(Logo) The American Funds Group (R)
The American Funds Tax-Exempt Series I
The Tax-Exempt Fund of Maryland(R)
(graphic: Map of Maryland)
The Tax-Exempt Fund of Virginia(R)
(graphic: Map of Virginia)
Annual Report / July 31, 1998
(graphic: Map of Maryland), (graphic: Map of Virginia)
The Tax-Exempt Fund of Maryland(R)
and
The Tax-Exempt Fund of Virginia(R) seek a high level of current income free
from Federal and their respective state income taxes. Additionally, each
Fund seeks to preserve capital.
The Tax-Exempt Fund of Maryland and The Tax-Exempt Fund of Virginia are two
of the 28 funds in The American Funds Group,(R) managed by Capital Research
and Management Company. Since 1931, Capital has invested with a long-term
focus based on thorough research and attention to risk.
Fund results in this report were computed without a sales charge unless
otherwise indicated. Here are the average annual compound returns with all
distributions reinvested for periods ended June 30, 1998 (the most recent
calendar quarter) assuming payment of the 4.75% maximum sales charge at the
beginning of the stated periods:
Maryland Fund Virginia Fund
10 years +6.92% +6.88%
5 years +4.95 +4.68
12 months +3.29 +2.56
Sales charges are lower for accounts of $25,000 or more.
The Funds' 30-day yields as of August 31, 1998, calculated in accordance
with the Securities and Exchange Commission formula, at maximum sales
charge, were 3.24% for the Maryland Fund and 3.74% for the Virginia Fund.
The Funds' distribution rates as of that date were 4.53% and 4.33%,
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 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
In contrast to the turbulent stock market, The Tax-Exempt Fund of Maryland
and The Tax-Exempt Fund of Virginia were oases of calm during the 12 months
through July 1998. What's more, both Funds continued to reward investors
with considerable tax-free income.
The net asset values for the Funds were nearly unchanged: Maryland's rose 2
cents (from $16.02 a share to $16.04 a share), and Virginia's fell by a
penny (from $16.37 to $16.36). Each Fund paid income dividends totaling 78
cents and a long-term capital gain of 11.6 cents and 3.9 cents,
respectively.
If, like most shareholders, you reinvested your distributions, your total
return was ...
- - 5.9% for the Maryland Fund
- - 5.1% for the Virginia Fund
For those who reinvest dividends, The Maryland Fund's income return of 5.0%
was the equivalent of 8.9% from a taxable investment if you are in the
highest combined Federal, state and local tax bracket of 44.1%. The
Virginia Fund's income return of 4.9% was the equivalent of 8.6% from a
taxable investment if you are in the highest combined Federal and state tax
bracket of 43.1%.
Little change in market conditions
The nation's economic growth was strong throughout the period, although it
slowed a bit during the late spring and early summer. Nearly everyone who
wanted a job could find one as unemployment reached the lowest point in
decades. Inflation remained low _ rising just 1.7% _ and the Asian
economic crisis served to ensure, for at least a while, that lower priced
goods from abroad will keep domestic product prices down.
The Federal Reserve Board, satisfied with the current conditions, made no
changes in the Federal funds rate (the rate banks charge each other for
overnight loans). Interest rates on 20-year Treasury bonds declined more
than 1/2 of 1%, while comparable municipal rates declined only slightly.
In this environment, many municipalities in Maryland and Virginia _ where
the states' economies are currently growing faster than the nation's _ saw
their credit standings upgraded. These upgrades, along with lower interest
rates, often led them to refund existing obligations and replace them with
new, lower interest-bearing bonds. Refundings have represented more than
half of what is expected to be a record number of new issues in the market
this year.
Portfolio additions reflect innovations
Among new holdings in the Virginia Fund is the first bond issued under a
new state law which effectively enables developers to use municipal bonds
to finance roads, sewers, lighting and other basic infrastructure needs.
In this case, it will help Dulles Town Center _ a Loudoun County project
featuring a shopping mall and a mixed-use office campus _ to become
reality, with anchor stores opening before the end of this year. The
developer is Lerner Company, a long-established area builder responsible
for the two major malls at Tysons Corner. Taxes paid by tenants of the
improved property will be used to repay bonds.
The concept has been used successfully _ and, in some cases,
unsuccessfully _ in states such as California, Colorado, Florida and
Maryland. It is the sort of investment where thorough research is
critical, and the Fund's investment professionals are well acquainted with
the site, the region, the developer and the developer's bankers.
Similarly, the Maryland Fund's investment professionals are very familiar
with the details of a holding issued by the Montgomery County Housing
Opportunity Commission. The bond is helping to provide low- and
moderate-income housing near upscale White Flint Mall. In an unusual joint
venture between the commission and the private sector, the county has been
able to use Federal housing tax credits to offset a portion of the
development costs. By selling the tax credits to corporations, the county
can lessen its involvement.
Capital gain distributions upcoming
Income produced by securities held in the Funds is tax-free, of course, but
profits from securities called or sold are not. In November, both Funds
anticipate distributing taxable capital gains reflecting profits on a
number of issues that were called or sold. The Virginia Fund's gain will
include a short-term gain component.
We look forward to bringing you up to date six months from now in our
semi-annual report. In the meantime, we will strive to continue providing
you with a strong and steady flow of tax-free income.
Sincerely,
(signature) (signature)
James H. Lemon, Jr. Harry J. Lister
Chairman President
September 18, 1998
Preparing for the Year 2000 _ The Funds' key service providers _ Capital
Research and Management Company, the investment adviser, and American Funds
Service Company, the transfer agent _ are updating their computer systems
to process date-related information properly following the turn of the
century. Both are on track to complete modifications of significant
internal systems by the end of 1998. Testing with business partners,
vendors and other service providers is already under way. We will continue
to keep you up-to-date in our regular publications. If you'd like more
detailed information, call Shareholder Services at 800/421-0180, ext. 21,
or visit our Web site at www.americanfunds.com.
(Chart)
Growth of a $10,000 Investment
A line chart compares the growth of a $10,000 investment in the Tax-Exempt
Fund of Virginia (which grew to $21,276), the Tax-Exempt Fund of Maryland
(which grew to $20,791), and the Lehman Brothers Municipal Bond Index<F2>
(which grew to $24,697) versus the Consumer Price Index (which grew to
$14,877) from 8/14/86 to present.
<TABLE>
Year (2)Lehman Bros
ended Muni Bond
31-Jul (1)TEFMD (1)TEFVA Index (2)CPI
<S> <C> <C> <C> <C>
8/14/86 $ 9,525 $ 9,525 $10,000 $10,000
1987 9,444 9,798 10,439 10,374
1988 10,122 10,412 11,173 10,802
1989 11,313 11,620 12,534 11,340
1990 11,918 12,302 13,402 11,887
1991 12,804 13,288 14,573 12,416
1992 14,433 14,989 16,575 12,808
1993 15,508 16,081 18,040 13,163
1994 15,728 16,360 18,378 13,528
1995 16,920 17,597 19,825 13,902
1996 17,927 18,558 21,133 14,312
1997 19,634 20,247 23,300 14,631
1998 20,791 21,276 24,697 14,877
Average Annual Compound Returns <F1>
(for periods ended July 31, 1998)
1 Year 5 Years 10 Years
The Tax-Exempt Fund of Maryland +0.86% +5.02% +6.95%
The Tax-Exempt Fund of Virginia +0.07% +4.73% +6.89%
Results reflect payment of maximum sales charge of 4.75% on the $10,000
investment.
Thus, the net amount invested was $9,525. As outlined in the prospectus,
the sales charge is reduced for larger investments.
<FN>
<F1> Assumes reinvestment of all distributions and payment of the 4.75%
maximum sales charge at the beginning of the stated periods.
<F2> The index is a national index not limited to Maryland and Virginia
bonds. It is unmanaged and does not reflect sales charges, commissions or
expenses.
</FN>
Past results are not predictive of future results.
The Tax-Exempt Fund of Maryland (map)
As of July 31, 1998
Quality Diversification:
Moody's/S&P Ratings (best of either)
(Pie Chart showing the following sections)
Aaa/AAA 35.3%
Aa/AA 23.2%
A/A 13.9%
Baa/BBB 13.1%
Lower than BBB 09.3%
Cash and Equivalents 05.2%
Maturity Diversification1:
(Pie Chart showing the following sections)
Under 1 year 05.2%
1 to 10 years 65.6%
10+ to 20 years 22.6%
20+ to 30 years 06.6%
Average Life<F2> 8.25 years
<FN>
<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 is 14.41 years.
</FN>
Why triple tax-free investing can be worthwhile
</TABLE>
<TABLE>
<CAPTION>
Tax-free yields vs. taxable yields
Your taxable income Combined In Maryland, a tax-exempt yield of:
Federal and 4% 5% 6% 7%
Single Joint MD tax rate<F1> is equivalent to a taxable yield of:
<C> <C> <C> <C> <C> <C> <C>
$3,000-25,350 $3,000-42,350 21.4% 5.1% 6.4% 7.6% 8.9%
$25,351-61,400 $42,351-102,300 33.4 6.0 7.5 9.0 10.5
$61,401-128,100 $102,301-155,950 36.2 6.3 7.8 9.4 11.0
$128,101-278,450 $155,951-278,450 40.8 6.8 8.4 10.1 11.8
Over 278,450 Over 278,450 44.1 7.2 8.9 10.7 12.5
<FN>
<F1> Based on 1998 Federal and 1997 combined Maryland state and county tax rates (at 7.5% individually
calculated for each bracket and averaged to fit within Federal brackets). The rates do not include an
adjustment for the loss of personal exemptions and the phase-out of itemized deductions that are applicable at
certain taxable income levels.
</FN>
</TABLE>
To use this table, find your estimated taxable income to determine your
combined Federal and Maryland tax rate. Then look at the right-hand column
to see what you would have had to earn from a taxable investment to equal
the Fund's 4.53% tax-free
distribution rate in August.
Because of tax increases in recent years, many high-income investors are
finding that their returns on taxable fixed-income issues have to be even
higher to match those currently offered by tax-exempt municipals. For
instance, a couple with a taxable income of $150,000 faces a combined
Federal and Maryland tax rate of 36.2%. In this bracket, the Fund's current
4.53% distribution rate would be equivalent to a return on a taxable
fixed-income investment of 7.10%.
Investment Portfolio The Tax-Exempt Fund of Maryland (map)
July 31, 1998
<TABLE>
<CAPTION>
Principal
Amount Market
(000) Value
<S> <C> <C>
Tax-Exempt Securities Maturing in More than One Year _ 94.82%
College & University Revenue _ 1.91%
Frederick County, College Revenue Bonds (Hood College Project),
1990 Series:
7.05% 2004 $ 410 $ 435,178
7.05% 2005 455 487,414
University of Maryland System Auxiliary Facility and Tuition
Revenue Bonds, 1993 Refunding Series C, 5.00% 2010 1,000 1,018,320
1,940,912
General Obligations (Local) _ 1.35%
Anne Arundel County, Consolidated Water and Sewer, 1993
Refunding Series, 5.30% 2016 500 506,625
Frederick County, Public Facilities Bonds 1990, 8.875% 2002 250 293,780
Harford County Consolidated Public Improvement Bonds,
Series 1992, 5.80% 2010 530 569,035
1,369,440
General Obligations (State) _ 1.52%
Commonwealth of Puerto Rico, Public Improvement
Refunding Bonds, Series 1998, 5.00% 2007 1,500 1,545,090
Hospital & Health Facilities Revenue _ 11.06%
Maryland Health and Higher Educational Facilities Authority:
(Charity Obligated Group-Daughters of Charity National
Health System), Variable Rate Hospital Revenue Bonds,
Series 1997D, 4.60% 2026 1,750 1,770,230
Good Samaritan Hospital Issue, Revenue Bonds, Series 1993,
5.70% 2009 1,000 1,101,440
Howard County, General Hospital Issue, Series 1993:
5.50% 2013 2,000 2,100,880
5.50% 2021 1,000 1,042,120
Johns Hopkins Hospital Issue, Revenue Refunding Bonds,
Series 1993, 5.60% 2009 850 900,609
Suburban Hospital Issue, Revenue Refunding Bonds,
Series 1993, 5.125% 2021 1,500 1,470,210
Prince George's County (Dimensions Health Corporation Issue):
Hospital Revenue Bonds, Series 1992, 7.20% 2006 215 241,841
Project and Refunding Revenue Bonds, Series 1994, 5.375% 2014 1,600 1,614,288
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 910 978,004
11,219,622
Housing Finance Authority Revenue _ 13.75%
Maryland Community Development Administration, Department of
Housing and Community Development:
Residential Revenue Bonds, 1998 Series B, AMT:
5.00% 2008 1,610 1,643,182
5.00% 2009 1,680 1,704,226
Single-Family Program Bonds:
1994 First Series, 5.80% 2009 2,000 2,112,440
1994 First Series, 5.70% 2017 2,630 2,715,764
1994 Fifth Series, AMT, 5.875% 2017 1,135 1,169,958
1990 First Series, 7.60% 2017 495 515,335
1988 Third Series, 8.00% 2018 1,000 1,037,750
Montgomery County, Housing Opportunities Commission,
Single Family Mortgage Revenue Bonds:
1998 Series B, 4.80% 2009 600 598,062
1997 Series A, 5.50% 2009 750 777,068
1998 Series B, 4.90% 2010 500 498,730
Prince George's County Housing Authority, GNMA/FNMA
Collateralized Single Family Mortgage Bonds, Series 1994 A,
AMT, 6.60% 2025 930 992,961
Commonwealth of Puerto Rico Housing Finance Corporation,
Single Family Mortgage Revenue Bonds, 1st Portfolio:
1988 Series A, 7.80% 2021 10 10,210
1988 Series B, 7.65% 2022 160 169,665
13,945,351
Industrial Development Revenue _ 2.14%
Mayor and City Council of Baltimore, Port Facilities Revenue
Bonds (Consolidation Coal Sales Company Project):
Series 1984 A, 6.50% 2011 500 546,335
Series 1984 B, 6.50% 2011 500 546,335
Puerto Rico Ports Authority, Special Facilities Revenue Bonds
(American Airlines, Inc. Project), 1996 Series A, 6.25% 2026 1,000 1,081,150
2,173,820
Insured _ 18.04%
City of Baltimore, Refunding Revenue Bonds, FGIC Insured,
1994, Series A:
6.00% 2015 1,500 1,697,475
5.00% 2024 1,220 1,216,438
Calvert County, Economic Development Refunding Revenue Bonds,
(Asbury-Solomons Island Facility), Series 1997, MBIA Insured:
5.00% 2009 1,000 1,027,350
5.00% 2010 1,000 1,020,470
5.00% 2017 1,000 984,000
5.00% 2027 1,000 976,970
Charles County, Consolidated Public Improvement Bonds of 1993,
Series A, FGIC Insured, 5.25% 2003 715 747,154
City of Frederick, General Improvement Bonds, 1992 Refunding
Series, FGIC Insured, 6.125% 2008 890 969,814
Maryland Health and Higher Educational Facilities Authority:
Johns Hopkins Medical Institutions Parking Facilities Issue,
Parking Revenue Bonds, Series 1996, AMBAC Insured, 5.50% 2011 1,200 1,270,956
Helix Health Issue, Revenue Bonds, Series 1997,
AMBAC Insured, 5.00% 2007 1,250 1,295,913
Memorial Hospital of Easton, Series 1989 B,
MBIA Insured, 7.00% 2012 1,200 1,254,840
Mercy Medical Center Issue Project and Refunding Revenue
Bonds, Series 1996, FSA Insured, 6.50% 2013 2,000 2,359,120
Prince George's County, Solid Waste Management System
Revenue Bonds, Series 1993, FSA Insured, 6.50% 2007 2,000 2,227,700
Commonwealth of Puerto Rico:
Electric & Power Authority, 1995 Series Y, MBIA Insured,
7.00% 2007 1,000 1,183,930
Public Improvement Bonds of 1987, MBIA Insured, 6.75% 2006 65 66,130
18,298,260
Lease Revenue (State) _ 1.57%
Maryland Stadium Authority, Sports Facilities
Lease Revenue Bonds, Series 1989 D, 7.50% 2010 1,500 1,593,330
Life Care Facilities Revenue _ 7.66%
Maryland Health and Higher Educational Facilities Authority,
First Mortgage Refunding Revenue Bonds, Roland Park Place Issue,
Series 1989, 7.75% 2012 2,000 2,078,600
Maryland Health and Higher Educational Facilities Authority,
First Mortgage Revenue Bonds, PUMH of Maryland, Inc. Issue
(Heron Point of Chestertown), Series 1998A:
5.75%, 2019 1,500 1,481,790
5.75%, 2026 1,640 1,595,294
Prince George's County, Refunding Revenue Bonds, Collington
Episcopal Life Care Community, Inc., Series 1994 A, 6.00% 2013 2,500 2,615,275
7,770,959
Multi-Family Housing _ 5.37%
Montgomery County, Maryland Housing Opportunities Commission,
Multi-Family Revenue Bonds:
1995 Series A, 6.10% 2015 2,025 2,149,173
1994 Series A-2, 7.50% 2024 2,000 2,135,360
Prince George's County, Mortgage Revenue Bonds
(GNMA Collateralized-Langley Gardens Apartments Project),
Series 1997 A, 5.60% 2017 1,130 1,168,013
5,452,546
Pre-Refunded<F1> _ 13.67%
Baltimore County, Metropolitan District Bonds, 63rd Issue,
1992 Series, 6.10% 2006 (2002) 250 272,510
Calvert County, Economic Development Revenue Bonds
(Asbury-Solomons Island Facility), Series 1995, 8.625% 2024 (2005) 2,300 2,870,584
Frederick County, Public Facilities Bonds:
1991 Series B, 6.30% 2011 (2002) 1,370 1,503,191
1986 Series, 7.40% 2012 (2001) 310 347,281
Harford County, Consolidated Public Improvement Bonds,
Series 1992, 5.80% 2010 (2002) 970 1,049,152
Howard County, Metropolitan District Refunding Bonds,
1991 Series A, 6.625% 2021 (2001) 500 536,465
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) 250 269,223
Memorial Hospital of Cumberland Issue, Revenue Refunding
Bonds, Series 1992, 6.50% 2010 (2004) 750 838,050
Suburban Hospital Issue Revenue Bonds, Series 1992,
6.50% 2017 (2002) 500 552,195
University of Maryland Medical System Issue, Revenue Bonds,
Series 1991 A, FGIC Insured, 6.50% 2021 (2001) 1,000 1,069,420
Prince George's County, Hospital Revenue Bonds (Dimensions
Health Corporation Issue), Series 1992, 7.20% 2006 (2002) 1,035 1,167,501
Commonwealth of Puerto Rico:
Housing Bank and Finance Agency, Single Family Mortgage Revenue
Bonds, Homeownership 5th Portfolio, 1986 Series, 7.50% 2015 (2000) 495 525,274
Public Improvement Bonds of 1992, MBIA Insured, 6.50% 2009 (2002) 1,000 1,101,260
University of Maryland System Auxiliary Facility and Tuition
Revenue Bonds:
1989 Series B, 7.00% 2007 (1999) 600 634,427
1992 Series A, 6.30% 2009 (2001) 1,050 1,126,325
13,862,858
Resource Recovery _ 6.98%
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 3,500 3,834,215
Montgomery County, Northeast Maryland Waste Disposal Authority,
Solid Waste Revenue Bonds AMT:
6.00% 2006 1,000 1,084,720
6.00% 2007 1,000 1,089,580
Series 1993 A, 6.30% 2016 1,000 1,069,650
7,078,165
Special Obligations _ 4.46%
Montgomery County Revenue Authority, Golf Course System Revenue
Bonds, Series 1996 A, 6.00% 2014 2,355 2,502,117
Virgin Islands Public Finance Authority, Revenue and Refunding Bonds
(Virgin Islands Matching Fund Loan Notes), Series 1998 A:
5.20% 2009 1,000 1,017,060
5.20% 2010 1,000 1,008,550
4,527,727
Tax Assessment Bonds _ 2.12%
Prince George's County, Special Obligation Bonds (Woodview Village
Infrastructure Improvements), Series 1997 A, 8.00% 2026 2,000 2,146,439
Turnpikes & Toll Roads Revenue _ 1.08%
Maryland Transportation Authority Facilities Project,
Transportation Facilities Projects Revenue Bonds,
Series 1992, 5.80% 2006 1,000 1,092,350
Water & Sewer Revenue _ 2.14%
Maryland Water Quality Financing Administration,
Revolving Loan Fund Revenue Bonds, Series 1991 B, 0% 2005 700 512,512
Washington Suburban Sanitary District, Refunding Bonds of 1997,
5.75% 2017 1,510 1,662,631
2,175,143
96,192,012
Tax-Exempt Securities Maturing in One Year or Less _ 3.92%
General Obligation (Local) _ 1.36%
The Maryland-National Capital Park and Planning Commission,
Prince George's County, Park Acquisition and Development
Variable Rate Bond Anticipation Notes, Series V-2, 3.75% 20022 1,380 1,380,000
Hospital Facilities _ 2.56%
Maryland Health and Higher Educational FacilitiesAuthority,
Variable Rate Demand Revenue Bonds (Catholic Health
Initiatives), Series 1997 B, 3.55% 20152 2,600 2,600,000
3,980,000
TOTAL TAX-EXEMPT SECURITIES (cost: $94,284,000) 100,172,012
Excess of cash and receivables over payables 1,278,348
NET ASSETS $101,450,360
<FN>
<F1>Parenthetical year represents date of pre-refunding.
<F2>Coupon rate changes periodically.
</FN>
</TABLE>
See Notes to Financial Statements
Financial Statements The Tax-Exempt Fund of Maryland (map)
Statement of Assets and Liabilities
July 31, 1998 (dollars in thousands)
Assets:
Tax-exempt securities:
Maturing in more than one year
(cost: $90,304) $ 96,192
Maturing in one year or less
(cost: $3,980) 3,980
Cash 78
Receivables for _
Sales of Fund's shares $534
Interest 968 1,502
101,752
Liabilities:
Payables for _
Repurchases of Fund's shares 77
Dividends 135
Adviser and management services 36
Other expenses 54 302
Net Assets at July 31, 1998 _
Equivalent to $16.04 per share on 6,325,924
shares of beneficial interest issued and
outstanding (unlimited shares authorized) $101,450
Statement of Operations
For the year ended July 31, 1998 (dollars in thousands)
Investment Income:
Income:
Interest on tax-exempt securities $5,230
Expenses:
Investment adviser fee $ 224
Business management fee 181
Distribution expenses 231
Transfer agent fee 31
Reports to shareholders 15
Registration statement and prospectus 6
Postage, stationery and supplies 8
Trustees' fees 7
Auditing and legal fees 24
Custodian fee 5
Other expenses 5 737
Net investment income 4,493
Realized Gain and Unrealized Appreciation
on Investments:
Net realized gain 698
Net unrealized appreciation on investments:
Beginning of year 5,851
End of year 5,888
Change in unrealized appreciation
on investments 37
Net realized gain and change in unrealized
appreciation on investments 735
Net Increase in Net Assets
Resulting from Operations $5,228
Statement of Changes in Net Assets
Year ended July 31
(dollars in thousands) 1998 1997
Operations:
Net investment income $ 4,493 $ 4,135
Net realized gain on investments 698 561
Net change in unrealized appreciation
on investments 37 2,812
Net increase in net assets resulting
from operations 5,228 7,508
Dividends and Distributions Paid to
Shareholders:
Dividend paid from net investment income (4,491) (4,135)
Distribution paid from net realized gain
on investments (642) _
Total dividends and distributions (5,133) (4,135)
Capital Share Transactions:
Proceeds from shares sold: 1,252,351
and 717,812 shares, respectively 20,079 11,169
Proceeds from shares issued in
reinvestment of net investment
income dividends and distributions
of net realized gain on investments:
211,827 and 163,465 shares, respectively 3,386 2,544
Cost of shares repurchased: 548,078 and
671,863 shares, respectively (8,767) (10,456)
Net increase in net assets resulting
from capital share transactions 14,698 3,257
Total Increase in Net Assets 14,793 6,630
Net Assets:
Beginning of year 86,657 80,027
End of year $101,450 $86,657
See Notes to Financial Statements
Per-Share Data and Ratios The Tax-Exempt Fund of Maryland (map)
Year Ended July 31
1998 1997 1996 1995 1994
Net Asset Value, Beginning of Year $16.02 $15.39 $15.29 $15.00 $15.53
Income from Investment Operations:
Net investment income .78 .79 .80 .80 .76
Net realized and unrealized gain (loss)
on investments .14 .63 .10 .29 (.53)
Total income from investment operations .92 1.42 .90 1.09 .23
Less Distributions:
Dividends from net investment income (.78) (.79) (.80) (.80) (.76)
Distributions from net realized gains (.12) _ _ _ _
Total distributions (.90) (.79) (.80) (.80) (.76)
Net Asset Value, End of Year $16.04 $16.02 $15.39 $15.29 $15.00
Total Return<F1> 5.89% 9.52% 5.95% 7.58% 1.42%
Ratios/Supplemental Data:
Net assets, end of year (in millions) $101 $87 $80 $75 $75
Ratio of expenses to average net assets .79% .82% .81% .78% .75%
Ratio of net income to avg. net assets 4.84% 5.08% 5.14% 5.38% 4.90%
Portfolio turnover rate 10.30% 15.27% 16.01% 20.91% 10.01%
[FN]
<F1> Excludes maximum sales charge of 4.75%.
</FN>
See Notes to Financial Statements
The Tax-Exempt Fund of Virginia (map)
As of July 31, 1998
Quality Diversification:
Moody's/S&P Ratings (best of either)
(Pie Chart showing the following sections)
Aaa/AAA 34.1%
Aa/AA 34.8%
A/A 12.5%
Baa/BBB 07.8%
Lower than BBB 06.9%
Cash and Equivalents 03.9%
Maturity Diversification1:
(Pie Chart showing the following sections)
Under 1 year 03.9%
1 to 10 years 59.4%
10+ to 20 years 31.3%
20+ to 30 years 05.4%
Average Life<F2> 8.53 years
[FN]
<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 Virginia Fund is 13.17 years.
</FN>
Why double tax-free investing can be worthwhile
<TABLE>
<CAPTION>
Tax-free yields vs. taxable yields
Your taxable income Combined In Virginia, a tax-exempt yield of:
Federal and 4% 5% 6% 7%
Single Joint VA tax rate<F1> is equivalent to a taxable yield of:
<C> <C> <C> <C> <C> <C> <C>
$3,000-5,000 $3,000-5,000 17.6% 4.9% 6.1% 7.3% 8.5%
$5,001-17,000 $5,001-17,000 19.3 5.0 6.2 7.4 8.7
$017,001-25,350 $017,001-42,350 19.9 5.0 6.2 7.5 8.7
$25,351-61,400 $42,351-102,300 32.1 5.9 7.4 8.8 10.3
$61,401-128,100 $102,301-155,950 35.0 6.2 7.7 9.2 10.8
$128,101-278,450 $155,951-278,450 39.7 6.6 8.3 10.0 11.6
Over 278,450 Over 278,450 43.1 7.0 8.8 10.5 12.3
<FN>
<F1> Based on 1998 Federal and 1997 Virginia tax rates (at 3-5.75%
individually calculated for each bracket and averaged to fit within Federal
brackets). The rates do not include an adjustment for the loss of personal
exemptions and the phase-out of itemized deductions that are applicable at
certain taxable income levels.
</FN>
To use this table, find your estimated taxable income to determine your
combined Federal and Virginia tax rate. Then look at the right-hand column
to see what you would have had to earn from a taxable investment to equal
the Fund's 4.33% tax-free distribution rate in August.
Because of tax increases in recent years, many high-income investors are
finding that their returns on taxable fixed-income issues have to be even
higher to match those currently offered by tax-exempt municipals. For
instance, a couple with a taxable income of $150,000 faces a combined
Federal and Virginia tax rate of 35.0%. In this bracket, the Fund's current
4.33% distribution rate would be equivalent to a return on a taxable
fixed-income investment of 6.66%.
Investment Portfolio The Tax-Exempt Fund of Virginia (map)
July 31, 1998
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Market
(000) Value
<S> <C> <C>
Tax-Exempt Securities Maturing in More than One Year _ 96.15%
College & University Revenue _ 2.50%
Virginia College Building Authority Educational Facilities Revenue
Bonds (Marymount University Project), Series 1992, 6.875% 2007 $1,650 $ 1,805,381
Virginia Polytechnic Institute and State University, University Services
System and General Revenue Pledge Bonds, Series C 1996, 5.35% 2009 1,000 1,058,160
2,863,541
General Obligations (Local) _ 9.55%
Arlington County:
Public Improvement Bonds, Series 1996, 6.00% 2011 1,000 1,130,850
Refunding Bonds, Series 1993, 6.00% 2012 1,000 1,128,880
Chesapeake:
Public Improvement Bonds, Series 1992, 6.00% 2006 1,600 1,729,664
Refunding Bonds, Series 1993, 5.40% 2008 1,000 1,071,520
Leesburg Refunding Bonds, Series 1993, 5.60% 2008 1,195 1,270,464
Lynchburg Public Improvement Refunding Bonds,
Series 1993, 5.25% 2009 1,000 1,037,760
City of Virginia Beach, Virginia, General Obligation Public
Improvement and Refunding Bonds, Series 1998:
5.25% 2007 1,385 1,468,017
5.25% 2010 2,000 2,106,900
10,944,055
General Obligations (State) _ .70%
Commonwealth of Virginia, Public Facilities Bonds,
1993 Series A, 5.40% 2005 750 800,370
Hospital & Health Facilities Revenue _ 14.55%
Industrial Development Authority of the Town of Abingdon, Virginia,
Hospital Facility Revenue and Refunding Bonds (Johnston Memorial
Hospital), Series 1998:
5.00% 2008 1,015 1,034,437
5.00% 2009 1,020 1,031,516
5.00% 2010 505 506,101
Fairfax County Industrial Development Authority, Hospital
Revenue Refunding Bonds (INOVA Health Systems Hospital
Project), Series 1993 A:
5.00% 2007 750 776,175
5.25% 2019 2,500 2,565,925
5.00% 2023 500 495,405
Industrial Development Authority of Halifax County, Virginia
Hospital Refunding Revenue Bonds (Halifax Regional Hospital, Inc.),
Series 1998:
4.65% 2007 $ 600$ 594,852
4.80% 2009 1,000 990,900
Industrial Development Authority of Henry County, Hospital Revenue
Bonds (Memorial Hospital of Martinsville and Henry County),
Series 1997, 6.00% 2017 2,000 2,138,460
Industrial Development Authority of the City of Norfolk, Hospital
Revenue Bonds (Daughters of Charity National Health System-DePaul
Medical Center), Series 1992 A, 6.50% 2007 1,000 1,098,520
Norfolk Industrial Development Authority, Hospital Revenue
Bonds (Sentara Hospitals-Norfolk Project), Series A 1994,
5.00% 2020 1,000 974,370
Peninsula Ports Authority, Health System Revenue and Refunding Bonds
(Riverside Health System Project), Series 1992 A, 6.625% 2010 1,300 1,416,779
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 1,830 1,966,756
Virginia Beach, Virginia Development Authority (Sentara Bayside
Hospital), 6.60% 2009 1,000 1,089,270
16,679,466
Housing Finance Authority Revenue _ 4.63%
Commonwealth of Puerto Rico Housing Finance Corporation,
Single Family Mortgage Revenue Bonds, 1st Portfolio:
1988 Series A, 7.80% 2021 10 10,210
1988 Series B, 7.65% 2022 190 201,478
Virginia Housing Development Authority, Commonwealth
Mortgage Bonds:
1994 Series H, Sub-Series H-1, 6.10% 2003 500 528,590
1995 Series A-AMT, Sub-Series A-1, 6.60% 2004 1,000 1,046,130
1998 Series E, Sub-Series E-1, 4.50% 20051 1,190 1,187,025
1994 Series I-AMT, Sub-Series I-1, 6.40% 2005 800 860,896
1994 Series H, Sub-Series H-2, 6.55% 2017 1,000 1,067,980
1992 Series A, 7.10% 2022 380 399,079
5,301,388
Industrial Development Revenue _ 2.77%
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 $ 1,051,090
Series 1996 A AMT, 5.45% 2014 1,000 1,039,720
Puerto Rico Ports Authority, Special Facilities Revenue Bonds
(American Airlines, Inc. Project), 1996 Series A, 6.25% 2026 1,000 1,081,150
3,171,960
Insured _ 21.26%
Chesapeake Certificates of Participation, MBIA Insured,
1993 Series, 5.40% 2005 1,000 1,056,130
Industrial Development Authority of Danville, Virginia,
Hospital Revenue Bonds (Danville Regional Medical Center),
Series 1998, AMBAC Insured:
5.25% 2012 1,995 2,067,658
5.25% 2013 1,000 1,034,910
Fairfax County Industrial Development Authority,
Hospital Revenue Refunding Bonds (INOVA Health System
Hospitals Project), Series 1993 A, FSA Insured, 5.25% 2019 1,000 1,024,400
Fairfax County Redevelopment and Housing Authority, Multifamily
Housing Revenue Bonds (Grand View Apartments Project), Series
1998 A, FHA Insured, 5.05% 2010 1,000 1,003,460
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 1,608,159
6.375% 2018 1,000 1,164,240
Loudoun County:
Industrial Development Authority, Hospital Revenue Bonds,
FSA Insured, 6.00% 2005 1,000 1,093,170
Sanitation Authority, Water and Sewer System Revenue Bonds,
FGIC Insured, Series 1992, 6.25% 2010 2,000 2,179,960
Industrial Development Authority of the City of Norfolk, Health Care
Revenue Bonds (Bon Secours Health System), Series 1997, MBIA Insured:
5.00% 2006 1,190 1,224,486
5.00% 2007 1,250 1,292,688
Pamunkey Regional Jail Authority, Jail Facility Revenue Bonds,
Series 1996, MBIA Insured, 5.70% 2010 1,000 1,081,379
Industrial Development Authority of the County of Prince William
(Virginia), Hospital Facility Refunding Revenue Bonds (Potomac
Hospital Corporation of Prince William), Series 1998, FSA Insured,
5.00% 2008 $1,475 $ 1,521,787
Southeastern Public Service Authority of Virginia, Senior Revenue
Refunding Bonds, Series 1998, AMBAC Insured, 5.00% 2015 4,000 4,031,720
City of Virginia Beach Development Authority, Hospital Revenue
Bonds (Virginia Beach General Hospital Project), Series 1993,
AMBAC Insured, 6.00% 2011 1,000 1,125,640
Washington, D.C. Metropolitan Area Airports Authority, Airport
System Revenue and Refunding Bonds, MBIA Insured AMT:
Series 1998 B, 5.25% 2010 1,000 1,040,570
Series 1992 A, 6.625% 2019 750 819,788
24,370,145
Lease Revenue (State) _ .91%
Virginia Public Building Authority, Public Facilities Revenue
Refunding Bonds, Series 1998A, 5.00% 2004 1,000 1,039,090
Life Care Facilities Revenue _ 5.17%
Industrial Development Authority of the County of Henrico, Virginia,
Residential and Health Care Facility Mortgage Revenue Refunding Bonds
(Our Lady of Hope), Series 1997, 6.00% 2016 2,730 2,794,292
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 3,133,110
5,927,402
Multi-Family Housing _ 2.03%
Virginia Housing Development Authority, Multi-Family Housing Bonds:
1997 Series B-AMT, 5.80% 2010 1,185 1,268,780
1996 Series B, 5.95% 2016 1,000 1,056,760
2,325,540
Pre-Refunded<F2> _ 13.95%
Danville, Virginia Industrial Development Authority, Hospital
Revenue Bonds, Danville Regional Medical Center, Series 1994,
FGIC Insured, 6.00% 2007 (2004) 1,000 1,101,420
Fairfax County:
Economic Development Authority, Parking Revenue
Bonds (Huntington Metrorail Station Project),
Series 1990 A, 6.75% 2015 (2000) $ 500$ 537,675
Industrial Development Authority Hospital Revenue Bonds
(Fairfax Hospital System Project), INOVA Health Systems,
Series 1991 C, 6.801% 2023 (2001) 1,000 1,095,110
Henry County Public Service Authority, Water and Sewer Revenue
Bonds, FGIC Insured, Series 1990, 7.20% 2019 (2000) 1,250 1,351,600
Newport News General Obligation, Water Bonds, Series A 1992,
6.125% 2009 (2002) 1,170 1,270,175
Norfolk:
Capital Improvement and Refunding Bonds, Series 1992 A,
6.00% 2011 (2001) 500 532,565
Industrial Development Authority, Hospital Revenue Bonds:
(Children's Hospital of the King's Daughters Obligated
Group), Series 1991, AMBAC Insured, 7.00% 2011 (2001) 400 438,908
(Sentara Hospitals-Norfolk Project), Series 1991, 7.00% 2020 (2000) 250 270,923
Peninsula Ports Authority, Health Care Facilities Revenue and
Refunding Bonds (Mary Immaculate Project), 1994 Series, 6.875%
2010 (2004) 1,900 2,216,844
Prince William County Service Authority, Water and Sewer
System Revenue Bonds, Series 1991, FGIC Insured, 6.50% 2021 (2001) 680 738,942
Roanoke:
Industrial Development Authority, Hospital Revenue Bonds,
Carilion Health System (Roanoke Memorial Hospital Projects),
Series 1990, MBIA Insured, 7.25% 2017 (2000) 750 810,225
Public Improvement and Refunding Bonds, Series 1992 B:
6.375% 2009 (2001) 250 271,033
6.40% 2011 (2001) 500 544,635
Water System Revenue Bonds, Series 1991, FGIC Insured,
6.50% 2021 (2001) 750 815,010
University of Virginia, Hospital Revenue Bonds, 1984 Series A,
HIBI Insured, 9.875% 2001 (2000) 10 11,400
Upper Occoquan Sewage Authority, Regional Sewerage System
Revenue Bonds, Series 1991, MBIA Insured, 6.00% 2021 (2001) 700 738,647
Virginia Public Building Authority, State Building Revenue Bonds,
Series 1991 A, 6.50% 2011 (2001) 1,750 1,903,353
Virginia Resources Authority:
Solid Waste Disposal System Revenue Bonds, 1990 Series A,
7.30% 2015 (2000) $1,000 $ 1,072,570
Water and Sewer System Revenue Bonds, Series 1990,
7.25% 2011 (2000) 250 271,516
15,992,551
Resource Recovery _ 1.82%
Fairfax County Economic Development Authority, Resource Recovery
Revenue Bonds, Series 1988 A AMT (Ogden Martin Systems of
Fairfax, Inc. Project), 7.55% 2003 500 522,169
Roanoke Valley Resource Authority, Solid Waste System Revenue
Bonds, Series 1992, 5.75% 2012 1,500 1,561,905
2,084,074
Special Obligations _ 1.80%
Virgin Islands Public Finance Authority, Revenue and Refunding
Bonds (Virgin Islands Matching Fund Loan Notes):
Series 1998 C, 5.50% 2007 1,000 1,046,820
Series 1998 A, 5.20% 2009 1,000 1,017,060
2,063,880
State Appropriation _ 1.44%
Big Stone Gap, Virginia Redevelopment and Housing Authority,
Commonwealth of Virginia Correctional Facility Lease Revenue Bonds
(Wallens Ridge Development Project), Series 1995, 5.25% 2010 1,600 1,654,224
State Authority _ 5.46%
Virginia Public School Authority, School Financing Bonds:
(1997 Resolution), Series 1998 A, 5.25% 2007 2,000 2,121,400
(1987 Resolution), 1991 Refunding Series C, 6.25% 2007 1,500 1,621,890
(1991 Resolution), Series 1994 A, 6.20% 2014 1,500 1,655,760
Virginia Resources Authority:
Water and Sewer System Revenue Bonds
(Pooled Loan Program), 1986 Series A, 7.50% 2017 50 50,451
Water System Refunding Revenue Bonds,
1992 Series A, 6.45% 2013 750 811,237
6,260,738
Tax Assessment Bonds _ 1.77%
Dulles Town Center, Community Development Authority (Loudoun
County, Virginia), Special Assessment Bonds (Dulles Town
Center Project), Series 1998, 6.25% 2026 2,000 2,024,520
Turnpikes & Toll Roads Revenue _ 1.76%
Pocahontas Parkway Association, Route 895 Connector, Toll
Road Revenue Bonds, Series 1998A, 5.25% 2009 $2,000 $ 2,022,520
Water & Sewer Revenue _ 4.08%
Chesterfield County Water and Sewer Revenue Refunding Bonds,
Series 1992, 6.375% 2009 1,250 1,371,050
City of Richmond, Virginia, Public Utility Revenue and
Refunding Bonds, Series 1998 A:
5.25% 2009 1,500 1,569,390
5.25% 2011 1,000 1,033,480
Rivanna Water and Sewer Authority, Regional Water and Sewer
System Refunding Revenue Bonds, Series 1991, 6.40% 2007 645 697,729
4,671,649
110,197,113
Tax-Exempt Securities Maturing in One Year or Less _ 3.67%
Industrial Development Revenue _ 2.44%
Industrial Development Authority of King George County, Virginia,
Variable Rate Demand Exempt Facility Revenue Bonds (Birchwood
Power Partners, L.P. Project):
Series 1994 A, 3.85% 20243 2,200 2,200,000
Series 1994 B, 3.85% 20243 600 600,000
2,800,000
Pre-Refunded<F2> _ 1.23%
Loudoun County Sanitation Authority, Water and Sewer System
Revenue Bonds, Series 1989, AMBAC Insured, 7.50% 2017 (1999) 375 388,448
Suffolk, Series 1989, 7.00% 2005 (1998) 1,000 1,025,400
1,413,848
4,213,848
TOTAL TAX-EXEMPT SECURITIES (cost: $108,556,000) 114,410,961
Excess of cash and receivables over payables 202,598
NET ASSETS $114,613,559
<FN>
<F1> Represents a when-issued security.
<F2> Parenthetical year represents date of pre-refunding.
<F3> Coupon rate changes periodically.
</FN>
</TABLE>
See Notes to Financial Statements
Financial Statements The Tax-Exempt Fund of Virginia (map)
Statement of Assets and Liabilities
July 31, 1998 (dollars in thousands)
Assets:
Tax-exempt securities:
Maturing in more than one year
(cost: $104,382) $110,197
Maturing in one year or less
(cost: $4,174) 4,214
Cash 63
Receivables for _
Sales of Funds' shares $ 260
Interest 1,584 1,844
116,318
Liabilities:
Payables for _
Purchases of investments 1,187
Repurchases of Funds' shares 273
Dividends 143
Adviser and management services 40
Other expenses 61 1,704
Net Assets at July 31, 1998 _
Equivalent to $16.36 per share on 7,004,811
shares of beneficial interest issued and
outstanding (unlimited shares authorized) $114,614
Statement of Operations
For the year ended July 31, 1998 (dollars in thousands)
Investment Income:
Income:
Interest on tax-exempt securities $5,827
Expenses:
Investment adviser fee $ 250
Business management fee 201
Distribution expenses 264
Transfer agent fee 34
Reports to shareholders 18
Registration statement and prospectus 5
Postage, stationery and supplies 9
Trustees' fees 7
Auditing and legal fees 24
Custodian fee 5
Other expenses 6 823
Net investment income 5,004
Realized Gain and Unrealized Appreciation
on Investments:
Net realized gain 1,368
Net unrealized appreciation on investments:
Beginning of year 7,054
End of year 5,855
Change in unrealized appreciation
on investments (1,199)
Net realized gain and change in unrealized
appreciation on investments 169
Net Increase in Net Assets
Resulting from Operations $5,173
Statement of Changes in Net Assets
Year ended July 31
(dollars in thousands) 1998 1997
Operations:
Net investment income $5,004 $4,680
Net realized gain on investments 1,368 118
Net change in unrealized appreciation
on investments (1,199) 3,502
Net increase in net assets resulting
from operations 5,173 8,300
Dividends and Distributions Paid
to Shareholders:
Dividend paid from net investment income (5,001) (4,680)
Distribution paid from net realized gain
on investments (244) _
Total dividends and distributions (5,245) (4,680)
Capital Share Transactions:
Proceeds from shares sold: 1,285,596
and 1,037,170 shares, respectively 21,057 16,514
Proceeds from shares issued in
reinvestment of net investment income
dividends and distributions of net
realized gain on investments: 188,801
and 168,347 shares, respectively 3,083 2,677
Cost of shares repurchased: 616,127 and
798,604 shares, respectively (10,063) (12,694)
Net increase in net assets resulting
from capital share transactions 14,077 6,497
Total Increase in Net Assets 14,005 10,117
Net Assets:
Beginning of year 100,609 90,492
End of year $114,614 $100,609
See Notes to Financial Statements
Per-Share Data and Ratios The Tax-Exempt Fund of Virginia (map)
Year Ended July 31
1998 1997 1996 1995 1994
Net Asset Value, Beginning of Year $16.37 $15.77 $15.79 $15.49 $16.01
Income from Investment Operations:
Net investment income .78 .80 .81 .83 .80
Net realized and unrealized gain (loss)
on investments .03 .60 .03 .30 (.52)
Total income from investment operations .81 1.40 .84 1.13 .28
Less Distributions:
Dividends from net investment income (.78) (.80) (.81) (.83) (.80)
Distributions from net realized gains (.04) _ (.05) _ _
Total distributions (.82) (.80) (.86) (.83) (.80)
Net Asset Value, End of Year $16.36 $16.37 $15.77 $15.79 $15.49
Total Return1 5.08% 9.10% 5.46% 7.56% 1.74%
Ratios/Supplemental Data:
Net assets, end of year (in millions) $115 $101 $90 $92 $93
Ratio of expenses to average net assets .78% .81% .79% .79% .78%
Ratio of net income to average net assets 4.73% 4.99% 5.11% 5.37% 5.04%
Portfolio turnover rate 24.66% 18.41% 27.34% 32.18% 2.36%
[FN]
<F1>Excludes maximum sales charge of 4.75%.
</FN>
See Notes to Financial Statements
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 Funds in the
preparation of their financial statements:
Tax-exempt securities are valued at prices obtained from a pricing service,
when such prices are available; however, in circumstances where the
investment adviser deems it appropriate to do so, such securities will be
valued at the mean quoted bid and asked prices or at prices for securities
of comparable maturity, quality, and type. Securities with original
maturities of one year or less having 60 days or less to maturity are
amortized to maturity based on their cost if acquired within 60 days of
maturity or, if already held on the 60th day, based on the value determined
on the 61st day. Securities for which representative market quotations are
not readily available are valued at fair value as determined in good faith
under policies approved by the Trust's Board.
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 Funds purchase securities on a delayed delivery or "when-issued"
basis, they will segregate with their custodian liquid assets in an amount
sufficient to meet their 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 Funds' net
investment income and paid to shareholders monthly. Distributions paid to
shareholders are recorded on the ex-dividend date.
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, 1998, net unrealized appreciation on investments for book
and federal income tax purposes for the Maryland Fund aggregated
$5,888,000, of which $5,959,000 related to appreciated securities and
$71,000 related to depreciated securities. For the Virginia Fund, net
unrealized appreciation aggregated $5,855,000, of which $5,908,000 related
to appreciated securities and $53,000 related to depreciated securities.
There was no difference between book and tax realized gains on securities
transactions for the year ended July 31, 1998. The cost of portfolio
securities for book and federal income tax purposes was $94,284,000 and
$108,556,000 for the Maryland and Virginia Funds, respectively, at July 31,
1998.
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 $181,000 and $201,000 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 $44,000 and $41,000 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 $224,000 and $250,000 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,
1998, distribution expenses under the Plan were $231,000 and $264,000,
including accrued and unpaid expenses of $36,000 and $43,000 for the
Maryland and Virginia Funds, respectively. Had no limitation been in
effect, the Funds would have paid $256,000 and $311,000, respectively, in
distribution expenses under the Plan.
American Funds Distributors, Inc. (AFD), the principal underwriter of the
Funds' shares, has informed the Funds that it has received $48,000 and
$58,000 (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.
American Funds Service Company (AFS), the transfer agent for the Maryland
and Virginia Funds, was paid fees of $31,000 and $34,000, respectively.
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, 1998, aggregate amounts deferred and earnings thereon were
$14,000 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, 1998:
The Tax-Exempt The Tax-Exempt
Fund of Maryland Fund of Virginia
Accumulated
undistributed net
realized gain
on investments $ 617,000 $ 1,238,000
Paid-in capital 94,943,000 107,518,000
Purchases and sales of
investment securities,
excluding short-term
securities, during the
year ended July 31, 1998:
Purchases 21,023,000 37,387,000
Sales 9,291,000 25,433,000
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 fees of $5,000 for both the Maryland and Virginia Funds were paid
by these credits rather than in cash.
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, 1998, 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, 1998 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
(signature)
Los Angeles, California
August 28, 1998
Tax Information (unaudited)
During the fiscal year ended July 31, 1998, the Maryland and Virginia Funds
paid 77.9 and 77.5 cents per share, respectively, of exempt-interest
distributions. The Funds also paid 11.6 and 3.9 cents per share,
respectively, of long-term capital gain distributions, of which 8.5 and 2.3
cents per share, respectively, represents 28% rate long-term capital gains.
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 Funds' transfer
agent.
The American Funds Tax-Exempt Series I
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, Assistant Secretary and
Assistant Treasurer, Washington Management Corporation
J. Lanier Frank
Assistant Vice President of the Trust
Assistant Vice President, Washington Management Corporation
Office 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 of Assets
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
PricewaterhouseCoopers LLP
400 South Hope Street
Los Angeles, CA 90071-2889
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.
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, 1998, this report must be accompanied by an American Funds Group
Statistical Update for the most recently completed calendar quarter.
TEFMD/TEFVA-011-0998
Printed on recycled paper (logo)
(Logo) The American Funds Group (R)
The American Funds Tax-Exempt Series I
The Tax-Exempt Fund of Maryland(R)/The Tax-Exempt Fund of Virginia(R)
