American Funds Tax Exempt Bond Fund® Class F-3 TFEBX

American Funds Tax-Exempt Bond’s multimanager structure and deep municipal research bench support a valuation-driven approach that has consistently rewarded investors over the long term.

Capital Group’s multimanager system gives this experienced management team multiple avenues to express investment views while drawing on the firm’s deep bench of analysts, traders, and risk specialists for additional insights. The strategy’s three named managers each run a separate slice of the portfolio, while the analyst bench collectively manages the remaining assets. In his role as principal investment officer, Karl Zeile, who has managed this strategy since 2003, ensures portfolio exposures remain balanced and aligned with the strategy’s parameters. Managers Courtney Wolf and Lee Chu bring deep municipal sector expertise gained over their long Capital Group tenures. The trio taps into 10 muni credit analysts, six traders, and the firm’s risk and quantitative group. This structure lets managers and analysts clearly express their views while limiting the portfolio’s dependence on any one investor.

The managers pursue bonds with attractive relative valuations while keeping portfolio risks measured and within the strategy’s investment-grade muni opportunity set. They run the portfolio as a longer-maturity, higher-yielding offering, typically taking more interest rate risk (as measured by duration) than the muni national intermediate Morningstar Category peer median while staying close to the Bloomberg Municipal Bond Index. They will also buy below-investment-grade rated bonds (and nonrated debt) when valuations justify the risk, but they cap exposure to these bonds at 10% of assets and avoid leverage to limit a potential source of volatility.

The managers favor revenue bonds backed by steady cash flows, but they do not take a static approach to sector positioning. Strong credit research allows them to adjust exposures nimbly as valuations and fundamentals change, as shown by the larger housing allocation, which rose to 15% of assets by December 2025 from 10% at year-end 2020.

This measured approach has delivered strong long-term results. Since January 2004 (Zeile’s first full month on the strategy), the F3 shares’ 3.5% annualized gain through April 2026 outpaced almost 90% of its distinct peers, and its information ratio (a measure of excess return over excess standard deviation versus the benchmark) topped nearly all offerings in that group.

Compelling fundamental research and strong coordination across the municipal team underpin this strategy’s repeatable and risk-aware process; it earns a High Process rating.

Capital Group’s multimanager system fosters the best ideas in the portfolio. It gives the three managers discretion over buy, sell, and sizing decisions when building their respective sleeves, while principal investment officer Karl Zeile ensures the portfolio’s overall exposures remain balanced and aligned with the strategy’s investment parameters. The managers incorporate input from analysts and traders when valuing bonds, sourcing opportunities, and constructing the portfolio. A team of muni credit analysts oversees the remaining sleeve, which means the portfolio’s sector overweightings should reflect where analysts have conviction relative to the Bloomberg Municipal Bond Index. The firm’s risk and quantitative group, led by Chris Brune, also provides ongoing support, strengthening portfolio oversight.

The firm’s broad fixed-income research capabilities give this team a strong toolkit to adjust the portfolio nimbly as opportunities arise. Even so, several long-standing preferences provide consistency. The portfolio favors revenue bonds backed by strong and steady cash flows, while general-obligation bonds, though still a meaningful allocation, remain underweight relative to the benchmark. The team also avoids leverage, limiting a potential source of volatility. At the same time, thorough bottom-up research allows the managers to add low-rated and nonrated bonds when valuations look attractive. This value-conscious approach, supported by deep credit research, has protected investors against larger drawdowns in weak markets while still keeping pace when muni markets rebound.

The team intends to run this strategy as a longer-maturity and higher-yielding offering while keeping with its investment-grade focus. Relative to most rivals, the portfolio tends to take more interest rate risk and sometimes more credit risk (though exposure to bonds rated BB or below is capped at 10% of assets). For example, the December 2025 portfolio's 6.5-year duration was near that of its Bloomberg Municipal Index but more than 0.75 years longer than the category median.

Revenue bonds make up the bulk of portfolio assets (83% as of December 2025), and within that bucket, healthcare exposure ranged between 18% and 21% from 2013 until early 2022—10 to 12 percentage points above the index—before the team steadily trimmed it to 14% by year-end 2025 as budget pressures spread across hospitals and senior living centers and value potential diminished. The team redeployed much of that exposure into housing bonds, which rose to 15% of assets by December 2025 from 10% at year-end 2020, reflecting the team's view that relative value had shifted decisively toward that sector. The special tax (12%), transportation (10%), and utilities (13%) sectors continue to feature prominently here.

The portfolio maintains a high-quality tilt but selectively adds mid- and lower-quality bonds when valuations compensate for the added risk. Most assets sit in AAA and AA bonds, at 11% and 48%, respectively. Still, the managers view higher-yielding munis as a useful complement to the portfolio’s longer-maturity profile because those bonds can rely more on credit spread compression and income, rather than falling rates, to drive returns. BBB rated bonds as of December 2025 made up 5% of assets, roughly 3 percentage points lower than the category peer median, while bonds rated BB and below including nonrated debt accounted for 9% of assets, roughly 3 percentage points more than the peer median.

Strong muni debt expertise, best-in-class firmwide research capabilities, and Capital Group’s multimanager system give this seasoned team a durable edge; it earns a High People rating.

The management team’s deep muni market expertise stands out here. Manager Karl Zeile brings more than three decades of industry experience and has been with the firm since 2003 and the strategy’s principal investment officer since 2019, following the prior PIO’s retirement. He anchors the portfolio and works alongside managers Courtney Wolf and Lee Chu, who have 20 and 17 years of industry experience, respectively. Wolf joined the firm in 2005 as an analyst and covered a range of municipal sectors, including airports and tobacco settlements, while Chu joined in 2009 and focused on state and local governments and tribal gaming sectors. The managers’ long tenures at the firm and their extended history of working together continue to strengthen the team and process, and their breadth of expertise across muni segments consistently adds value.

Capital Group’s multimanager system further enhances the approach. The structure divides the fund’s assets among the three named managers and an analyst-led research portfolio, allowing each investor to run a sleeve that reflects their expertise while drawing on the firm’s broader fixed-income support. Ten muni credit analysts and six dedicated traders add research depth and trading insight, while the firm’s risk and quantitative group works closely with the managers to monitor portfolio risks.

Manager ownership, which reflects alignment with investors, is strong. Zeile invests over USD 1,000,000 in this fund, while Wolf and Chu invest between USD 100,001 and USD 500,000.

Capital Group stands out from the pack as it enhances capabilities around strong core competencies. It earns a High Parent rating.

Since 1931, Capital Group, parent of American Funds, has thoughtfully built out capabilities to become one of the world’s largest asset managers, managing more than USD 3 trillion dollars. Building on the success of its long-term-oriented, multiple-manager system for global equities, the firm has developed robust fixed-income and multi-asset units, each managing more than USD 500 billion. In January 2026, as part of its periodic review of its now five distinct research organizations, Capital Group implemented changes to its equity investment subsidiaries. This exercise resulted in most equity strategies having at least one portfolio manager change, but according to the firm, it better balances each of Capital Group’s three equity groups in terms of investment breadth and helps the firm better align leadership opportunities across the groups. These kinds of shifts have occurred before, with the last coming in 2018.

Capital Group has also turned its attention to some modern opportunities. To address public/private market convergence trends, it launched in April 2025 two semiliquid funds with private market giant KKR. In keeping with its signature portfolio management approach, it splits those funds into multiple sleeves, which are managed independently by distinct managers at each firm. Capital Group plans to deepen this relationship with target-date and model portfolios, as well as public/private equity funds. On the other end of the spectrum, although the firm is firmly dedicated to active management, it has also acknowledged investor preference for passive investing and has thus partnered with indexing stalwarts Vanguard, BlackRock, and Schwab on active/passive models. Capital Group’s proven investment prowess, strong reputation among investors, and scale mean it can be selective with its partnerships.

In addressing another recent trend, since early 2022, the firm has launched more than 25 active exchange-traded funds globally, most of which are distinct, but several are similar to some of its legacy American Funds mutual funds. Unlike some of its peers, though, it has not filed for SEC exemptive relief to offer ETFs as a share class.

That’s a lot of change for such a storied and sizable firm, but Capital Group has a long history of serving investors well.

The strategy’s value-conscious approach has resulted in solid relative results over the long term.

Over lead manager Karl Zeile’s tenure from January 2004 (his first full month), the F3 share class’ 3.5% annualized gain through April 2026 outpaced the muni national intermediate category median of 3.1% but trailed the Bloomberg Municipal Index’s 3.6%. The annualized information ratio (a measure of excess return over excess standard deviation versus the benchmark) outpaced almost all peers during the same period.

The strategy’s performance pattern against most rivals stems in part from its greater appetite for interest rate risk (as measured by duration). The portfolio’s duration often hovers longer than the typical muni national intermediate muni peer but shorter than the average muni national long offering. As a result, the strategy tends to struggle relative to category norms when rates rise. For example, when lower-quality offerings and sharply rising interest rates spooked muni investors throughout 2022, this strategy’s 8.9% calendar-year loss was steeper than the category peer median’s 7.8% drop.

As investor demand for munis soared through 2019 and credit spreads tightened, the team rotated into higher-quality debt, which helped limit losses when the muni market sold off in 2020's first quarter; the fund's 3.9% loss was modestly less severe than the peer median's 4.0% decline. As credit markets recovered in the second half of 2020, the portfolio's higher-quality tilt was a headwind compared with lower-quality peers, but the fund's 5.0% calendar year return still ranked near the top quartile of its category.

In 2025, the fund’s overweight positions in healthcare muted the overall performance relative to the index; its 4.1% return that year trailed the index’s 4.3% and the peer median of 4.6%.

American Funds Tax Exempt Bond F3's Prospectus Adjusted Expense Ratio is 0.27% per year. It places it in the cheapest quintile of the Morningstar US Fund Muni National Interm Category, where the median fee is 0.5% per year. This cost positioning translates into a Medalist Rating Price Score of 1.93, which reflects its relative price positioning within the category. The Price Score ranges from -2.50 (most expensive) to +2.50 (cheapest), with higher scores indicating better cost competitiveness.