(Logo)
The American Funds Group (R)
The American Funds
Tax-Exempt Series I
(Logo)
Annual Report
July 31, 1997
The Tax-Exempt Fund of Maryland and The Tax-Exempt Fund of Virginia seek a
high level of current income free from Federal and their respective state
income taxes. Additionally, each Fund seeks to preserve capital.
THE FIGURES IN THIS REPORT REFLECT PAST RESULTS AND ARE NOT PREDICTIVE OF
FUTURE RESULTS. ALL INVESTMENTS ARE SUBJECT TO CERTAIN RISKS. INVESTMENTS
IN THE FUNDS ARE SUBJECT TO INTEREST RATE FLUCTUATIONS. ADDITIONALLY, EACH
FUND IS MORE SUSCEPTIBLE TO FACTORS ADVERSELY AFFECTING ISSUERS OF ITS
STATE'S TAX-EXEMPT SECURITIES THAN A MORE WIDELY DIVERSIFIED MUNICIPAL BOND
FUND. SHARE PRICE AND RETURN WILL VARY; THEREFORE, YOU MAY GAIN OR LOSE
MONEY BY INVESTING IN A FUND. INVESTORS SHOULD MAINTAIN A LONG-TERM-
INVESTMENT PERSPECTIVE. FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
INSURED OR GUARANTEED BY, THE U.S. GOVERNMENT, ANY FINANCIAL INSTITUTION,
THE FEDERAL DEPOSIT INSURANCE CORPORATION, OR ANY OTHER AGENCY, ENTITY OR
PERSON.
INCOME MAY BE SUBJECT TO FEDERAL ALTERNATIVE MINIMUM TAXES. CERTAIN
OTHER INCOME, AS WELL AS CAPITAL GAIN DISTRIBUTIONS, MAY BE TAXABLE.
Fellow Shareholders
Over the 12 months ended July 31, The Tax-Exempt Fund of Maryland and
The Tax-Exempt Fund of Virginia continued to provide you with relative
stability and an attractive level of tax-free income.
The Maryland Fund's net asset value rose from $15.39 to $16.02 a
share, and the Virginia Fund's net asset value increased from $15.77 to
$16.37 a share. Meanwhile, the Maryland and Virginia Funds paid dividends
totaling 79 and 80 cents a share, respectively.
If, like most shareholders, you reinvested your dividends, your total
return was...
- 9.5% for the Maryland Fund
- 9.1% for the Virginia Fund
Total return, of course, includes both the change in the Fund's net
asset value and the income return. The Maryland Fund's income return of
5.3% was the equivalent of 9.4% from a taxable investment if you are in the
highest combined Federal, state and local tax bracket. The Virginia Fund's
income return of 5.2% was the equivalent of 9.1% from a taxable investment
if you're in the highest combined Federal and state tax bracket.
If you took dividends in cash, your tax-free income return in the
Maryland Fund and the Virginia Fund was 5.2% and 5.0% respectively.
During fiscal 1997, the nation's economy was strong, employment levels
reached record highs and the Consumer Price Index crept ahead 2.2%.
Interest rates on taxable obligations were relatively stable, with the
Federal Reserve Board increasing the Federal funds rate (the rate banks
charge each other for overnight loans) only once, from 5.25% to 5.5% in
March. Rates paid on tax-exempt municipal bonds, however, reached their
lowest levels since 1993.
Few changes in portfolios
Low turnover rates have historically characterized both portfolios,
and 1997 was no exception. Turnover was 15% for the Maryland Fund and 18%
for the Virginia Fund. While this generally highlights continuing
satisfaction with existing holdings, it also reflects limited supply in the
marketplace.
During the past fiscal year, both Funds added housing bonds, which
tend to be among the most stable issues. The Maryland Fund, for example,
helped to finance the rehabilitation of Langley Gardens, a multi-family
complex for low-income residents in Prince George's County. There is
little credit risk because the bonds for the project are collateralized by
"Ginnie Mae" (Government National Mortgage Association) securities. In the
event of a default by the project, the bonds would be reclaimed at par
(100% of the face amount of the bond held by the Fund). Intensive research
by the Fund's investment adviser, Capital Research and Management Company,
indicates that this risk is very low.
The Virginia Fund invested in several multi-family projects backed by
the Virginia Housing Development Authority, and the risks appear to be
similarly small. Other additions to the Virginia portfolio included a
hospital financing bond issued by Henry County and a pollution control bond
backed by Browning-Ferris Industries. In the latter case, the Fund's
managers were able to make good use of insights provided by their Capital
counterparts who look at Browning-Ferris and the pollution control industry
from an equity point of view.
As always, Capital's team of municipal bond experts reviewed every
holding on a regular basis, typically making in-person research visits to
issuers and sites of unrated holdings _ which are usually riskier but
potentially more rewarding _ at least once during the year.
Tax law expected to have little effect
It seems unlikely that the tax law enacted in early August will have a
significant impact on the Funds. In the past, states have often conformed
their codes to reflect Federal tax law changes; however, now that
responsibility for a number of programs formerly administered by the U.S.
government has been transferred to the states, old equations may no longer
hold true. The need for greater revenues may well lead a number of states
to leave their existing codes intact. Indeed, neither Maryland nor
Virginia has announced plans to amend its tax structure. Of course, the
Funds' adviser will continue to monitor the situation.
Looking ahead
Municipal bond rates are so low that the Funds' managers are
proceeding with extra caution, believing that possible portfolio changes
which could increase the average maturities of the Funds carry more
downside risk than upside potential. Of course, if interest rates go up,
bond prices should come down and opportunities may appear. The Funds'
managers stand ready to seize the best opportunities and put them to work
earning tax-exempt income for you.
In late November, both Funds will distribute modest taxable capital
gains. These result from proceeds realized through October 31 on sales of
portfolio securities.
We look forward to updating you in our next report, six months from
now.
Sincerely,
(Signatures)
James H. Lemon, Jr. Harry J. Lister
Chairman President
September 17, 1997
(Chart 1)
Growth of a $10,000 Investment
Average Annual Compound Returns<F1>
(for periods ended July 31, 1997)
1 Year 5 Years 10 Years
The Tax-
Exempt Fund +4.30% +5.32% +7.07%
of Maryland
The Tax-
Exempt Fund +3.90% +5.18% +7.01%
of Virginia
Plot Points for Chart
LEHMAN BROS CONSUMER PRICE
Year TEFMD TEFVA MUNI INDEX INDEX (Inflation)
8/14/86 $9,525 $9,525 $10,000 $10,000
7/31/87 9,444 9,798 10,439 10,374
7/31/88 10,122 10,412 11,173 10,802
7/31/89 11,313 11,620 12,534 11,340
7/31/90 11,918 12,302 13,402 11,887
7/31/91 12,804 13,288 14,573 12,416
7/31/92 14,433 14,989 16,575 12,808
7/31/93 15,508 16,081 18,040 13,163
7/31/94 15,728 16,360 18,378 13,528
7/31/95 16,690 17,597 19,825 13,902
7/31/96 17,927 18,558 21,133 14,312
7/31/97 19,634 20,247 23,300 14,631
<F1> Assumes reinvestment of all distributions and payment of the 4.75%
maximum sales charge at the beginning of the stated periods.
The Funds' results in the graph reflect payment of the 4.75% maximum sales
charge on a $10,000 investment. Thus, the net amount invested in each Fund
was $9,525. The graph reflects the lifetime results from the Funds'
inception date of August 14, 1986. All dividends and capital gain
distributions are reinvested in additional shares without a sales charge.
The Lehman Brothers Municipal Bond Index is a national index that includes
more than 35,000 bonds and reflect over $500 billion of market
capitalization. It excludes bonds subject to the alternative minimum tax
and bonds with floating or zero coupons. It is not intended to be generally
representative of any municipal bond fund that invests exclusively in the
issues of a specific state. A broad-based municipal bond index generally
representative of the Maryland and Virginia Funds is not currently
available to cover the lifetimes of the Funds. The indexes are unmanaged
and do not reflect sales charges, commissions or expenses. Past results are
not predictive of future results.
Highlights _ as of July 31, 1997
The Tax-Exempt The Tax-Exempt
Fund of Maryland Fund of Virginia
Assets:
Net Assets $86,656,661 $100,609,449
Net Asset Value Per Share $16.02 $16.37
Quality Diversification:
Moody's/S&P Ratings (best of either)
Aaa/AAA 33.93% 37.38%
Aa/AA 20.67 38.09
A/A 16.72 9.50
Baa/BBB 13.83 7.12
Lower than BBB or not rated 10.28 3.07
Cash and Equivalents 4.57 4.84
Total 100.00% 100.00%
Maturity Diversification:<F1>
Under 1 year 4.57% 4.84%
1 to 10 years 27.91 31.32
10+ to 20 years 44.69 40.89
20+ to 30 years 22.83 22.46
30+ years - 0.49
Total 100.00% 100.00%
Average Life<F2> 9.93 years 9.41 years
<F1> Securities are included at pre-refunded dates, not maturity dates.
<F2> Average life more accurately reflects the potential impact of call
options. Should no call options be exercised, the average maturity of the
Maryland Fund and the Virginia Fund is 15.91 years and 15.99 years,
respectively.
Fund results in this report were computed without a sales charge
unless otherwise indicated. Here are the total returns and average annual
compound returns with all distributions reinvested for periods ended June
30, 1997 (the most recent calendar quarter), assuming payments of the 4.75%
maximum sales charge at the beginning of the stated periods _ for The
Tax-Exempt Fund of Maryland: 10 years: +94.48% (or +6.88% a year), 5 years:
+30.26% (or +5.43% a year), 12 months: +2.57%; for The Tax-Exempt Fund of
Virginia: 10 years: +92.77% (or +6.78% a year), 5 years: +30.24% (or +5.43%
a year), 12 months: +2.14%. Sales charges are lower for accounts of
$25,000 or more.
The Funds' 30-day yields as of August 31, 1997, calculated in
accordance with the Securities and Exchange Commission formula, at maximum
sales charge, were 4.14% for the Maryland Fund and 3.90% for the Virginia
Fund. The Funds' distribution rates as of that date were 4.75% and 4.60%,
respectively. The SEC yield reflects income each Fund expects to earn
based on current holdings, while the distribution rate is based solely on
the Fund's past dividends. Accordingly, the Funds' SEC yields and
distribution rates may differ. For the latest yields based on actual
distributions, call toll-free 800/421-0180.
The Tax-Exempt Fund of Maryland
<TABLE>
<CAPTION>
Investment Portfolio, July 31, 1997
Principal
Amount Market
(000) Value
<S> <C> <C>
Tax-Exempt Securities Maturing in More than One Year _ 95.43%
College & University Revenue - 4.17%
Frederick County, College Revenue Bonds (Hood College Project),
1990 Series:
7.05% 2004 $ 410 $ 442,238
7.05% 2005 455 494,612
Maryland Health and Higher Educational Facilities Authority,
Refunding Revenue Bonds, Johns Hopkins University Issue,
Series 1988, 7.375% 2008 500 525,030
University of Maryland System Auxiliary Facility and Tuition
Revenue Bonds:
1992 Series A, 6.30% 2009 1,050 1,139,597
1993 Refunding Series C, 5.00% 2010 1,000 1,009,950
3,611,427
General Obligations (Local) - 1.90%
Anne Arundel County, Consolidated Water and Sewer, 1993
Refunding Series, 5.30% 2016 500 505,315
Baltimore County, Metropolitan District Bonds, 63rd Issue,
1992 Series, 6.10% 2006 250 273,215
Frederick County, Public Facilities Bonds 1990, 8.875% 2002 250 302,168
Harford County Consolidated Public Improvement Bonds,
Series 1992, 5.80% 2010 530 563,183
1,643,881
Hospital & Health Facilities Revenue - 17.32%
Maryland Health and Higher Educational Facilities Authority:
Good Samaritan Hospital Issue, Revenue Bonds, Series 1993,
5.70% 2009 1,000 1,093,280
Howard County, General Hospital Issue, Series 1993:
5.50% 2013 2,000 1,995,700
5.50% 2021 2,000 1,939,380
Johns Hopkins Hospital Issue, Revenue Refunding Bonds,
Series 1993:
5.60% 2009 850 893,741
5.00% 2023 2,000 1,940,560
Memorial Hospital of Cumberland Issue, Revenue Refunding
Bonds, Series 1992, 6.50% 2010 $ 750$ 815,370
Peninsula Regional Medical Center Issue, Project and Refunding
Revenue Bonds, Series 1993, 5.00% 2023 500 477,615
Suburban Hospital Issue, Revenue Refunding Bonds,
Series 1993, 5.125% 2021 3,000 2,953,140
Prince George's County (Dimensions Health Corporation Issue):
Hospital Revenue Bonds, Series 1992, 7.20% 2006 215 245,536
Project and Refunding Revenue Bonds, Series 1994, 5.375% 2014 1,600 1,608,928
Puerto Rico Industrial, Tourist, Educational, Medical and
Environmental Control Facilities Financing Authority,
Hospital Revenue Bonds (Mennonite General Hospital Project),
1996 Series A, 6.375% 2006 1,000 1,047,470
15,010,720
Housing Finance Authority Revenue - 10.76%
Maryland Community Development Administration, Department of
Housing and Community Development, Single-Family Program Bonds:
1994 First Series, 5.80% 2009 2,000 2,095,500
1994 First Series, 5.70% 2017 2,255 2,295,680
1994 Fifth Series, AMT, 5.875% 2017 1,365 1,399,794
1990 First Series, 7.60% 2017 495 519,270
1988 Third Series, 8.00% 2018 1,000 1,018,440
Montgomery County, Housing Opportunities Commission,
Single Family Mortgage Revenue Bonds, 1997 Series A, 5.50% 2009 750 766,088
Prince George's County Housing Authority, GNMA/FNMA
Collateralized Single Family Mortgage Bonds,
Series 1994 A, AMT, 6.60% 2025 930 977,486
Commonwealth of Puerto Rico Housing Finance Corporation,
Single Family Mortgage Revenue Bonds, 1st Portfolio:
1988 Series A, 7.80% 2021 10 10,304
1988 Series B, 7.65% 2022 230 243,395
9,325,957
Industrial Development Revenue _ 2.50%
Mayor and City Council of Baltimore, Port Facilities Revenue
Bonds (Consolidation Coal Sales Company Project):
Series 1984 A, 6.50% 2011 $ 500$ 547,030
Series 1984 B, 6.50% 2011 500 547,030
Puerto Rico Ports Authority, Special Facilities Revenue Bonds
(American Airlines, Inc. Project), 1996 Series A, 6.25% 2026 1,000 1,072,761
2,166,821
Insured _ 16.96%
City of Baltimore, Refunding Revenue Bonds, FGIC Insured,
1994, Series A:
6.00% 2015 1,500 1,691,355
5.00% 2024 1,220 1,218,780
Charles County, Consolidated Public Improvement Bonds of 1993,
Series A, FGIC Insured, 5.25% 2003 715 749,599
City of Frederick, General Improvement Bonds, 1992 Refunding
Series, FGIC Insured, 6.125% 2008 890 968,774
Maryland Health and Higher Educational Facilities Authority:
Francis Scott Key Medical Center Issue, Refunding Revenue
Bonds, Series 1993, FGIC Insured, 5.00% 2013 500 500,300
Johns Hopkins Medical Institutions Parking Facilities Issue,
Parking Revenue Bonds, Series 1996, AMBAC Insured, 5.50% 2011 1,200 1,262,340
Memorial Hospital of Easton, Series 1989 B,
MBIA Insured, 7.00% 2012 1,200 1,283,364
Mercy Medical Center Issue Project and Refunding Revenue
Bonds, Series 1996, FSA Insured, 6.50% 2013 2,000 2,345,860
Prince George's County, Solid Waste Management System
Revenue Bonds, Series 1993, 6.50% 2007 2,000 2,248,340
Commonwealth of Puerto Rico:
Electric & Power Authority, MBIA Insured, 7.00% 2007 1,000 1,200,830
Highway and Transportation Authority, Highway Revenue Refunding
Bonds, Series Z, MBIA Insured, 6.25% 2014 1,000 1,162,810
Public Improvement Bonds of 1987, MBIA Insured, 6.75% 2006 65 66,482
14,698,834
Life Care Facilities Revenue - 8.36%
Calvert County, Economic Development Revenue Bonds
(Asbury-Solomons Island Facility), Series 1995, 8.625% 2024 $2,300 $ 2,586,511
Maryland Health and Higher Educational Facilities Authority,
First Mortgage Refunding Revenue Bonds, Roland Park Place Issue,
Series 1989, 7.75% 2012 2,000 2,110,300
Prince George's County, Refunding Revenue Bonds, Collington
Episcopal Life Care Community, Inc., Series 1994 A, 6.00% 2013 2,500 2,546,900
7,243,711
Multi-Family Housing _ 6.21%
Montgomery County, Maryland Housing Opportunities Commission,
Multi-Family Revenue Bonds:
1995 Series A, 6.10% 2015 2,025 2,102,699
1994 Series A-2, 7.50% 2024 2,000 2,137,760
Prince George's County, Mortgage Revenue Bonds
(GNMA Collateralized-Langley Gardens Apartments Project),
Series 1997 A, 5.60% 2017<F1> 1,130 1,136,193
5,376,652
Pre-Refunded<F2> _ 11.15%
Frederick County, Public Facilities Bonds:
1991, Series B, 6.30% 2011 (2002) 1,370 1,520,495
1986 Series, 7.40% 2012 (2001) 310 354,770
Harford County, Consolidated Public Improvement Bonds,
Series 1992, 5.80% 2010 (2002) 970 1,057,213
Howard County, Metropolitan District Refunding Bonds,
1991 Series A, 6.625% 2021 (2001) 500 546,295
Maryland State Health and Higher Educational Facilities Authority:
Junior Lien Revenue Bonds, Francis Scott Key Medical Center
Issue, 1990 Series A, 7.00% 2025 (2000) 250 274,788
Sinai Hospital of Baltimore Issue, Revenue Bonds,
1990 Series, AMBAC Insured, 7.00% 2019 (2000) 700 769,405
Suburban Hospital Issue Revenue Bonds, Series 1992,
6.50% 2017 (2002) 500 559,330
University of Maryland Medical System Issue, Revenue Bonds,
Series 1991 A, FGIC Insured, 6.50% 2021 (2001) 1,000 1,086,550
Prince George's County, Hospital Revenue Bonds (Dimensions
Health Corporation Issue), Series 1992, 7.20% 2006 (2002) 1,035 1,188,718
Commonwealth of Puerto Rico:
Housing Bank and Finance Agency, Single Family Mortgage Revenue
Bonds, Homeownership 5th Portfolio, 1986 Series, 7.50% 2015 (2000) $ 495 $ 539,758
Public Improvement Bonds of 1992, MBIA Insured, 6.50% 2009 (2002) 1,000 1,119,790
University of Maryland System Auxiliary Facility and Tuition
Revenue Bonds, 1989 Series B, 7.00% 2007 (1999) 600 648,821
9,665,933
Resource Recovery _ 7.15%
Maryland Energy Financing Administration, Limited Obligation Solid
Waste Disposal Revenue Bonds (Wheelabrator Water Technologies
Baltimore L.L.C. Projects), 1996 Series, AMT, 6.30% 2010 2,750 2,966,728
Montgomery County, Northeast Maryland Waste Disposal Authority,
Solid Waste Revenue Bonds AMT:
6.00% 2006 1,000 1,082,030
6.00% 2007 1,000 1,085,130
Series 1993 A, 6.30% 2016 1,000 1,063,919
6,197,807
Special Obligations _ 2.82%
Montgomery County Revenue Authority, Golf Course System Revenue
Bonds, Series 1996 A, 6.00% 2014 2,355 2,441,923
Tax Assessment Bonds _ 2.38%
Prince George's County, Special Obligation Bonds (Woodview Village
Infrastructure Improvements), Series 1997 A, 8.00% 2026 2,000 2,061,779
Turnpikes & Toll Roads Revenue _ 1.27%
Maryland Transportation Authority Facilities Project,
Transportation Facilities Projects Revenue Bonds,
Series 1992, 5.80% 2006 1,000 1,098,430
Water & Sewer Revenue _ 2.48%
Maryland Water Quality Financing Administration,
Revolving Loan Fund Revenue Bonds, Series 1991 B, 0.00% 2005 700 491,225
Washington Suburban Sanitary District, Refunding Bonds of 1997,
5.75% 2017 1,510 1,657,361
2,148,586
82,692,461
Tax-Exempt Securities Maturing in One Year or Less _ 4.10%
Industrial Development Revenue _ 2.88%
Anne Arundel County, Economic Development Revenue Bonds
(Baltimore Gas and Electric Company Project):
3.55% 1997 $1,000 $ 1,000,000
3.80% 1997 500 500,000
3.90% 1997 1,000 1,000,000
2,500,000
Pre-Refunded<F2> _ 1.22%
Suburban Hospital Issue Revenue Bonds, Series 1988,
7.50% 2008 (1998) 1,000 1,053,050
3,553,050
TOTAL TAX-EXEMPT SECURITIES (cost: $80,395,000) 86,245,511
Excess of cash and receivables over payables 411,150
NET ASSETS $86,656,661
<FN>
<F1> Represents a when-issued security.
<F2> Parenthetical year represents date of pre-refunding.
See Notes to Financial Statements
</FN>
</TABLE>
<TABLE>
<CAPTION>
The Tax-Exempt Fund of Virginia
Investment Portfolio, July 31, 1997
Principal
Amount Market
(000) Value
<S> <C> <C>
Tax-Exempt Securities Maturing in More than One Year _ 95.16%
College & University Revenue _ 2.82%
Virginia College Building Authority Educational Facilities Revenue
Bonds (Marymount University Project), Series 1992, 6.875% 2007 $1,650 $ 1,782,875
Virginia Polytechnic Institute and State University, University Services
System and General Revenue Pledge Bonds,
Series C 1996, 5.35% 2009 1,000 1,050,290
2,833,165
General Obligations (Local) _ 11.44%
Arlington County:
Public Improvement Bonds, Series 1996, 6.00% 2011 1,000 1,135,430
Refunding Bonds, Series 1993, 6.00% 2012 1,000 1,136,510
Chesapeake:
Public Improvement Bonds, Series 1992, 6.00% 2006 1,600 1,739,520
Refunding Bonds, Series 1993, 5.40% 2008 1,000 1,076,390
Water and Sewer Bonds, Series 1995 A, 5.375% 2020 1,500 1,520,670
Leesburg Refunding Bonds, Series 1993, 5.60% 2008 1,195 1,270,620
Lynchburg Public Improvement Refunding Bonds,
Series 1993, 5.25% 2009 1,000 1,033,050
Newport News General Obligation, Water Bonds,
Series A 1992, 6.125% 2009 1,170 1,258,663
Norfolk Capital Improvement and Refunding Bonds,
Series 1992 A, 6.00% 2011 500 528,755
Roanoke Public Improvement and Refunding Bonds,
Series 1992 B:
6.375% 2009 250 270,405
6.40% 2011 500 541,429
11,511,442
General Obligations (State) _ .80%
Commonwealth of Virginia, Public Facilities Bonds,
1993 Series A, 5.40% 2005 750 804,705
Hospital & Health Facilities Revenue _ 16.88%
Fairfax County Industrial Development Authority, Hospital
Revenue Refunding Bonds (INOVA Health Systems Hospital Project),
Series 1993 A:
5.00% 2007 250 774,195
5.25% 2019 2,500 2,509,700
5.00% 2023 500 483,045
Hospital & Health Facilities Revenue - (continued)
Hampton Industrial Development Authority, Hospital Revenue
Bonds (Sentara Hospitals), 5.125% 2016 $1,000 $ 989,660
Industrial Development Authority of Henry County, Hospital Revenue
Bonds (Memorial Hospital of Martinsville and Henry County),
Series 1997, 6.00% 2017 2,000 2,101,180
Lynchburg Industrial Development Authority, Hospital
Facilities, Revenue Refunding Bonds, Centra
Health, Inc., Series 1988, 8.125% 2016 1,000 1,054,970
Norfolk Industrial Development Authority, Hospital Revenue
Bonds (Sentara Hospitals-Norfolk Project),
Series A 1994, 5.00% 2020 2,315 2,243,652
Peninsula Ports Authority:
Health Care Facilities Revenue and Refunding Bonds (Mary
Immaculate Project), 1994 Series, 6.875% 2010 1,900 2,213,709
Health System Revenue and Refunding Bonds
(Riverside Health System Project),
Series 1992 A, 6.625% 2010 1,300 1,420,341
Puerto Rico Industrial, Tourist, Educational, Medical and
Environmental Control Facilities Financing Authority,
Hospital Revenue Bonds (Mennonite General Hospital Project),
1996 Series A, 6.375% 2006 2,000 2,094,940
Virginia Beach, Virginia Development Authority
(Sentara Bayside Hospital), 6.60% 2009 1,000 1,091,990
16,977,382
Housing Finance Authority Revenue _ 4.24%
Commonwealth of Puerto Rico Housing Finance Corporation,
Single Family Mortgage Revenue Bonds, 1st Portfolio:
1988 Series A, 7.80% 2021 10 10,304
1988 Series B, 7.65% 2022 280 296,307
Virginia Housing Development Authority, Commonwealth
Mortgage Bonds:
1994 Series H, Sub-Series H-1, 6.10% 2003 500 530,735
1995 Series A-AMT, Sub-Series A-1, 6.60% 2004 1,000 1,087,060
1994 Series I-AMT, Sub-Series I-1, 6.40% 2005 800 862,144
1994 Series H, Sub-Series H-2, 6.55% 2017 1,000 1,069,490
1992 Series A, 7.10% 2022 380 403,203
4,259,243
Industrial Development Revenue _ 3.11%
Industrial Development Authority of the County of Henrico,
Solid Waste Disposal Revenue Bonds (Browning-Ferris Industries of
South Atlantic, Inc. Project):
Series 1996 A AMT, 5.30% 2011 $1,000 $ 1,032,970
Series 1996 A AMT, 5.45% 2014 1,000 1,023,110
Puerto Rico Ports Authority, Special Facilities Revenue Bonds
(American Airlines, Inc. Project), 1996 Series A, 6.25% 2026 1,000 1,072,761
3,128,841
Insured _ 21.04%
Augusta, Hospital Revenue Bonds, AMBAC Insured, 5.125% 2021 1,000 973,650
Chesapeake Certificates of Participation,
MBIA Insured, 1993 Series, 5.40% 2005 1,000 1,057,890
Danville, Virginia Industrial Development Authority, Hospital
Revenue Bonds, Danville Regional Medical Center,
Series 1994, FGIC Insured, 6.00% 2007 1,000 1,095,640
Fairfax County Industrial Development Authority,
Hospital Revenue Refunding Bonds (INOVA Health System
Hospitals Project), Series 1993 A, FSA Insured, 5.25% 2019 1,000 1,002,570
Industrial Development Authority of the County of Hanover,
Hospital Revenue Bonds (Memorial Regional Medical Center
Project at Hanover Medical Park), Series 1995, MBIA Insured:
6.50% 2010 1,375 1,621,593
6.375% 2018 1,000 1,167,600
Loudoun County:
Industrial Development Authority, Hospital Revenue Bonds,
FSA Insured, 6.00% 2005 1,000 1,098,030
Sanitation Authority, Water and Sewer System Revenue Bonds,
FGIC Insured:
Series 1992, 6.25% 2010 2,000 2,189,820
Series 1996, 5.125% 2030 500 491,820
Industrial Development Authority of the City of Norfolk,
Health Care Revenue Bonds (Bon Secours Health System), Series 1997:
5.00% 2006<F1> 1,190 1,218,227
5.00% 2007<F1> 1,250 1,281,875
Pamunkey Regional Jail Authority, Jail Facility Revenue Bonds,
Series 1996, MBIA Insured, 5.70% 2010 1,000 1,074,680
Richmond, FGIC Insured, 5.00% 2021 $1,000 $ 974,370
County of Roanoke, Water System Refunding Revenue Bonds,
Series 1993, 5.00% 2021 3,100 2,994,972
Upper Occoquan Sewage Authority, Regional Sewerage System
Revenue Bonds, Series 1995 A, MBIA Insured, 5.00% 2025 1,000 972,099
City of Virginia Beach Development Authority, Hospital Revenue
Bonds (Virginia Beach General Hospital Project), Series 1993,
AMBAC Insured, 6.00% 2011 1,000 1,129,110
Washington, D.C. Metropolitan Area Airports Authority, Airport
System Revenue and Refunding Bonds, MBIA Insured AMT,
Series 1992 A, 6.625% 2019 750 824,018
21,167,964
Lease Revenue (Local) _ 2.34%
Industrial Development Authority of Arlington County, Headquarters
Facility Revenue Bonds (The Nature Conservancy),
Series 1997 A, 5.40% 2017 350 354,592
Fairfax County Economic Development Authority, Lease Revenue
Bonds (Government Center Properties), Series 1994, 5.25% 2018 2,000 2,004,020
2,358,612
Lease Revenue (State) _ 1.50%
Virginia Public Building Authority, State Building Revenue
Bonds, Series 1995, 5.20% 2015 1,500 1,509,540
Life Care Facilities Revenue _ 3.08%
Industrial Development Authority of the County of James City,
Virginia, Residential Care Facility First Mortgage Revenue Bonds
(Williamsburg Landing, Inc.), Series 1996A, 6.625% 2019 3,000 3,094,140
Local Appropriation _ .53%
Fairfax County Economic Development Authority, Parking Revenue
Bonds (Huntington Metrorail Station Project),
Series 1990 A, 6.75% 2015 500 533,545
Multi-Family Housing _ 2.25%
Virginia Housing Development Authority, Multi-Family Housing Bonds:
1997 Series B-AMT, 5.80% 2010 $1,185 $ 1,223,086
1996 Series B, 5.95% 2016 1,000 1,042,520
2,265,606
Pre-Refunded<F2> _ 14.90%
Fairfax County:
Industrial Development Authority Hospital Revenue Bonds
(Fairfax Hospital System Project), INOVA Health Systems,
Series 1991 C, 6.801% 2023 (2001) 1,000 1,118,300
Water Authority Revenue, Series 1989, 7.30% 2021 (2000) 1,250 1,367,238
Henry County Public Service Authority, Water and Sewer Revenue
Bonds, FGIC Insured, Series 1990, 7.20% 2019 (2000) 1,250 1,382,388
Loudoun County Sanitation Authority, Water and Sewer System
Revenue Bonds, Series 1989, AMBAC Insured, 7.50% 2017 (1999) 375 400,643
Norfolk Industrial Development Authority, Hospital Revenue Bonds:
(Children's Hospital of the King's Daughters Obligated
Group), Series 1991, AMBAC Insured, 7.00% 2011 (2001) 400 447,656
(Sentara Hospitals-Norfolk Project), Series 1991, 7.00% 2020 (2000) 250 276,495
Prince William County Service Authority, Water and Sewer
System Revenue Bonds, Series 1991, FGIC Insured, 6.50% 2021 (2001) 680 750,720
Roanoke:
Industrial Development Authority, Hospital Revenue Bonds,
Carilion Health System (Roanoke Memorial Hospital Projects),
Series 1990, MBIA Insured, 7.25% 2017 (2000) 750 829,035
Water System Revenue Bonds, Series 1991,
FGIC Insured, 6.50% 2021 (2001) 750 828,000
Southeastern Public Service Authority, Regional Solid Waste
System, Senior Revenue Refunding Bonds, Series 1989, BIG Insured:
7.00% 2006 (1999) 500 537,380
7.00% 2013 (1999) 1,000 1,074,760
Suffolk, Series 1989, 7.00% 2005 (1998) 1,000 1,054,260
University of Virginia, Hospital Revenue Bonds, 1984 Series A,
HIBI Insured, 9.875% 2001 (2001) 10 11,160
Upper Occoquan Sewage Authority, Regional Sewerage System
Revenue Bonds, Series 1991, MBIA Insured, 6.00% 2021 (2001) $ 700 $ 748,300
Virginia Education Loan Authority, Student Loan Program Revenue
Refunding Bonds, Senior Series 1993 D AMT, 5.95% 2009 (2005) 790 858,912
Virginia Public Building Authority, State Building Revenue Bonds,
Series 1991 A, 6.50% 2011 (2001) 1,750 1,933,610
Virginia Resources Authority:
Solid Waste Disposal System Revenue Bonds,
1990 Series A, 7.30% 2015 (2000) 1,000 1,098,330
Water and Sewer System Revenue Bonds
Series 1990, 7.25% 2011 (2000) 250 277,423
14,994,610
Resource Recovery _ 2.07%
Fairfax County Economic Development Authority, Resource Recovery
Revenue Bonds, Series 1988 A AMT (Ogden Martin Systems of
Fairfax, Inc. Project), 7.55% 2003 500 535,119
Roanoke Valley Resource Authority, Solid Waste System Revenue
Bonds, Series 1992, 5.75% 2012 1,500 1,546,500
2,081,619
State Authority _ 6.11%
Virginia Public School Authority, School Financing Bonds:
(1991 Resolution), Series 1995 C, 5.00% 2002 1,000 1,036,200
(1987 Resolution), 1991 Refunding Series C, 6.25% 2007 1,500 1,637,505
(1991 Resolution), Series 1994 A, 6.20% 2014 1,500 1,622,745
Virginia Resources Authority:
Water and Sewer System Revenue Bonds
(Pooled Loan Program), 1986 Series A, 7.50% 2017 50 50,972
Water System Refunding Revenue Bonds, 1992 Series A, 6.45% 2013 750 801,113
Water System Revenue Bonds (Appomattox River Water Authority
Refunding), 1993 Series A, 5.25% 2013 1,000 1,005,858
6,154,393
Water & Sewer Revenue _ 2.05%
Chesterfield County Water and Sewer Revenue Refunding Bonds,
Series 1992, 6.375% 2009 $1,250 $ 1,366,500
Rivanna Water and Sewer Authority, Regional Water and Sewer
System Refunding Revenue Bonds, Series 1991, 6.40% 2007 645 700,831
2,067,331
95,742,138
Tax-Exempt Securities Maturing in One Year or Less _ 5.27%
Hospital & Health Facilities Revenue _ .99%
Industrial Development Authority of Fairfax County,
Unit Priced Demand Adjustable Hospital Revenue Bonds
(INOVA Health Systems Project) Series 1993 B, 3.65% 1997 1,000 1,000,000
Industrial Development Revenue _ .50%
Peninsula Ports Authority, Refunding Port Facilities (Shell Oil Company),
1987 Series, 3.75% 2005<F3> 500 500,000
Pre-Refunded<F2> _ 3.78%
Chesapeake, Hospital Authority Facility for Chesapeake
General Hospital, First Mortgage Revenue, BIG Insured
Series 1988, 7.625% 2018 (1998) 1,000 1,053,930
Portsmouth Improvement Bonds, Public Improvement Refunding
Bonds, Series 1987, 7.50% 2012 (1997) 500 517,010
Richmond Public Utility Revenue Bonds,
Series 1988 A, 8.00% 2018 (1998) 750 779,175
Commonwealth of Virginia Transportation Board,
Transportation Contract Revenue Bonds, Route 28 Project,
Series 1988:
7.70% 2008 (1998) 890 927,807
7.80% 2016 (1998) 500 521,514
3,799,436
5,299,436
TOTAL TAX-EXEMPT SECURITIES (cost: $93,987,000) 101,041,574
Excess of payables over cash and receivables 432,125)
NET ASSETS $100,609,449
<FN>
<F1> Represents a when-issued security.
<F2> Parenthetical year represents date of pre-refunding.
<F3> Coupon rate may change periodically.
See Notes to Financial Statements
</FN>
</TABLE>
Financial Statements
Statement of Assets and Liabilities
July 31, 1997
(dollars in thousands)
The Tax-Exempt The Tax-Exempt
Fund of Maryland Fund of Virginia
Assets:
Tax-exempt securities:
Maturing in more than one year
(cost: $76,918 and $88,827,
respectively) $82,693 $ 95,742
Maturing in one year or less
(cost: $3,477 and $5,160,
respectively) 3,553 5,299
Cash 766 386
Receivables for _
Sales of Funds' shares 243 584
Accrued interest 764 1,399
Total Assets 88,019 103,410
Liabilities:
Payables for _
Purchases of investments 1,130 2,510
Repurchases of Funds' shares 7 38
Dividends 137 166
Adviser and management services 32 36
Accrued expenses 56 51
Total Liabilities 1,362 2,801
Net Assets:
Net assets applicable to Funds' shares
issued and outstanding $86,657 $100,609
Funds' shares outstanding<F1> 5,409,824 6,146,541
Net asset value per share $16.02 $16.37
[FN]
<F1>Shares of beneficial interest, unlimited shares authorized
See Notes to Financial Statements
</FN>
Financial Statements
Statement of Operations
For the year ended July 31, 1997
(dollars in thousands)
The Tax-Exempt The Tax-Exempt
Fund of Maryland Fund of Virginia
Investment Income:
Income:
Interest on tax-exempt securities $4,801 $5,435
Expenses:
Investment adviser fee 203 229
Business management fee 165 184
Distribution fee 198 234
Transfer agent fee 31 35
Reports to shareholders 15 18
Registration statement and prospectus 4 3
Postage, stationery and supplies 10 11
Trustees' fees 8 8
Custodian fee 4 4
Auditing and legal fees 23 23
Other expenses 5 6
Total expenses 666 755
Net investment income 4,135 4,680
Realized Gain and Unrealized Appreciation
on Investments:
Net realized gain 561 118
Net unrealized appreciation:
Beginning of year 3,039 3,552
End of year 5,851 7,054
Net change in unrealized appreciation 2,812 3,502
Net realized gain and change in
unrealized appreciation 3,373 3,620
Net Increase in Net Assets
Resulting from Operations $7,508 $8,300
See Notes to Financial Statements
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
(dollars in thousands)
Year Ended July 31
1997 1996
The Tax-Exempt Fund of Maryland
<S> <C> <C>
Operations:
Net investment income $ 4,135 $ 4,008
Net realized gain on investments 561 81
Net change in unrealized appreciation on investments 2,812 365
Net increase in net assets resulting from operations 7,508 4,454
Dividends Paid to Shareholders from Net Investment Income (4,135) (4,008)
Capital Share Transactions:
Proceeds from shares sold: 717,812 and 733,060 shares,
respectively 11,169 11,338
Proceeds from shares issued in reinvestment of net investment
income dividends: 163,465 and 165,984 shares, respectively 2,544 2,565
Cost of shares repurchased: 671,863 and 613,087 shares,
respectively (10,456) (9,466)
Net increase in net assets resulting from capital
share transactions 3,257 4,437
Total Increase in Net Assets 6,630 4,883
Net Assets:
Beginning of year 80,027 75,144
End of year $86,657 $80,027
The Tax-Exempt Fund of Virginia
Operations:
Net investment income $ 4,680 $ 4,705
Net realized gain on investments 118 131
Net change in unrealized appreciation on investments 3,502 74
Net increase in net assets resulting from operations 8,300 4,910
Dividends and Distributions Paid to Shareholders:
Dividends from net investment income (4,680) (4,705)
Distributions from net realized gain on investments - (320)
Total dividends and distributions (4,680) (5,025)
Capital Share Transactions:
Proceeds from shares sold: 1,037,170 and 655,816 shares,
respectively 16,514 10,441
Proceeds from shares issued in reinvestment of net investment income
dividends and distributions of net realized gain on investments:
168,347 and 190,123 shares, respectively 2,677 3,020
Cost of shares repurchased: 798,604 and 912,994 shares,
respectively (12,694) (14,537)
Net increase (decrease) in net assets resulting from capital
share transactions 6,497 (1,076)
Total Increase (Decrease) in Net Assets 10,117 (1,191)
Net Assets:
Beginning of year 90,492 91,683
End of year $100,609 $90,492
See Notes to Financial Statements
</TABLE>
Notes to Financial Statements
1. The American Funds Tax-Exempt Series I (the "Trust") is registered
under the Investment Company Act of 1940 as an open-end, diversified
management investment company and has initially issued two series of
shares, The Tax-Exempt Fund of Maryland and The Tax-Exempt Fund of Virginia
(the "Funds"). The Funds seek a high level of current income exempt from
Federal and their respective state income taxes. Additionally, each Fund
seeks to preserve capital. The following paragraphs summarize the
significant accounting policies consistently followed by the Trust in the
preparation of its financial statements:
Tax-exempt securities with 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
Trust, as well as actual bid and asked prices on a particular day.
Other securities with 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. All securities wit 60
days or less to maturity are valued at amortized cost, which approximates
market value. Securities for which market quotations are not readily
available are valued at fair value as determined in good faith by a
committee appointed by the Board of Trustees.
As is customary in the mutual fund industry, securities transactions
are accounted for on the date the securities are purchased or sold. In the
event the Trust 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 over the
life of the respective securities. Amortization of market discounts on
securities is recognized upon disposition, subject to applicable tax
requirements. Dividends to shareholders are declared daily from net
investment income. Distributions paid to shareholders are recorded on the
ex-dividend date.
Pursuant to the custodian agreement, the Funds receive credits against
their custodian fees for imputed interest on certain balances with the
custodian bank. The custodian fee of $4,000 for both the Maryland and
Virginia Funds was paid by these credits rather than in cash.
2. It is the Trust's policy to continue to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies
and to distribute all of its net investment income, including any net
realized gain on investments, to its shareholders. Therefore, no federal
income tax provision is required.
As of July 31, 1997, net unrealized appreciation on investments for
book and federal income tax purposes for the Maryland and Virginia Funds
aggregated $5,851,000 and $7,054,000, respectively. 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 $80,395,000 and $93,987,000 for
the Maryland and Virginia Funds, respectively, at July 31, 1997.
3. Officers of the Trust received no remuneration from the Funds in such
capacities. Their remuneration was paid by Washington Management
Corporation (WMC), a wholly owned subsidiary of The Johnston-Lemon Group,
Incorporated. Fees of $165,000 and $184,000 were recognized by the
Maryland and Virginia Funds, respectively, and were paid or are payable to
WMC for business management services. The business management contract
provides for monthly fees, accrued daily, based on an annual rate of 0.135%
of the first $60 million of average net assets of each of the Funds; 0.09%
of such assets in excess of $60 million; plus 1.35% of the gross investment
income (excluding any net capital gains from transactions in portfolio
securities). Johnston, Lemon & Co. Incorporated, a wholly owned subsidiary
of The Johnston-Lemon Group, Incorporated, has informed the Funds that it
has earned $27,000 and $35,000 on its retail sales of shares and under the
distribution plan of the Maryland and Virginia Funds, respectively, but
received no net brokerage commissions resulting from purchases and sales of
securities for the investment account of the Funds. All the officers of
the Trust and three of its trustees are affiliated with WMC.
Fees of $203,000 and $229,000 were recognized by the Maryland and
Virginia Funds, respectively, and were paid or are payable to Capital
Research and Management Company (CRMC) as Investment Adviser pursuant to an
investment advisory contract with the Trust. The investment advisory
contract provides for monthly fees, accrued daily, based on an annual rate
of 0.165% of the first $60 million of average net assets of each of the
Funds; 0.12% of such assets in excess of $60 million; plus 1.65% of the
gross investment income (excluding any net capital gains from transactions
in portfolio securities).
Pursuant to a Plan of Distribution, the Funds may expend up to 0.25%
of their 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 Funds' Board of Trustees.
Fund expenses under the Plan include payments to dealers to compensate them
for their selling and servicing efforts. During the year ended July 31,
1997, distribution expenses under the Plan were $198,000 and $234,000,
including accrued and unpaid expenses of $43,000 and $38,000, for the
Maryland and Virginia Funds, respectively.
American Funds Service Company (AFS), the transfer agent for the
Maryland and Virginia Funds, was paid fees of $31,000 and $35,000,
respectively. American Funds Distributors, Inc. (AFD), the principal
underwriter of the Funds' shares, has informed the Funds that it has
received $32,000 and $52,000 (after allowances to dealers) for the Maryland
and Virginia Funds, respectively, as its portion of the sales charges paid
by purchasers of the Funds' shares. Such sales charges are not an expense
of the Funds and, hence, are not reflected in the accompanying statement of
operations.
Trustees who are unaffiliated with WMC 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 Funds. As of
July 31, 1997, aggregate amounts deferred and earnings thereon were $10,000
each for the Maryland and Virginia Funds.
CRMC is owned by The Capital Group Companies, Inc. AFS and AFD are
both wholly owned subsidiaries of CRMC.
4. As of July 31, 1997:
The Tax-Exempt The Tax-Exempt
Fund of Maryland Fund of Virginia
Accumulated
undistributed net
realized gain
on investments $ 561,000 $ 114,000
Paid-in capital 80,245,000 93,441,000
Purchases and sales of
investment securities,
excluding short-term
securities, during
the year ended
July 31, 1997:
Purchases 14,795,000 24,672,000
Sales 12,012,000 16,753,000
Per-Share Data and Ratios
The Tax-Exempt Fund of Maryland
Year Ended July 31
1997 1996 1995 1994 1993
Net Asset Value, Beginning of Year $15.39 $15.29 $15.00 $15.53 $15.22
Income from Investment Operations:
Net investment income .79 .80 .80 .76 .79
Net realized and unrealized gain (loss)
on investments .63 .10 .29 (.53) .31
Total income from investment operations 1.42 .90 1.09 .23 1.10
Less Distributions:
Dividends from net investment income (.79) (.80) (.80) (.76) (.79)
Net Asset Value, End of Year $16.02 $15.39 $15.29 $15.00 $15.53
Total Return<F1> 9.52% 5.95% 7.58% 1.42% 7.44%
Ratios/Supplemental Data:
Net assets, end of year (in millions) $87 $80 $75 $75 $64
Ratio of expenses to average net assets .82% .81% .78% .75% .83%
Ratio of net income to average net assets 5.08% 5.14% 5.38% 4.90% 5.12%
Portfolio turnover rate 15.27% 16.01% 20.91% 10.01% 9.05%
The Tax-Exempt Fund of Virginia
Year Ended July 31
1997 1996 1995 1994 1993
Net Asset Value, Beginning of Year $15.77 $15.79 $15.49 $16.01 $15.72
Income from Investment Operations:
Net investment income .80 .81 .83 .80 .82
Net realized and unrealized gain (loss)
on investments .60 .03 .30 (.52) .29
Total income from investment operations 1.40 .84 1.13 .28 1.11
Less Distributions:
Dividends from net investment income (.80) (.81) (.83) (.80) (.82)
Distributions from net realized gains - (.05) - - -
Total distributions (.80) (.86) (.83) (.80) (.82)
Net Asset Value, End of Year $16.37 $15.77 $15.79 $15.49 $16.01
Total Return<F1> 9.10% 5.46% 7.56% 1.74% 7.29%
Ratios/Supplemental Data:
Net assets, end of year (in millions) $101 $90 $92 $93 $80
Ratio of expenses to average net assets .81% .79% .79% .78% .84%
Ratio of net income to average net assets 4.99% 5.11% 5.37% 5.04% 5.18%
Portfolio turnover rate 18.41% 27.34% 32.18% 2.36% 4.96%
[FN]
<F1>This was calculated without deducting a sales charge. The maximum sales
charge is 4.75% of each Fund's offering price.
</FN>
Report of Independent Accountants
To the Board of Trustees and Shareholders of
The American Funds Tax-Exempt Series I
In our opinion, the accompanying statements of assets and liabilities,
including the investment portfolios, 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 The
Tax-Exempt Fund of Maryland and The Tax-Exempt Fund of Virginia
(constituting The American Funds Tax-Exempt Series I, hereafter referred to
as the "Trust") at July 31, 1997, the results of each of their operations,
the changes in each of their net assets and each of their 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 Trust'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 auditing
procedures where confirmations from brokers were not received, provide a
reasonable basis for the opinion expressed above.
Los Angeles, California
August 29, 1997
Shareholders may exclude from Federal taxable income any exempt-interest
dividends paid from net investment income. All of the dividends paid from
net investment income qualify as exempt-interest dividends.
Since the amounts above are reported for the fiscal year and not a calendar
year, shareholders should refer to their Form 1099-DIV which will be mailed
in January 1998 to determine the calendar year amounts to be included on
their respective 1997 tax returns. Shareholders should consult their tax
advisers.
Shareholders Services
To help you add to your account
Automatic Reinvestment of Distributions
All dividends and capital gain distributions can be automatically
reinvested in additional shares at net asset value (without sales charge),
thus providing you with additional potential for growth through
compounding.
Investing by Mail
Simply send a check for $50 or more to the fund's transfer agent. You can
send personal checks or you can put bonus, gift or dividend checks to work
by endorsing them to the fund for investment into your account.
Automatic Investment Plan
You can make automatic investments regularly by authorizing the fund's
transfer agent to deduct a specified sum from your bank account.
Cross-Reinvestment of Distributions
You can cross-reinvest dividends or dividends and capital gain
distributions from one fund into another at no charge if you have a balance
of at least $5,000 in the originating fund or meet the minimum initial
investment for the receiving fund.
To help you add to your investment at a reduced sales charge
Quantity Discounts
There are discounts on large investments, whether they are in one fund or a
combination of funds in The American Funds Group, as explained in the
prospectus.
Right of Accumulation
You can add the value of your present shares of any of the funds in The
American Funds Group (except shares of our money market funds that were
purchased directly) to the amount of any new purchase in order to qualify
for a quantity discount on your new investment.
Statement of Intention
You can, without obligation, sign a Statement of Intention that allows you
to combine the purchases you intend to make over a 13-month period so as to
take immediate advantage of the maximum quantity discount available.
To help you pay your bills
Dividends in Cash
You have the option of taking your dividends in cash.
Automatic Withdrawal Plan
You can arrange to have regular checks for specified amounts sent to you or
to anyone you designate in any month(s) you choose.
To help you meet your changing needs
Exchange Privileges
Should your goals or financial circumstances change, you can easily
restructure your investment program by transferring some or all of your
holdings into other funds in The American Funds Group. You can do this at
no charge by mail or by phone. Automatic exchanges of $50 or more may also
be made between funds. Your initial exchange must meet the receiving fund's
minimum investment requirement unless the originating fund's balance is at
least $5,000 (in which case you have a year to meet the minimum investment
requirement). Please remember that fund exchanges constitute a sale and
purchase for tax purposes.
To help you with recordkeeping
Confirmation of Transactions
You receive account statements reflecting the transactions in your account.
Consolidated Quarterly Statements
If you have more than one account with the American Funds, you can request
a quarterly statement combining certain accounts registered to the same
individual.
Telephone Information Service
American FundsLine(R) is a toll-free service which gives you information
about your account as well as current prices for the American Funds. Just
call 800/325-3590. (Please have your account number and fund number ready.)
ImageCheck(SM)
If you're a shareholder in a fund that has check-writing privileges (The
Cash Management Trust of America, The U.S. Treasury Money Fund of America
or The Tax-Exempt Money Fund of America), each month you'll receive photo
images of the front and back of each cleared check on easy-to-file
8 1/2" x 11" statements.
Year-End Tax Report
At the end of each year, you will receive an individual report which shows
the tax status of the dividends and any capital gain distributions paid to
you during the year. In many instances, these reports can help you
calculate taxes due on shares you've sold by reporting average cost.
Safekeeping of Certificates
Your shares are credited to your account and certificates are not issued
unless specifically requested. This helps eliminate the costly, irritating
problem of lost or destroyed certificates.
For information about your account or any of the Fund's services, please
contact your financial adviser. You may also call American Funds Service
Company, toll-free, at 800/421-0180 or visit www.americanfunds.com on the
World Wide Web.
The American Funds Tax-Exempt Series I
(Logos)
Board of Trustees
James H. Lemon, Jr.
Chairman of the Trust
Chairman and Chief Executive Officer,
The Johnston-Lemon Group, Incorporated
Stephen Hartwell
Chairman Emeritus of the Trust
Chairman, Washington Management Corporation
Harry J. Lister
President of the Trust
President, Washington Management Corporation
Cyrus A. Ansary
President
Investment Services International Company
Jean Head Sisco
Partner, Sisco Associates
T. Eugene Smith
President, T. Eugene Smith, Inc.
Stephen G. Yeonas
Chairman and Chief Executive Officer,
Stephen G. Yeonas Company
Other Officers
Howard L. Kitzmiller
Senior Vice President, Secretary/Treasurer of the Trust
Director, Senior Vice President, Secretary and Assistant Treasurer,
Washington Management Corporation
Lois A. Erhard
Vice President of the Trust
Vice President, Washington Management Corporation
Michael W. Stockton
Assistant Vice President, Assistant Secretary and Assistant Treasurer of
the Trust
Assistant Vice President and Assistant Treasurer, Washington Management
Corporation
Offices of the Funds and of the Business Manager
Washington Management Corporation
1101 Vermont Avenue, NW
Washington, DC 20005-3585
202/842-5665
Investment Manager
Capital Research and Management Company
333 South Hope Street
Los Angeles, CA 90071-1443
135 South State College Boulevard
Brea, CA 92821-5804
Transfer Agent
American Funds Service Company
P.O. Box 2280
Norfolk, VA 23501-2280
Custodian
The Chase Manhattan Bank
One Chase Manhattan Plaza
New York, NY 10081-0001
Counsel
Thompson, O'Donnell, Markham, Norton & Hannon
805 Fifteenth Street, NW
Washington, DC 20005-2216
Principal Underwriter
American Funds Distributors, Inc.
333 South Hope Street
Los Angeles, CA 90071-1462
Independent Accountants
Price Waterhouse LLP
400 South Hope Street
Los Angeles, CA 90071-2889
This report is for the information of shareholders in the Funds that
comprise The American Funds Tax-Exempt Series I, but it may also be used as
sales literature when preceded or accompanied by the current prospectus,
which gives details about charges, expenses, investment objectives and
operating policies of the Funds. If used as sales material after September
30, 1997, this report must be accompanied by an American Funds Group
Statistical Update for the most recently completed calendar quarter.
Annual Report/1997
(Logo) Printed on recycled paper
TEFMD/TEFVA-011-0997
(Logo)
The American Funds Group(R)
