICAN HIGH-INCOME MUNICIPAL BOND FUND, INC.
Part B
Statement of Additional Information
October 1, 1997
This document is not a prospectus but should be read in conjunction with the
current prospectus dated October 1, 1997 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 5
Fund Officers and Directors 8
Management 11
Dividends and Distributions 14
Additional Information Concerning Taxes 14
Purchase of Shares 18
Redeeming Shares 24
Shareholder Account Services and Privileges 25
Execution of Portfolio Transactions 27
General Information 27
Investment Results 28
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.
PAYMENT EXPECTATIONS -- High-yield, high-risk bonds may contain redemption or
call provisions. If an issuer exercised these provisions in a declining
interest rate market, the fund would have to replace the security with a lower
yielding security, resulting in a decreased return for investors. Conversely, a
high-yield, high-risk bond's value will decrease in a rising interest rate
market, as will the value of the fund's assets.
LIQUIDITY AND VALUATION -- There may be little trading in the secondary market
for particular bonds, which may affect adversely the fund's ability to value
accurately or dispose of such bonds. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may decrease the
values and liquidity of high-yield, high-risk bonds, especially in a thin
market.
MUNICIPAL BONDS -- Municipal bonds are debt obligations generally issued to
obtain funds for various public purposes, including the construction of public
facilitiesOpinions 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.
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.
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.
FORWARD COMMITMENTS -- The fund may enter into commitments to purchase or sell
securities at a future date. When the fund agrees to purchase such securities
it assumes the risk of any decline in value of the security beginning on the
date of the agreement. . When the fund agrees to sell such securities, it does
not participate in further gains or losses with respect to the securities
beginning on the date of the agreement. If the other party to such a
transaction fails to deliver or pay for the securities, the fund could miss a
favorable price or yield opportunity, or could experience a loss.
As the fund's aggregate commitments under these transactions increase, the
opportunity for leverage similarly increases. The fund will not use these
transactions for the purpose of leveraging and will segregate liquid assets
which will be marked to market daily in 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 -- Normally, securities acquired in private placements are
subject to contractual restrictions on resale. Any such securities will be
considered illiquid unless they have been specifically determined to be liquid
under procedures adopted by the fund's board of directors, taking into account
factors such as the frequency and volume of trading and the commitment of
dealers to make markets and the availability of qualified investors, all of
which can change from time to time. The fund may incur additional costs in
disposing of securities that are illiquid.
TEMPORARY INVESTMENTS -- The fund may invest in short-term municipal
obligations of up to one year in maturity during periods of temporary defensive
strategy resulting from abnormal market conditions, or when such investments
are considered advisable for liquidity. Generally, the income from all such
securities is exempt from federal income tax. See "Additional Information
Concerning Taxes" below. Further, a portion of the fund's assets, which will
normally be less than 20%, may be held in cash or invested in high-quality
taxable short-term securities of up to one year in maturity. Such investments
may include: (1) obligations of the U.S. Treasury; (2) obligations of agencies
and instrumentalities of the U.S. Government; and (3) money market instruments,
such as certificates of deposit issued by domestic banks, corporate commercial
paper, and bankers' acceptances; and (4) repurchase agreements (which are
subject to the limitations described below).
REPURCHASE AGREEMENTS -- Although the fund has no current intention to do so
during the next 12 months, the fund may enter on a temporary basis into
repurchase agreements, under which the fund buys a security and obtains a
simultaneous commitment from the seller to repurchase the security at a
specified time and price. The seller must maintain with the fund's custodian
collateral equal to at least 100% of the repurchase price including accrued
interest, as monitored daily by the Investment Adviser. The fund will only
enter into repurchase agreements involving securities in which it could
otherwise invest and with selected banks and securities dealers whose financial
condition is monitored by the Investment Adviser. If the seller under the
repurchase agreement defaults, the fund may incur a loss if the value of the
collateral securing the repurchase agreement has declined and may incur
disposition costs in connection with liquidating the collateral. If bankruptcy
proceedings are commenced with respect to the seller, liquidation of the
collateral by the fund may be delayed or limited.
PORTFOLIO MANAGEMENT -- In seeking to achieve the fund's objective, the
Investment Adviser causes the fund to purchase securities which it believes
represent the best values then currently available in the marketplace. Such
values are a function of yield, maturity, issue classification and quality
characteristics, coupled with expectations regarding the economy, movements in
the general level and term structure of interest rates, political developments,
and variations in the supply of funds available for investment in the
tax-exempt market relative to the demand for the funds placed upon it. These
latter factors change continuously and should be met with a dynamic, responsive
approach to the investment process. Some of the more important portfolio
management techniques that are utilized by the Investment Adviser are set forth
below.
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 will exceed 100% annually. The fund's
portfolio turnover rate would equal 100% if each security in the fund's
portfolio were replaced once per year. See "Financial Highlights" in the
prospectus for the fund's annual portfolio turnover over its lifetime.
INVESTMENT RESTRICTIONS
FUNDAMENTAL POLICIES -- The fund has adopted the following fundamental policies
and investment restrictions which may not be changed without a majority vote of
its outstanding shares. Such majority is defined by the Investment Company Act
of 1940 ("1940 Act") as the vote of the lesser of (i) 67% or more of the
outstanding voting securities present at a meeting, if the holders of more than
50% of the outstanding voting securities are present in person or by proxy, or
(ii) more than 50% of the outstanding voting securities. All percentage
limitations expressed in the following investment restrictions are measured
immediately after and giving effect to the relevant transaction. 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.
NON-FUNDAMENTAL POLICIES -- The fund has adopted the following policies:
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 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;
5. The fund does not currently intend to purchase securities in the event its
borrowings exceed 5% of total assets.
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.
FUND OFFICERS AND DIRECTORS
Directors and Director Compensation
<TABLE>
<CAPTION>
NAME, ADDRESS AND POSITION PRINCIPAL AGGREGATE TOTAL TOTAL
AGE WITH OCCUPATION(S) COMPENSATION COMPENSATION NUMBER
REGISTRANT DURING (INCLUDING (INCLUDING OF FUND
PAST 5 YEARS VOLUNTARILY VOLUNTARILY BOARDS ON
(POSITIONS DEFERRED DEFERRED WHICH
WITHIN THE COMPENSATION/1/) COMPENSATION/1/) DIRECTOR
ORGANIZATIONS FROM THE FUND FROM ALL FUNDS SERVES/2/
LISTED MAY HAVE DURING FISCAL MANAGED BY
CHANGED DURING YEAR ENDED CAPITAL RESEARCH
THIS PERIOD) JULY 31, 1997 AND MANAGEMENT
COMPANY/2/ FOR
THE YEAR ENDED
JULY 31, 1997
<S> <C> <C> <C> <C> <C>
H. Frederick Director Private $2,300/3/ $163,900 18
Christie Investor.
P.O. Box 144 Former President
Palos Verdes and Chief
Estates, CA Executive
90274 Officer, The
Age: 64 Mission Group
(non-utility
holding
Company,
subsidiary of
Southern
California
Edison Company)
+Don R. Conlan Director President none/4/ none/4/ 12
Age: 61 (retired), The
Capital Group
Companies, Inc.
Diane C. Creel Director CEO and $2,500 $40,800 12
100 W. Broadway President,
Suite 5000 The Earth
Long Beach, CA Technology
90802 Corporation
Age: 48 (international
consulting
engineering)
Martin Fenton, Director Chairman, Senior $2,700/3/ $131,600 16
Jr. Resource Group
4350 Executive (management of
Drive senior living
Suite 101 centers)
San Diego, CA
92121-2116
Age: 62
Leonard R. Fuller Director President, $2,300/3/ $44,600 12
4337 Marina City Fuller &
Drive Company, Inc.
Suite 841 ETN (financial
Marina del Rey, management
CA 90292 consulting
A ge: 51 firm)
+*Abner D. President, Capital Research none/4/ none/4/ 12
Goldstine PEO and and Management
Age: 67 Director Company, Senior
Vice President
and Director
+**Paul G. Haaga, Chairman Capital Research none/4/ none/4/ 14
Jr. of and Management
Age: 48 the Board Company,
Executive Vice
President and
Director
Herbert Hoover Director Private Investor $1,900 $66,600 14
III
1520 Circle Drive
San Marino, CA
91108
Age: 69
Richard G. Newman Director Chairman, $3,200/3/ $96,800 13
3250 Wilshire President and
Boulevard CEO,
Los Angeles, CA AECOM Technology
90010-1599 Corporation
Age: 62 (architectural
engineering)
Peter Valli Director Retired; former $2,700/3/ $44,000 12
45 Sea Isle Drive Chairman, BW/IP
Long Beach, CA International
90803 Inc.
Age: 70 (industrial
manufacturing)
</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.
* 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 ($5,405), Martin Fenton, Jr. ($545), Leonard R.
Fuller ($1,123), Richard G. Newman ($9,793) and Peter C. Valli ($7,344).
Amounts deferred and accumulated earnings thereon are not funded and are
general unsecured liabilities of the fund until paid to the Director.
/4/ Don R. Conlan, Paul G. Haaga, Jr. and Abner D. Goldstine are affiliated
with the Investment Adviser and, accordingly, receive no compensation from the
Fund.
OFFICERS
(with their principal occupations during the past five years)#
<TABLE>
<CAPTION>
NAME AND ADDRESS AGE POSITION(S) HELD PRINCIPAL OCCUPATION(S) DURING
WITH REGISTRANT PAST 5 YEARS
<S> <C> <C> <C>
Neil L. Langberg 44 Senior Vice Vice President - Investment
11100 Santa Monica Blvd. President Management Group, Capital
Los Angeles, CA 90025 Research Company
Michael J. Downer 43 Vice President Senior Vice President - Fund
333 South Hope Street Business Management Group,
Los Angeles, CA 90071 Capital Research and Management
Company
Mary C. Hall 39 Vice President Senior Vice President - Fund
135 South State College Blvd. Business Management Group,
Brea, CA 92821 Capital Research and Management
Company
Mark R. Macdonald 38 Vice President Vice President - Investment
11100 Santa Monica Blvd. Management Group, Capital
Los Angeles, CA 90025 Research and Management Company
Julie F. Williams 49 Secretary Vice President - Fund Business
333 South Hope Street Management Group, Capital
Los Angeles, CA 90071 Research and Management Company
Anthony W. Hynes, Jr. 34 Treasurer Vice President - Fund Business
135 South State College Blvd. Management Group, Capital
Brea, CA 92821 Research and Management Company
Kimberly S. Verdick 32 Assistant Assistant Vice President - Fund
333 South Hope Street Secretary Business Management Group,
Los Angeles, CA 90071 Capital Research and Management
Company
Todd L. Miller 38 Assistant Assistant Vice President - Fund
135 South State College Blvd. Treasurer Business Management Group,
Brea, CA 92821 Capital Research and Management
Company
</TABLE>
# Positions within the organizations listed may have changed during this period
No compensation is paid by the fund to any officer or 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 September 1, 1997 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, 1998, 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 $300 million and
gross investment income levels of 3%, 4%, 5%, 6% and 7%, management fees would
be 0.32%, 0.35%, 0.38%, 0.41% and 0.44%, respectively.
For the purposes of such computations under the Agreement, the fund's gross
investment income does not reflect any net realized gains or losses on the sale
of portfolio securities but does include original-issue discount as defined for
federal income tax purposes.
The Investment Adviser, in addition to providing investment advisory services,
furnishes the services and pays the compensation and travel expenses of
qualified persons to perform the executive and related administrative, clerical
and bookkeeping functions of the fund, and provides suitable office space,
necessary small office equipment and general purpose accounting forms,
supplies, and postage used at the offices of the fund. The fund pays all
expenses not assumed by the Investment Adviser, including, but not limited to,
custodian, stock transfer and dividend disbursing fees and expenses; costs of
the designing, printing and mailing of reports, prospectuses, proxy statements,
and notices to its shareholders, taxes; expenses of the issuance and redemption
of shares (including stock certificates, registration and qualification fees
and expenses); legal and auditing expenses; compensation, fees, and expenses
paid to directors unaffiliated with the Investment Adviser; association dues;
costs of stationery and forms prepared exclusively for the fund; and costs of
assembling and storing shareholder account data.
The Investment Adviser has agreed to waive its fees by any amount necessary to
assure that such expenses do not exceed applicable expense limitations in any
state in which the funds' shares are being offered for sale.
The Investment Adviser has agreed to bear any fund expenses (with the exception
of interest, taxes, brokerage costs and extraordinary expenses such as
litigation and acquisitions) in excess of 0.90% 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. During the period,
the Investment Adviser's total fees amounted to $1,100,000.
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,
1997 amounted to $345,000 after allowance of $1,424,000 to dealers. During the
fiscal year ended 1996, the Principal Underwriter received $348,000, after
allowance of $1,467,000.
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. Plan expenditures are 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 100
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 $767,000 under the Plan as compensation to dealers.
As of July 31, 1997, accrued and unpaid distribution expenses were $81,000.
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 prospectus
is not intended as a substitute for careful tax planning. Investors are urged
to consult their tax advisers with specific reference to their own tax
situations.
The fund is not intended to constitute a balanced investment program and is not
designed for investors seeking capital appreciation or maximum tax-exempt
income irrespective of fluctuations in principal. Shares of the fund would
generally not be suitable for tax-exempt institutions or tax-deferred
retirement plans (e.g., plans qualified under Section 401 of the Internal
Revenue Code, Keogh-type plans and individual retirement accounts.) Such
retirement plans would not gain any benefit from the tax-exempt nature of the
fund's dividends because such dividends would be ultimately taxable to
beneficiaries when distributed to them. In addition, the fund may not be an
appropriate investment for entities which are "substantial users" of facilities
financed by private activity bonds or "related persons" thereof. "Substantial
user" is defined under U.S. Treasury Regulations to include a non-exempt person
who regularly uses a part of such facilities in his trade or business and whose
gross revenues derived with respect to the facilities financed by the issuance
of bonds are more than 5% of the total revenues derived by all users of such
facilities, or who occupies more than 5% of the usable area of such facilities
or for whom such facilities or a part thereof were specifically constructed,
reconstructed or acquired. "Related persons" include certain related natural
persons, affiliated corporations, a partnership and its partners and an S
Corporation and its shareholders.
The fund intends to meet all the requirements and has elected the tax status of
a "regulated investment company" under the provisions of Subchapter M of the
Internal Revenue Code of 1986 (the "Code"). Under Subchapter M, if the fund
distributes within specified times at least 90% of its taxable and tax-exempt
net investment income, it will be taxed only on that portion, if any, which it
retains.
To qualify, the fund must (a) derive at least 90% of its gross income from
dividends, interest, payments with respect to securities loans, and gains from
the sale or other disposition of stock, securities, currencies, or other income
derived with respect to its business of investing in such stock, securities, or
currencies; (b) for taxable years beginning on or before August 5, 1997, 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 certain tax-exempt obligations. Not
later than 60 days after the close of its taxable year, the fund will notify
each shareholder in writing of the portion of the dividends paid by the fund to
the shareholder with respect to such taxable year which constitutes
exempt-interest dividends. The aggregate amount of dividends so designated
cannot, however, exceed the excess of the amount of interest excludable from
gross income from tax under Section 103 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% (20% on capital gains with respect to assets held more than 18
months) 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 on assets held more than 18 months is 20%; and on assets held
more than one year and not more than 18 months 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>
METHOD INITIAL INVESTMENT ADDITIONAL INVESTMENTS
<S> <C> <C>
See "Investment Minimums and Fund $50 minimum (except where a
Numbers" for initial investment lower minimum is noted under
minimums. "Investment Minimums and Fund
Numbers").
By contacting your Visit any investment dealer who is Mail directly to your
investment dealer registered in the state where the investment dealer's address
purchase is made and who has a printed on your account
sales agreement with American Funds statement.
Distributors.
By mail Make your check payable to the fund Fill out the account additions
and mail to the address indicated form at the bottom of a recent
on the account application. Please account statement, make your
indicate an investment dealer on check payable to the fund,
the account application. write your account number on
your check, and mail the check
and form in the envelope
provided with your account
statement.
By telephone Please contact your investment Complete the "Investments by
dealer to open account, then follow Phone" section on the account
the procedures for additional application or American
investments. FundsLink Authorization Form.
Once you establish the
privilege, you, your financial
advisor or any person with your
account information can call
American FundsLine(r) and make
investments by telephone
(subject to conditions noted in
"Telephone and Computer
Purchases, Redemptions and
Exchanges" below).
By computer Please contact your investment Complete the American FundsLink
dealer to open account, then follow Authorization Form. Once you
the procedures for additional establish the privilege, you,
investments. your financial advisor or any
person with your account
information may access American
FundsLine(r) on the Internet
and make investments by
computer (subject to conditions
noted in "Telephone and
Computer Purchases, Redemptions
and Exchanges" below).
By wire Call 800/421-0180 to obtain your Your bank should wire your
account number(s), if necessary. additional investments in the
Please indicate an investment same manner as described under
dealer on the account. Instruct "Initial Investment."
your bank to wire funds to:
Wells Fargo Bank
155 Fifth Street
Sixth Floor
San Francisco, CA 94106
(ABA #121000248)
For credit to the account of:
American Funds Service Company
a/c #4600-076178
(fund name)
(your fund acct. no.)
THE FUNDS AND AMERICAN FUNDS DISTRIBUTORS RESERVE THE RIGHT TO REJECT ANY PURCHASE ORDER.
</TABLE>
INVESTMENT MINIMUMS AND FUND NUMBERS -- Here are the minimum initial
investments required by the funds in The American Funds Group along with fund
numbers for use with our automated phone line, American FundsLine(r) (see
description below):
<TABLE>
<CAPTION>
FUND MINIMUM FUND
INITIAL NUMBER
INVESTMENT
<S> <C> <C>
STOCK AND STOCK/BOND FUNDS
AMCAP Fund(r) $1,000 02
American Balanced Fund(r) 500 11
American Mutual Fund(r) 250 03
Capital Income Builder(r) 1,000 12
Capital World Growth and Income Fund(sm) 1,000 33
EuroPacific Growth Fund(r) 250 16
Fundamental Investors(sm) 250 10
The Growth Fund of America(r) 1,000 05
The Income Fund of America(r) 1,000 06
The Investment Company of America(r) 250 04
The New Economy Fund(r) 1,000 14
New Perspective Fund(r) 250 07
SMALLCAP World Fund(sm) 1,000 35
Washington Mutual Investors Fund(sm) 250 01
BOND FUNDS
American High-Income Municipal Bond Fund(sm) 1,000 40
American High-Income Trust(r) 1,000 21
The Bond Fund of America(sm) 1,000 08
Capital World Bond Fund(r) 1,000 31
Intermediate Bond Fund of America(r) 1,000 23
Limited Term Tax-Exempt Bond Fund of America(sm) 1,000 43
The Tax-Exempt Bond Fund of America(sm) 1,000 19
The Tax-Exempt Fund of California(r)* 1,000 20
The Tax-Exempt Fund of Maryland(r)* 1,000 24
The Tax-Exempt Fund of Virginia(r)* 1,000 25
U.S. Government Securities Fund(sm) 1,000 22
MONEY MARKET FUNDS
The Cash Management Trust of America(r) 2,500 09
The Tax-Exempt Money Fund of America(sm) 2,500 39
The U.S. Treasury Money Fund of America(sm) 2,500 49
___________
*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).
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>
AMOUNT OF PURCHASE SALES CHARGE AS DEALER
AT THE OFFERING PRICE PERCENTAGE OF THE: CONCESSION
AS PERCENTAGE
OF THE
OFFERING
PRICE
NET AMOUNT OFFERING
INVESTED PRICE
STOCK AND STOCK/BOND FUNDS
Less than $50,000 6.10%
5.75% 5.00%
$50,000 but less than $100,000 4.71
4.50 3.75
BOND FUNDS
Less than $25,000 4.99
4.75 4.00
$25,000 but less than $50,000 4.71
4.50 3.75
$50,000 but less than $100,000 4.17
4.00 3.25
STOCK, STOCK/BOND, AND BOND FUNDS
$100,000 but less than $250,000 3.63
3.50 2.75
$250,000 but less than $500,000 2.56
2.50 2.00
$500,000 but less than $1,000,000 2.04
2.00 1.60
$1,000,000 or more none (see below)
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 100 or more eligible
employees, and for purchases made at net asset value by certain
retirement plans of organizations with collective retirement plan
assets of $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 the current fiscal year,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 100
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.") Investments by
retirement plans, foundations or endowments with $50 million or more in assets
may be made with no sales charge and are not subject to a contingent deferred
sales charge.
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.
STATEMENT OF INTENTION -- The reduced sales charges and offering prices set
forth in the prospectus apply to purchases of $50,000 or more made within a
13-month period subject to the following statement of intention (the
"Statement") terms. The Statement is not a binding obligation to purchase the
indicated amount. When a shareholder elects to 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 directors 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.
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.
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 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, Martin Luther
King, Jr.'s Birthday, President's Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving and Christmas Day.
All portfolio securities of funds managed by Capital Research and Management
Company are valued, and the net asset value per share is determined, as
follows:
1. Equity securities, including depositary receipts, are valued at the last
reported sale price on the exchange or market on which such securities are
traded, as of the close of business on the day the securities are being valued
or, lacking any sales, at the last available bid price. In cases where equity
securities are traded on more than one exchange, the securities are valued on
the exchange or market determined by the Investment Adviser to be the broadest
and most representative market, which may be either a securities exchange or
the over-the-counter market. Fixed-income securities are valued at prices
obtained from a pricing service, when such prices are available; however, in
circumstances where the Investment Adviser deems it appropriate to do so, such
securities will be valued at the mean quoted bid and asked prices or at prices
for securities of comparable maturity, quality and type.
Securities with original maturities of one year or less having 60 days or less
to maturity are amortized to maturity based on their cost if acquired within 60
days of maturity or, if already held on the 60th day, based on the value
determined on the 61st day. Forward currency contracts are valued at the mean
of representative quoted bid and asked prices.
Assets or liabilities initially expressed in terms of foreign currencies are
translated prior to the next determination of the net asset value of the fund's
shares into U.S. dollars at the prevailing market rates.
Securities and assets for which representative market quotations are not
readily available are valued at fair value as determined in good faith under
policies approved by the fund's Board. The fair value of all other assets is
added to the value of securities to arrive at the total assets;
2. Liabilities, including accruals of taxes and other expense items, are
deducted from total assets; and
3. Net assets so obtained are then divided by the total number of shares
outstanding, and the result, rounded to the nearer cent, is the net asset value
per share.
Any purchase order may be rejected by the Principal Underwriter or by the fund.
The fund will not knowingly sell fund shares (other than for the reinvestment
of dividends or capital gain distributions) directly or indirectly or through a
unit investment trust to any other investment company, person or entity, where,
after the sale, such investment company, person, or entity would own
beneficially directly, indirectly, or through a unit investment trust more than
4.5% of the outstanding shares of the fund without the consent of a majority of
the Board of Directors.
REDEEMING SHARES
<TABLE>
<CAPTION>
<S> <C>
By writing to American Funds Service Send a letter of instruction specifying the name of
Company (at the appropriate address the fund, the number of shares or dollar amount to
indicated under "Fund Organization and be sold, your name and account number. You should
Management - Principal Underwriter and also enclose any share certificates you wish to
Transfer Agent" in the prospectus) redeem. For redemptions over $50,000 and for
certain redemptions of $50,000 or less (see below),
your signature must be guaranteed by a bank,
savings association, credit union, or member firm
of a domestic stock exchange or the National
Association of Securities Dealers, Inc. that is an
eligible guarantor institution. You should verify
with the institution that it is an eligible
guarantor prior to signing. Additional
documentation may be required for redemption of
shares held in corporate, partnership or fiduciary
accounts. Notarization by a Notary Public is not
an acceptable signature guarantee.
By contacting your investment dealer If you redeem shares through your investment
dealer, you may be charged for this service.
SHARES HELD FOR YOU IN YOUR INVESTMENT DEALER'S
STREET NAME MUST BE REDEEMED THROUGH THE DEALER.
You may have a redemption check sent You may use this option, provided the account is
to you by using American FundsLine(r) registered in the name of an individual(s), a
or American FundsLine Online(sm) or by UGMA/UTMA custodian, or a non-retirement plan
telephoning, faxing, or telegraphing trust. These redemptions may not exceed $50,000
American Funds Service Company per shareholder, per day, per fund account and the
(subject to the conditions noted in check must be made payable to the shareholder(s) of
this section and in "Telephone and record and be sent to the address of record
Computer Purchases, Redemptions and provided the address has been used with the account
Exchanges" below) for at least 10 days. See "Fund Organization and
Management - Principal Underwriter and Transfer
Agent" in the prospectus and "Exchange Privilege"
below for the appropriate telephone or fax number.
In the case of the money market funds, Upon request (use the account application for the
you may have redemptions wired to your money market funds) you may establish telephone
bank by telephoning American Funds redemption privileges (which will enable you to
Service Company ($1,000 or more) or by have a redemption sent to your bank account) and/or
writing a check ($250 or more) check writing privileges. If you request check
writing privileges, you will be provided with
checks that you may use to draw against your
account. These checks may be made payable to
anyone you designate and must be signed by the
authorized number 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 100 or more eligible employees. The charge is 1% of the
lesser of the value of the shares redeemed (exclusive of reinvested dividends
and capital gain distributions) or the total cost of such shares. Shares held
for the longest period are assumed to be redeemed first for purposes of
calculating this charge. The charge is waived for exchanges (except if shares
acquired by exchange were then redeemed within 12 months of the initial
purchase); for distributions from qualified retirement plans and other employee
benefit plans; for redemptions resulting from participant-directed switches
among investment options within a participant-directed employer-sponsored
retirement plan; for distributions from 403(b) plans or IRAs due to death,
disability or attainment of age 59-1/2; for tax-free returns of excess
contributions to IRAs; for redemptions through certain automatic withdrawals
not exceeding 10% of the amount that would otherwise be subject to the charge;
and for redemptions in connection with loans made by qualified retirement
plans.
SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES
AUTOMATIC INVESTMENT PLAN -- The automatic investment plan enables shareholders
to make regular monthly or quarterly investments in shares through automatic
charges to their bank accounts. With shareholder authorization and bank
approval, the Transfer Agent will automatically charge the bank account for the
amount specified ($50 minimum), which will be automatically invested in shares
at the offering price on or about the dates you select. Bank accounts will be
charged on the day or a few days before investments are credited, depending on
the bank's capabilities, and shareholders will receive a confirmation statement
at least quarterly. Participation in the plan will begin within 30 days after
receipt of the account application. If the shareholder's bank account cannot
be charged due to insufficient funds, a stop-payment order or closing of the
account, the plan may be terminated and the related investment reversed. The
shareholder may change the amount of the investment or discontinue the plan at
any time by writing 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.
CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS -- A shareholder in one fund
may elect to cross-reinvest dividends or dividends and capital gain
distributions paid by that fund (the "paying fund") into any other fund in The
American Funds Group (the "receiving fund") subject to the following
conditions: (i) the aggregate value of the shareholder's account(s) in the
paying fund(s) must equal or exceed $5,000 (this condition is waived if the
value of the account in the receiving fund equals or exceeds that fund's
minimum initial investment requirement), (ii) as long as the value of the
account in the receiving fund is below that fund's minimum initial investment
requirement, dividends and capital gain distributions paid by the receiving
fund must be automatically reinvested in the receiving fund, and (iii) if this
privilege is discontinued with respect to a particular receiving fund, the
value of the account in that fund must equal or exceed the fund's minimum
initial investment requirement or the fund shall have the right, if the
shareholder fails to increase the value of the account to such minimum within
90 days after being notified of the deficiency, automatically to redeem the
account and send the proceeds to the shareholder. These cross-reinvestments of
dividends and capital gain distributions will be at net asset value (without
sales charge).
EXCHANGE PRIVILEGE -- You may exchange shares into other funds in The American
Funds Group. Exchange purchases are subject to the minimum investment
requirements of the fund purchased and no sales charge generally applies.
However, exchanges of shares from the money market funds are subject to
applicable sales charges on the fund being purchased, unless the money market
fund shares were acquired by an exchange from a fund having a sales charge, or
by reinvestment or cross-reinvestment of dividends or capital gain
distributions.
You may exchange shares by writing to American Funds Service Company (see
"Redeeming Shares"), by contacting your investment dealer, by using American
FundsLine(r) or American FundsLine OnLine(sm) (see "American FundsLine(r) and
American FundsLine OnLine(sm)" below), or by telephoning 800/421-0180
toll-free, faxing (see "Transfer Agent" below for the appropriate fax numbers)
or telegraphing American Funds Service Company. (See "Telephone and Computer
Redemptions and Exchanges" below.) Shares held in corporate-type retirement
plans for which Capital Guardian Trust Company serves as trustee may not be
exchanged by telephone, fax or telegraph. Exchange redemptions and purchases
are processed simultaneously at the share prices next determined after the
exchange order is received. (See "Purchase of Shares--Price of Shares.") THESE
TRANSACTIONS HAVE THE SAME TAX CONSEQUENCES AS ORDINARY SALES AND PURCHASES.
AUTOMATIC EXCHANGES -- You may automatically exchange shares (in amounts of $50
or more) among any of the funds in The American Funds Group on any day (or
preceding business day if the day falls on a non-business day) of each month
you designate. You must either meet the minimum initial investment requirement
for the receiving fund OR the originating fund's balance must be at least
$5,000 and the receiving fund's minimum must be met within one year.
AUTOMATIC WITHDRAWALS -- Withdrawal payments are not to be considered as
dividends, yield or income. Automatic investments may not be made into a
shareholder account from which there are automatic withdrawals. Withdrawals of
amounts exceeding reinvested dividends and distributions and increases in share
value would reduce the aggregate value of the shareholder's account. The
Transfer Agent arranges for the redemption by the fund of sufficient shares,
deposited by the shareholder with the Transfer Agent, to provide the withdrawal
payment specified.
ACCOUNT STATEMENTS -- Your account is opened in accordance with your
registration instructions. Transactions in the account, such as additional
investments, will be reflected on regular confirmation statements from American
Funds Service Company. Dividend and capital gain reinvestments and purchases
through automatic investment plans and certain retirement plans will be
confirmed at least quarterly.
AMERICAN FUNDSLINE(R) AND AMERICAN FUNDSLINE ONLINE(SM) -- You may check your
share balance, the price of your shares, or your most recent account
transaction, redeem shares (up to $50,000 per shareholder each day), or
exchange shares around the clock with American FundsLine(r) and American
FundsLine OnLine(sm). To use this service, call 800/325-3590 from a
TouchTone(tm) telephone or access the American Funds Website on the Internet at
www.americanfunds.com. Redemptions and exchanges through American FundsLine(r)
and American FundsLine OnLine(sm) are subject to the conditions noted above and
in "Redeeming Shares--Telephone and Computer Purchases, Redemptions and
Exchanges" below. You will need your fund number (see the list of funds in The
American Funds Group under "Purchase of Shares--Investment Minimums and Fund
Numbers"), personal identification number (the last four digits of your Social
Security number or other tax identification number associated with your
account) and account number.
TELEPHONE AND COMPUTER PURCHASE REDEMPTIONS AND EXCHANGES -- By using the
telephone or computer (including American FundsLine(r) and American FundsLine
OnLine(sm)), fax or telegraph redemption and/or exchange options, you agree to
hold the fund, American Funds Service Company, any of its affiliates or mutual
funds managed by such affiliates, and each of their respective directors,
trustees, officers, employees and agents harmless from any losses, expenses,
costs or liabilities (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
Orders for the fund's portfolio securities transactions are placed by the
Investment Adviser. The Investment Adviser strives to obtain the best
available prices in its portfolio transactions taking into account the costs
and promptness of executions. When circumstances relating to a proposed
transaction indicate that a particular broker (either directly or through their
correspondent clearing agents) is in a position to obtain the best price and
execution, the order is placed with that broker. This may or may not be a
broker who has provided investment research statistical, or other related
services to the Investment Adviser or has sold shares of the fund or other
funds served by the Investment Adviser. The fund does not consider that it has
an obligation to obtain the lowest available commission rate to the exclusion
of price, service and qualitative considerations.
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 $97,000 for the fiscal
year ended July 31, 1997.
INDEPENDENT ACCOUNTANTS -- Price Waterhouse LLP, 400 South Hope Street, Los
Angeles, CA 90071, provides audit services, preparation of tax returns and
review of certain documents to be filed with the Securities and Exchange
Commission. The financial statements included in this statement of additional
information have been so included in reliance on the report of the independent
accountants given on the authority of said firm as experts in accounting and
auditing.
SHAREHOLDER VOTING RIGHTS -- At any meeting of shareholders, duly called and at
which a quorum is present, the shareholders may, by the affirmative vote of the
holders of a majority of the votes entitled to be cast thereon, remove any
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 -- The Investment Adviser and its affiliated
companies have adopted a personal investing policy consistent with Investment
Company Institute guidelines. This policy includes: a ban on acquisitions of
securities pursuant to an initial public offering; restrictions on acquisitions
of private placement securities; pre-clearance and reporting requirements;
review of duplicate confirmation statements; annual recertification of
compliance with codes of ethics; ; blackout periods on personal investing for
certain investment personnel; ban on short-term trading profits for investment
personnel; limitations on service as a director of publicly traded companies;
and disclosure of personal securities transactions. You may obtain a summary
of the personal investing policy by contacting the Secretary of the Fund.
The financial statements including the investment portfolio and the report of
independent accountants contained in the annual report are included in this
statement of additional information. The following information is not included
in the annual report:
<TABLE>
<CAPTION>
DETERMINATION OF NET ASSET VALUE, REDEMPTION PRICE AND
MAXIMUM OFFERING PRICE PER SHARE -- JULY 31, 1997
<S> <C>
Net asset value and redemption price per share
(Net assets divided by shares outstanding) $15.90
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) $16.69
</TABLE>
INVESTMENT RESULTS
The fund's yield is 4.72% based on a 30-day (or one month) period ended July
31, 1997, 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, 1997 was 7.81%.
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, 1997, the fund's total return over the past twelve months and
average annual total return over its lifetime were 6.06% and 9.20%,
respectively. Over the fund's lifetime (September 26, 1994 to July 31, 1997)
the Lehman Brothers Municipal Bond Index/1/ and the Lipper High Yield Municipal
Debt Funds Average/2/ had average annual total returns of 9.13% and 8.60%,
respectively.
/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.
/2/ The Lipper High Yield Municipal Debt Funds Average is comprised of funds
that invest at least 50% of their assets in lower rated municipal debt issues.
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..
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.
<TABLE>
AMERICAN HIGH-INCOME MUNICIPAL BOND FUND
Investment Portfolio, July 31, 1997
Quality Ratings
<S> <C> <C>
AAA: 4.82%
AA: 3.34%
A: 4.83%
BBB: 48.13%
BB: 23.45%
B: 8.86%
Cash & Equivalents: 6.57%
Principal Market
Amount Value
(000) (000)
Tax-Exempt Securities Maturing in More than
One Year - 93.43%
Alabama - 1.56%
The Industrial Development Board of the Town of
Courtland, Variable Rate Demand Industrial Development
Refunding Revenue Bonds (Champion International Corp.
Project), Series A, 7.20% 2013 $1,475 $1,645
The Industrial Development Board of the City of
Mobile, Solid Waste Revenue Refunding
Bonds (Mobile Energy Services Co., LLC
Projects), Series 1995, 6.95% 2020 3,000 3,291
California - 9.46%
Pollution Control Financing Authority, Solid Waste
Disposal Revenue Bonds (CanFibre of Riverside Project),
Tax-Exempt Series 1997A AMT, 9.00% 2019 1,000 1,015
Rural Home Mortgage Finance Authority,
Single Family Mortgage Revenue Bonds
(Mortgage-Backed Securities Program),
1995 Series B AMT, 7.75% 2026 945 1,088
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 1,080
7.00% 2010 2,000 2,180
Central Valley Financing Authority, Cogeneration
Project Revenue Bonds (Carson Ice-Gen Project),
Series 1993, 6.10% 2013 1,400 1,469
Long Beach Aquarium of the Pacific, Revenue Bonds
(Aquarium of the Pacific Project), 1995 Series A:
6.10% 2010 1,000 1,042
6.125% 2015 1,000 1,030
6.125% 2023 3,000 3,079
The City of Los Angeles, Multifamily Housing Revenue Bonds
(GNMA Collateralized - Ridgecroft Apartments Project),
Series 1997E AMT, 6.00% 2017 500 515
Los Angeles County Capital Asset Leasing
Corp., Certificates of Participation
(Marina del Rey), Series A, 6.25% 2003 3,715 4,005
City of Oxnard, Assessment District No. 97-1-R
(Pacific Commerce Center), Limited Obligation Refunding
Bonds, 5.70% 2006 1,500 1,547
Pleasanton Joint Powers Financing Authority,
Subordinate Reassessment Revenue Bonds,
1993 Series B, 6.125% 2002 4,390 4,650
Redding Joint Powers Financing Authority, Solid
Waste and Corp. Yard Revenue Bonds, 1993
Series A, 5.00% 2023 1,000 932
Sacramento Cogeneration Authority, Cogeneration
Project Revenue Bonds, 6.00% 2003 1,000 1,074
County of Sacramento, Laguna Creek Ranch/Elliott Ranch
Community Facilities District No. 1, Improvement Area
No. 2 Special Tax Refunding Bonds (Elliott Ranch):
6.10% 2013* 330 331
6.125% 2014* 250 249
6.30% 2021* 500 500
County of San Diego, Reassessment District No. 97-1
(4-S Ranch), Limited Obligation Improvement Bonds:
6.00% 2009* 1,000 1,000
6.25% 2012* 1,000 1,000
Redevelopment Agency of the City and County of San
Francisco, Residential Facility Revenue Bonds (Coventry
Park Project), Series 1996A AMT, 8.50% 2026 1,000 1,043
South Tahoe Joint Powers Financing Authority,
Refunding Revenue Bonds (South Tahoe
Redevelopment Project Area No. 1), 1995 Series B,
6.25% 2020 1,000 1,047
Colorado - 5.40%
Housing and Finance Authority, Single Family Program
Senior Bonds:
1995 Series B AMT, 7.90% 2025 1,105 1,243
1995 Series A AMT, 8.00% 2025 1,555 1,740
1997 Series B AMT, 7.00% 2026 1,000 1,108
Student Obligation Bond Authority,
Student Loan Asset-Backed Bonds, Senior
Subordinate 1995 Series II-B AMT, 6.20% 2008 1,000 1,054
Arapahoe County, Capital Improvement
Trust Fund Highway Revenue Bonds (E-470 Project):
6.90% 2015 (Prerefunded 2005) 1,250 1,479
6.95% 2020 (Prerefunded 2005) 4,500 5,341
City and County of Denver, Airport System
Revenue Bonds:
Series 1991D AMT, 7.75% 2013 1,000 1,265
Series 1992C AMT:
6.55% 2003 2,000 2,185
6.75% 2013 1,000 1,080
Series 1994A AMT, 7.50% 2023 500 581
Connecticut - 3.87%
Health and Educational Facilities Authority Revenue Bonds,
University of Hartford Issue, Series D, 6.75% 2012 1,000 1,029
Eastern Connecticut Resource Recovery Authority,
Solid Waste Revenue Bonds (Wheelabrator Lisbon
Project), Series 1993 A AMT, 5.50% 2020 1,500 1,462
Mashantucket (Western) Pequot Tribe Special Revenue Bonds,
1996 Series A:
6.25% 2003 1,000 1,081
6.375% 2004 1,000 1,093
6.40% 2011 7,000 7,578
Delaware - 1.61%
Economic Development Authority, First Mortgage Revenue
Bonds (Peninsula United Methodist Homes, Inc. Issue),
Series 1997A:
6.00% 2008 500 529
6.10% 2010 500 527
6.20% 2015 2,875 2,992
6.30% 2022 1,000 1,044
District of Columbia - 0.52%
Hospital Revenue Refunding Bonds (Washington
Hospital Center Issue), Series 1992A,
7.00% 2005 1,500 1,637
Florida - 5.59%
Arbor Green Community Development District (City of Tampa,
Hillsborough County), Special Assessment Revenue Bonds,
Series 1996, 7.00% 2003 3,000 3,047
The Crossings at Fleming Island Community
Development District (Clay County), Special
Assessment Bonds, Series 1995, 8.25% 2016 4,915 5,335
Meadow Pointe II Community Development District
(Pasco County), Capital Improvement
Revenue Bonds, Series 1995, 7.25% 2002 4,075 4,184
Northern Palm Beach County Improvement District, Water
Control and Improvement Bonds, Unit of Development No. 9A,
Series 1996A:
6.80% 2006 1,000 1,062
7.30% 2027 1,500 1,608
Ocean Highway and Port Authority, Solid Waste/Pollution
Control Revenue Refunding Bonds, Series 1996 (Jefferson
Smurfit Corp. (U.S.) Project), 6.50% 2006 1,305 1,339
Polk County Industrial Development Authority, Industrial
Development Revenue Bonds (IMC Fertilizer, Inc. Project),
1991 Tax-Exempt Series A AMT, 7.525% 2015 1,000 1,088
Illinois - 10.68%
Health Facilities Authority:
Revenue Refunding Bonds:
Advocate Health Care Network, Series 1997A:
5.70% 2011 750 786
5.80% 2016 3,000 3,111
Edward Hospital Project, Series 1993A, 6.00% 2019 1,000 1,029
Fairview Obligated Group Project, 1995 Series A:
6.25% 2003 1,245 1,271
7.40% 2023 2,630 2,765
Fairview Obligated Group Project, Revenue Bonds,
1992 Series A, 9.50% 2022 (Prerefunded 2002) 2,750 3,438
City of Chicago:
Chicago-O'Hare International
Airport, Special Facility Revenue Bonds
(United Air Lines, Inc. Project):
Series 1988A AMT, 8.95% 2018 3,340 3,813
Series 1988B, 8.85% 2018 1,130 1,289
Skyway Toll Bridge Refunding
Revenue Bonds, Series 1994:
6.50% 2010 (Prerefunded 2004) 1,500 1,689
6.75% 2017 (Prerefunded 2004) 1,500 1,710
Village of Robbins, Cook County, Resource Recovery Revenue
Bonds (Robbins Resource Recovery Partners, L.P. Project),
Series 1994A AMT:
8.375% 2010 1,000 1,071
8.375% 2016 10,990 11,765
Indiana - 2.61%
City of East Chicago, Pollution Control
Refunding Revenue Bonds, Inland Steel Co.:
Project No. 11, Series 1994, 7.125% 2007 2,000 2,200
Project No. 10, Series 1993, 6.80% 2013 1,000 1,065
Indianapolis Airport Authority, Special Facilities Revenue
Bonds, Series 1994 (Federal Express Corp. Project)
AMT, 7.10% 2017 3,500 3,946
City of Sullivan, Pollution Control Revenue
Refunding Bonds (Indiana Michigan Power Co.
Project), Series C, 5.95% 2009 1,000 1,033
Kentucky - 2.45%
City of Ashland, Sewage and Solid Waste Revenue Bonds,
Series 1995 (Ashland Inc. Project) AMT, 7.125% 2022 1,000 1,122
Kenton County Airport Board, Special Facilities
Revenue Bonds (Delta Air Lines, Inc. Project),
1992 Series A AMT:
6.75% 2002 1,000 1,076
7.50% 2012 2,225 2,467
6.125% 2022 3,000 3,061
Louisiana - 3.38%
Health Education Authority, Revenue Bonds (Lambeth
House Project), Series 1996, 9.00% 2026 2,850 3,062
Housing Finance Agency, Single Family Mortgage
Revenue Bonds:
Series 1997B-2 AMT, 5.60% 2017* 1,000 1,000
Series 1995A-2 AMT, 7.80% 2026 2,920 3,270
Parish of West Feliciana, Pollution Control Revenue Bonds
(Gulf States Utilities Co. Project),
Series 1984-II, 7.70% 2014 3,000 3,336
Maine - 0.30%
Educational Loan Marketing Corp., Student Loan Revenue
Refunding Bonds, Series 1991 AMT, 6.90% 2003 910 962
Maryland - 1.44%
Health and Higher Educational Facilities
Authority, Revenue Bonds, Howard County General
Hospital Issue, Series 1993, 5.50% 2021 2,000 1,939
Housing Opportunities Commission of Montgomery
County, Multifamily Revenue Bonds (Strathmore
Court at White Flint), 1994 Issue A-2:
7.50% 2024 1,000 1,069
7.50% 2027 500 534
Housing Authority of Prince George's County, Mortgage
Revenue Bonds, Series 1997A (GNMA Collateralized - Langley
Gardens Apartments Project), 5.75% 2029* 1,000 1,005
Massachusetts - 1.87%
Industrial Finance Agency Revenue
Bonds, Edgewood Retirement Community Project,
Series 1995A, 9.00% 2025 5,300 5,924
Michigan - 7.20%
Hospital Finance Authority,
Hospital Revenue Refunding Bonds:
Genesys Health System Obligated Group,
Series 1995A:
8.00% 2005 2,000 2,324
7.50% 2007 1,500 1,703
8.10% 2013 1,000 1,178
7.50% 2027 2,200 2,477
Pontiac Osteopathic, Series 1994 A:
5.375% 2006 1,000 999
6.00% 2014 1,500 1,528
Sinai Hospital of Greater Detroit, Series 1995,
6.625% 2016 2,755 2,971
City of Detroit:
Limited Tax General Obligation Bonds:
Series 1995 B, 6.75% 2003 1,000 1,106
Series 1995 A, 6.40% 2005 1,145 1,260
Downtown Development Authority, Tax
Increment Bonds (Development Area No. 1 Projects),
Series 1996C, 6.20% 2017 1,000 1,070
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 3,100 3,430
Charter County of Wayne, Special
Airport Facilities Revenue Refunding Bonds
(Northwest Airlines, Inc., Facilities),
Series 1995, 6.75% 2015 2,495 2,718
Nevada - 2.46%
City of Henderson, Local Improvement
District No. T-10 (Seven Hills) Limited Obligation
Improvement Bonds, 7.50% 2015 5,500 5,678
City of Las Vegas, Special Improvement District No. 707
(Summerlin Area), Local Improvement Bonds,
7.10% 2016 2,000 2,081
New Jersey - 2.46%
Economic Development Authority, First Mortgage
Revenue Fixed-Rate Bonds:
Fellowship Village Project,
Series 1995A, 9.25% 2025 3,000 3,583
Winchester Gardens at Ward Homestead Project,
Series 1996A:
8.50% 2016 1,000 1,065
8.625% 2025 1,000 1,070
The Union County Utilities Authority, Solid Waste
System Revenue Bonds, 1991 Series A AMT, 7.10% 2006 2,000 2,055
New York - 12.10%
Dormitory Authority, Mental Health Services Facilities
Improvement Revenue Bonds, Series 1997B:
5.30% 2004 1,000 1,041
5.60% 2008 2,945 3,104
Certificates of Participation, on behalf of the City
University of New York, As lessee (John Jay College
of Criminal Justice Project Refunding), 6.00% 2006 1,975 2,138
State Environmental Facilities Corp.,
Solid Waste Disposal Revenue Bonds (Occidental
Petroleum Corp. Project), Series 1993 Subseries A AMT:
5.50% 2003 2,500 2,585
5.70% 2028 1,235 1,243
State Thruway Authority, Local Highway and
Bridge Service Contract Bonds, Series 1992,
6.25% 2006 1,000 1,068
Urban Development Corp., Correctional
Capital Facilities Revenue Bonds, Series 6, 6.00% 2006 1,000 1,082
The City of New York, General Obligation Bonds:
Series A:
7.00% 2005 2,000 2,294
6.25% 2009 1,000 1,093
Fiscal 1995 Series B1:
7.00% 2016 (Prerefunded 2004) 140 163
7.00% 2016 860 980
Fiscal 1996 Series E, 6.50% 2004 1,500 1,653
New York City Industrial Development Agency, Solid
Waste Disposal Revenue Bonds (1995 Visy Paper
(NY), Inc. Project) AMT, 7.55% 2005 9,000 9,811
The Port Authority of New York and New Jersey, Special
Project Bonds, Series 4 AMT, KIAC Partners Project:
7.00% 2007 5,000 5,617
6.75% 2011 4,000 4,365
North Carolina - 0.33%
Eastern Municipal Power Agency, Power System Revenue
Bonds, Refunding Series 1993B, 6.00% 2026 1,000 1,057
Ohio - 0.45%
The Student Loan Funding Corp.,
Cincinnati, Student Loan Revenue
Refunding Bonds,Series 1991A AMT, 7.20% 2003 1,320 1,417
Oklahoma - 0.69%
Trustees of the Tulsa Municipal Airport Trust,
1988 Adjustable Rate Revenue Obligations, American
Airlines Inc. AMT, 7.375% 2020 2,000 2,173
Pennsylvania - 6.74%
Economic Development Financing Authority,
Resource Recovery Revenue Bonds (Colver Project),
Series 1994 D AMT, 7.15% 2018 3,000 3,303
Housing Finance Agency, Single Family Mortgage
Revenue Bonds, Series 1997-58A AMT, 5.85% 2017 2,500 2,559
Lehigh County General Purpose Authority, College Revenue
and Refunding Bonds, Series A and B of 1996 (Cedar Crest
College), 6.65% 2017 1,750 1,844
Hospitals and Higher Education Facilities
Authority of Philadelphia, Hospital
Revenue Bonds (Temple University Hospital),
Series of 1997, 5.70% 2009 1,000 1,031
Hospital Authority of Philadelphia,
Hospital Revenue Bonds (Temple University
Hospital), Series of 1983, 6.625% 2023 1,000 1,084
Schuylkill County Industrial Development
Authority, Resource Recovery Revenue Refunding
Bonds (Schuylkill Energy Resources, Inc.
Project), Series 1993 AMT, 6.50% 2010 3,260 3,316
Scranton-Lackawanna Health and Welfare Authority,
City of Scranton, Lackawanna County, Hospital
Revenue Bonds (Moses Taylor Hospital Project),
Series of 1997:
5.75% 2006 1,585 1,628
5.80% 2007 1,680 1,728
5.90% 2008 1,730 1,787
6.00% 2009 940 973
6.10% 2011 2,005 2,043
South Carolina - 0.86%
York County, Pollution Control Facilities
Revenue Bonds (Bowater Inc. Project),
Series 1990 AMT, 7.625% 2006 2,300 2,706
Tennessee - 1.94%
The Industrial Development Board of the County of McMinn,
Solid Waste Recycling Facilities Revenue Bonds,
Series 1992 (Calhoun Newsprint Co. Project - Bowater Inc.
Obligor) AMT, 7.625% 2016 3,000 3,308
Memphis-Shelby County Airport Authority, Special
Facilities Revenue Bonds (Federal Express
Corp.), Series 1984, 7.875% 2009 2,500 2,825
Texas - 4.25%
Alliance Airport Authority, Inc., Special
Facilities Revenue Bonds (American Airlines,
Inc. Project), Series 1990 AMT, 7.00% 2011 4,250 4,937
Hidalgo County Health Services Corp., Hospital Revenue
Bonds (Mission Hospital, Inc. Project), Series 1996:
7.00% 2008 2,365 2,592
6.75% 2016 1,000 1,063
Tomball Hospital Authority, Hospital Revenue
Refunding Bonds, Series 1993, 6.125% 2023 4,740 4,845
Vermont - 0.48%
Housing Finance Agency, Single Family Housing Bonds,
Series 9 AMT, 5.70% 2012 1,500 1,530
Virginia - 0.34%
Virginia College Building Authority, Educational
Facilities Revenue Bonds (Marymount University
Project), Series of 1992, 7.00% 2022 1,000 1,075
West Virginia - 0.37%
City of South Charleston, Pollution Control
Revenue Refunding Bonds (Union Carbide
Corp. Project), Series 1985, 7.625% 2005 1,000 1,176
Wisconsin - 0.96%
Housing and Economic Development Authority, Housing
Revenue Bonds, 1993 Series B AMT, 5.30% 2006 3,000 3,039
Wyoming- 1.06%
Sweetwater County, Solid Waste Disposal Revenue
Bonds (FMC Corp. Project), Series 1994A AMT, 7.00% 2024 3,000 3,334
---------
295,237
---------
Tax-Exempt Securities Maturing in
One Year or Less - 6.52%
State of Colorado, General Fund Tax and Revenue
Anticipation Notes, Series 1997A, 4.50% 6/26/98 1,200 1,207
County of Los Angeles, California, 1997-98 Tax and Revenue
Anticipation Notes, Series A, 4.50% 6/30/98 7,450 7,496
State of Michigan, Full Faith and Credit General Obligation
Notes, 4.50% 9/30/97 3,650 3,654
State of Texas, Tax and Revenue Anticipation Notes,
Series 1996, 4.75% 8/29/97 8,250 8,256
---------
20,613
---------
TOTAL TAX-EXEMPT SECURITIES (cost: $294,625,000) 315,850
Excess of cash, prepaids and receivables over
payables 144
---------
NET ASSETS $315,994
*Represents a when-issued security. =========
See Notes to Financial Statements
</TABLE>
<TABLE>
American High-Income Municipal Bond Fund
Financial Statements
Statement of Assets and Liabilities
at July 31, 1997 (dollars in thousands)
<S> <C> <C>
Assets:
Tax-exempt securities
(cost: $294,625) $315,850
Cash 86
Prepaid organization expense 5
Receivables for--
Sales of fund's shares $772
Accrued interest 5,402 6,174
--------- ---------
322,115
Liabilities:
Payables for--
Purchases of investments 5,073
Repurchases of fund's shares 269
Dividends payable 509
Management services 107
Accrued expenses 163 6,121
--------- ---------
Net Assets at July 31, 1997--
Equivalent to $15.90 per share on 19,869,024
shares of $0.01 par value capital stock
outstanding (authorized capital stock - $315,994
200,000,000 shares) =========
Statement of Operations
for the year ended July 31, 1997
(dollars in thousands)
Investment Income:
Income:
Interest on tax-exempt securities $16,692
Expenses:
Management services fee $1,100
Distribution expenses 767
Transfer agent fee 97
Reports to shareholders 60
Registration statement and prospectus 120
Postage, stationery and supplies 25
Directors' fees 18
Auditing and legal fees 30
Custodian fee 13
Taxes other than federal income tax 6
Organization expense 3
Other expenses 41 2,280
--------- ---------
Net investment income 14,412
---------
Realized Gain and Unrealized
Appreciation on Investments:
Net realized gain 835
Net unrealized appreciation
on investments:
Beginning of year 7,574
End of year 21,225
---------
Net increase in unrealized appreciation
on investments 13,651
Net realized gain and unrealized ---------
appreciation on investments 14,486
Net Increase in Net Assets Resulting ---------
from Operations $28,898
=========
Statement of Changes in Net Assets
(dollars in thousands)
Year ended
July 31
1997 1996
Operations:
Net investment income $14,412 $11,033
Net realized gain on investments 835 3,233
Net unrealized appreciation
on investments 13,651 783
--------- ---------
Net increase in net assets
resulting from operations 28,898 15,049
--------- ---------
Dividends and Distributions Paid to
Shareholders:
Dividends paid from net
investment income (14,416) (11,032)
Distributions from net realized gain
on investments (2,176) (3,336)
--------- ---------
Total dividends and distributions (16,592) (14,368)
--------- ---------
Capital Share Transactions:
Proceeds from shares sold:
7,873,913 and 6,164,069 shares, respectively 121,500 93,928
Proceeds from shares issued in reinvestment
of net investment income dividends and distributions
of net realized gain on investments:
720,458 and 645,325 shares, respectively 11,126 9,858
Cost of shares repurchased: 2,986,900 and
2,910,852 shares, respectively (46,078) (44,191)
--------- ---------
Net increase in net assets
resulting from capital share
transactions 86,548 59,595
--------- ---------
Total Increase in Net Assets 98,854 60,276
Net Assets:
Beginning of year 217,140 156,864
--------- ---------
End of year $315,994 $217,140
========= =========
See Notes to Financial Statements
</TABLE>
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. Securities for which
market quotations are not readily available are valued at fair value by the
Board of Directors or a committee thereof. All securities with 60 days or less
to maturity are valued at amortized cost, which approximates market value.
As is customary in the mutual fund industry, securities transactions are
accounted for on the date the securities are purchased or sold. In the event
the fund purchases securities on a delayed-delivery or "when-issued" basis, it
will segregate with its custodian liquid assets in an amount sufficient to meet
its payment obligations in these transactions. Realized gains and losses from
securities transactions are reported on an identified cost basis. Interest
income is reported on the accrual basis. Premiums and original issue discounts
on securities purchased are amortized. Amortization of market discounts on
securities is recognized upon disposition, subject to applicable tax
requirements. Dividends to shareholders are declared daily after 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 that 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 $13,000 includes $12,000 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, 1997, net unrealized appreciation on investments for book
and federal income tax purposes aggregated $21,225,000, of which $21,229,000
related to appreciated securities and $4,000 related to depreciated securities.
There was no difference between book and tax realized gains on securities
transactions for the year ended July 31, 1997. The cost of portfolio securities
for book and federal income tax purposes was $294,625,000 at July 31, 1997.
3. The fee of $1,100,000 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. Expenses that are not subject to these
limitations are interest, taxes, brokerage commissions, transaction costs and
extraordinary expenses.
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, 1997,
distribution expenses under the Plan were limited to $767,000, representing
0.30% of average net assets. Had no limitation been in effect, the fund would
have paid $798,000 in distribution expenses under the Plan. As of July 31,
1997, accrued and unpaid distribution expenses were $81,000.
American Funds Service Company (AFS), the transfer agent for the fund, was
paid a fee of $97,000. American Funds Distributors, Inc. (AFD), the principal
underwriter of the fund's shares, received $345,000 (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, 1997,
aggregate amounts deferred and earnings thereon were $24,000.
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, 1997, accumulated undistributed net realized gain on
investments was $740,000 and additional paid-in capital was $274,102,000.
The fund made purchases and sales of investment securities of $115,238,000
and $37,162,000, respectively, during the year ended July 31, 1997.
<TABLE>
Per-Share Data and Ratios
<S> <C> <C> <C>
Period
September 26
Year ended Year ended 1994 /1/ to
July 31 July 31 July 31,
1997 1996 1995
Net Asset Value, Beginning
of Period $15.23 $15.14 $14.29
------------ ------------ ------------
Income From Investment
Operations:
Net investment income .87 .88 .76
Net realized and
unrealized gain
on investments .80 .37 .85
------------ ------------ ------------
Total income from investment operations 1.67 1.25 1.61
------------ ------------ ------------
Less Distributions:
Dividends from net investment income (.86) (.88) (.76)
Distributions from net realized gains (.14) (.28) --
------------ ------------ ------------
Total distributions (1.00) (1.16) (.76)
------------ ------------ ------------
Net Asset Value, End of Period $15.90 $15.23 $15.14
============ ============ ============
Total Return /2/ 11.36% 8.48% 11.62% /3/
Ratios/Supplemental Data:
Net assets, end of period (in millions) $316 $217 $157
Ratio of expenses to average net assets before fee waiver .87% .88% .94% /3/
Ratio of expenses to average net assets after fee waiver .87% .86% .62% /3/
Ratio of net income to average net assets 5.51% 5.74% 5.66% /3/
Portfolio turnover rate 15.31% 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.
</TABLE>
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, 1997, 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, 1997 by correspondence with the custodian and brokers
and the application of alternative procedures where confirmations from brokers
were not received, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Los Angeles, California
August 29, 1997
TAX INFORMATION (UNAUDITED)
During the fiscal year ended July 31, 1997, the fund paid 85.5 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.
