======================================================
SEC FILE NOS. 33-5270
811-4653
======================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 17
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 16
THE AMERICAN FUNDS TAX-EXEMPT SERIES I
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
1101 VERMONT AVENUE, N.W.
WASHINGTON, D.C. 20005
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(202) 842-5665
HARRY J. LISTER
WASHINGTON MANAGEMENT CORPORATION
1101 VERMONT AVENUE, N.W.
WASHINGTON, D.C. 20005
(NAME AND ADDRESS OF AGENT FOR SERVICE)
COPIES TO:
J. JUDE O'DONNELL, ESQ.
THOMPSON, O'DONNELL, MARKHAM, NORTON & HANNON
805 FIFTEENTH STREET, N.W.
WASHINGTON, D.C. 20005
(COUNSEL FOR THE REGISTRANT)
THE REGISTRANT FILED ITS 24F-2 NOTICE FOR FISCAL 1999 ON OCTOBER 8, 1999.
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
|X| IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE ON NOVEMBER 15,
1999,
PURSUANT TO PARAGRAPH (B) OF RULE 485.
<PAGE>
[THE AMERICAN FUNDS GROUP LOGO]
The American Funds Tax-Exempt Series I
- -------------------------------------
The Tax-Exempt Fund of Maryland-Registered Trademark-
The Tax-Exempt Fund of Virginia-Registered Trademark-
PROSPECTUS
NOVEMBER 15, 1999
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED OF THESE
SECURITIES. FURTHER, IT HAS NOT DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
THE AMERICAN FUNDS TAX-EXEMPT SERIES I
1101 Vermont Avenue, N.W.
Washington, D.C. 20005
THE TAX-EXEMPT FUND OF MARYLAND-REGISTERED TRADEMARK-
TICKER SYMBOL: TMMDX NEWSPAPER ABBREV.: TEMd FUND NO.: 24
THE TAX-EXEMPT FUND OF VIRGINIA-REGISTERED TRADEMARK-
TICKER SYMBOL: TFVAX NEWSPAPER ABBREV.: TEVA FUND NO.: 25
- -------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Risk/Return Summary 1
..................................................................
Fees and Expenses of the Fund 6
..................................................................
Investment Objectives, Strategies and Risks 7
..................................................................
Important Recent Developments 10
..................................................................
Management and Organization 11
..................................................................
Shareholder Information 13
..................................................................
Purchase and Exchange of Shares 14
..................................................................
Distribution Arrangements 18
..................................................................
Financial Highlights 20
</TABLE>
- -------------------------------------------------------------------
The American Funds Tax-Exempt Series I (the "Trust") is a fully managed,
diversified, open-end investment company consisting of two separate series, The
Tax-Exempt Fund of Maryland (the "Maryland Fund") and The Tax-Exempt Fund of
Virginia (the "Virginia Fund"). Except where the context indicates otherwise,
references to the "fund" apply to each of these two tax-exempt bond funds.
24/25-010-1199/MC THE AMERICAN FUNDS TAX-EXEMPT SERIES I / PROSPECTUS
<PAGE>
- --------------------------------------------------------------------------------
RISK/RETURN SUMMARY
The fund's primary objective is to provide you with a high level of current
income exempt from regular federal and the respective state (Maryland or
Virginia) income taxes. Its secondary objective is to preserve your investment.
It invests primarily in investment grade municipal bonds, and to a lesser extent
lower quality bonds, issued by municipalities in the respective state (Maryland
or Virginia) including counties, cities, towns, and various regional or special
districts.
The fund is designed for investors seeking income exempt from federal and state
taxes, and capital preservation over the long term. An investment in the fund is
subject to risks, including the possibility that the fund may decline in value
in response to economic, political or social events in the U.S. or abroad.
Because the fund invests in securities issued by the respective state (Maryland
or Virginia) municipalities, the fund is more susceptible to factors adversely
affecting issuers of such state's securities than is a comparable municipal bond
mutual fund which does not concentrate in a single state. The values of debt
securities may be affected by changing interest rates and credit ratings. In
addition, lower quality and longer maturity bonds will be subject to greater
credit risk and price fluctuations than higher quality and shorter maturity
bonds.
Your investment in the fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency, entity or person.
YOU MAY LOSE MONEY BY INVESTING IN THE FUND. THE LIKELIHOOD OF LOSS IS GREATER
IF YOU INVEST FOR A SHORTER PERIOD OF TIME.
THE AMERICAN FUNDS TAX-EXEMPT SERIES I / PROSPECTUS 1
<PAGE>
INVESTMENT RESULTS -- THE MARYLAND FUND
The following information illustrates how the fund's results fluctuate. Past
results are not an indication of future results.
Here are the fund's results calculated without a sales charge on a CALENDAR
YEAR basis. (If a sales charge were included, results would be lower.)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
89 10.38%
90 5.86%
91 9.97%
92 8.37%
93 10.31%
94 -4.77%
95 16.45%
96 3.74%
97 8.96%
98 5.73%
</TABLE>
The fund's year-to-date return for the nine months ended September 30, 1999
was -1.51%.
The fund's highest/lowest QUARTERLY results during this time period were:
HIGHEST 6.32% (quarter ended March 31, 1995)
LOWEST -4.58% (quarter ended March 31, 1994)
2 THE AMERICAN FUNDS TAX-EXEMPT SERIES I / PROSPECTUS
<PAGE>
For periods ended December 31, 1998:
<TABLE>
<CAPTION>
THE MARYLAND FUND
AVERAGE ANNUAL WITH MAXIMUM
TOTAL RETURN: SALES CHARGE DEDUCTED(1) LEHMAN INDEX(2)
<S> <C> <C>
- ------------------------------------------------------------------------------
One Year 0.71% 6.48%
.............................................................................
Five Years 4.77% 6.22%
.............................................................................
Ten Years 6.85% 8.22%
.............................................................................
Lifetime(3) 6.34% 8.23%
</TABLE>
30-day yield(1): 3.56%
(For current yield information: please call American
FundsLine-Registered Trademark- at 1-800-325-3590)
(1) THESE FUND RESULTS WERE CALCULATED ACCORDING TO A FORMULA WHICH REQUIRES
THAT THE MAXIMUM SALES CHARGE OF 4.75% BE DEDUCTED AND INCLUDE THE
REINVESTMENT OF DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS. RESULTS WOULD BE
HIGHER IF THEY WERE CALCULATED AT NET ASSET VALUE.
(2) THE LEHMAN BROTHERS MUNICIPAL BOND INDEX REPRESENTS THE LONG-TERM INVESTMENT
GRADE MUNICIPAL BOND MARKET. THIS INDEX IS UNMANAGED AND DOES NOT REFLECT
SALES CHARGES, COMMISSIONS OR EXPENSES.
(3) THE FUND BEGAN INVESTMENT OPERATIONS ON AUGUST 14, 1986.
THE AMERICAN FUNDS TAX-EXEMPT SERIES I / PROSPECTUS 3
<PAGE>
INVESTMENT RESULTS -- THE VIRGINIA FUND
The following information illustrates how the fund's results fluctuate. Past
results are not an indication of future results.
Here are the fund's results calculated without a sales charge on a CALENDAR
YEAR basis. (If a sales charge were included, results would be lower.)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
89 9.00%
90 5.71%
91 11.26%
92 7.84%
93 11.29%
94 -4.78%
95 15.85%
96 3.49%
97 8.31%
98 5.69%
</TABLE>
The fund's year-to-date return for the nine months ended September 30, 1999
was -1.71%.
The fund's highest/lowest QUARTERLY results during this time period were:
HIGHEST 6.61% (quarter ended March 31, 1995)
LOWEST -4.47% (quarter ended March 31, 1994)
4 THE AMERICAN FUNDS TAX-EXEMPT SERIES I / PROSPECTUS
<PAGE>
For periods ended December 31, 1998:
<TABLE>
<CAPTION>
THE VIRGINIA FUND
AVERAGE ANNUAL WITH MAXIMUM
TOTAL RETURN: SALES CHARGE DEDUCTED(1) LEHMAN INDEX(2)
<S> <C> <C>
- ------------------------------------------------------------------------------
One Year 0.66% 6.48%
.............................................................................
Five Years 4.47% 6.22%
.............................................................................
Ten Years 6.71% 8.22%
.............................................................................
Lifetime(3) 6.55% 8.23%
</TABLE>
30-day yield(1): 3.56%
(For current yield information: please call American
FundsLine-Registered Trademark- at 1-800-325-3590)
(1) THESE FUND RESULTS WERE CALCULATED ACCORDING TO A FORMULA WHICH REQUIRES
THAT THE MAXIMUM SALES CHARGE OF 4.75% BE DEDUCTED AND INCLUDE THE
REINVESTMENT OF DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS. RESULTS WOULD BE
HIGHER IF THEY WERE CALCULATED AT NET ASSET VALUE.
(2) THE LEHMAN BROTHERS MUNICIPAL BOND INDEX REPRESENTS THE LONG-TERM INVESTMENT
GRADE MUNICIPAL BOND MARKET. THIS INDEX IS UNMANAGED AND DOES NOT REFLECT
SALES CHARGES, COMMISSIONS OR EXPENSES.
(3) THE FUND BEGAN INVESTMENT OPERATIONS ON AUGUST 14, 1986.
THE AMERICAN FUNDS TAX-EXEMPT SERIES I / PROSPECTUS 5
<PAGE>
- --------------------------------------------------------------------------------
FEES AND EXPENSES OF THE FUND
THE FOLLOWING DESCRIBES THE FEES AND EXPENSES THAT YOU MAY PAY IF YOU BUY AND
HOLD SHARES OF THE FUND.
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<CAPTION>
MARYLAND VIRGINIA
FUND FUND
<S> <C> <C>
- --------------------------------------------------------------------------
Maximum sales charge imposed on purchases
(AS A PERCENTAGE OF OFFERING PRICE) 4.75%(1) 4.75%(1)
.........................................................................
Maximum sales charge imposed on reinvested
dividends 0% 0%
.........................................................................
Maximum deferred sales charge 0%(2) 0%(2)
.........................................................................
Redemption or exchange fees 0% 0%
</TABLE>
(1) SALES CHARGES ARE REDUCED OR ELIMINATED FOR LARGER PURCHASES.
(2) A CONTINGENT DEFERRED SALES CHARGE OF 1% APPLIES ON CERTAIN REDEMPTIONS MADE
WITHIN 12 MONTHS FOLLOWING CERTAIN PURCHASES MADE WITHOUT A SALES CHARGE.
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM THE FUND ASSETS)
<TABLE>
<CAPTION>
MARYLAND VIRGINIA
FUND FUND
<S> <C> <C>
- -------------------------------------------------------------------------
Management Fees 0.42% 0.41%
........................................................................
Service (12b-1) Fees 0.25%* 0.25%*
........................................................................
Other Expenses 0.11% 0.11%
........................................................................
Total Annual Fund Operating Expenses 0.78% 0.77%
</TABLE>
*12b-1 EXPENSES MAY NOT EXCEED 0.25% OF THE FUND'S AVERAGE NET ASSETS ANNUALLY.
6 THE AMERICAN FUNDS TAX-EXEMPT SERIES I / PROSPECTUS
<PAGE>
EXAMPLE
This Example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
MARYLAND VIRGINIA
FUND FUND
<S> <C> <C>
- --------------------------------------------------------------------------
One Year $ 551 $ 550
.........................................................................
Three Years $ 712 $ 709
.........................................................................
Five Years $ 888 $ 883
.........................................................................
Ten Years $1,395 $1,384
</TABLE>
- -------------------------------------------------------------------
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
The fund's primary investment objective is to provide you with a high level of
current income exempt from regular federal and the respective state (Maryland or
Virginia) income taxes. Its secondary objective is preservation of capital. The
fund seeks to achieve these objectives by investing primarily in investment
grade municipal bonds, and to a lesser extent lower quality bonds, issued by
municipalities in the respective state (Maryland or Virginia). Municipal bonds
are debt obligations generally issued to obtain funds for various public
purposes, including the construction of public facilities. In addition, the fund
may invest up to 20% of its assets in securities that may subject you to federal
alternative minimum taxes.
Because the fund invests in securities of issuers within the state of Maryland
or Virginia, the fund is more susceptible to factors adversely affecting issuers
of such state's securities than is a comparable municipal bond mutual fund which
does not concentrate in a single state. Both Maryland and Virginia are affected
by changes in levels of federal funding and financial support of certain
industries, as well as by federal spending cutbacks due to the large number of
residents that are employed by the federal government. In addition, each state
is dependent on certain economic sectors. Maryland's economy is based largely on
manufacturing, the service trade, and financial,
THE AMERICAN FUNDS TAX-EXEMPT SERIES I / PROSPECTUS 7
<PAGE>
real estate and insurance entities. Virginia's economy is most dependent on the
government sector, manufacturing and financial services. To the extent there are
changes to any of these sectors the fund may be adversely impacted. More
detailed information about the fund's risks is contained in the statement of
additional information.
The fund will invest primarily in debt securities rated Baa or BBB or better by
Moody's Investors Service, Inc. or Standard & Poor's Corporation (or unrated but
determined by the investment adviser to be of equivalent quality) and may invest
up to 20% of its assets in high-yield, high-risk debt securities rated Ba and BB
or below. The values of debt securities held by the fund may be affected by
changing interest rates, effective maturities and credit ratings. For example,
the values of bonds in the fund's portfolio generally will decline when interest
rates rise and vice versa. Debt securities are also subject to credit risk which
is the possibility that an issuer of a debt security will fail to make timely
payments of principal or interest and the security will go into default. The
values of lower quality and longer maturity bonds may be subject to greater
credit risk and price fluctuations than higher quality and shorter maturity
bonds. The fund's investment adviser attempts to reduce these risks by doing a
credit analysis of each issuer as well as by monitoring economic and legislative
developments.
The fund may also hold cash and invest in money market instruments or taxable
debt securities. The size of the fund's cash position will vary and will depend
on various factors, including market conditions and purchases and redemptions of
fund shares. A larger cash position could detract from the achievement of the
fund's objective but it also provides greater liquidity to meet redemptions or
to make additional investments and it would reduce the fund's exposure in the
event of a market downturn.
The fund relies on the professional judgment of its investment adviser, Capital
Research and Management Company, to make decisions about the fund's portfolio
securities. The basic investment philosophy of Capital Research and Management
Company is to seek undervalued securities which represent good long-term
investment opportunities.
8 THE AMERICAN FUNDS TAX-EXEMPT SERIES I / PROSPECTUS
<PAGE>
ADDITIONAL INVESTMENT RESULTS
For periods ended December 31, 1998:
<TABLE>
<CAPTION>
AVERAGE ANNUAL THE MARYLAND FUND THE VIRGINIA FUND WITH
TOTAL RETURN WITH NO SALES CHARGE(1) NO SALES CHARGE(1)
<S> <C> <C>
- --------------------------------------------------------------------------------
One Year 5.73% 5.69%
...............................................................................
Five Years 5.79% 5.50%
...............................................................................
Ten Years 7.37% 7.23%
...............................................................................
Lifetime(2) 6.76% 6.97%
</TABLE>
(1) THESE FUND RESULTS WERE CALCULATED ACCORDING TO A FORMULA THAT IS REQUIRED
FOR ALL STOCK AND BOND FUNDS AND INCLUDE THE REINVESTMENT OF DIVIDEND AND
CAPITAL GAIN DISTRIBUTIONS.
(2) THE FUND BEGAN INVESTMENT OPERATIONS ON AUGUST 14, 1986.
THE MARYLAND FUND
THE FOLLOWING CHART ILLUSTRATES THE QUALITY RATINGS OF THE VARIOUS BONDS
HELD IN THE PORTFOLIO AS OF THE END OF THE FUND'S FISCAL YEAR, JULY 31,
1999. SEE THE APPENDIX FOR A DESCRIPTION OF QUALITY RATINGS.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
AAA 45.9%
AA 16.4%
A 10.0%
BBB 10.7%
BB 7.8%
B 2.0%
Cash and Short-term Securities 7.2%
</TABLE>
BECAUSE THE FUND IS ACTIVELY MANAGED, ITS HOLDINGS WILL CHANGE FROM TIME
TO TIME.
THE AMERICAN FUNDS TAX-EXEMPT SERIES I / PROSPECTUS 9
<PAGE>
THE VIRGINIA FUND
THE FOLLOWING CHART ILLUSTRATES THE QUALITY RATINGS OF THE VARIOUS BONDS
HELD IN THE PORTFOLIO AS OF THE END OF THE FUND'S FISCAL YEAR, JULY 31,
1999. SEE THE APPENDIX FOR A DESCRIPTION OF QUALITY RATINGS.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
AAA 40.5%
AA 31.5%
A 7.9%
BBB 5.6%
BB 9.8%
Cash and Short-term Securities 4.7%
</TABLE>
BECAUSE THE FUND IS ACTIVELY MANAGED, ITS HOLDINGS WILL CHANGE FROM TIME
TO TIME.
- -------------------------------------------------------------------
IMPORTANT RECENT DEVELOPMENTS
YEAR 2000
The date-related computer issue known as the "Year 2000 problem" could have an
adverse impact on the quality of services provided to the fund and its
shareholders. However, the fund understands that its key service providers --
including the investment adviser and its affiliates -- have updated all of their
computer systems to process date-related information properly following the turn
of the century. In addition, the Year 2000 problem may adversely affect the
issuers in which the fund invests. For example, issuers may incur substantial
costs to address the problem. They may also suffer losses caused by corporate
and governmental data processing errors. The fund and its investment adviser
will continue to monitor developments relating to this issue.
10 THE AMERICAN FUNDS TAX-EXEMPT SERIES I / PROSPECTUS
<PAGE>
- -------------------------------------------------------------------
MANAGEMENT AND ORGANIZATION
BUSINESS MANAGER
Washington Management Corporation, since the fund's inception, has provided the
services necessary to carry on the fund's general administrative and corporate
affairs. These services encompass general corporate governance, regulatory
compliance and oversight of each of the fund's contractual service providers
including custodian operations, shareholder services and fund share distribution
functions. Washington Management Corporation, a wholly owned subsidiary of The
Johnston-Lemon Group, Incorporated, maintains its principal business address at
1101 Vermont Avenue, NW, Washington, DC 20005.
INVESTMENT ADVISER
Capital Research and Management Company, an experienced investment management
organization founded in 1931, serves as investment adviser to the fund and other
funds, including those in The American Funds Group. Capital Research and
Management Company, a wholly owned subsidiary of The Capital Group Companies,
Inc., is headquartered at 333 South Hope Street, Los Angeles, CA 90071. Capital
Research and Management Company manages the investment portfolio of the fund.
Total management fees paid by the fund to its business manager and investment
adviser, as a percentage of average net assets, for the previous fiscal year are
discussed earlier under "Fees and Expenses of the Fund."
Capital Research and Management Company and its affiliated companies have
adopted a personal investing policy that is consistent with the recommendations
contained in the report issued by the Investment Company Institute's Advisory
Group on Personal Investing.
THE AMERICAN FUNDS TAX-EXEMPT SERIES I / PROSPECTUS 11
<PAGE>
MULTIPLE PORTFOLIO COUNSELOR SYSTEM
Capital Research and Management Company uses a system of multiple portfolio
counselors in managing mutual fund assets. Under this approach the portfolio of
a fund is divided into segments which are managed by individual counselors.
Counselors decide how their respective segments will be invested within the
limits provided by a fund's objective(s) and policies and by Capital Research
and Management Company's investment committee. In addition, Capital Research and
Management Company's research professionals may make investment decisions with
respect to a portion of a fund's portfolio.
The primary individual portfolio counselors for The Tax-Exempt Fund of Maryland
and Virginia are listed below.
<TABLE>
<CAPTION>
YEARS OF EXPERIENCE AS
INVESTMENT PROFESSIONAL
(INCLUDING THE
LAST FIVE YEARS)
PORTFOLIO COUNSELORS WITH CAPITAL
FOR YEARS OF EXPERIENCE RESEARCH AND
THE AMERICAN AS PORTFOLIO COUNSELOR FOR MANAGEMENT
FUNDS TAX- THE AMERICAN FUNDS TAX- COMPANY OR
EXEMPT SERIES I PRIMARY TITLE(S) EXEMPT SERIES I ITS AFFILIATES TOTAL YEARS
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
DAVID A. HOAG Vice President and 6 years 8 years 11 years
Director, Capital
Research Company*
- ----------------------------------------------------------------------------------------------------------------
BRENDA S. ELLERIN Vice President, 6 years 8 years 10 years
Capital Research
Company*
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
* A WHOLLY OWNED SUBSIDIARY OF CAPITAL RESEARCH AND MANAGEMENT COMPANY.
12 THE AMERICAN FUNDS TAX-EXEMPT SERIES I / PROSPECTUS
<PAGE>
- --------------------------------------------------------------------------------
SHAREHOLDER INFORMATION
SHAREHOLDER SERVICES
American Funds Service Company, the fund's transfer agent, offers you a wide
range of services you can use to alter your investment program should your needs
and circumstances change. These services may be terminated or modified at any
time upon 60 days' written notice. For your convenience, American Funds Service
Company has four service centers across the country.
AMERICAN FUNDS SERVICE COMPANY SERVICE AREAS
CALL TOLL-FREE FROM ANYWHERE IN THE U.S.
(8 A.M. TO 8 P.M. ET):
800/421-0180
[MAP]
<TABLE>
<S> <C> <C> <C>
WESTERN WESTERN CENTRAL EASTERN CENTRAL EASTERN
SERVICE CENTER SERVICE CENTER SERVICE CENTER SERVICE CENTER
American Funds American Funds American Funds American Funds
Service Company Service Company Service Company Service Company
P.O. Box 2205 P.O. Box 659522 P.O. Box 6007 P.O. Box 2280
Brea, California San Antonio, Texas Indianapolis, Norfolk, Virginia
92822-2205 78265-9522 Indiana 23501-2280
Fax: 714/671-7080 Fax: 210/474-4050 46206-6007 Fax: 757/670-4773
Fax: 317/735-6620
</TABLE>
A COMPLETE DESCRIPTION OF THE SERVICES WE OFFER IS INCLUDED IN THE FUND'S
STATEMENT OF ADDITIONAL INFORMATION. In addition, an easy-to-read guide to
owning a fund in The American Funds Group titled "Welcome to the Family" is sent
to new shareholders and is available by writing or calling American Funds
Service Company.
TAX-EXEMPT FUNDS SHOULD NOT SERVE AS RETIREMENT PLAN INVESTMENTS. Additionally,
accounts held by investment dealers may not offer certain services. If you have
any questions, please contact your dealer.
THE AMERICAN FUNDS TAX-EXEMPT SERIES I / PROSPECTUS 13
<PAGE>
- --------------------------------------------------------------------------------
PURCHASE AND EXCHANGE OF SHARES
PURCHASE
Generally, you may open an account by contacting any investment dealer
authorized to sell the fund's shares. You may purchase additional shares using
various options described in the statement of additional information and
"Welcome to the Family."
EXCHANGE
You may exchange your shares into other funds in The American Funds Group
generally without a sales charge. Exchanges of shares from the money market
funds initially purchased without a sales charge generally will be subject to
the appropriate sales charge. Exchanges have the same tax consequences as
ordinary sales and purchases. See "Transactions by Telephone..." for information
regarding electronic exchanges.
THE FUND AND AMERICAN FUNDS DISTRIBUTORS, THE FUND'S PRINCIPAL UNDERWRITER,
RESERVE THE RIGHT TO REJECT ANY PURCHASE ORDER FOR ANY REASON. ALTHOUGH THERE IS
CURRENTLY NO SPECIFIC LIMIT ON THE NUMBER OF EXCHANGES YOU CAN MAKE IN A PERIOD
OF TIME, THE FUND AND AMERICAN FUNDS DISTRIBUTORS RESERVE THE RIGHT TO REJECT
ANY PURCHASE ORDER AND MAY TERMINATE THE EXCHANGE PRIVILEGE OF ANY INVESTOR
WHOSE PATTERN OF EXCHANGE ACTIVITY THEY HAVE DETERMINED INVOLVES ACTUAL OR
POTENTIAL HARM TO THE FUND.
INVESTMENT MINIMUMS
<TABLE>
<S> <C>
- ------------------------------------------------------------------------
To establish an account $1,000
To add to an account $ 50
</TABLE>
SHARE PRICE
The fund calculates its share price, also called net asset value, as of
4:00 p.m. New York time which is the normal close of trading on the New York
Stock Exchange, every day the Exchange is open. In calculating net asset value,
market prices are used when available. If a market price for a particular
security is not available, the fund will determine the appropriate price for the
security.
Your shares will be purchased at the offering price, or sold at the net asset
value, next determined after American Funds Service Company receives and accepts
your request. The offering price is the net asset value plus a sales charge, if
applicable.
14 THE AMERICAN FUNDS TAX-EXEMPT SERIES I / PROSPECTUS
<PAGE>
SALES CHARGE
A sales charge may apply to your purchase. Your sales charge may be reduced for
larger purchases as indicated below.
<TABLE>
<CAPTION>
SALES CHARGE AS A
PERCENTAGE OF
.
NET DEALER CONCESSION
OFFERING AMOUNT AS % OF
INVESTMENT PRICE INVESTED OFFERING PRICE
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
Less than $25,000 4.75% 4.99% 4.00%
.............................................................................................................
$25,000 but less than $50,000 4.50% 4.71% 3.75%
.............................................................................................................
$50,000 but less than $100,000 4.00% 4.17% 3.25%
.............................................................................................................
$100,000 but less than $250,000 3.50% 3.63% 2.75%
.............................................................................................................
$250,000 but less than $500,000 2.50% 2.56% 2.00%
.............................................................................................................
$500,000 but less than $1 million 2.00% 2.04% 1.60%
.............................................................................................................
$1 million or more and certain other investments described see see
below below below see below
.............................................................................................................
</TABLE>
PURCHASES NOT SUBJECT TO SALES CHARGE
Investments of $1 million or more are sold with no initial sales charge. A 1%
CONTINGENT DEFERRED SALES CHARGE MAY BE IMPOSED ON CERTAIN REDEMPTIONS BY
ACCOUNTS THAT INVEST WITH NO INITIAL SALES CHARGE, IF REDEMPTIONS ARE MADE
WITHIN ONE YEAR OF PURCHASE. Employer-sponsored defined contribution-type plans
investing $1 million or more, or with 100 or more eligible employees, may invest
with no sales charge and are not subject to a contingent deferred sales charge.
Investments made by retirement plans, endowments or foundations with
$50 million or more in assets may also be made with no sales charge and are not
subject to a contingent deferred sales charge. A dealer concession of up to 1%
may be paid by the fund under its Plan of Distribution on investments made with
no initial sales charge.
REDUCING YOUR SALES CHARGE
You and your "immediate family" (your spouse and your children under the age of
21) may combine investments to reduce your sales charge. You must let your
investment dealer or American Funds Service Company know if you qualify for a
reduction in your sales charge using one or any combination of the methods
described below and in the statement of additional information and "Welcome to
the Family."
THE AMERICAN FUNDS TAX-EXEMPT SERIES I / PROSPECTUS 15
<PAGE>
AGGREGATING ACCOUNTS
To receive a reduced sales charge, investments made by your immediate family
(see above) may be aggregated if made for their own account(s) and/or:
- - trust accounts established by the above individuals. However, if the
person(s) who established the trust is deceased, the trust account may be
aggregated with accounts of the person who is the primary beneficiary of the
trust.
- - solely controlled business accounts
- - single-participant retirement plans
Other types of accounts may be aggregated. You should check with your financial
adviser or consult the statement of additional information or "Welcome to the
Family" for more information.
CONCURRENT PURCHASES
You may combine simultaneous purchases of two or more American Funds, except
direct purchases of money market funds to qualify for a reduced sales charge.
RIGHTS OF ACCUMULATION
You may take into account the current value of your existing holdings in The
American Funds Group, as well as individual holdings in various American Legacy
products to determine your sales charge. Direct purchases of the money market
funds are excluded.
STATEMENT OF INTENTION
You may establish a Statement of Intention (SOI) that allows you to combine the
purchases you intend to make over a 13-month period in any non-money market fund
or individual American Legacy product. At your request purchases made during the
previous 90 days may be included; however capital appreciation and reinvested
dividends and capital gains do not apply toward these combined purchases. An SOI
allows you to take immediate advantage of the maximum quantity discount
available. A portion of your account may be held in escrow to cover additional
sales charges which may be due if your total investments over the 13-month
period are insufficient to qualify for the applicable sales charge reduction.
16 THE AMERICAN FUNDS TAX-EXEMPT SERIES I / PROSPECTUS
<PAGE>
PLAN OF DISTRIBUTION
The fund has a Plan of Distribution or "12b-1 Plan" under which it may finance
activities primarily intended to sell shares, provided the categories of
expenses are approved in advance by the fund's board of trustees. Up to 0.25% of
average net assets is paid annually to qualified dealers for providing certain
services pursuant to the fund's Plan of Distribution. The 12b-1 fee paid by the
fund, as a percentage of average net assets, for the previous fiscal year is
indicated earlier under "Fees and Expenses of the Fund." Since these fees are
paid out of the fund's assets on an ongoing basis, over time they will increase
the cost of an investment and may cost you more than paying higher initial sales
charges.
OTHER COMPENSATION TO DEALERS
American Funds Distributors may provide additional compensation to, or sponsor
informational meetings for, dealers as described in the statement of additional
information.
HOW TO SELL SHARES
Once a sufficient period of time has passed to reasonably assure that checks or
drafts (including certified or cashiers' checks) for shares purchased have
cleared (normally 15 calendar days), you may sell (redeem) those shares in any
of the following ways:
THROUGH YOUR DEALER (CERTAIN CHARGES MAY APPLY)
- Shares held for you in your dealer's name must be sold through the dealer.
WRITING TO AMERICAN FUNDS SERVICE COMPANY
- Requests must be signed by the registered shareholder(s)
- A signature guarantee is required if the redemption is:
-- Over $50,000;
-- Made payable to someone other than the registered shareholder(s); or
-- Sent to an address other than the address of record, or an address of
record which has been changed within the last 10 days.
- Additional documentation may be required for sales of shares held in
corporate, partnership or fiduciary accounts.
THE AMERICAN FUNDS TAX-EXEMPT SERIES I / PROSPECTUS 17
<PAGE>
TELEPHONING OR FAXING AMERICAN FUNDS SERVICE COMPANY, OR BY USING AMERICAN
FUNDSLINE-REGISTERED TRADEMARK- OR AMERICAN FUNDSLINE ONLINE-REGISTERED
TRADEMARK-:
- Redemptions by telephone or fax (including American FundsLine and American
FundsLine OnLine) are limited to $50,000 per shareholder each day
- Checks must be made payable to the registered shareholder
- Checks must be mailed to an address of record that has been used with the
account for at least 10 days
TRANSACTIONS BY TELEPHONE, FAX, AMERICAN FUNDSLINE, OR AMERICAN FUNDSLINE ONLINE
Generally, you are automatically eligible to use these services for redemptions
and exchanges unless you notify us in writing that you do not want any or all of
these services. You may reinstate these services at any time.
Unless you decide not to have telephone, fax, or computer services on your
account(s), you agree to hold the fund, American Funds Service Company, any of
its affiliates or mutual funds managed by such affiliates, the fund's business
manager, and each of their respective directors, trustees, officers, employees
and agents harmless from any losses, expenses, costs or liabilities (including
attorney fees) which may be incurred in connection with the exercise of these
privileges, provided American Funds Service Company employs reasonable
procedures to confirm that the instructions received from any person with
appropriate account information are genuine. If reasonable procedures are not
employed, it and/or the fund may be liable for losses due to unauthorized or
fraudulent instructions.
- --------------------------------------------------------------------------------
DISTRIBUTION ARRANGEMENTS
DIVIDENDS AND DISTRIBUTIONS
The fund declares dividends from its net investment income daily and distributes
the accrued dividends to you each month. Dividends begin accruing one day after
payment for shares is received by the fund or American Funds Service Company.
Capital gains, if any, are usually distributed in November or December. When a
capital gain is distributed, the net asset value per share is reduced by the
amount of the payment.
You may elect to reinvest dividends and/or capital gain distributions to
purchase additional shares of this fund or any other fund in The American Funds
Group or you may elect to receive them in cash.
TAX CONSEQUENCES
Interest on municipal bonds is generally not included in gross income for
federal income tax purposes. The fund is permitted to pass through to its
shareholders federally tax-exempt income subject to certain
18 THE AMERICAN FUNDS TAX-EXEMPT SERIES I / PROSPECTUS
<PAGE>
requirements. However, the fund may invest in obligations which pay interest
that is subject to state and local taxes when distributed by the fund.
TAXES ON DISTRIBUTIONS
Distributions you receive from the fund may be subject to income tax and may
also be subject to state or local taxes to the extent they include income from
debt securities that are not exempt from tax -- unless you are exempt from
taxation or entitled to tax deferral.
For federal tax purposes, any taxable dividends and distributions of short-term
capital gains are treated as ordinary income. The fund's distributions of
long-term capital gains are taxable to you as capital gains. Any taxable
distributions you receive from the fund will normally be taxable to you when
made, regardless of whether you reinvest distributions or receive them in cash.
It is anticipated that federal exempt-interest dividends paid by the fund and
derived from interest on bonds exempt from the respective state (Maryland or
Virginia) income tax will also be exempt from such state's corporate and
personal income tax. To the extent the fund's dividends are derived from
interest on debt obligations other than the respective state (Maryland or
Virginia) municipal securities, such dividends will be subject to such state's
state income tax even though the dividends may be exempt from federal income
tax.
TAXES ON TRANSACTIONS
Your redemptions, including exchanges, may result in a capital gain or loss from
federal tax purposes. A capital gain or loss on your investment in the fund is
the difference between the cost of your shares, including any sales charges, and
the prices you receive when you sell them.
Please see the statement of additional information, the "Welcome to the Family"
guide, and your tax adviser for further information.
THE AMERICAN FUNDS TAX-EXEMPT SERIES I / PROSPECTUS 19
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
These financial highlights tables are intended to help you understand each
fund's results for the past five years. Certain information reflects financial
results for a single fund share. The total returns in the tables represent the
rate that an investor would have earned or lost on an investment in the fund
(assuming reinvestment of all dividends and distributions). This information has
been audited by PricewaterhouseCoopers LLP, whose report, along with the funds'
financial statements, is included in the statement of additional information,
which is available upon request.
THE MARYLAND FUND
<TABLE>
<CAPTION>
YEAR ENDED JULY 31
.................................
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
----------------------------------------------------
Net asset value,
beginning of year $16.04 $16.02 $15.39 $15.29 $15.00
- -----------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .74 .78 .79 .80 .80
........................................................................................
Net gains (losses) on securities
(both realized and unrealized) (.37) .14 .63 .10 .29
- -----------------------------------------------------------------------------------------
Total from investment operations .37 .92 1.42 .90 1.09
- -----------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends (from net investment
income) (.74) (.78) (.79) (.80) (.80)
........................................................................................
Distributions (from capital gains) (.10) (.12) -- -- --
........................................................................................
Total distributions (.84) (.90) (.79) (.80) (.80)
- -----------------------------------------------------------------------------------------
Net asset value, end of year $15.57 $16.04 $16.02 $15.39 $15.29
- -----------------------------------------------------------------------------------------
Total return(1) 2.28% 5.89% 9.52% 5.95% 7.58%
- -----------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions) $110 $101 $87 $80 $75
........................................................................................
Ratio of expenses to average net
assets .78% .79% .82% .81% .78%
........................................................................................
Ratio of net income to average net
assets 4.63% 4.84% 5.08% 5.14% 5.38%
........................................................................................
Portfolio turnover rate 11.38% 10.30% 15.27% 16.01% 20.91%
</TABLE>
(1)EXCLUDES MAXIMUM SALES CHARGE OF 4.75%.
20 THE AMERICAN FUNDS TAX-EXEMPT SERIES I / PROSPECTUS
<PAGE>
THE VIRGINIA FUND
<TABLE>
<CAPTION>
YEAR ENDED JULY 31
.................................
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
----------------------------------------------------
Net asset value,
beginning of year $16.36 $16.37 $15.77 $15.79 $15.49
- -----------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .73 .78 .80 .81 .83
........................................................................................
Net gains (losses) on securities
(both realized and unrealized) (.36) .03 .60 .03 .30
- -----------------------------------------------------------------------------------------
Total from investment operations .37 .81 1.40 .84 1.13
- -----------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends (from net investment
income) (.73) (.78) (.80) (.81) (.83)
........................................................................................
Distributions (from capital gains) (.18) (.04) -- (.05) --
........................................................................................
Total distributions (.91) (.82) (.80) (.86) (.83)
- -----------------------------------------------------------------------------------------
Net asset value, end of year $15.82 $16.36 $16.37 $15.77 $15.79
- -----------------------------------------------------------------------------------------
Total return(1) 2.21% 5.08% 9.10% 5.46% 7.56%
- -----------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions) $125 $115 $101 $90 $92
........................................................................................
Ratio of expenses to average net
assets .77% .78% .81% .79% .79%
........................................................................................
Ratio of net income to average net
assets 4.46% 4.73% 4.99% 5.11% 5.37%
........................................................................................
Portfolio turnover rate 12.72% 24.66% 18.41% 27.34% 32.18%
</TABLE>
(1)EXCLUDES MAXIMUM SALES CHARGE OF 4.75%.
THE AMERICAN FUNDS TAX-EXEMPT SERIES I / PROSPECTUS 21
<PAGE>
<TABLE>
<S> <C> <C>
FOR SHAREHOLDER FOR DEALER
SERVICES SERVICES
American Funds American Funds
Service Company Distributors
800/421-0180 800/421-9900 ext. 11
FOR 24-HOUR INFORMATION
</TABLE>
<TABLE>
<S> <C>
American American FundsLine
FundsLine-Registered OnLine-Registered
Trademark- Trademark-
800/325-3590 Internet Web site
http://www.americanfunds.com
</TABLE>
Telephone conversations may be recorded or monitored for verification,
recordkeeping and quality assurance purposes.
------------------------------------------------------------------
MULTIPLE TRANSLATIONS
This prospectus may be translated into other languages. In the event of any
inconsistencies or ambiguity as to the meaning of any word or phrase in a
translation, the English text will prevail.
------------------------------------------------------------------
OTHER FUND INFORMATION
ANNUAL/SEMI-ANNUAL REPORT TO SHAREHOLDERS
Contains additional information about the fund including financial
statements, investment results, portfolio holdings, a statement from
portfolio management discussing market conditions and the fund's investment
strategies, and the independent accountants' report (in the annual report).
STATEMENT OF ADDITIONAL INFORMATION (SAI)
Contains more detailed information on all aspects of the fund, including the
fund's financial statements.
A current SAI has been filed with the Securities and Exchange Commission
("SEC") and is incorporated by reference into this prospectus. The SAI and
other related materials about the fund are available for review or to be
copied at the SEC's Public Reference Room in Washington, DC (1-800-SEC-0330)
or on the SEC's Internet Web site at http://www.sec.gov.
CODE OF ETHICS
Includes a description of the investment adviser's personal investing
policy.
To request a free copy of any of the documents above:
<TABLE>
<S> <C> <C>
Call American Funds or Write to the Secretary of the fund
Service Company 1101 Vermont Avenue, NW
800/421-0180 ext. 1 Washington, DC 20005
</TABLE>
Investment Company File No. 811-4653
[LOGO]
Printed on recycled paper
THE AMERICAN FUNDS TAX-EXEMPT SERIES I
THE TAX-EXEMPT FUND OF MARYLAND
THE TAX-EXEMPT FUND OF VIRGINIA
PART B
STATEMENT OF ADDITIONAL INFORMATION
November 15, 1999
This document is not a prospectus but should be read in conjunction with the
current Prospectus dated November 15, 1999 of The American Funds Tax-Exempt
Series I (the "Trust"). The Trust currently consists of two series, The
Tax-Exempt Fund of Maryland (the "Maryland Fund" or "fund") and The Tax-Exempt
Fund of Virginia (the "Virginia Fund" or "fund"). Except where the context
indicates otherwise, all references herein to the "fund" apply to each of the
two funds. The Prospectus may be obtained from your securities dealer or
financial planner or by writing to the Trust at the following address:
THE AMERICAN FUNDS TAX-EXEMPT SERIES I
Attention: Secretary
1101 Vermont Avenue, N.W.
Washington, D.C. 20005
(202) 842-5665
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE NO.
<S> <C>
Certain and Investment Limitations and Techniques B-1
Description of Certain Securities and Investment Techniques B-2
Investment Restrictions B-5
Fund Organization B-7
Trust Officers and Trustees, including Trustee Compensation B-8
Management B-11
Dividends and Distributions B-13
Additional Information Concerning Taxes B-13
Purchase of Shares B-15
Shareholder Account Services and Privileges B-23
Execution of Portfolio Transactions B-24
General Information B-25
Investment Results B-27
Description of Ratings for Debt Securities B-30
Financial Statements Attached
</TABLE>
CERTAIN INVESTMENT LIMITATIONS AND GUIDELINES
The following limitations and guidelines are considered at the time of
purchase, under normal market conditions, and are based on a percentage of the
fund's net assets unless otherwise noted. This summary is not intended to
reflect all of the fund's investment limitations.
The fund will invest at least 80% of its assets in, or derive at least 80% of
its income from, securities exempt from both federal and the respective state
(Maryland or Virginia) tax.
The fund may invest up to 20% of its assets in securities subject to
alternative minimum taxes.
The fund may invest up to 20% of its assets in straight debt securities (not
including convertible securities) rated Ba and BB or below (or unrated but
determined to be of equivalent quality).
DESCRIPTION OF CERTAIN SECURITIES AND INVESTMENT TECHNIQUES
The fund may experience difficulty liquidating certain portfolio securities
during significant market declines or periods of heavy redemptions. The
descriptions below are intended to supplement the material in the prospectus
under "Investment Objectives, Strategies and Risks."
DEBT SECURITIES -- Bonds and other debt securities are used by issuers to
borrow money. Issuers pay investors interest and generally must repay the
amount borrowed at maturity. Some debt securities, such as zero coupon bonds,
do not pay current interest, but are purchased at a discount from their face
values. The prices of debt securities fluctuate depending on such factors as
interest rates, credit quality, and maturity. In general their prices decline
when interest rates rise and vice versa.
Although the fund is not normally required to dispose of a security in the
event its rating is reduced below the current minimum rating for its purchase
(or it is not rated and its quality becomes equivalent to such a security), if,
as a result of a downgrade or otherwise, the fund holds more than 20% of its
assets in these securities, the fund will dispose of the excess as deemed
prudent by the investment adviser.
High-yield, high-risk bonds rated Ba or below by Standard & Poor's Corporation
or BB or below by Moody's Investors Services, Inc. (or unrated but considered
to be of equivalent quality) are described by the ratings agencies as
speculative and involve greater risk of default or price changes due to changes
in the issuer's creditworthiness than higher rated bonds, or they may already
be in default. The market prices of these securities may fluctuate more than
higher quality securities and may decline significantly in periods of general
economic difficulty. It may be more difficult to dispose of, or to determine
the value of, high-yield, high-risk bonds. Certain risk factors relating to
"high-yield, high-risk bonds" are discussed below.
CERTAIN RISK FACTORS RELATING TO HIGH-YIELD, HIGH-RISK BONDS
SENSITIVITY TO INTEREST RATE AND ECONOMIC CHANGES - High-yield, high-risk bonds
can be very sensitive to adverse economic changes and corporate developments.
During an economic downturn or substantial period of rising interest rates,
highly leveraged issuers or issuers whose revenue is very sensitive to economic
conditions may experience financial stress that would adversely affect their
ability to service their principal and interest payment obligations, to meet
projected business goals, and to obtain additional financing. If the issuer of
a bond defaulted on its obligations to pay interest or principal or entered
into bankruptcy proceedings, the fund may incur losses or expenses in seeking
recovery of amounts owed to it. In addition, periods of economic uncertainty
and changes can be expected to result in increased volatility of market prices
and yields of high-yield, high-risk bonds.
PAYMENT EXPECTATIONS - High-yield, high-risk bonds may contain redemption or
call provisions. If an issuer exercised these provisions in a declining
interest rate market, the fund would have to replace the security with a lower
yielding security, resulting in a decreased return for investors. Conversely,
a high-yield, high-risk bond's value will decrease in a rising interest market,
as will the value of the fund's assets.
LIQUIDITY AND VALUATION - There may be little trading in the secondary market
for particular bonds, which may affect adversely the fund's ability to value
accurately or dispose of such bonds. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may decrease the
values and liquidity of high-yield, high-risk bonds, especially in a thin
market.
MUNICIPAL BONDS - Municipal bonds are generally debt obligations issued to
obtain funds for various public purposes, including the construction of public
facilities. Opinions relating to the validity of municipal bonds and to the
exclusion from gross income for federal income tax purposes and, where
applicable, the exemption from state and local income tax are rendered by bond
counsel to the respective issuing authorities at the time of issuance.
The two principal classifications of municipal bonds are general obligation and
limited obligation (revenue) bonds. General obligation bonds are secured by
the issuer's pledge of its full faith and credit including, if available, its
taxing power for the payment of principal and interest. Issuers of general
obligation bonds include states, counties, cities, towns and various regional
or special districts. The proceeds of these obligations are used to fund a
wide range of public facilities such as the construction or improvement of
schools, highways and roads, water and sewer systems and facilities for a
variety of other public purposes. Lease revenue bonds or certificates of
participation in leases are payable from annual lease rental payments from a
state or locality and may be considered a general obligation of the entity
making annual rental payments to the extent such rental payments are
appropriated annually.
Typically, the only security for a limited obligation or revenue bond is the
net revenue derived from a particular facility or class of facilities financed
thereby or, in some cases, from the proceeds of a special tax or other special
revenues. Revenue bonds have been issued to fund a wide variety of
revenue-producing public capital projects including: electric, gas, water and
sewer systems; highways, bridges and tunnels; port and airport facilities;
colleges and universities; hospitals; and convention, recreational and housing
facilities. Although the security behind these bonds varies widely, many
provide additional security in the form of a debt service reserve fund which
may also be used to make principal and interest payments on the issuer's
obligations. In addition, some revenue obligations (as well as general
obligations) are insured by a bond insurance company or backed by a letter of
credit issued by a banking institution.
Revenue bonds also include, for example, pollution control, health care and
housing bonds, which, although nominally issued by municipal authorities, are
generally not secured by the taxing power of the municipality but are secured
by the revenues of the authority derived from payments by the private entity
which owns or operates the facility financed with the proceeds of the bonds.
Obligations of housing finance authorities have a wide range of security
features including reserve funds and insured or subsidized mortgages, as well
as the net revenues from housing or other public projects. Most of these bonds
do not generally constitute the pledge of the credit of the issuer of such
bonds. The credit quality of such revenue bonds is usually directly related to
the credit standing of the user of the facility being financed or of an
institution which provides a guarantee, letter of credit or other credit
enhancement for the bond issue.
MUNICIPAL INFLATION-INDEXED BONDS - The fund may invest in inflation-indexed
bonds issued by municipalities. Interest payments are made to bondholders
semi-annually and are made up of two components; a fixed "real coupon" or
spread, and a variable coupon linked to an inflation index. Accordingly,
payments will increase or decrease each period as a result of changes in the
inflation index. In a period of deflation payments may decrease to zero, but
in any event will not be less than zero.
ZERO COUPON BONDS - Municipalities may issue zero coupon securities which are
debt obligations that do not entitle the holder to any periodic payments of
interest prior to maturity or a specified date when the security begins to pay
interest. They are issued and traded at a discount from their face amount or
par value, which discount varies depending on the time remaining until cash
payments begin, prevailing interest rates, liquidity of the security, and the
perceived credit quality of the issuer.
PRE-REFUNDED BONDS - From time to time, a municipality may refund a bond that
it has already issued prior to the original bond's call date by issuing a
second bond, the proceeds of which are used to purchase securities. The
securities are placed in an escrow account pursuant to an agreement between the
municipality and an independent escrow agent. The principal and interest
payments on the securities are then used to pay off the original bondholders.
For the purpose of diversification, pre-refunded bonds will be treated as
governmental issues.
FORWARD COMMITMENTS - The fund may enter into commitments to purchase or sell
securities at a future date. When the fund purchases such securities, it
assumes the risk of any decline in value of the security beginning on the date
of the agreement. When the fund agrees to sell such securities, it does not
participate in further gains or losses with respect to the securities beginning
on the date of the agreement. If the other party to such a transaction fails
to deliver or pay for the securities, the fund could miss a favorable price or
yield opportunity, or could experience a loss.
TEMPORARY INVESTMENTS - The fund may invest in short-term municipal obligations
with a maturity of one year or less during periods of temporary defensive
strategy or when such investments are considered advisable for liquidity.
Generally, the income from all such securities is exempt from federal income
tax. See "Additional Information Concerning Taxes" below. Further, a portion
of the fund's assets, which normally will be less than 20% of assets, may be
held in cash or invested in high quality taxable short-term securities with a
maturity of one year or less. Such temporary investments may include: (1)
obligations of the U.S. Treasury; (2) obligations of agencies and
instrumentalities of the U.S. Government; (3) money market instruments, such as
certificates of deposit issued by domestic banks, corporate commercial paper,
and bankers' acceptances; and (4) repurchase agreements (which are described
below).
As the fund's aggregate commitments under these transactions increase, the
opportunity for leverage similarly increases. The fund will not use these
transactions for the purpose of leveraging and will segregate liquid assets
which will be marked to market daily in amounts sufficient to meet its payment
obligations in these transactions. Although these transactions will not be
entered into for leveraging purposes, to the extent the fund's aggregate
commitments under these transactions exceed its segregated assets, the fund
temporarily would be in a leveraged position (because it will have an amount
greater than its net assets subject to market risk). Should market values of
the fund's portfolio securities decline while the fund is in a leveraged
position, greater depreciation of its net assets will likely occur than were it
not in such a position. The fund will not borrow money to settle these
transactions and, therefore, will liquidate other portfolio securities in
advance of settlement if necessary to generate additional cash to meet its
obligations thereunder.
REPURCHASE AGREEMENTS - Although the fund has no current intention to do so
during the next 12 months, it may enter on a temporary basis into repurchase
agreements, under which the fund buys a security and obtains a simultaneous
commitment from the seller to repurchase the security at a specified time and
price. Repurchase agreements permit the fund to maintain liquidity and earn
income over periods of time as short as overnight. The seller must maintain
with the fund's custodian bank collateral equal to at least 100% of the
repurchase price including accrued interest, as monitored daily by the
Investment Adviser. The fund will only enter into repurchase agreements
involving securities in which it could otherwise invest and with selected banks
and securities dealers whose financial condition is monitored by the Investment
Adviser. If the seller under the repurchase agreement defaults, the fund may
incur a loss if the value of the collateral securing the repurchase agreement
has declined and may incur disposition costs in connection with liquidating the
collateral. If bankruptcy proceedings are commenced with respect to the
seller, realization upon the collateral by a fund may be delayed or limited.
ADJUSTMENT OF MATURITIES - The Investment Adviser seeks to anticipate movements
in interest rates and adjusts the maturity distribution of the portfolio
accordingly. Longer term securities ordinarily yield more than shorter term
securities but are subject to greater and more rapid price fluctuation.
Keeping in mind the fund's objective of producing a high level of current
income, the Investment Adviser will increase the fund's exposure to this price
volatility only when it appears likely to increase current income without undue
risk to capital.
ISSUE CLASSIFICATION - Securities with the same general quality rating and
maturity characteristics, but which vary according to the purpose for which
they were issued, often tend to trade at different yields. These yield
differentials tend to fluctuate in response to political and economic
developments, as well as temporary imbalances in normal supply/demand
relationships. The Investment Adviser monitors these fluctuations closely, and
will attempt to adjust portfolio concentrations in various issue
classifications according to the value disparities brought about by these yield
relationship fluctuations.
QUALITY - Securities issued for similar purposes and with the same general
maturity characteristics, but which vary according to the creditworthiness of
their respective issuers, tend to trade at different yields. These yield
differentials also tend to fluctuate in response to political, economic and
supply/demand factors. The Investment Adviser will attempt to take advantage
of these fluctuations by adjusting the concentration of portfolio securities in
any given quality category according to the value disparities produced by these
yield relationship fluctuations.
The Investment Adviser believes that, in general, the market for municipal
bonds is less liquid than that for taxable fixed-income securities.
Accordingly, the ability of the fund to make purchases and sales of securities
in the foregoing manner may, at any particular time and with respect to any
particular securities, be limited or non-existent.
PORTFOLIO TURNOVER - Portfolio changes will be made without regard to the
length of time particular investments may have been held. High portfolio
turnover involves correspondingly greater transaction costs in the form of
dealer spreads or brokerage commissions, and may result in the realization of
net capital gains, which are taxable when distributed to shareholders.
Fixed-income securities are generally traded on a net basis and usually neither
brokerage commissions nor transfer taxes are involved. The fund does not
anticipate its portfolio turnover to exceed 100% annually. The fund's
portfolio turnover rate would equal 100% if each security in the fund's
portfolio was replaced once every year. See "Financial Highlights" in the
Prospectus for the fund's portfolio turnover for each of the last five years.
RISK OF NON-COMPLIANCE WITH CERTAIN FEDERAL REQUIREMENTS - The Internal Revenue
Code of 1986, as amended, imposes limitations on the use and investment of the
proceeds of state and local governmental bonds and of other funds of the
issuers of such bonds. These limitations must be satisfied on a continuing
basis to maintain the exclusion from gross income of interest on such bonds.
The provisions of the Code generally apply to bonds issued after August 15,
1986. Bond counsel qualify their opinions as to the federal tax status of new
issues of bonds by making such opinions contingent on the issuer's future
compliance with these limitations. Any failure on the part of an issuer to
comply could cause the interest on its bonds to become taxable to investors
retroactive to the date the bonds were issued. These restrictions in the Code
also may affect the availability of certain municipal securities.
INVESTMENT RESTRICTIONS
The fund has adopted certain investment restrictions which may not be changed
without a majority vote of its outstanding shares. Such majority is defined by
the Investment Company Act of 1940, (the "1940 Act"), as the vote of the lesser
of (i) 67% or more of the outstanding voting securities present at a meeting,
if the holders of more than 50% of the outstanding voting securities are
present in person or by proxy, or (ii) more than 50% of the outstanding voting
securities. Investment limitations expressed in the following restrictions are
considered at the time securities are purchased and are based on the fund's net
assets unless otherwise indicated. These restrictions provide that the fund
may not:
1. Invest more than 5% of the value of its total assets in the securities of
any one issuer or hold more than 10% of any class of securities of any one
issuer (for this purpose all indebtedness of an issuer shall be deemed a single
class), provided that this limitation shall apply only to 75% of the value of
the fund's total assets and, provided further, that the limitation shall not
apply to obligations of the U.S. Government or its agencies or
instrumentalities;
2. Enter into any repurchase agreement maturing in more than seven days
(unless subject to a demand feature of seven days or less) if any such
investment, together with any illiquid securities held by the fund, exceeds 10%
of the value of its total assets;
3. Buy or sell real estate in the ordinary course of its business; however,
the fund may invest in securities secured by real estate or interests therein;
4. Acquire securities subject to legal or contractual restrictions on
disposition;
5. Make loans to others, except for the purchase of debt securities or
entering into repurchase agreements;
6. Sell securities short, except to the extent that the fund contemporaneously
owns or has the right to acquire at no additional cost securities identical to
those sold short;
7. Purchase securities on margin, except such short-term credits as may be
necessary for the clearance of purchases or sales;
8. Borrow money, except from banks for temporary or emergency purposes, not in
excess of 5% of the value of the fund's total assets, excluding the amount
borrowed. This borrowing provision is intended to facilitate the orderly sale
of portfolio securities to accommodate unusually heavy redemption requests, if
they should occur; it is not intended for investment purposes;
9. Mortgage, pledge, or hypothecate its assets, except in an amount up to 10%
of the value of its total assets, but only to secure borrowings for temporary
or emergency purposes;
10. Underwrite any issue of securities, except to the extent that the purchase
of municipal bonds directly from the issuer in accordance with the fund's
investment objective, policies and restrictions, and later resale may be deemed
to be an underwriting;
11. Invest in companies for the purpose of exercising control or management;
12. Purchase securities of other investment companies, except in connection
with a merger, consolidation, acquisition, or reorganization;
13. Buy or sell commodities or commodity contracts or oil, gas or other
mineral exploration or development programs;
14. Write, purchase or sell puts, calls, straddles, spreads or any combination
thereof;
15. Purchase or retain the securities of any issuer, if, to the knowledge
of the fund, those individual officers and Trustees of the Trust, its
Investment Adviser, or principal underwriter, each owning beneficially more
than 1/2 of 1% of the securities of such issuer, together own more than 5% of
the securities of such issuer;
16. Invest more than 5% of the value of the fund's total assets in securities
of any issuer with a record of less than three years continuous operation,
including predecessors, except those issued or guaranteed by the U.S.
Government or its agencies or instrumentalities, or municipal bonds rated at
least "A" by either Moody's Investors Service, Inc. or Standard & Poor's
Corporation; or
17. Invest more than 25% of its assets in securities of any industry although,
for purposes of this limitation, the issuers of municipal securities and U. S.
Government obligations are not considered to be part of any industry.
Notwithstanding Investment Restriction #12, the fund may invest in securities
of other investment companies if deemed advisable by its officers in connection
with the administration of a deferred compensation plan adopted by the Trustees
pursuant to an exemptive order granted by the Securities and Exchange
Commission.
For the purpose of the fund's investment restrictions, the identification of
the "issuer" of municipal bonds which are not general obligation bonds is made
by the Investment Adviser on the basis of the characteristics of the obligation
as described, the most significant of which is the ultimate source of funds for
the payment of principal of and interest on such bonds.
For purposes of investment restriction number 13, the term "oil, gas or other
mineral exploration or development programs" includes oil, gas or other mineral
exploration or development leases.
Another policy of the fund which is not deemed a fundamental policy, and thus
may be changed by the Board of Trustees without shareholder approval, is that
the fund may not invest 25% or more of its assets in securities the interest on
which is paid from revenues of similar type projects (such as hospitals and
health facilities; turnpikes and toll roads; ports and airports; or colleges
and universities). The fund may, however, invest more than an aggregate of 25%
of its total assets in industrial development bonds.
FUND ORGANIZATION
The fund is an open-end, diversified management investment company. It was
organized as a Massachusetts business trust in 1986. All fund operations are
supervised by the fund's board of trustees who meet periodically and perform
duties required by applicable state and federal laws. Members of the board who
are not affiliated with the business manager or investment adviser or their
affiliates are paid certain fees for services rendered to the fund as decribed
in "Trust Officers and Trustees" below. They may elect to defer all or a
portion of these fees through a deferred compensation plan in effect for the
fund.
TRUST OFFICERS AND TRUSTEES
(WITH THEIR PRINCIPAL OCCUPATIONS DURING THE PAST FIVE YEARS)#
TRUSTEE COMPENSATION
<TABLE>
<CAPTION>
NAME, ADDRESS AND AGE POSITION WITH PRINCIPAL OCCUPATION(S) AGGREGATE COMPENSATION TOTAL COMPENSATION TOTAL
NUMBER
REGISTRANT DURING PAST 5 YEARS# (INCLUDING VOLUNTARILY DEFERRED FROM ALL FUNDS OF
AFFILIATED
COMPENSATION/1/) FROM FUNDS AFFILIATED WITH THE FUND
BOARDS
DURING FISCAL YEAR ENDED AMERICAN FUNDS ON WHICH
7/31/99 GROUP FOR THE YEAR TRUSTEE
ENDED 7/31/99 SERVES
<S> <C> <C> <C> <C> <C>
Cyrus A. Ansary Trustee Investment Services $2,500 $53,200 3
1725 K Street, N.W., Suite 410 International Co. LLC,
Washington, D.C. 20006 President
Age: 65
Stephen Hartwell*{ Chairman Emeritus Washington Management none/3/ none/3/ 3
Age: 84 and Trustee Corporation, Chairman of
the Board
James H. Lemon, Jr.*{ Chairman of the The Johnston-Lemon none/3/ none/3/ 3
Age: 63 Trust Group, Incorporated,
Chairman of the Board
and
Chief Executive Officer
Harry J. Lister*{ President and Trustee Washington Management none/3/ none/3/ 3
Age: 63 Corporation, President
and
Director
Jean Head Sisco Trustee Sisco Associates, $3,500 $23,100 3
5335 Wisconsin Avenue, N.W. Partner
Washington, D.C. 2001508
Age: 74
T. Eugene Smith Trustee T. Eugene Smith, Inc., $3,700 $55,300 3
666 Tintagel Lane President
McLean, VA 22101
Age: 69
Stephen G. Yeonas Trustee Stephen G. Yeonas $3,500/2/ $23,100 3
1355 Beverly Road, Suite 102 Company,
McLean, VA 22101 Chief Executive Officer
Age: 74
</TABLE>
OTHER OFFICERS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
HOWARD L. KITZMILLER{ LOIS A. ERHARD{ MICHAEL W. STOCKTON{ J. LANIER FRANK{
Senior Vice President, Secretary Vice President Assistant Vice President, Assistant Assistant VicePresident
and Treasurer Washington Management Corporation, Secretary and Assistant Treasurer Washington Management
Corporation,
Washington Management Corporation, Vice President (Age: 47) Washington Management Assistant Vice President (Age: 38)
Director, Senior Vice President, Secretary and Corporation, Assistant
Assistant Treasurer (Age: 69) Vice President, Assistant Secretary
and Assistant Treasurer (Age: 32)
</TABLE>
# Positions within the organizations listed may have changed during this
period.
* Trustees who are considered "interested persons" as defined in the 1940 Act,
on the basis of their affiliation with the fund's Business Manager, Washington
Management Corporation.
{ Address is 1101 Vermont Avenue, N.W., Washington, D.C. 20005.
/1/Amounts may be deferred by eligible trustees under a non-qualified deferred
compensation plan adopted by the fund in 1994. Deferred amounts accumulate at
an earnings rate determined by the total return of one or more funds in The
American Funds Group as designated by the Trustee.
/2/Since the plan's adoption, the total amount of deferred compensation accrued
by the funds (plus earnings thereon) through 9/30/99, the latest calendar
quarter, for participants is as follows: Trustee Stephen G. Yeonas ($33,448).
Amounts deferred and accumulated earnings thereon are not funded and are
general unsecured liabilities of the funds until paid to the Trustee.
/3/Stephen Hartwell, James H. Lemon, Jr. and Harry J. Lister are affiliated
with the Business Manager and, accordingly, receive no compensation from the
funds.
All of the officers listed are officers of the Business Manager. All of the
Trustees and officers are also officers and/or directors of one or more of the
other funds for which Washington Management Corporation serves as Business
Manager. No Trustee compensation is paid by the funds to any officer or
Trustee who is a director, officer or employee of the Business Manager, the
Investment Adviser or affiliated companies. Each fund pays an annual retainer
fee of $750, an attendance fee of $200 per meeting and $100 per Committee
meeting to unaffiliated Trustees. The Trustees may elect, on a voluntary
basis, to defer all or a portion of those fees through a deferred compensation
plan in effect for the funds. Each fund also reimburses certain
meeting-related expenses of the Trustees.
The Business Manager has established a charitable foundation, the Washington
Management Corporation Foundation, which makes contributions to charities
organized under Section 501 (c)(3) or 509(a)(2) of the Internal Revenue Code.
Trustees and officers of the fund, as well as all employees of the Business
Manager and its afffiliates, may particpate in a gift matching program
sponsored by the Foundation.
As of October 26, 1999, the officers and Trustees and their families as a
group, owned beneficially or of record 1.64% and 1.72%, respectively, of the
outstanding shares of the Maryland and Virginia funds.
MANAGEMENT
BUSINESS MANAGER - Since its inception, the Trust has operated under a
Business Management Agreement with Washington Management Corporation (the
"Business Manager"), 1101 Vermont Avenue, N.W., Washington, D.C. 20005.
The primary function of the Business Manager is to oversee the various services
and operations of the fund. The Business Manager provides all services
required to carry on the fund's general administrative and corporate affairs.
These services include all executive personnel, clerical staff, office space
and equipment, arrangements for and supervision of all shareholder services,
Federal and state regulatory compliance and responsibility for accounting and
record keeping facilities. The Business Manager provides similar services to
other mutual funds.
The Business Manager receives a fee at the annual rate of 0.135% of the first
$60 million of the fund's net assets plus 0.09% of the fund's net assets in
excess of $60 million plus 1.35% of gross investment income. For the fiscal
years ended July 31, 1999, 1998, and 1997 the Business Manager's fees were
$202,000, $181,000 and $165,000 for the Maryland Fund and $224,000, $201,000
and $184,000 for the Virginia Fund, respectively. For the fiscal year ended
July 31, 1999, the Business Manager's fees for the Maryland Fund amounted to
0.188% of average net assets and for the Virginia Fund amounted to 0.183% of
average net assets.
INVESTMENT ADVISER - The Investment Adviser, Capital Research and Management
Company, founded in 1931, maintains research facilities in the U.S. and abroad
(Los Angeles, San Francisco, New York, Washington, D.C., London, Geneva,
Singapore, Hong Kong and Tokyo), with a staff of professionals, many of whom
have a number of years of investment experience. The Investment Adviser is
located at 333 South Hope Street, Los Angeles, CA 90071, and at 135 South State
College Boulevard, Brea, CA 92821. The Investment Adviser's research
professionals travel several million miles a year, making more than 5,000
research visits in more than 50 countries around the world. The Investment
Adviser believes that it is able to attract and retain quality personnel.
The Investment Adviser is responsible for more than $200 billion of stocks,
bonds and money market instruments and serves over eight million investors of
all types. These investors include privately owned businesses and large
corporations as well as schools, colleges, foundations and other non-profit and
tax-exempt organizations.
The Investment Adviser receives a fee at the annual rate of 0.165% of the first
$60 million of the fund's net assets plus 0.12% of the fund's net assets in
excess of $60 million plus 1.65% of gross investment income. For the fiscal
years ended July 31, 1999, 1998, and 1997 the Investment Adviser's fees were
$252,000, $224,000 and $203,000, for the Maryland Fund and $279,000, $250,000
and $229,000 for the Virginia Fund, respectively. For the fiscal year ended
July 31, 1999, the Investment Adviser's fees for the Maryland Fund amounted to
0.234% of average net assets and for the Virginia Fund amounted to 0.228% of
average net assets.
BUSINESS MANAGEMENT AGREEMENT AND INVESTMENT ADVISORY AGREEMENT - The Business
Management Agreement and Investment Advisory Agreement, unless sooner
terminated, will continue in effect until July 31, 2000 and may be renewed from
year to year thereafter, provided that any such renewal has been specifically
approved at least annually as to the fund by (i) the Board of Trustees, or by
the vote of a majority (as defined in the 1940 Act) of the outstanding voting
securities of the fund, and (ii) the vote of a majority of Trustees who are not
parties to the Agreements or "interested persons" (as defined in the 1940 Act)
of any such party, cast in person at a meeting called for the purpose of voting
on such approval. The Agreements also provide that either party has the right
to terminate them, without penalty, upon sixty (60) days' written notice to the
other party and that the Agreements automatically terminate in the event of
their assignment (as defined in the 1940 Act).
The fund pays all expenses not specifically assumed by the Business Manager or
the Investment Adviser, including, but not limited to, registration and filing
fees with federal and state agencies; blue sky expenses; expenses of
shareholders' meetings; the expense of reports to existing shareholders;
expenses of printing proxies and prospectuses; insurance premiums; legal and
auditing fees; dividend disbursement expenses; the expense of the issuance,
transfer and redemption of its shares; custodian fees; printing and preparation
of registration statements; taxes; the fund's distribution expenses pursuant to
the Plan of Distribution; compensation, fees and expenses paid to Trustees who
are not "interested persons" of the Trust; association dues; and costs of
stationery, forms and certificates prepared exclusively for the fund.
PRINCIPAL UNDERWRITER - American Funds Distributors, Inc.(the Principal
Underwriter) is the principal underwriter of the fund's shares. The Princiapl
Underwiter is located at 333 South Hope Street, Los Angeles, CA 90071, 135
Sotuh State College Boulevard, Brea, CA 92821, 3500 Wiseman Boulevard, San
Antonio, TX 78251, 8332 Woodfield Crossing Boulevard, Indianapolis, IN 46240,
and 5300 Robin Hood Road, Norfolk, VA 23513. Each fund in theTrust has adopted
a Plan of Distribution (the "Plan"), pursuant to rule 12b-1 under the 1940 Act
(see "Principal Underwriter" in the Prospectus). The Principal Underwriter
receives amounts payable pursuant to the Plan (see below) and commissions
consisting of that portion of the sales charge remaining after the discounts
which it allows to investment dealers. For the fiscal years ended July 31,
1999, 1998 and 1997 the commissions on Maryland Fund shares totaled $405,000,
$250,000, and $170,000 of which the Principal Underwriter retained $80,000,
$48,00 and $32,000, respectively, while the commissions on the Virginia Fund
shares totaled $427,000, $300,000 and $265,000 of which the Principal
Underwriter retained $87,000, $58,000 and $52,000, respectively.
Johnston, Lemon & Co. Incorporated ("Johnston, Lemon"), a wholly-owned
subsidiary of the business manager's parent company, The Johnston-Lemon Group,
Inc. ("JLG"), received commission amounts of $39,000, $44,000, and $27,000, and
$23,000, $41,000 and $35,000, respectively, for the fiscal years ended July 31,
1999, 1998 and 1997, on its retail sales of the Maryland and Virginia Funds and
the Distribution Plan of the funds, but received no net brokerage commissions
resulting from purchases and sales of securities for the investment account of
the funds.
As required by rule 12b-1 and the 1940 Act, the Plan (together with the
Principal Underwriting Agreement) has been approved by the full Board of
Trustees and separately by a majority of the Trustees who are not "interested
persons" of the fund and who have no direct or indirect financial interest in
the operation of the Plan or the Principal Underwriting Agreement, and the Plan
has been approved by the vote of a majority of the outstanding voting
securities of the Trust. The officers and Trustees who are "interested
persons" of the Trust may be considered to have a direct or indirect financial
interest in the operation of the Plan due to present or past affiliations with
the Business Manager. Potential benefits of the Plan to the fund are improved
shareholder services, savings to the fund in transfer agency costs, savings to
the fund in advisory fees and other expenses, benefits to the investment
process from growth or stability of assets and maintenance of a financially
healthy management organization. The selection and nomination of Trustees who
are not "interested persons" of the Trust shall be committed to the discretion
of the Trustees who are not interested persons during the existence of the
Plan. The Plan may not be amended to increase materially the amount to be
spent for distribution without shareholder approval. The Board of Trustees
reviews quarterly a written report of amounts expended under the Plan or any
related agreement and the purposes for which such expenditures were made and
approves annually any continuance of the Plan.
Under the Plan the fund may expend up to 0.25% of its average net assets
annually to finance any activity which is primarily intended to result in the
sale of fund shares, provided the Board of Trustees has approved the category
of expenses for which payment is being made. The following categories of
expenses have been approved: service fees for qualified dealers; dealer
commissions and wholesaler compensation on no-load sales of shares (including
sales exceeding $1 million (including purchases by any employer-sponsored
403(b) plan and by any defined contribution plan qualified under Section
401(a) of the Internal Revenue Code including a "401(k)" plan with 100 or more
eligible employees or a community foundation).
Commissions on sales of shares exceeding $1 million (inluding purchases by any
employer-sponsored 403(b) plan or purchases by any defined contribution plan
qualified under Section 401(a) of the Internal Revenue Code, including any
"401(k)" plan with 100 or more eligible employees) in excess of the Plan
limitation not reimbursed during the most recent fiscal quarter are recoverable
for five quarters, provided that such commissions do not exceed the annual
expense limit. After five quarteres, commissions are not recoverable. During
the Trust's fiscal year ended July 31, 1999, distribution expenses under the
Plan paid or payable to the Principal Underwriter were $268,000 for the
Maryland Fund and $305,000 for the Virginia Fund, all of which was used as
compensation to dealers and wholesalers. As of July 31, 1999, accrued and
unpaid distribution expenses were $45,000 and $52,000, respectively.
All officers of the fund and three of its Directors, who are "interested
persons" of the fund, are officers or directors of Washington Management
Corporation, a wholly-owned subsidiary of JLG. Johnston, Lemon participates
in receiving dealer service fee payments from the Plan. Some of the fund's
officers and three Directors who are "interested persons" of the fund are also
registered representatives with Johnston, Lemon and, as such, to the extent
they have sold shares of the fund, receive a portion of the service fee
payments in the same manner as all other Johnston, Lemon registered
representatives.
DIVIDENDS AND DISTRIBUTIONS
DIVIDENDS AND DISTRIBUTIONS - For the purpose of calculating dividends, daily
net investment income of the fund consists of: (a) all interest income accrued
on the fund's investments including any discount or premium ratably amortized
to the date of maturity or determined in such other manner as may be deemed
appropriate; minus (b) all liabilities accrued, including interest, taxes and
other expense items, amounts determined and declared as dividends or
distributions and reserves for contingent or undetermined liabilities, all
determined in accordance with generally accepted accounting principles.
If a shareholder has elected to receive dividends and/or capital gain
distributions in cash, and the postal or other delivery service is unable to
deliver checks to the shareholder's address of record, or the shareholder does
not respond to mailings from American Funds Service Company with regard to
uncashed distribution checks, the shareholder's distribution option will
automatically be converted to having all dividends and other distributions
reinvested in additional shares.
ADDITIONAL INFORMATION CONCERNING TAXES
The following is only a summary of certain additional tax considerations
generally affecting the fund and its shareholders. No attempt is made to
present a detailed explanation of the tax treatment of the fund or its
shareholders, and the discussion here and in such fund's Prospectus is not
intended as a substitute for careful tax planning. Investors are urged to
consult their tax advisers with specific reference to their own tax situations.
GENERAL - The fund is not intended to constitute a balanced investment program
and is not designed for investors seeking capital appreciation or maximum
tax-exempt income irrespective of fluctuations in principal. Shares of the
fund generally would not be suitable for tax-exempt institutions or
tax-deferred retirement plans (E.G., plans qualified under Section 401 of the
Internal Revenue Code, Keogh-type plans and individual retirement accounts).
Such retirement plans would not gain any additional benefit from the tax-exempt
nature of the fund's dividends because such dividends would be ultimately
taxable to the beneficiaries when distributed to them. In addition, the fund
may not be an appropriate investment for entities which are "substantial users"
of facilities financed by industrial development bonds or "related persons"
thereof. "Substantial user" is defined under U.S. Treasury Regulations to
include a non-exempt person who regularly uses a part of such facilities in
their trade or business and whose gross revenues derived with respect to the
facilities financed by the issuance of bonds are more than 5% of the total
revenues derived by all users of such facilities, or who occupies more than 5%
of the usable area of such facilities or for whom such facilities or a part
thereof were specifically constructed, reconstructed or acquired. "Related
persons" include certain related natural persons, affiliated corporations, a
partnership and its partners and an S Corporation and its shareholders.
The fund intends to meet all the requirements and to elect the tax status of a
"regulated investment company" under the provisions of Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"). As such, the fund will
not be subject to federal income taxes to the extent it distributes its net
investment income and net realized capital gains, if any, to shareholders. The
fund must distribute 90% of the aggregate interest excludable from gross income
and 90% of the investment company taxable income earned by it during the
taxable year.
The percentage of total dividends paid by the fund with respect to any taxable
year which qualify for exclusion from gross income ("exempt-interest
dividends") for Federal tax purposes will be the same for all shareholders
receiving dividends during such year. In order for the fund to pay
exempt-interest dividends during any taxable year, at the close of each fiscal
quarter at least 50% of the aggregate value of the Trust's and fund's assets
must consist of tax-exempt obligations. Not later than 60 days after the close
of its taxable year, the fund will notify each shareholder of the portion of
the dividends paid by the Fund to the shareholder with respect to such taxable
year which constitutes exempt-interest dividends. The aggregate amount of
dividends so designated cannot, however, exceed the excess of the amount of
interest excludable from gross income from tax under Section 103 of the Code
received by the Fund during the taxable year over any amounts disallowed as
deductions under Sections 265 and 171(a)(2) of the Code.
Interest on indebtedness incurred by a shareholder to purchase or carry Fund
shares is not deductible for federal income tax purposes if the Fund
distributes exempt-interest dividends during the shareholder's taxable year.
If a shareholder receives an exempt-interest dividend with respect to any share
and such share is held for six months or less, any loss on the sale or exchange
of such share will be disallowed to the extent of the amount of such
exempt-interest dividend.
While the Fund does not expect to realize substantial long-term capital gains,
any net realized long-term capital gains will be distributed annually. The
fund will have no tax liability with respect to such gains, and the
distributions will be taxable to shareholders as long-term capital gains,
regardless of how long a shareholder has held the fund's shares. Such
distributions will be designated as a capital gains dividend in a written
notice mailed by the fund to shareholders not later than 60 days after the
close of the fund's taxable year. The fund may also make a distribution of net
realized long-term capital gains near the end of the calendar year to comply
with certain requirements of the Code. Gain recognized on the disposition of a
debt obligation (including tax-exempt obligations purchased after April 30,
1993) purchased by the fund at a market discount (generally at a price less
than the principal amount) will be treated as ordinary income to the extent of
the portion of the market discount which accrued during the period of time the
fund held the debt obligation. Similarly, while the fund does not expect to
earn any taxable income, any taxable income earned by the fund will be
distributed and will be taxable to shareholders as ordinary income (whether
distributed in cash or additional shares).
If for any taxable year the fund does not qualify for the special tax treatment
afforded regulated investment companies, all of its taxable income will be
subject to tax at regular corporate rates (without any deduction for
distributions to its shareholders). In such event, dividend distributions
would be taxable to shareholders to the extent of earnings and profits, and may
be eligible for the dividends received deduction for corporations.
Under the Code, if, within 90 days after fund shares are purchased, such shares
are redeemed and either reinstated in the same fund or exchanged for shares of
any other fund in The American Funds Group and the otherwise applicable sales
charge is waived, then the amount of the sales charge previously incurred in
purchasing fund shares shall not be taken into account for purposes of
determining the amount of any gain or loss on the redemption, but will be
treated as having been incurred in the purchase of the fund shares acquired in
the reinstatement or exchange.
The tax status of a gain realized on a redemption will not be affected by
exercise of the reinstatement privilege, but a loss may be nullified if you
reinvest in the same fund within 30 days.
As of the date of this statement of additional information, the maximum federal
individual stated tax rate applicable to ordinary income is 39.6% (effective
tax rates may be higher for some individuals due to phase out of exemptions and
elimination of deductions); the maximum individual tax rate applicable to net
capital gains on securities held more than one year is 20%; and the maximum
corporate tax rate applicable to ordinary income and net capital gain is 35%.
Naturally, the amount of tax payable by a shareholder with respect to either
distributions from the fund or disposition of fund shares will be affected by a
combination of tax rules covering E.G., deductions, credits, deferrals,
exemptions, sources of income and other matters.
FEDERAL TAXES - Under the Code, a nondeductible excise tax of 4% is imposed on
the excess of a regulated investment company's "required distribution" for the
calendar year ending within the regulated investment company's taxable year
over the "distributed amount" for such calendar year. The term "required
distribution" means the sum of (i) 98 percent of ordinary income (generally net
investment income) for the calendar year, (ii) 98 percent of capital gain net
income (both long-term and short-term) for the one-year period ending on
October 31 (as though the one-year period ending on October 31 were the
regulated investment company's taxable year), and (iii) the sum of any untaxed,
undistributed net investment income and net capital gains of the regulated
investment company for prior periods. The term "distributed amount" generally
means the sum of (i) amounts actually distributed by each fund from its current
year's ordinary income and capital gain net income and (ii) any amount on which
such fund pays income tax for the year. Each fund intends to meet these
distribution requirements to avoid the excise tax liability.
Individuals and corporations may be subject to alternative minimum tax. The
Code treats interest on private activity bonds, as defined therein, as an item
of tax preference for alternative minimum tax purposes. Also, shareholders
will not be permitted to deduct any of their share of fund expenses in
computing alternative minimum taxable income. Further, under the Code federal
exempt-interest dividends are includable in adjusted current earnings in
calculating corporate alternative minimum taxable income.
Fund shareholders are required by the Code to report to the federal government
all exempt-interest dividends and all other tax-exempt interest received.
PURCHASE OF SHARES
<TABLE>
<CAPTION>
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METHOD INITIAL INVESTMENT ADDITIONAL INVESTMENTS
See "Investment Minimums and Fund Numbers" for initial investment minimums. $50 minimum (except where a lower
minimum is noted under "Investment Minimums and Fund Numbers").
By contacting Visit any investment dealer who is registered in the state where the purchase is made and who has a sales agreement
with American Funds Distributors. Mail directly to your investment
your dealer's address printed on your
investment account statement.
dealer
By mail Make your check payable to the fund and mail to the address indicated on the account application. Please indicate
an investment dealer on the account application. Fill out the account additions form at the bottom of a recent account statement,
make your check payable to the fund, write your account number on your check, and mail the check and form in the envelope provided
with your account statement.
By telephone Please contact your investment dealer to open account, then follow the procedures for additional investments.
Complete the "Investments by Phone" section on the account application or American FundsLink Authorization Form. Once you establish
the privilege, you, your financial advisor or any person with your account information can call American FundsLineR and make
investments by telephone (subject to conditions noted in "Telephone and Computer
Purchases, Redemptions and Exchanges" below).
By computer Please contact your investment dealer to open account, then follow the procedures for additional investments.
Complete the American FundsLink Authorization Form. Once you establish the privilege, you, your financial advisor or any person
with your account information may access American FundsLine OnLineR on the Internet and make investments by computer (subject to
conditions noted in "Telephone and Computer Purchases, Redemptions and Exchanges"
below).
By wire Call 800/421-0180 to obtain your account number(s), if necessary. Please indicate an investment dealer on the
account. Instruct your bank to wire funds to: Your bank should wire your additional investments in the same manner as described
under "Initial Investment."
Wells Fargo Bank
155 Fifth Street
Sixth Floor
San Francisco, CA 94106
(ABA #121000248)
For credit to the account of:
American Funds Service Company
a/c #4600-076178
(fund name)
(your fund acct. no.)
THE FUNDS AND AMERICAN FUNDS DISTRIBUTORS RESERVE THE RIGHT TO REJECT ANY PURCHASE ORDER.
</TABLE>
INVESTMENT MINIMUMS AND FUND NUMBERS - Here are the minimum initial investments
required by the funds in The American Funds Group along with fund numbers for
use with our automated phone line, American FundsLine (see description below):
<TABLE>
<CAPTION>
<S> <C> <C>
FUND MINIMUM FUND
INITIAL NUMBER
INVESTMENT
STOCK AND STOCK/BOND FUNDS
AMCAP Fund/R/ 02
$1,000
American Balanced Fund/R/ 11
500
American Mutual Fund/R/ 03
250
Capital Income Builder/R/ 12
1,000
Capital World Growth and Income Fund/s/ 33
1,000
EuroPacific Growth Fund/R/ 16
250
Fundamental Investors/s/ 10
250
The Growth Fund of America/R/ 05
1,000
The Income Fund of America/R/ 06
1,000
The Investment Company of America/R/ 04
250
The New Economy Fund/R/ 14
1,000
New Perspective Fund/R/ 07
250
New World Fund /s/ 1,000 36
SMALLCAP World Fund/R/ 35
1,000
Washington Mutual Investors Fund/s/ 01
250
BOND FUNDS
American High-Income Municipal Bond Fund/R/ 40
1,000
American High-Income Trust/s/ 21
1,000
The Bond Fund of America/s/ 08
1,000
Capital World Bond Fund/R/ 31
1,000
Intermediate Bond Fund of America/s/ 23
1,000
Limited Term Tax-Exempt Bond Fund of America/s/ 43
1,000
The Tax-Exempt Bond Fund of America/R/ 19
1,000
The Tax-Exempt Fund of California/R/* 20
1,000
The Tax-Exempt Fund of Maryland/R/* 24
1,000
The Tax-Exempt Fund of Virginia/R/* 25
1,000
U.S. Government Securities Fund/s/ 22
1,000
MONEY MARKET FUNDS
The Cash Management Trust of America/R/ 09
2,500
The Tax-Exempt Money Fund of America/s/ 39
2,500
The U.S. Treasury Money Fund of America/s/ 49
2,500
___________
*Available only in certain states.
</TABLE>
For retirement plan investments, the minimum is $250, except that the money
market funds have a minimum of $1,000 for individual retirement accounts
(IRAs). Minimums are reduced to $50 for purchases through "Automatic
Investment Plans" (except for the money market funds) or to $25 for purchases
by retirement plans through payroll deductions and may be reduced or waived for
shareholders of other funds in The American Funds Group. TAX-EXEMPT FUNDS
SHOULD NOT SERVE AS RETIREMENT PLAN INVESTMENTS. The minimum is $50 for
additional investments (except as noted above).
SALES CHARGES- The sales charges you pay when purchasing the stock, stock/bond,
and bond funds of The American Funds Group are set forth below. The money
market funds of The American Funds Group are offered at net asset value. (See
"Investment Minimums and Fund Numbers" for a listing of the funds.)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
AMOUNT OF PURCHASE SALES CHARGE AS DEALER
AT THE OFFERING PRICE PERCENTAGE OF THE: CONCESSION
AS PERCENTAGE
OF THE
OFFERING
PRICE
NET AMOUNT OFFERING
INVESTED PRICE
STOCK AND STOCK/BOND FUNDS
Less than $50,000........................................
6.10% 5.75% 5.00%
$50,000 but less than $100,000..................
4.71 4.50 3.75
BOND FUNDS
Less than $25,000.......................................
4.99 4.75 4.00
$25,000 but less than $50,000....................
4.71 4.50 3.75
$50,000 but less than $100,000..................
4.17 4.00 3.25
STOCK, STOCK/BOND, AND BOND FUNDS
$100,000 but less than $250,000...............
3.63 3.50 2.75
$250,000 but less than $500,000...............
2.56 2.50 2.00
$500,000 but less than $1,000,000............
2.04 2.00 1.60
$1,000,000 or more..................................... (see below)
none none PURCHASES NOT SUBJECT TO SALES CHARGES -- Investment of $1
million or more are sold with no initial sales
charge. A 1% contingent deferred sales charge may be imposed on
certain redemptions by accounts that
invest with no sales charge, if redemptions are made within one
year of purchase. A dealer concession of up
to 1% may be paid by the fund under its Plan of Distribution on
investments made with no initial sales charge.
</TABLE>
In addition the stock, stock/bond and bond funds may sell shares at net asset
value with no contingent deferred sales charge to:
(1) current or retired directors, trustees, officers and advisory board
members of the funds managed or advised by Capital Research and Management
Company, employees of Washington Management Corporation, employees and
partners of The Capital Group Companies, Inc. and its affiliated companies,
certain family members of the above persons, and trusts or plans primarily for
such persons;
(2) current registered representatives, retired registered representatives
with respect to accounts established while active, or full-time employees (and
their spouses, parents, and children) of dealers who have sales agreements
with American Funds Distributors (or who clear transactions through such
dealers) and plans for such persons or the dealers;
(3) companies exchanging securities with the fund through a merger,
acquisition or exchange offer;
(4) trustees or other fiduciaries purchasing shares for certain retirement
plans, foundations or endowments with assets of $50 million or more;
(5) insurance company separate accounts;
(6) accounts managed by subsidiaries of The Capital Group Companies, Inc.; and
(7) The Capital Group Companies, Inc., its affiliated companies and Washington
Management Corporation.
Shares are offered at net asset value to these persons and organizations due to
anticipated economies in sales effort and expense.
DEALER COMMISSIONS- Commissions of up to 1% will be paid to dealers who
initiate and are responsible for purchases of $1 million or more, for purchases
by any employer-sponsored 403(b) plan or purchases by any defined contribution
plan qualified under Section 401(a) of the Internal Revenue Code including a
"401(k)" plan with 100 or more eligible employees, and for purchases made at
net asset value by certain retirement plans of organizations with collective
retirement plan assets of $50 million or more: 1.00% on amounts of $1 million
to $4 million, 0.50% on amounts over $4 million to $10 million and 0.25% on
amounts over $10 million.
OTHER COMPENSATION TO DEALERS - American Funds Distributors, at its expense
(from a designated percentage of its income) currently provides additional
compensation to dealers. Currently these payments are limited to the top one
hundred dealers who have sold shares of the fund or other funds in The American
Funds Group. These payments will be based on a pro rata share of a qualifying
dealer's sales. American Funds Distributors will, on an annual basis, determine
the advisability of continuing these payments.
Qualified dealers currently are paid a continuing service fee not to exceed
0.25% of average net assets (0.15% in the case of the money market funds)
annually in order to promote selling efforts and to compensate them for
providing certain services. These services include processing purchase and
redemption transactions, establishing shareholder accounts and providing
certain information and assistance with respect to the fund.
STATEMENT OF INTENTION -- You may enter into a non-binding commitment to
purchase shares of a fund(s) over a 13-month period and receive the same sales
charge as if all shares had been purchased at once. This includes purchases
made during the previous 90 days, but does not include appreciation of your
investment or reinvested distributions. The reduced sales charges and offering
prices set forth in the Prospectus apply to purchases of $50,000 or more made
within a 13-month period subject to the following statement of intention (the
"Statement") terms. The Statement is not a binding obligation to purchase the
indicated amount. When a shareholder elects to utilize a Statement in order to
qualify for a reduced sales charge, shares equal to 5% of the dollar amount
specified in the Statement will be held in escrow in the shareholder's account
out of the initial purchase (or subsequent purchases, if necessary) by American
Funds Service Company. All dividends and any capital gain distributions on
shares held in escrow will be credited to the shareholder's account in shares
(or paid in cash, if requested). If the intended investment is not completed
within the specified 13-month period, the purchaser will remit to the Principal
Underwriter the difference between the sales charge actually paid and the sales
charge which would have been paid if the total of such purchases had been made
at a single time. If the difference is not paid by the close of the period the
appropriate number of shares held in escrow will be redeemed to pay such
difference. If the proceeds from this redemption are inadequate, the purchaser
will be liable to the Principal Underwriter for the balance still outstanding.
The Statement may be revised upward at any time during the 13-month period, and
such a revision will be treated as a new Statement, except that the 13-month
period during which the purchase must be made will remain unchanged. Existing
holdings eligible for rights of accumulation (see the account application) and
any individual investments in American Legacy products (American Legacy,
American Legacy II and American Legacy III variable annuities, American Legacy
Life, American Legacy Variable Life, and American Legacy Estate Builder) may be
credited toward satisfying the Statement. During the Statement period,
reinvested dividends and capital gain distributions, investments in money
market funds and investments made under a right of reinstatement will not be
credited toward satisfying the Statement.
When the trustees of certain retirement plans purchase shares by payroll
deduction, the sales charge for the investments made during the 13-month period
will be handled as follows: The regular monthly payroll deduction investment
will be multiplied by 13 and then multiplied by 1.5. The current value of
existing American Funds investments (other than money market fund investments),
and any rollovers or transfers reasonably anticipated to be invested in
non-money market American Funds during the 13-month period, and any individual
investments in American Legacy products are added to the figure determined
above. The sum is the Statement amount and applicable breakpoint level. On
the first investment and all other investments made pursuant to the Statement,
a sales charge will be assessed according to the sales charge breakpoint thus
determined.
Shareholders purchasing shares at a reduced sales charge under a Statement
indicate their acceptance of these terms with their first purchase.
AGGREGATION Sales charge discounts are available for certain aggregated
investments. Qualifying investments include those by you, your spouse and your
children under the age of 21, if all parties are purchasing shares for their
own accounts and/or:
-employee benefit plan(s), such as an IRA, individual-type 403(b) plan, or
single-participant Keogh-type plan;
- -business accounts solely controlled by these individuals (for example, the
individuals own the entire business);
- -trust accounts established by the above individuals. However, if the
person(s) who established the trust is deceased, the trust account may be
aggregated with accounts of the person who is the primary beneficiary of the
trust.
Individual purchases by a trustee(s) or other fiduciary(ies) may also be
aggregated if the investments are:
- -for a single trust estate or fiduciary account, including an employee benefit
plan other than those described above;
- -made for two or more employee benefit plans of a single employer or of
affiliated employers as defined in the 1940 Act, again excluding employee
benefit plans described above; or
- -for a diversified common trust fund or other diversified pooled account not
specifically formed for the purpose of accumulating fund shares.
Purchases made for nominee or street name accounts (securities held in the name
of an investment dealer or another nominee such as a bank trust department
instead of the customer) may not be aggregated with those made for other
accounts and may not be aggregated with other nominee or street name accounts
unless otherwise qualified as described above.
CONCURRENT PURCHASES -- You may combine purchases of two or more funds in The
American Funds Group, except direct purchases of the money market funds.
Shares of money market funds purchased through an exchange, reinvestment or
cross-reinvestment from a fund having a sales charge do qualify.
RIGHT OF ACCUMULATION -- You may take into account the current value of your
existing holdings in The American Funds Group, as well as your holdings in
Endowments (shares of which may be owned only by tax-exempt organizations), to
determine your sales charge on investments in accounts eligible to be
aggregated, or when making a gift to an individual or charity. When determining
your sales charge, you may also take into account the value of your individual
holdings, as of the end of the week prior to your investment, in various
American Legacy products (American Legacy, American Legacy II and American
Legacy III variable annuities, American Legacy Life, American Legacy Variable
Life, and American Legacy Estate Builder). Direct purchases of the money
market funds are excluded.
PRICE OF SHARES - Purchases of shares are made at the offering price next
determined after the purchase order is received by the fund or American Funds
Service Company; this offering price is effective for orders received prior to
the time of determination of the net asset value and, in the case of orders
placed with dealers, accepted by the Principal Underwriter prior to its close
of business. In case of orders sent directly to the fund or American Funds
Service Company, an investment dealer MUST be indicated. The dealer is
responsible for promptly transmitting purchase orders to the Principal
Underwriter. Orders received by the investment dealer, the Transfer Agent, or
the fund after the time of the determination of the net asset value will be
entered at the next calculated offering price. Prices which appear in the
newspaper are not always indicative of prices at which you will be purchasing
and redeeming shares of the fund, since such prices generally reflect the
previous day's closing price whereas purchases and redemptions are made at the
next calculated price.
The price you pay for shares, the public offering price, is based on the net
asset value per share which is calculated once daily at the close of regular
trading (currently 4:00 p.m., New York Time) each day the New York Stock
Exchange is open. For example, if the Exchange closes at 1:00 p.m. on one day
and at 4:00 p.m. on the next, the fund's share price would be determined as of
4:00 p.m. New York time on both days. The New York Stock Exchange is currently
closed on weekends and on the following holidays: New Year's Day, Presidents'
Day, Martin Luther King, Jr. Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving and Christmas.
All portfolio securities of funds managed by Capital Research and Management
Company (other than money market funds) are valued, and the net asset value per
share is determined, as follows:
1. Equity securities, including depositary receipts, are valued at the last
reported sale price on the exchange or market on which such securities are
traded, as of the close of business on the day the securities are being valued
or, lacking any sales, at the last available bid price. In cases where equity
securities are traded on more than one exchange, the securities are valued on
the exchange or market determined by the Investment Adviser to be the broadest
and most representative market, which may be either a securities exchange or
the over-the-counter market. Fixed-income securities are valued at prices
obtained from a pricing service, when such prices are available; however, in
circumstances where the Investment Adviser deems it appropriate to do so, such
securities will be valued at the mean quoted bid and asked prices or at prices
for securities of comparable maturity, quality and type.
Securities with original maturities of one year or less having 60 days or less
to maturity are amortized to maturity based on their cost if acquired within 60
days of maturity or, if already held on the 60th day, based on the value
determined on the 61st day. Forward currency contracts are valued at the mean
of representative quoted bid and asked prices.
Assets or liabilities initially expressed in terms of foreign currencies are
translated prior to the next determination of the net asset value of the fund's
shares into U.S. dollars at the prevailing market rates.
Securities and assets for which representative market quotations are not
readily available are valued at fair value as determined in good faith under
policies approved by the fund's Board; The fair value of all other assets is
added to the value of securities at the total assets;
2. Liabilities, including accruals of taxes and other expense items, are
deducted from total assets; and
3. Net assets so obtained are then divided by the total number of shares
outstanding, and the result, rounded to the nearer cent, is the net asset value
per share.
Any purchase order may be rejected by the Principal Underwriter or by the
Trust. The Trust will not knowingly sell fund shares (other than for the
reinvestment of dividends or capital gain distributions) directly or indirectly
or through a unit investment trust to any other investment company, person or
entity, where, after the sale, such investment company, person, or entity would
own beneficially directly, indirectly, or through a unit investment trust more
than 4.5% of the outstanding shares of the fund without the consent of a
majority of the Board of Trustees.
SELLING SHARES
Shares are sold at the net asset value next determined after your request is
received in good order by American Funds Service Company. You may sell
(redeem) shares in your account in any of the following ways:
THROUGH YOUR DEALER (certain charges may apply)
- - Shares held for you in your dealer's street name must be sold through the
dealer.
WRITING TO AMERICAN FUNDS SERVICE COMPANY
- - Requests must be signed by the registered shareholder(s)
- - A signature guarantee is required if the redemption is:
-- Over $50,000;
-- Made payable to someone other than the registered shareholder(s); or
- -- Sent to an address other than the address of record, or an address of record
which has been changed within the last 10 days.
Your signature may be guaranteed by a domestic stock exchange or the National
Association of Securities Dealers, Inc., bank, savings association or credit
union that is an eligible guarantor institution.
- - Additional documentation may be required for sales of shares held in
corporate, partnership or fiduciary accounts.
- - You must include any shares you wish to sell that are in certificate form.
TELEPHONING OR FAXING AMERICAN FUNDS SERVICE COMPANY, OR BY USING AMERICAN
FUNDSLINE OR AMERICAN FUNDSLINE ONLINE
- - Redemptions by telephone or fax (including American FundsLine and American
FundsLine OnLine) are limited to $50,000 per shareholder each day.
- - Checks must be made payable to the registered shareholder(s).
- - Checks must be mailed to an address of record that has been used with the
account for at least 10 days.
MONEY MARKET FUNDS
- - You may have redemptions of $1,000 or more wired to your bank by writing
American Funds Service Company.
- - You may establish check writing privileges (use the money market funds
application)
- -- If you request check writing privileges, you will be provided with checks
that you may use to draw against your account. These checks may be made
payable to anyone you designate and must be signed by the authorized number or
registered shareholders exactly as indicated on your checking account signature
card.
Redemption proceeds will not be mailed until sufficient time has passed to
provide reasonable assurance that checks or drafts (including certified or
cashier's checks) for shares purchased have cleared (which may take up to 15
calendar days from the purchase date). Except for delays relating to clearance
of checks for share purchases or in extraordinary circumstances (and as
permissible under the Investment Company Act of 1940), sale proceeds will be
paid on or before the seventh day following receipt and acceptance of an order.
Interest will not accrue or be paid on amounts that represent uncashed
distribution or redemption checks.
You may reinvest proceeds from a redemption or a dividend or capital gain
distribution without a sales charge (any contingent deferred sales charge paid
will be credited to your account) in any fund in The American Funds Group
within 90 days after the date of the redemption or distribution. Redemption
proceeds of shares representing direct purchases in the money market funds are
excluded. Proceeds will be reinvested at the next calculated net asset value
after your request is received and accepted by American Funds Service Company.
CONTINGENT DEFERRED SALES CHARGE - A contingent deferred sales charge of 1%
applies to certain redemptions made within twelve months of purchase on
investments of $1 million or more (other than redemptions by employer-sponsored
retirement plans). The charge is 1% of the lesser of the value of the shares
redeemed (exclusive of reinvested dividends and capital gain distributions) or
the total cost of such shares. Shares held for the longest period are assumed
to be redeemed first for purposes of calculating this charge. The charge is
waived for exchanges (except if shares acquired by exchange were then redeemed
within 12 months of the initial purchase); for distributions from 403(b) plans
or IRAs due to death, disability or attainment of age 59$; for tax-free returns
of excess contributions to IRAs; and for redemptions through certain automatic
withdrawals not exceeding 10% of the amount that would otherwise be subject to
the charge.
REDEMPTION OF SHARES - The Transfer Agent may redeem the shares of any
shareholder if the shares owned by such shareholder through redemptions, market
decline or otherwise, have a value of less than the minimum initial investment
amount required of new shareholders, (determined, for this purpose only as the
greater of the shareholder's cost or current net asset value of the shares,
including any shares acquired through reinvestment of income dividends and
capital gains distributions). Prior notice of at least 60 days will be given
to a shareholder before the involuntary redemption provision is made effective
with respect to the shareholder's account . The shareholder will have not less
than 30 days from the date of such notice within which to bring the account up
to the minimum determined as set forth above.
SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES
AUTOMATIC INVESTMENT PLAN - The automatic investment plan enables shareholders
to make regular investments monthly or quarterly in shares through automatic
charges to their bank accounts. With shareholder authorization and bank
approval, the Transfer Agent will automatically charge the bank account for the
amount specified ($50 minimum) and the date on which you would like your
reinvestments to occur. The plan will begin within 30 days after your account
application is received. Your bank account will be debited on the day or a few
days before investments are credited, depending on the bank's capabilities. If
your bank account cannot be charged due to insufficient funds, a stop-payment
order or closing of the account, the plan may be terminated and the related
investment reversed. You may change the amount of the investment or
discontinue the plan at any time by writing to the Transfer Agent.
AUTOMATIC REINVESTMENT - Dividends and capital gain distributions are
reinvested in additional shares at no sales charge unless you indicate
otherwise on the account application. You also may elect to have dividends
and/or capital gain distributions paid in cash by informing the fund, American
Funds Service Company or your investment dealer.
CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS -- You may cross-reinvest
dividends and capital gains ("distributions") into any other fund in The
American Funds Group at net asset value, subject to the following conditions:
(a) The aggregate value of your account(s) in the fund(s) paying distributions
equals or exceeds $5,000 (this is waived if the value of the account in the
fund receiving the distributions equals or exceeds that fund's minimum initial
investment requirement),
(b) If the value of the account of the fund receiving distributions is below
the minimum initial investment requirement, distributions must be automatically
reinvested,
(c) If you discontinue the cross-reinvestment of distributions, the value of
the account of the fund receiving distribution must equal or exceed the minimum
initial investment requirement. If you do not meet this requirement within 90
days of notification, the fund has the right to automatically redeem the
account.
EXCHANGE PRIVILEGE - You may exchange shares into other funds in The American
Funds Group. Exchange purchases are subject to the minimum investment
requirements of the fund purchased and no sales charge generally applies.
However, exchanges of shares from the money market funds are subject to
applicable sales charges on the fund being purchased, unless the money market
fund shares were acquired by an exchange from a fund having a sales charge, or
by reinvestment or cross-reinvestment of dividends or capital gain
distributions.
You may exchange shares by writing to American Funds Service Company (see
"Selling Shares"), by contacting your investment dealer, by using American
FundsLine and American FundsLine OnLine (see "American FundsLine and American
FundsLine OnLine" below), or by telephoning 800/421-0180 toll-free, faxing (see
"Principal Underwriter and Transfer Agent" in the prospectus for the
appropriate fax numbers) or telegraphing American Funds Service Company. (See
"Telephone and Computer Purchases, Redemptions and Exchanges" below.) Shares
held in corporate-type retirement plans for which Capital Guardian Trust
Company serves as trustee may not be exchanged by telephone, computer, fax or
telegraph. Exchange redemptions and purchases are processed simultaneously at
the share prices next determined after the exchange order is received. (See
"Purchase of Shares--Price of Shares.") THESE TRANSACTIONS HAVE THE SAME TAX
CONSEQUENCES AS ORDINARY SALES AND PURCHASES.
AUTOMATIC EXCHANGES - You may automatically exchange shares (in amounts of $50
or more) among any of the funds in The American Funds Group on any day (or
preceding business day if the day falls on a non-business day) of each month
you designate. You must either (a) meet the minimum initial investment
requirement for the receiving fund OR (b) the originating fund's balance must
be at least $5,000 and the receiving fund's minimum must be met within one
year.
AUTOMATIC WITHDRAWALS - Withdrawal payments are not to be considered as
dividends, yield or income. Automatic investments may not be made into a
shareholder account from which there are automatic withdrawals. Withdrawals of
amounts exceeding reinvested dividends and distributions and increases in share
value would reduce the aggregate value of the shareholder's account. The
Transfer Agent arranges for the redemption by the Fund of sufficient shares,
deposited by the shareholder with the Transfer Agent, to provide the withdrawal
payment specified.
ACCOUNT STATEMENTS - Your account is opened in accordance with your
registration instructions. Transactions in the account, such as additional
investments and dividend reinvestments, will be reflected on regular
confirmation statements from American Funds Service Company. Purchases through
automatic investment plans and certain retirement plans will be confirmed at
least quarterly.
AMERICAN FUNDSLINE AND AMERICAN FUNDSLINE ONLINE- You may check your share
balance, the price of your shares, or your most recent account transaction,
sell shares (up to $50,000 per shareholder, per day), or exchange shares around
the clock with American FundsLine and American FundsLine OnLine. To use this
service, call 800/325-3590 from a TouchTonet telephone or access the American
Funds Web site on the Internet at www.americanfunds.com. Redemptions and
exchanges through American FundsLineR and American FundsLine OnLine are subject
to the conditions noted above and in "Telephone and Computer Redemptions and
Exchanges" below. You will need your fund number (see the list of funds in The
American Funds Group under "Purchase of Shares--Investment Minimums and Fund
Numbers"), personal identification number (the last four digits of your Social
Security number or other tax identification number associated with your
account) and account number.
TELEPHONE AND COMPUTER PURCHASES, REDEMPTIONS AND EXCHANGES - By using the
telephone (including American FundsLine and American FundsLine OnLine), fax or
telegraph redemption and/or exchange options, you agree to hold the fund,
American Funds Service Company, any of its affiliates or mutual funds managed
by such affiliates, the Fund's Business Manager and each of their respective
directors, trustees, officers, employees and agents harmless from any losses,
expenses, costs or liability (including attorney fees) which may be incurred in
connection with the exercise of these privileges. Generally, all shareholders
are automatically eligible to use these options. However, you may elect to opt
out of these options by writing American Funds Service Company (you may also
reinstate them at any time by writing American Funds Service Company). If
American Funds Service Company does not employ reasonable procedures to confirm
that the instructions received from any person with appropriate account
information are genuine, it and/or the fund may be liable for losses due to
unauthorized or fraudulent instructions. In the event that shareholders are
unable to reach the fund by telephone because of technical difficulties, market
conditions, or a natural disaster, redemption and exchange requests may be made
in writing only.
SHARE CERTIFICATES - Shares are credited to your account and certificates are
not issued unless you request them by writing to the Transfer Agent.
EXECUTION OF PORTFOLIO TRANSACTIONS
Orders for the fund's portfolio securities transactions are placed by the
Investment Adviser. The Investment Adviser strives to obtain the best
available prices in its portfolio transactions taking into account the costs
and promptness of executions. When, in the opinion of the Investment Adviser,
two or more brokers (either directly or through their correspondent clearing
agents) are in a position to obtain the best price and execution, preference
may be given to brokers who have sold shares of the fund or who have provided
investment research, statistical, or other related services to the Investment
Adviser. The fund does not consider that it has an obligation to obtain the
lowest available commission rate to the exclusion of price, service and
qualitative considerations.
There are occasions on which portfolio transactions for the fund may be
executed as part of concurrent authorizations to purchase or sell the same
security for other funds served by the Investment Adviser, or for trusts or
other accounts served by affiliated companies of the Investment Adviser.
Although such concurrent authorizations potentially could be either
advantageous or disadvantageous to the fund, they are effected only when the
Investment Adviser believes that to do so is in the interest of the fund. When
such concurrent authorizations occur, the objective is to allocate the
executions in an equitable manner. The fund will not pay a mark-up for
research in principal transactions.
Substantially all portfolio transactions are effected on a principal basis and
ordinarily include a mark-up or mark-down, but no stated commission. Brokerage
commissions paid on portfolio transactions, including dealer concessions on
underwritings, for the fiscal year ended July 31, 1999 equaled $54,000 for the
Maryland Fund and $64,000 for the Virginia Fund, respectively.
Johnston, Lemon & Co. Incorporated, which together with the Business Manager is
wholly owned by The Johnston-Lemon Group, Incorporated, may serve as broker for
the fund in effecting certain portfolio transactions, and may retain
commissions, in accordance with certain regulations of the Securities and
Exchange Commission.
GENERAL INFORMATION
CUSTODIAN OF ASSETS - Securities and cash owned by the fund, including proceeds
from the sale of shares of the fund and of securities in the fund's portfolio,
are held by The Chase Manhattan Bank, Three Metrotech Center, Brooklyn, NY
11245, as Custodian.
TRANSFER AGENT - American Funds Service Company, a wholly owned subsidiary of
the Investment Adviser, maintains the record of each shareholder's account,
processes purchases and redemptions of the fund's shares, acts as dividend and
capital gain distribution disbursing agent, and performs other related
shareholder service functions. American Funds Service Company was paid a fee
of $38,000 and $41,000, for the Maryland Fund and the Virginia Fund,
respectively, for the fiscal year ended July 31, 1999.
INDEPENDENT ACCOUNTANTS - PricewaterhouseCoopers LLP, 400 South Hope Street,
Los Angeles, CA 90071, has served as the Trust's independent accountants since
its inception, providing audit services, preparation of tax returns and review
of certain documents to be filed with the Securities and Exchange Commission.
The Financial Statements included in this Statement of Additional Information
have been so included in reliance on the report of PricewaterhouseCoopers LLP
given on the authority of that firm as experts in auditing and accounting.
REPORTS TO SHAREHOLDERS - The Trust's fiscal year ends on July 31. Shareholders
are provided, at least semiannually, with reports showing the investment
portfolio and financial statements audited annually by the Trust's independent
accountants, PricewaterhouseCoopers LLP, whose selection is determined annually
by the Trustees. In an effort to reduce the volume of mail shareholders
receive from the fund when a household owns more than one account, the Transfer
Agent has taken steps to eliminate duplicate mailings of shareholder reports.
To receive additional copies of a report shareholders should contact the
Transfer Agent.
YEAR 2000 - The fund and its shareholders depend on the proper functioning of
computer systems maintained by the Investment Adviser and its affiliates and
other key service providers. Many computer systems in use today will require
reprogramming or replacement prior to the year 2000 because of the way they
store dates and make date-related calculations. The fund understands that
these service providers have updated all of their computer systems to process
date-related information properly following the turn of the century. However,
there can be no assurance that these steps will be sufficient to avoid any
adverse impact on the fund. In addition, the fund's investments could be
adversely affected by the Year 2000 problem. For example, the markets for
securities in which the fund invests could experience settlement problems and
liquidity issues. Corporate and government data processing errors may cause
losses for individual companies and overall economic uncertainties. Earnings
of individual issuers are likely to be affected by the costs of addressing the
problem, which may be substantial and may be reported inconsistently.
PERSONAL INVESTING POLICY - Capital Research and Management Company and its
affiliated companies have adopted a personal investing policy consistent with
Investment Company Institute guidelines. This policy includes: a ban on
acquisitions of securities pursuant to an initial public offering; restrictions
on acquisitions of private placement securities; pre-clearance and reporting
requirements; review of duplicate confirmation statements; annual
recertification of compliance with codes of ethics; disclosure of personal
holdings by certain investment personnel prior to recommendation for purchase
for the fund; blackout periods for personal investing for certain investment
personnel; ban on short-term trading profits for investment personnel;
limitations on service as a director of publicly traded companies; and
disclosure of personal securities transactions. You may obtain a summary of
the personal investing policy of the fund's investment adviser by contacting
the Secretary of the fund.
The financial statements including the investment portfolio and the report of
Independent Accountants contained in the Annual Report are included in this
Statement of Additional Information. The following information is not included
in the Annual Report:
DETERMINATION OF NET ASSET VALUE, REDEMPTION PRICE AND
MAXIMUM OFFERING PRICE PER SHARE -- JULY 31, 1999
<TABLE>
<CAPTION>
THE TAX-EXEMPT FUND OF Maryland THE TAX-EXEMPT FUND OF VIRGINIA
<S> <C> <C>
Net asset value and redemption price per share $15.57 $15.82
(Net assets divided by shares outstanding)
Maximum Offering price per share (100/95.25 of $16.35 $16.61
net asset value per share, which takes into
account the fund's current maximum sales charge)
</TABLE>
SHAREHOLDER AND TRUSTEE RESPONSIBILITY - Under the laws of certain states,
including Massachusetts, where the Trust was organized, shareholders of a
Massachusetts business trust may, under certain circumstances, be held
personally liable as partners for the obligations of the Trust. However, the
risk of a shareholder incurring any financial loss on account of shareholder
liability is limited to circumstances in which the Trust itself would be unable
to meet its obligations. The Declaration of Trust contains an express
disclaimer of shareholder liability for acts or obligations of the Trust and
provides that notice of the disclaimer may be given in any agreement,
obligation, or instrument which is entered into or executed by the Trust or
Trustees. The Declaration of Trust provides for indemnification out of Trust
property of any shareholder held personally liable for the obligations of the
Trust and also provides for the Trust to reimburse such shareholder for all
legal and other expenses reasonably incurred in connection with any such claim
or liability.
Under the Declaration of Trust, the Trustees or officers are not liable for
actions or failure to act; however, they are not protected from liability by
reason of their willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of their office. The Trust
will provide indemnification to its Trustees and officers as authorized by its
By-Laws and by the 1940 Act and the rules and regulations thereunder.
SHAREHOLDER VOTING RIGHTS - As permitted by Massachusetts law, there will
normally be no meetings of shareholders for the purpose of electing Trustees
unless and until such time as less than a majority of the Trustees holding
office have been elected by shareholders. At that time, the Trustees then in
office will call a shareholders' meeting for the election of Trustees. The
Trustees must call a meeting of shareholders for the purpose of voting upon the
question of removal of any Trustee when requested to do so by the record
holders of 10% of the outstanding shares of the Trust. At such a meeting, a
Trustee may be removed after the holders of record of not less than a majority
of the outstanding shares of the Trust have declared that the Trustee be
removed either by declaration in writing or by votes cast in person or by
proxy. Except as set forth above, the Trustees will continue to hold office
and may appoint successor Trustees. The shares do not have cumulative voting
rights, which means that the holders of a majority of the shares of the Trust
voting for the election of Trustees can elect all the Trustees. No amendment
may be made to the Declaration of Trust without the affirmative vote of a
majority of the outstanding shares of the Trust except that amendments to
change the name of the Trust, to correct any ambiguous, defective or
inconsistent provision of, or to supply any omission to, the Declaration of
Trust, to establish new funds, or to reduce or eliminate the payment of taxes
by the Trust may be made by the Trustees without the vote or consent of
Shareholders. If not terminated by the vote or written consent of a majority
of the outstanding shares, the Trust will continue indefinitely.
The fund currently issues shares in two series and the Board of Trustees may
establish additional series of shares in the future. Each "series" of shares
represents interests in a separate portfolio and has its own investment
objective and policies. When more than one series of shares is outstanding,
shares of all series will vote together for a single set of Trustees, and on
other matters affecting the entire Trust, with each share entitled to a single
vote. On matters affecting only one series, only the shareholders of that
series shall be entitled to vote. On matters relating to more than one series
but affecting the series differently, separate votes by series are required.
INVESTMENT RESULTS
The Maryland Fund yield was 3.86% and the Virginia Fund yield was 4.02% based
on a 30-day (or one month) period ended July 31, 1999, computed by dividing the
net investment income per share earned during the period by the maximum
offering price per share on the last day of the period, according to the
following formula:
YIELD = 2[((a-b/cd) + 1)/6/ -1]
Where:a =dividends and interest earned during the period.
b =expenses accrued for the period (net of reimbursements).
c =the average daily number of shares outstanding during the period
that were entitled to receive dividends.
d =the maximum offering price per share on the last day of the period.
The fund may also calculate a tax equivalent yield based on a 30-day (or one
month) period ended no later than the date of the most recent balance sheet
included in the registration statement, computed by dividing that portion of
the yield (as computed by the formula stated above) which is tax-exempt by one
minus a stated income tax rate and adding the product to that portion, if any,
of the yield that is not tax-exempt. The Maryland Fund's tax-equivalent yield
based on the maximum combined effective federal/state/county tax rate of 44.1%
for the 30-day (or one month) period ended July 31, 1999 was 6.91%. For the
Virginia Fund investors with the maximum combined effective federal/state tax
rate of 43.1%, the tax-equivalent yield was 7.07% for the period ended July 31,
1999.
The Maryland Fund average annual total return for the one-year, five-year and
ten-year periods ending on July 31, 1999 was -2.58%, +5.19% and +6.00%,
respectively. The Virginia Fund average annual total return for the same time
periods was -2.67%, +4.83% and +5.95%, respectively. The average annual total
return ("T") is computed by equating the value at the end of the period ("ERV")
with a hypothetical initial investment of $1,000 ("P") over a period of years
("n") according to the following formula as required by the Securities and
Exchange Commission:
P(1+T)/n/ = ERV.
The following assumptions will be reflected in computations made in accordance
with the formula stated above: (1) deduction of the maximum sales load of
4.75% from the $1,000 initial investment; (2) reinvestment of dividends and
distributions at net asset value on the reinvestment date determined by the
Board; and (3) a complete redemption at the end of any period illustrated. The
fund will calculate total return for ten-year periods after such a period has
elapsed. In addition, the fund will provide lifetime average total return
figures.
The funds may also calculate distribution rates on a taxable and tax equivalent
basis. The distribution rates are computed by annualizing the current month's
dividend and dividing by the average net asset value or maximum
offering price for the month. The distribution rates may differ from the
yields.
SEE THE DIFFERENCE TIME CAN MAKE IN AN INVESTMENT PROGRAM
....and taken all
distributions in shares,
If you had invested your investment would
$10,000 in the fund have been worth this
this many years ago... much at July 31, 1999
<TABLE>
<CAPTION>
Number of Years Periods Maryland Value** Virginia Value**
8/1-7/31
<S> <C> <C> <C>
1 1998-1999 $9,742 $ 9,733
2 1997-1999 $10,316 $10,228
3 1996-1999 $11,297 $11,158
4 1995-1999 11,973 11,768
5 1994-1999 12,877 12,662
6 1993-1999 13,065 12,879
7 1992-1999 14,033 13,822
8 1991-1999 15,822 15,584
9 1990-1999 17,000 16,840
10 1989-1999 17,903 17,820
11 1988-1999 20,017 19,895
12 1987-1999 21,450 21,145
13 8/14/86-1999 21,265 21,746
</TABLE>
ILLUSTRATION OF A $10,000 INVESTMENT IN THE TAX-EXEMPT FUND OF MARYLAND
WITH DIVIDENDS REINVESTED
(For the lifetime of the fund August 14, 1986 - July 31, 1999)
COST OF SHARES
VALUE OF SHARES**
<TABLE>
<CAPTION>
Fiscal Annual Dividends Total From From From Total
Year End Dividends (cumulative) Investment Initial Capital Dividends Value
July 31 Cost Investment Gains Reinvested
Reinvested
<S> <C> <C> <C> <C> <C> <C> <C>
1987* $ 493 $ 493 $ 10,493 $ 8,973 $0 $ 471 $ 9,444
1988 617 1,110 11,110 9,020 1 1,101 10,122
1989 653 1,763 11,763 9,480 1 1,832 11,313
1990 681 2,444 12,444 9,413 1 2,504 11,918
1991 736 3,180 13,180 9,527 1 3,276 12,804
1992 764 3,944 13,944 10,147 1 4,285 14,433
1993 765 4,709 14,709 10,353 1 5,154 15,508
1994 773 5,482 15,482 10,000 1 5,727 15,728
1995 860 6,342 16,342 10,193 1 6,726 16,920
1996 901 7,243 17,243 10,260 1 7,666 17,927
1997 945 8,188 18,188 10,680 1 8,953 19,634
1998 985 9,173 19,173 10,693 147 9,951 20,791
1999 990 10,164 20,104 10,380 263 10,662 21,265
</TABLE>
The dollar amount of capital gain distributions during the fund's lifetime was
$270.
ILLUSTRATION OF A $10,000 INVESTMENT IN THE TAX-EXEMPT FUND OF VIRGINIA
WITH DIVIDENDS REINVESTED
(For the lifetime of the fund August 14, 1986 - July 31, 1999)
COST OF SHARES
VALUE OF SHARES**
<TABLE>
<CAPTION>
Fiscal Annual Dividends Total From From Capital From Total
Year End Dividends (cumulative) Investment Initial Gains Dividends Value
July 31 Cost Investment Reinvested Reinvestment
<S> <C> <C> <C> <C> <C> <C> <C>
1987* $ 545 $ 545 $ 10,545 $ 9,273 $0 $ 525 $ 9,798
1988 640 1,185 11,185 9,240 1 1,171 10,412
1989 671 1,856 11,856 9,700 1 1,919 11,620
1990 716 2,572 12,572 9,667 1 2,634 12,302
1991 760 3,332 13,332 9,833 1 3,454 13,288
1992 791 4,123 14,123 10,480 1 4,508 14,989
1993 800 4,923 14,923 10,673 1 5,407 16,081
1994 826 5,749 15,749 10,327 1 6,032 16,360
1995 892 6,641 16,641 10,527 1 7,069 17,597
1996 928 7,569 17,569 10,513 63 7,982 18,558
1997 955 8,524 18,524 10,913 65 9,269 20,247
1998 990 9,514 19,514 10,907 114 10,255 21,276
1999 975 10,489 20,489 10,547 338 10,861 21,746
</TABLE>
The dollar amount of capital gain distributions during the fund's lifetime was
$348.
* From inception on August 14, 1986.
** Results assume deduction of the maximum sales charge of 4.75% from the
initial purchase payment.
Note that past results are not an indication of future investment results. The
fund may include information on its investment results and/or comparisons of
its investment results to various unmanged indices or results of other mutual
funds or investment or savings vehicles in advertisements or in reports
furnished to present or perspective shareholders. The fund may also combine
its results with those of other funds in The American Funds Group for purposes
of illustrating investment strategies involving multiple funds.
The fund may also refer to results compiled by organizations such as CDA
Investment Services, Ibbotson Associates, Lipper Analytical Services,
Morningstar, Inc., Weisenberger Investment Company Services and the U.S.
Department of Commerce. Additionally, the fund may, from time to time, refer
to results published in various newspapers or periodicals, including "Barrons",
Forbes, Fortune, Institutional Investor, Kiplinger's Personal Finance
Magazine, Money, U.S. News and World Report and "The Wall Street Journal."
DESCRIPTION OF RATINGS FOR DEBT SECURITIES
The ratings of Moody's Investors Service, Inc. and Standard & Poor's
Corporation represent their opinions as to the quality of the municipal bonds
which they undertake to rate. It should be emphasized, however, that ratings
are general and are not absolute standards of quality. Consequently, municipal
bonds with the same maturity, coupon and rating may have different yields,
while municipal bonds of the same maturity and coupon with different ratings
may have the same yield.
Moody's Investors Service, Inc. rates the long-term debt securities issued by
various entities from "Aaa" to "C." Moody's applies the numerical modifiers 1,
2, and 3 in each generic rating classification from Aa through B in its
corporate bond rating system. The modifier 1 indicates that the security ranks
in the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the issue ranks in the
lower end of its generic rating category. Ratings are described as follows:
BONDS --
"Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as 'gilt
edge.' Interest payments are protected by a large or by an exceptionally
stable margin, and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues."
"Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities, or fluctuation of
protective elements may be of greater amplitude, or there may be other elements
present which make the long-term risks appear somewhat larger than the Aaa
securities."
"Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future."
"Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and, in
fact, have speculative characteristics as well."
"Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class."
"Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small."
"Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest."
"Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or having other marked
shortcomings."
"Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing."
NOTES --
"The MIG 1 designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing."
"The MIG 2 designation denotes high quality. Margins of protection are ample
although not as large as in the preceding group."
COMMERCIAL PAPER --
"Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics:
-- Leading market positions in well established industries.
-- High rates of return on funds employed.
-- Conservative capitalization structures with moderate reliance on debt and
ample asset protection.
- -- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
-- Well established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while appropriate, maybe
more affected by external conditions. Ample alternate liquidity is
maintained."
Standard & Poor's Corporation rates the long-term securities debt of various
entities in categories ranging from "AAA" to "D" according to quality. The
ratings from "AA" to "CCC" may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within the major rating categories.
Ratings are described as follows:
BONDS --
"Debt rated 'AAA' has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong."
"Debt rated 'AA' has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree."
"Debt rated 'A' has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories."
"Debt rated 'BBB' is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories."
"BB, B, CCC, CC, C -- Regarded, on balance, as predominantly speculative with
respect to capacity to pay interest and repay principal in accordance with the
terms of the obligation. BB indicates the lowest degree of speculation and C
The highest degree of speculation. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions."
"The rating 'C1' is reserved for income bonds on which no interest is being
paid."
"Debt rated 'D' is in payment default. The 'D' rating category is used when
interest payments or principal payments are not made on the date due even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The 'D' rating also will be
used upon the filing of a bankruptcy petition if debt service payments are
jeopardized."
NOTES --
"The SP-1 rating denotes a very strong or strong capacity to pay principal and
interest. Those issues determined to possess overwhelming safety
characteristics will be given a plus (+) designation."
"The SP-2 rating denotes a satisfactory capacity to pay principal and
interest."
COMMERCIAL PAPER --
"The A-1 designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus
(+)designation.
The A-2 designation indicates a capacity for timely payment on issues so
designated is strong; however, the relative degree of safety is not as high as
for issues designated A-1."
<TABLE>
<S> <C> <C>
The Tax-Exempt Fund of Maryland
Investment Portfolio, July 31, 1999
Principal
Amount Market
(000) Value
-------------- -------------
Tax-Exempt Securities Maturing in More than One Year - 92.76%
College & University Revenue - 1.73%
Frederick County, College Revenue Bonds (Hood College Project),
1990 Series:
7.05% 2004 $ 410 $ 428,569
7.05% 2005 455 474069
University of Maryland System Auxiliary Facility and Tuition
Revenue Bonds, 1993 Refunding Series C, 5.00% 2010 1000 1002830
-------------
1,905,468
-------------
General Obligations (Local) - .96%
Anne Arundel County, Consolidated Water and Sewer, 1993
Refunding Series, 5.30% 2016 500 500910
Harford County Consolidated Public Improvement Bonds,
Series 1992, 5.80% 2010 530 561196
-------------
1,062,106
-------------
General Obligations (State) - 5.51%
Maryland General Obligation Bonds, State and Local
Facilities, Second Series:
Loan of 1997, 4.75% 2000 1000 1012450
Loan of 1999, 5.0% 2011 1500 1504365
Loan of 1999, 5.25% 2012 2000 2039200
Commonwealth of Puerto Rico, Public Improvement
Refunding Bonds, Series 1998, 5.00% 2007 1500 1521975
-------------
6,077,990
-------------
Hospital & Health Facilities Revenue - 10.06%
Maryland Health and Higher Educational Facilities Authority:
(Charity Obligated Group-Daughters of Charity National
Health System), Hospital Revenue Bonds,
Series 1997D, 4.60% 2026 (2003)/1/ 1725 1731503
Good Samaritan Hospital Issue, Revenue Bonds, Escrowed to Maturity,
Series 1993, 5.70% 2009 1000 1057780
Howard County, General Hospital Issue, Escrowed to Maturity,
Series 1993:
5.50% 2013 2000 2061800
5.50% 2021 1000 1008970
Johns Hopkins Hospital Issue, Revenue Refunding Bonds,
Series 1993, 5.60% 2009 850 882649
Suburban Hospital Issue, Revenue Refunding Bonds,
Series 1993, 5.125% 2021 1500 1376085
Prince George's County (Dimensions Health Corporation Issue):
Hospital Revenue Bonds, Series 1992, 7.20% 2006 215 227967
Project and Refunding Revenue Bonds, Series 1994, 5.375% 2014 2985 2754468
-------------
11,101,222
-------------
Housing Finance Authority Revenue - 11.62%
Maryland Community Development Administration, Department of
Housing and Community Development:
Residential Revenue Bonds, 1998 Series B, AMT:
5.00% 2008 1,610 1,607,601
5.00% 2009 1,680 1,669,416
Single-Family Program Bonds:
1994 First Series, 5.80% 2009 2000 2083880
1994 First Series, 5.70% 2017 2,085 2,126,721
1994 Fifth Series, AMT, 5.875% 2017 165 167958
1990 First Series, 7.60% 2017 405 416223
Montgomery County, Housing Opportunities Commission,
Single Family Mortgage Revenue Bonds:
1998 Series B, 4.80% 2009 600 601,860
1997 Series A, 5.50% 2009 660 674,903
1998 Series B, 4.90% 2010 500 495,685
Prince George's County Housing Authority, GNMA/FNMA
Collateralized Single Family Mortgage Bonds:
Series 1998 A, AMT, 4.65% 2019 2000 1993281
Series 1994 A, AMT, 6.60% 2025 860 906216
Commonwealth of Puerto Rico Housing Finance Corporation,
Single Family Mortgage Revenue Bonds, 1st Portfolio,
1988 Series B, 7.65% 2022 80 83260
-------------
12,827,004
-------------
Industrial Development Revenue - 1.93%
Mayor and City Council of Baltimore, Port Facilities Revenue
Bonds (Consolidation Coal Sales Company Project):
Series 1984 A, 6.50% 2011 500 537645
Series 1984 B, 6.50% 2011 500 537645
Puerto Rico Ports Authority, Special Facilities Revenue Bonds
(American Airlines, Inc. Project), 1996 Series A, 6.25% 2026 1000 1050410
-------------
2,125,700
-------------
Insured - 21.57%
City of Baltimore:
Consolidated Public Improvement Bonds of 1998,
Series A, FGIC Insured, 5.375% 2010 1185 1228347
Project and Refuding Revenue Bonds (Water Projects), Series A,
FGIC Insured:
1998, 5.375% 2015 1000 1013150
1994, 6.00% 2015 1500 1639875
1994, 5.00% 2024 1220 1163965
Calvert County, Economic Development Refunding Revenue Bonds,
(Asbury-Solomons Island Facility), Series 1997, MBIA Insured:
5.00% 2009 1000 1010060
5.00% 2010 1000 1002780
5.00% 2017 1000 963360
5.00% 2027 1000 938310
Charles County, Consolidated Public Improvement Bonds of 1993,
Series A, FGIC Insured, 5.25% 2003 715 738309
City of Frederick, General Improvement Bonds, 1992 Refunding
Series, FGIC Insured, 6.125% 2008 890 952772
Maryland Health and Higher Educational Facilities Authority:
Johns Hopkins Medical Institutions Parking Facilities Issue,
Parking Revenue Bonds, Series 1996, AMBAC Insured, 5.50% 2011 1200 1236168
Helix Health Issue, Revenue Bonds, Series 1997, AMBAC Insured,
5.00% 2007 1250 1275750
Medlantic/Helix Health Issue, Revenue Bonds:
FSA Insured, Series 1998 B, 5.25% 2011 1,000 1,002,790
AMBAC Insured, Series 1998 A, 5.25% 2038 1,500 1,443,465
Mercy Medical Center Issue Project and Refunding Revenue
Bonds, Series 1996, FSA Insured, 6.50% 2013 2000 2251580
Upper Chesapeake Hospitals Issue, Revenue Bonds, Series 1998 A, 1,000 1,001,770
5.50% 2020
Prince George's County, Solid Waste Management System
Revenue Bonds, Series 1993, FSA Insured, 6.50% 2007 2,000 2,165,540
Commonwealth of Puerto Rico, MBIA Insured:
Electric & Power Authority, 1995 Series Y, 7.00% 2007 1000 1,156,660
Public Improvement Bonds of 1987, MBIA Insured, 6.75% 2006 25 25313
Washington Metroplitan Area Transit Authority, Gross Revenue Transit
Refunding Bonds, Series 1993, 6.00% 2008 1480 1604779
-------------
23,814,743
-------------
Lease Revenue (State) - .37%
Maryland Stadium Authority, Sports Facilities
Lease Revenue Bonds, Series 1989 D, 7.50% 2010 400 413184
-------------
Life Care Facilities Revenue - 8.13%
Maryland Health and Higher Educational Facilities Authority,
Refunding and Project Revenue Bonds, Roland Park Place Issue,
Series 1999:
5.40% 2011 1000 964040
5.45% 2012 1000 957920
5.50% 2014 1525 1454774
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 1500 1461450
5.75%, 2026 1640 1591636
Prince George's County, Refunding Revenue Bonds, Collington
Episcopal Life Care Community, Inc., Series 1994 A, 6.00% 2013 2500 2541600
-------------
8,971,420
-------------
Multi-Family Housing - 4.89%
Montgomery County, Maryland Housing Opportunities Commission,
Multi-Family Revenue Bonds:
1995 Series A, 6.10% 2015 2,025 2,120,560
1994 Series A-2, 7.50% 2024 2000 2120780
Prince George's County, Mortgage Revenue Bonds
(GNMA Collateralized-Langley Gardens Apartments Project),
Series 1997 A, 5.60% 2017 1130 1157097
-------------
5398437
-------------
Pre-Refunded (2) - 10.75%
Calvert County, Economic Development Revenue Bonds
(Asbury-Solomons Island Facility), Series 1995, 8.625% 2024 (2005) 2300 2763841
Frederick County, Public Facilities Bonds:
1991, Series B, 6.30% 2011 (2002) 1370 1475435
1986 Series, 7.40% 2012 (2001) 310 338046
Harford County, Consolidated Public Improvement Bonds,
Series 1992, 5.80% 2010 (2002) 970 1033603
Howard County, Metropolitan District Refunding Bonds,
1991 Series A, 6.625% 2021 (2001) 500 524585
Maryland State Health and Higher Educational Facilities Authority:
Memorial Hospital of Cumberland Issue, Revenue Refunding
Bonds, Series 1992, 6.50% 2010 (2004) 750 819128
Suburban Hospital Issue Revenue Bonds, Series 1992,
6.50% 2017 (2002) 500 541205
University of Maryland Medical System Issue, Revenue Bonds,
Series 1991 A, FGIC Insured, 6.50% 2021 (2001) 1000 1046180
Prince George's County, Hospital Revenue Bonds (Dimensions
Health Corporation Issue), Series 1992, 7.20% 2006 (2002) 1,035 1138821
Commonwealth of Puerto Rico, Public Improvement Bonds of 1992,
MBIA Insured, 6.50% 2009 (2002) 1,000 1,081,710
University of Maryland System Auxiliary Facility and Tuition
Revenue Bonds, 1992 Series A, 6.30% 2009 (2001) 1050 1105113
-------------
11,867,667
-------------
Resource Recovery - 6.38%
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 3500 3750845
Montgomery County, Northeast Maryland Waste Disposal Authority,
Solid Waste Revenue Bonds, Series A, AMT:
6.00% 2006 1115 1182502
6.00% 2007 1000 1061000
Series 1993, 6.30% 2016 1000 1048900
-------------
7043247
-------------
Special Obligations - 3.96%
Montgomery County Revenue Authority, Golf Course System Revenue
Bonds, Series 1996 A, 6.00% 2014 2355 2397955
Virgin Islands Public Finance Authority, Revenue and Refunding Bonds
(Virgin Islands Matching Fund Loan Notes), Series 1998 A:
5.20% 2009 1000 992910
5.20% 2010 1000 983800
-------------
4374665
-------------
Tax Assessment Bonds - 2.00%
Prince George's County, Special Obligation Bonds (Woodview Village
Infrastructure Improvements), Series 1997 A, 8.00% 2026 1970 2202893
-------------
Turnpikes & Toll Roads Revenue - .97%
Maryland Transportation Authority Facilities Project,
Transportation Facilities Projects Revenue Bonds,
Series 1992, 5.80% 2006 1000 1073510
-------------
Water & Sewer Revenue - 1.93%
Maryland Water Quality Financing Administration,
Revolving Loan Fund Revenue Bonds, Series 1991 B, 0% 2005 700 528542
Washington Suburban Sanitary District, Refunding Bonds,
1997, 5.75% 2017 1510 1606566
-------------
2135108
-------------
102394364
-------------
Tax-Exempt Securities Maturing in One Year or Less - 5.97%
Hospital Facilities - 2.54%
Maryland Health and Higher Educational Facilities Authority,
Pooled Loan Program Revenue Bonds, Series D, 3.15% 2024 /3/ 2800 2800000
Industrial Development Revenue- 2.17%
Montgomery County, Maryland, Variable Rate Economic Development 2400 2400000
Revenue Bonds (The Institute for Genomic Research, Inc. Facility),
Series 1999, 3.20% 2009/3/
Pre-Refunded (2)- 1.26%
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 262718
University of Maryland System Auxiliary Facility and Tuition
Revenue Bonds, 1989 Series B, 7.00% 2007 (1999) 600 615540
Commonwealth of Puerto Rico, Housing Bank and Finance Agency, Single
Family Mortgage Revenue Bonds, Homeownership 5th Portofolio, 1986
Series, 7.50% 2015 (2000) 495 510592
-------------
1388850
-------------
6588850
-------------
TOTAL TAX-EXEMPT SECURITIES (cost: $105,862,000) 108,983,214
Excess of cash and receivables over payables 1,400,402
-------------
NET ASSETS $110,383,616
==============
/1/Valued in the market on the basis of its effective maturity
(shown in parentheses)- that is the date at which the investor
must put the security to the issuer for redemption.
/2/Parenthetical year represents date of pre-refunding.
/3/Coupon rate changes periodically.
See Notes to Financial Statements
</TABLE>
<TABLE>
<S> <C> <C>
The Tax-Exempt Fund of Maryland
Financial Statements
Statement of Assets and Liabilities
July 31, 1999
(dollars in thousands)
- ----------------------------------------------------------------------- ----------------------
Assets:
Tax-exempt securities:
Maturing in more than one year
(cost: $99,322) $102,394
Maturing in one year or less
(cost: $6,540) 6,589
Cash 528
Receivables for --
Sales of Investments
Sales of Fund's shares $ 52
Interest 1,124 1,176
--------------------
110,687
-----------
Liabilities:
Payables for --
Purchases of Investments
Repurchases of Fund's shares 54
Dividends 142
Adviser and management services 39
Other expenses 68 303
--------------------
Net Assets at July 31, 1999 -
Equivalent to $15.57 per share on 7,091,616 shares
of beneficial interest issued and outstanding (unlimited
shares authorized) $110,384
=
Statement of Operations
For the year ended July 31, 1999
(dollars in thousands)
- ----------------------------------------------------------------------- ----------------------
Investment Income:
Income:
Interest on tax-exempt securities $5,825
Expenses:
Investment adviser fee $ 252
Business management fee 202
Distribution expenses 268
Transfer agent fee 38
Reports to shareholders 24
Registration statement and prospectus 9
Postage, stationery and supplies 7
Trustees' fees 7
Auditing and legal fees 24
Custodian fee 5
Taxes other than federal income tax 0
Other expenses 8 844
--------------------
Net investment income 4,981
-----------
Realized Gain and Unrealized Appreciation
on Investments:
Net realized gain 11
Net unrealized appreciation on investments:
Beginning of year 5,888
End of year 3,121
-----------
Change in unrealized appreciation on investments (2,767)
-----------
Net realized gain and change in unrealized
appreciation on investments (2,756)
-----------
Net Increase in Net Assets
Resulting from Operations $2,225
=
Year Year
ended ended
Statement of Changes in Net Assets July 31, July 31,
(dollars in thousands) 1999 1998
- ----------------------------------------------------------------------- ----------------------
1998 1997
-----------------------
Operations:
Net investment income $ 4,981 $ 4,493
Net realized gain on investments 11 698
Net change in unrealized appreciation on investments (2,767) 37
--------------------
Net increase in net assets resulting from operations 2,225 5,228
--------------------
Dividends and Distributions Paid to Shareholders:
Dividend paid from net investment income (4,983) (4,491)
Distribution paid from net realized gain on investments (623) (642)
--------------------
Total dividends and distributions (5,606) (5,133)
--------------------
Capital Share Transactions:
Proceeds from shares sold: 1,410,162 and 1,252,351 shares, respectively 22,658 20,079
Proceeds from shares issued in reinvestment of net investment income
dividends and distributions of net realized gain on investments:
230,443 and 211,827 shares, respectively 3,694 3,386
Cost of shares repurchased: 874,913 and 548,078 shares, respectively (14,037) (8,767)
--------------------
Net increase in net assets resulting from capital
share transactions 12,315 14,698
--------------------
Total Increase in Net Assets 8,934 14,793
Net Assets:
Beginning of year 101,450 86,657
--------------------
End of year $110,384 $101,450
= =
See Notes to Financial Statements
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Per-share
Data and Ratios Year En ded Jul y 31
The Tax-Exempt -------- -------- -------- -------- --------
Fund of Maryland 1999 1998 1997 1996 1995
Net Asset Value,
Beginning of Year $16.04 $16.02 $15.39 $15.29 $15.00
---------- ---------- ---------- ---------- --------
Income from Investment
Operations:
Net investment income .74 .78 .79 .80 .80
Net gains (losses) on
securities (both
realized and unrealized) (.37) .14 .63 .10 .29
---------- ---------- ---------- ---------- --------
Total income from
investment operations .37 .92 1.42 .90 1.09
---------- ---------- ---------- ---------- --------
Less Distributions:
Dividends from net
investment income (.74) (.78) (.79) (.80) (.80)
Distributions from
capital gains (.10) (.12) - - -
---------- ---------- ---------- ---------- --------
Total distributions (.84) (.90) (.79) (.80) (.80)
---------- ---------- ---------- ---------- --------
Net Asset Value,
End of Year $15.57 $16.04 $16.02 $15.39 $15.29
========== ========== ========== ========== ========
Total Return /1/ 2.28% 5.89% 9.52% 5.95% 7.58%
Ratios/Supplemental Data:
Net assets, end of
year (in millions) $110 $101 $87 $80 $75
Ratio of expenses to
average net assets .78% .79% .82% .81% .78%
Ratio of net income to
average net assets 4.63% 4.84% 5.08% 5.14% 5.38%
Portfolio turnover rate 11.38% 10.30% 15.27% 16.01% 20.91%
/1/ Excludes maximum sales charge of 4.75%.
See Notes to Financial Statements
</TABLE>
<TABLE>
<S> <C> <C>
The Tax-Exempt Fund of Virginia
Investment Portfolio, July 31, 1999
Principal
Amount Market
(000) Value
----------------------
Tax-Exempt Securities Maturing in More than One Year - 95.33%
College & University Revenue - .83%
Virginia Polytechnic Institute and State University, University Services
System and General Revenue Pledge Bonds, Series C 1996, 5.35% 2009 $ 1,0 $ 1,034,
--------------
General Obligations (Local) - 6.61%
Arlington County:
Public Improvement Bonds, Series 1996, 6.00% 2011 1000 1095480
Refunding Bonds, Series 1993, 6.00% 2012 1000 1096310
Chesapeake:
Public Improvement Bonds, Series 1992, 6.00% 2006 1600 1702624
Refunding Bonds, Series 1993, 5.40% 2008 1000 1047340
City of Hampton, Public Improvement Refunding Bonds,
Series 1998, 5.00% 2013 1030 1022512
Leesburg Refunding Bonds, Series 1993, 5.60% 2008 1195 1245931
Lynchburg Public Improvement Refunding Bonds,
Series 1993, 5.25% 2009 1000 1019800
--------------
8229997
--------------
General Obligations (State) - .63%
Commonwealth of Virginia, Public Facilities Bonds,
1993 Series A, 5.40% 2005 750 790628
--------------
Hospital & Health Facilities Revenue - 14.23%
Industrial Development Authority of the Town of Abingdon, Virginia,
Hospital Facility Revenue and Refunding Bonds (Johnston Memorial
Hospital), Series 1998:
5.00% 2008 1015 1008829
5.00% 2009 1020 1006240
5.00% 2010 505 493562
Fairfax County:
Industrial Development Authority, Hospital
Revenue Refunding Bonds (INOVA Health Systems Hospital
Project), Series 1993 A:
5.00% 2007 750 759645
5.25% 2019 2500 2464900
5.00% 2023 500 472275
Industrial Development Authority, Health Care Revenue Refunding
Bonds (INOVA Health System Project), Series 1998 A, 5.00% 2011 1500 1474020
Industrial Development Authority of Halifax County, Virginia,
Hospital Refunding Revenue Bonds (Halifax Regional Hospital, Inc.),
Series 1998:
4.65% 2007 600 582150
4.80% 2009 1000 961500
Industrial Development Authority of Henry County, Hospital Revenue
Bonds (Memorial Hospital of Martinsville and Henry County),
Series 1997, 6.00% 2017 2000 2058580
Industrial Development Authority of the City of Norfolk, Hospital
Revenue Bonds (Daughters of Charity National Health System-DePaul
Medical Center), Series 1992 A:
6.20% 2002 2100 2156784
6.50% 2007 1000 1079130
Norfolk Industrial Development Authority, Hospital Revenue
Bonds (Sentara Hospitals-Norfolk Project),
Series A 1994, 5.00% 2020 1000 921820
Peninsula Ports Authority, Health System Revenue and Refunding Bonds
(Riverside Health System Project):
Series 1992 A, 5.00% 2008 1200 1196964
Series 1998, 5.00% 2009 1100 1089363
--------------
17725762
--------------
Housing Finance Authority Revenue - 2.59%
Commonwealth of Puerto Rico Housing Finance Corporation,
Single Family Mortgage Revenue Bonds, 1st Portfolio,
1988 Series B, 7.65% 2022 105 109280
Virginia Housing Development Authority, Commonwealth
Mortgage Bonds:
1994 Series H, Sub-Series H-1, 6.10% 2003 500 520775
1995 Series A-AMT, Sub-Series A-1, 6.60% 2004 1000 1026070
1998 Series E, Sub-Series E-1, 4.50% 2005 1190 1178969
1992 Series A, 7.10% 2022 380 388550
--------------
3223644
--------------
Industrial Development Revenue - 2.38%
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 1,000 975,780
5.45% 2014 1,000 934,550
Puerto Rico Ports Authority, Special Facilities Revenue Bonds
(American Airlines, Inc. Project), 1996 Series A, 6.25% 2026 1000 1050410
--------------
2960740
--------------
Insured - 23.77%
Industrial Development Authority of Arlington County, Virginia, Resource
Recovery Revenue Bonds (Alexandria/Arlington Waste-to-Energy Facility),
Ogden Martin Systems of Alexandria/Arlington, Inc. Project, FSA Insured, 3000 2997150
Series 1998B, 5.375% 2012
Industrial Development Authority of Augusta County, Virginia,
Hospital Refunding Revenue Bonds (Augusta Health Care, Inc.), AMBAC Insured,
Series 1998, 5.00% 2005 1000 1019650
Chesapeake Certificates of Participation,
MBIA Insured, 1993 Series, 5.40% 2005 1000 1042750
Industrial Development Authority of Danville, Virginia,
Hospital Revenue Bonds (Danville Regional Medical Center),
Series 1998, AMBAC Insured:
5.25% 2012 1995 2012815
5.25% 2013 2000 2014780
Fairfax County Industrial Development Authority,
Hospital Revenue Refunding Bonds (INOVA Health System
Hospitals Project), Series 1993 A, FSA Insured, 5.25% 2019 1000 985960
Fairfax County Redevelopment and Housing Authority, Multifamily
Housing Revenue Bonds (Grand View Apartments Project), Series
1998 A, FHA Insured, 5.05% 2010 1000 992510
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 1375 1548965
6.375% 2018 1000 1123380
Loudoun County:
Industrial Development Authority, Hospital Revenue Bonds,
FSA Insured, 6.00% 2005 1000 1069030
Sanitation Authority, Water and Sewer System Revenue Bonds,
FGIC Insured, Series 1992, 6.25% 2010 2000 2141420
Industrial Development Authority of the City of Norfolk, Health Care
Revenue Bonds (Bon Secours Health System), Series 1997, MBIA Insured,
5.00% 2007 1250 1262750
Northern Virginia Transportation District Commission,(Virginia Railway
Express Project):
Commuter Rail Revenue Bonds, Series 1997, MBIA Insured, 5.20% 2013 1000 1001410
Commuter Rail Revenue Refunding Bonds, Series 1998, FSA Insured, 5.375% 2014 1000 1013150
Pamunkey Regional Jail Authority, Jail Facility Revenue Bonds,
Series 1996, MBIA Insured, 5.70% 2010 1000 1043830
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 1475 1480826
Richmond Metropolitan Authority, Expressway Revenue and Refunding Bonds,
FGIC Insured, Series 1998, 5.25% 2012 1000 1018350
Southeastern Public Service Authority of Virginia, Senior Revenue
Refunding Bonds, Series 1998, AMBAC Insured, 5.00% 2015 3000 2933850
City of Virginia Beach Development Authority, Hospital Revenue
Bonds (Virginia Beach General Hospital Project),
Series 1993, AMBAC Insured, 6.00% 2011 1000 1086410
Washington, D.C. Metropolitan Area Airports Authority, Airport
System Revenue and Refunding Bonds, MBIA Insured AMT:
Series 1998 B, 5.25% 2010 1000 1015560
Series 1992 A, 6.625% 2019 750 804593
--------------
29609139
--------------
Lease Revenue (State) - 1.63%
Virginia Public Building Authority:
Public Facilities Revenue Refunding Bonds, Series 1998A, 5.00% 2004 1000 1029170
Public Facilities Revenue Bonds, Series 1998B, 5.00% 2010 1000 1002510
--------------
2031680
--------------
Life Care Facilities Revenue - 4.68%
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 2730 2702700
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 3000 3121320
--------------
5824020
--------------
Multi-Family Housing - 4.89%
Virginia Housing Development Authority, Multi-Family Housing Bonds:
1995 Series H, 5.45% 2005 1255 1293127
1998 Series I-AMT, 4.60% 2009 1320 1289323
1998 Series I-AMT, 4.70% 2010 1240 1209235
1997 Series B-AMT, 5.80% 2010 1185 1250365
1996 Series B, 5.95% 2016 1000 1049870
--------------
6091920
--------------
Pre-Refunded (1) - 14.90%
Danville, Virginia Industrial Development Authority, Hospital
Revenue Bonds, Danville Regional Medical Center,
Series 1994, FGIC Insured, 6.00% 2007 (2004) 1000 1081420
Fairfax County Economic Development Authority, Parking Revenue Bonds
(Huntington Metrorail Station Project), Series 1990 A, 6.75% 2015 (2000) 500 526085
Henry County Public Service Authority, Water and Sewer Revenue
Bonds, FGIC Insured, Series 1990, 7.20% 2019 (2000) 1250 1316563
Newport News General Obligation, Water Bonds,
Series A 1992, 6.125% 2009 (2002) 1170 1248554
Norfolk:
Capital Improvement and Refunding Bonds, Series 1992 A, 6.00% 2011 (2001) 500 524300
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 428288
(Sentara Hospitals-Norfolk Project), Series 1991, 7.00% 2020 (2000) 250 264618
Peninsula Ports Authority:
Health Care Facilities Revenue and Refunding Bonds (Mary Immaculate
Project), 1994 Series, 6.875% 2010 (2004) 1900 2145347
Health System Revenue and Refunding Bonds (Riverside Health System
Project), Series 1992 A, 6.625% 2010 (2002) 1300 1408186
Prince William County Service Authority, Water and Sewer
System Revenue Bonds, Series 1991, FGIC Insured, 6.50% 2021 (2001) 680 723880
Roanoke:
Public Improvement and Refunding Bonds, Series 1992 B:
6.375% 2009 (2001) 250 265803
6.40% 2011 (2001) 500 534150
Valley Resource Authority, Solid Waste System Revenue
Bonds, Series 1992, 5.75% 2012 (2002) 1500 1592160
Water System Revenue Bonds,
Series 1991, FGIC Insured, 6.50% 2021 (2001) 750 798398
University of Virginia, Hospital Revenue Bonds,
1984 Series A, HIBI Insured, 9.875% 2001 (2000) 10 10910
Upper Occoquan Sewage Authority, Regional Sewerage System
Revenue Bonds, Series 1991, MBIA Insured, 6.00% 2021 (2001) 700 725788
Virginia Beach, Virginia Development Authority (Sentara Bayside
Hospital), 6.60% 2009 (2001) 1000 1072070
Virginia College Building Authority Educational Facilities Revenue
Bonds (Marymount University Project), Series 1992, 6.875% 2007 (2002) 1650 1771110
Virginia Public Building Authority, State Building Revenue Bonds,
Series 1991 A, 6.50% 2011 (2001) 1750 1864783
Virginia Resources Authority, Water and Sewer Systems Revenue Bonds,
Series 1990, 7.25% 2011 (2000) 250 264655
--------------
18567068
--------------
Pollution Control - 1.53%
Industrial Development Authority of the County of Charles City (Virginia),
Solid Waste Disposal Facility Revenue Refunding Bonds, (USA Waste of
Virginia, Inc. Project), Series 1999, 4.875% 2009 2000 1909860
--------------
Special Obligations - 1.62%
Virgin Islands Public Finance Authority, Revenue and Refunding
Bonds (Virgin Islands Matching Fund Loan Notes):
Series 1998 C, 5.50% 2007 1000 1023020
Series 1998 A, 5.20% 2009 1000 992910
--------------
2015930
--------------
State Appropriation - 1.29%
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 1600 1613024
--------------
State Authority - 4.88%
Virginia Public School Authority, School Financing Bonds:
(1997 Resolution), Series 1998 A, 5.25% 2007 2000 2081460
(1987 Resolution), 1991 Refunding Series C, 6.25% 2007 1500 1592460
(1991 Resolution), Series 1994 A, 6.20% 2014 1500 1610175
Virginia Resources Authority, Water System Refunding Revenue Bonds,
1992 Series A, 6.45% 2013 750 797136
--------------
6081231
--------------
Tax Assessment Bonds - 3.55%
Dulles Town Center, Community Development Authority (Loudoun
County, Virginia), Special Assessment Bonds (Dulles Town
Center Project), Series 1998, 6.25% 2026 2000 2009080
Virginia Gateway Community Development Authority, (Prince William County,
Virginia), Special Assessment Bonds, Series 1999, 6.25% 2026 2500 2415100
--------------
4424180
--------------
Turnpikes & Toll Roads Revenue - 1.61%
Pocahontas Parkway Association, Route 895 Connector, Toll
Road Revenue Bonds, Series 1998A, 5.25% 2009 2000 2001500
--------------
Water & Sewer Revenue - 3.71%
Chesterfield County Water and Sewer Revenue Refunding Bonds,
Series 1992, 6.375% 2009 1250 1346450
City of Richmond, Virginia, Public Utility Revenue and Refunding Bonds,
Series 1998 A:
5.25% 2009 1500 1531920
5.25% 2011 1000 1005970
Rivanna Water and Sewer Authority, Regional Water and Sewer
System Refunding Revenue Bonds, Series 1991, 6.40% 2007 645 684622
Virginia Resources Authority, Water and Sewer System Revenue Bonds
(Pooled Loan Program), 1986 Series A, 7.50% 2017 50 50458
--------------
4619420
--------------
118754173
--------------
Tax-Exempt Securities Maturing in One Year or Less - 2.89%
Hospital Facilities - .56%
Industrial Development Authority of the City of Roanoke, Virginia,
Hospital Revenue Bonds, (Carilion Health System Obligated Group),
Series 1997A, 3.45% 2027 /2/ 700 700000
--------------
Pre-Refunded (1) - 2.33%
Fairfax County Industrial Development Authority, Hospital Revenue Bonds
(Fairfax Hospital System Project), INOVA Health Systems,
Series 1991 C, 6.801% 2023 (2001) /2/ 1000 1068890
Industrial Development Authority of the City of Roanoke, Virginia,
Hospital Revenue Bonds (Roanoke Memorial Hospital Projects), Series 1990,
MBIA Insured, 7.25% 2017 (2000) 750 789480
Virginia Resources Authority, Solid Waste Disposal System Revenue Bonds,
1990 Series A, 7.30% 2015 (2000) /2/ 1000 1044230
--------------
2902600
--------------
3602600
--------------
TOTAL TAX-EXEMPT SECURITIES (cost: $119,546,000) 122356773
Excess of cash and receivables over payables 2220911
--------------
NET ASSETS $124,577,684
==============
/1/ Parenthetical year represents date of pre-refunding.
/2/ Coupon rate changes periodically.
See Notes to Financial Statements
</TABLE>
<TABLE>
<S> <C> <C>
Statement of Assets and Liabilities
July 31, 1999
(dollars in thousands)
- ----------------------------------------------------------------- ------------- -----------
Assets:
Tax-exempt securities:
Maturing in more than one year
(cost: $116,116) $118,754
Maturing in one year or less
(cost: $3,430) 3,603
Cash 122
Receivables for --
Sales of Fund's shares $ 638
Interest 1,827 2,465
----------- -----------
124,944
-----------
Liabilities:
Payables for --
Repurchases of Fund's shares 91
Dividends 156
Adviser and management services 43
Other expenses 76 366
----------- -----------
Net Assets at July 31, 1999 --
Equivalent to $15.82 per share on 7,874,900
shares of beneficial interest issued and
outstanding (unlimited shares authorized) $124,578
=
Statement of Operations
For the year ended July 31, 1999
(dollars in thousands)
- ------------------------------------------------------------------ -------------- -----------
Investment Income:
Income:
Interest on tax-exempt securities $6,390
Expenses:
Investment adviser fee $ 279
Business management fee 224
Distribution expenses 305
Transfer agent fee 41
Reports to shareholders 30
Registration statement and prospectus 7
Postage, stationery and supplies 9
Trustees' fees 7
Auditing and legal fees 24
Custodian fee 6
Other expenses 8 940
----------- -----------
Net investment income 5,450
-----------
Realized Gain and Unrealized Appreciation
on Investments:
Net realized gain 64
Net unrealized appreciation on investments:
Beginning of year 5,855
End of year 2,811
-----------
Change in unrealized appreciation
on investments (3,044)
-----------
Net realized gain and change in unrealized
appreciation on investments (2,980)
-----------
Net Increase in Net Assets
Resulting from Operations $2,470
=
See Notes to Financial Statements
Year Year
Statement of Changes in Net Assets ended ended
(dollars in thousands) July 31, July 31,
1999 1998
- ------------------------------------------------------------------ --------------- -------------
Operations:
Net investment income $ 5,450 $ 5,004
Net realized gain on investments 64 1,368
Net change in unrealized appreciation on investments (3,044) (1,199)
----------- -----------
Net increase in net assets resulting from operations 2,470 5,173
----------- -----------
Dividends and Distributions Paid to Shareholders:
Dividend paid from net investment income (5,453) (5,001)
Distribution paid from net realized gain on investments (1,311) (244)
----------- -----------
Total dividends and distributions (6,764) (5,245)
----------- -----------
Capital Share Transactions:
Proceeds from shares sold: 1,549,930 and 1,285,596 shares, respectively 25,326 21,057
Proceeds from shares issued in reinvestment of net investment income
dividends and distributions of net realized gain on investments:
258,204 and 188,801 shares, respectively 4,219 3,083
Cost of shares repurchased: 938,045 and 616,127 shares, respectively (15,287) (10,063)
----------- -----------
Net increase in net assets resulting from capital
share transactions 14,258 14,077
----------- -----------
Total Increase in Net Assets 9,964 14,005
Net Assets:
Beginning of year 114,614 100,609
----------- -----------
End of year $124,578 $114,614
=========== =
See Notes to Financial Statements
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Per-Share
Data and Ratios Year En ded Jul y 31
The Tax-Exempt -------- -------- -------- -------- --------
Fund of Virginia 1999 1998 1997 1996 1995
Net Asset Value,
Beginning of Year $16.36 $16.37 $15.77 $15.79 $15.49
---------- ---------- ---------- ---------- ----------
Income from Investment
Operations:
Net investment income .73 .78 .80 .81 .83
Net gains (losses) on
securities (both
realized and unrealized) (.36) .03 .60 .03 .30
---------- ---------- ---------- ---------- ----------
Total income from
investment operations .37 .81 1.40 .84 1.13
---------- ---------- ---------- ---------- ----------
Less Distributions:
Dividends (from net
investment income) (.73) (.78) (.80) (.81) (.83)
Distributions (from
capital gains) (.18) (.04) - (.05) -
---------- ---------- ---------- - -
Total distributions (.91) (.82) (.80) (.86) (.83)
---------- ---------- ---------- - -
Net Asset Value,
End of Year $15.82 $16.36 $16.37 $15.77 $15.79
========== ========== ========== ========== ==========
Total Return /1/ 2.21% 5.08% 9.10% 5.46% 7.56%
Ratios/Supplemental Data:
Net assets, end of
year (in millions) $125 $115 $101 $90 $92
Ratio of expenses to
average net assets .77% .78% .81% .79% .79%
Ratio of net income to
average net assets 4.46% 4.73% 4.99% 5.11% 5.37%
Portfolio turnover rate 12.72% 24.66% 18.41% 27.34% 32.18%
/1/ Excludes maximum sales charge of 4.75%.
</TABLE>
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION - The American Funds Tax-Exempt Series I(the "Trust") is
registered under the Investment Company Act of 1940 as 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.
SIGNIFICANT ACCOUNTING POLICIES - The financial statements have been prepared
in conformity with generally accepted accounting principles which require
management to make estimates and assumptions that affect the reported amounts
and disclosures in the financial statements. Actual results could differ from
those estimates. The following is a summary of the significant accounting
policies consistently followed by the Funds in the preparation of their
financial statements:
SECURITY VALUATION - 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. Short-term securities
maturing within 60 days are valued at amortized cost, which approximates market
value. Securities and assets for which representative market quotations are not
readily available are valued at fair value as determined in good faith under
policies approved by the Board of Trustees.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME - Security transactions
are accounted for as of the trade date. Realized gains and losses from
securities transactions are determined based on specific identified cost. In
the event securities are purchased on a delayed delivery or "when-issued"
basis, the Funds will instruct the custodian to segregate liquid assets
sufficient to meet their payment obligations in these transactions. Premiums
and original issue discounts on securities are amortized daily over the
expected life of the security. Amortization of market discounts on securities
is recognized upon disposition.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS - Dividends to shareholders are
declared daily after the determination of the Funds' net investment income and
are paid to shareholders monthly. Distributions paid to shareholders are
recorded on the ex-dividend date.
2. FEDERAL INCOME TAXATION
The Funds comply with the requirements of the Internal Revenue Code applicable
to regulated investment companies and intend to distribute all of their net
taxable income and net capital gains for the fiscal year. As regulated
investment companies, the Funds are not subject to income taxes if such
distributions are made. Required distributions are determined on a tax basis
and may differ from net investment income and net realized gains for financial
reporting purposes. In addition, the fiscal year in which amounts are
distributed may differ from the year in which the net investment income and net
realized gains are recorded by the Funds.
As of July 31, 1999, net unrealized appreciation on investments for book and
Federal income tax purposes for the Maryland Fund aggregated $3,121,000, of
which $4,016,000 related to appreciated securities and $895,000 related to
depreciated securities. For the Virginia Fund, net unrealized appreciation
aggregated $2,811,000, of which $3,807,000 related to appreciated securities
and $996,000 related to depreciated securities. There was no difference
between book and tax realized gains on securities transactions for the year
ended July 31, 1999. The Virginia Fund has deferred for tax purposes, for the
fiscal year ending July 31, 1999, the recognition of capital losses totaling
$11,000 which were realized during the period November 1, 1998 through July 31,
1999.
3. FEES AND TRANSACTIONS WITH RELATED PARTIES
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY FEES - Officers of the Funds
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 $202,000 and $224,000 were
recognized by the Maryland and Virginia Funds, respectively, and were paid to
Washington Management Corporation as business manager of the Funds pursuant to
the business management contract under which WMC provides business management
services. The contract provides for monthly fees, accrued daily, computed at
an annual rate of 0.135% of the first $60 million of average net assets for
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, earned $39,000 and
$23,000 on its retail sales of shares and distribution plan of the Maryland and
Virginia Funds, respectively, and received no 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
Washington Management Corporation.
Fees of $252,000 and $279,000 for investment advisory services were incurred
by the Maryland and Virginia Funds, respectively, pursuant to an investment
advisory agreement with Capital Research and Management Company (CRMC). The
agreement provides for monthly fees, accrued daily, based on an annual
rate of .0165% 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).
DISTRIBUTION EXPENSES - American Funds Distributors, Inc. (AFD), the principal
underwriter of the Funds' shares, received $80,000 and $87,000 (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.
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, 1999,
distribution expenses under the Plan were $268,000 and $305,000, including
accrued and unpaid expenses of $45,000 and $52,000, for the Maryland and
Virginia Funds, respectively. The aggregate amount of distribution expenses
subject to recovery by AFD which the Funds have not reimbursed were $48,000 and
$57,000, respectively.
TRANSFER AGENT FEE - American Funds Service Company (AFS), the transfer agent
for the Maryland and Virginia Funds, was paid fees of $38,000 and $41,000,
respectively.
DEFERRED TRUSTEES' FEES - Independent Trustees 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,
1999, aggregate deferred amounts and earnings thereon since the deferred
compensation plan's adoption (1994) net of any payments to Trustees, were
$18,000 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.
INVESTMENT TRANSACTIONS AND OTHER DISCLOSURES
As of July 31, 1999:
<TABLE>
<CAPTION>
<S> <C> <C>
THE TAX-EXEMPT THE TAX-EXEMPT
FUND OF MARYLAND FUND OF VIRGINIA
Accumulated undistributed $ 0 $ (11,000)
net realized gain(loss)
on investments
Paid-in capital 107,263,000 121,778,000
Purchases and sales of 22,172,000 28,272,000
investment securities,
excluding short-term
securities, during the
year ended July 31, 1999:
Purchases
Sales 11,766,000 15,114,000
</TABLE>
The Maryland and Virginia Funds reclassified $5,000 and $2,000, respectively,
from undistributed net realized gains to additional paid-in capital for the
year ended July 31, 1999.
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 $6,000 for both the Maryland and Virginia Funds
were paid by these credits rather than in cash.
Tax Information (unaudited)
During the fiscal year ended July 31, 1999, the Maryland and Virginia Funds
paid 74.4 and 72.9 cents per share, respectively, of exempt-interest
distributions. The Funds also paid 9.5 and 17.9 cents per share, respectively,
of capital gain distributions, of which 9.5 and 14.3 cents per share,
respectively, represents long-term capital gains.
The Funds also designate as a capital gain distribution a portion of earnings
and profits to shareholders in redemption of their shares.
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.
SINCE THE AMOUNTS ABOVE ARE REPORTED FOR THE FUNDS' FISCAL YEAR AND NOT THE
CALENDAR YEAR, SHAREHOLDERS SHOULD REFER TO THEIR FORM 1099-DIV OR OTHER TAX
INFORMATION WHICH WILL BE MAILED IN JANUARY 2000 TO DETERMINE THE CALENDAR YEAR
AMOUNTS TO BE INCLUDED ON THEIR 1999 TAX RETURNS. SHAREHOLDERS SHOULD CONSULT
THEIR TAX ADVISERS.
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 portfolio, and the related statements of operations
and of changes in net assets and the per-share data and ratios present fairly,
in all material respects, the financial position of 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, 1999,
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, 1999 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Los Angeles, California
August 31, 1999
PART C
OTHER INFORMATION
ITEM 23 EXHIBITS:
(a). On file (see SEC file nos. 811-4653 and 33-5270)
(b). On file (see SEC file nos. 811-4653 and 33-5270)
(c). None.
(d). On file (see SEC file nos. 811-4653 and 33-5270)
(e). On file (see SEC file nos. 811-4653 and 33-5270)
(f). None
(g). On file (see SEC file nos. 811-4653 and 33-5270)
(h). On file (see SEC file nos. 811-4653 and 33-5270)
(i). Not applicable to this filing.
(j). Consent of Independent Accountants
(k). None
(l). Not applicable to this filing
(m). On file (see SEC file nos. 811-4653 and 33-5270)
(n). EX-27 Financial Data Schedule
(o). None
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
ITEM 25. INDEMNIFICATION.
Registrant is a joint-insured under an Investment Advisor/Mutual Fund Errors
and Omissions Policy written by American International Surplus Lines Insurance
Company, Chubb Custom Insurance Company, and ICI Mutual which insures its
officers and trustees against certain liabilities.
Article VI of the Trust's By-Laws states:
(a) The Trust shall indemnify any Trustee or officer of the Trust who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than action by or in the right of the Trust) by reason
of the fact that such person is or was such Trustee or officer or an employee
or agent of the Trust, or is or was serving at the request of the Trust as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding if
such person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the Trust, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe such
person's conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
the person reasonably believed to be opposed to the best interests of the
Trust, and, with respect to any criminal action or proceeding, had reasonable
cause to believe that such person's conduct was unlawful.
(b) The Trust shall indemnify any Trustee or officer of the Trust who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the Trust to procure a judgment
in its favor by reason of the fact that such person is or was such Trustee or
officer or an employee or agent of the Trust, or is or was serving at the
request of the Trust as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), actually and reasonably incurred by such
person in connection with the defense or settlement of such action or suit if
such person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the Trust, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of such person's duty to the Trust unless and
only to the extent that the court in which such action or suit was brought, or
any other court having jurisdiction in the premises, shall determine upon
application that, despite the adjudication of liability but in view of all
circumstances of the case,
ITEM 25. INDEMNIFICATION (CONT.)
such person is fairly and reasonably entitled to indemnity for such expenses
which such court shall deem proper.
(c) To the extent that a Trustee or officer of the Trust has been successful
on the merits in defense of any action, suit or proceeding referred to in
subparagraphs (a) or (b) above or in defense of any claim, issue or matter
therein, such person shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by such person in connection
therewith, without the necessity for the determination as to the standard of
conduct as provided in subparagraph (d).
(d) Any indemnification under subparagraph (a) or (b) (unless ordered by a
court) shall be made by the Trust only as authorized in the specific case upon
a determination that indemnification of the Trustee or officer is proper under
the standard of conduct set forth in subparagraph (a) or (b). Such
determination shall be made (i) by the Board by a majority vote of a quorum
consisting of Trustees who were not parties to such action, suit or proceeding,
and are disinterested Trustees or (ii) if such a quorum of disinterested
Trustees so directs, by independent legal counsel in a written opinion.
(e) Expenses incurred in defending a civil or criminal action, suit or
proceeding may be paid by the Trust in advance of the final disposition of such
action, suit or proceeding, as authorized in the particular case, upon receipt
of an undertaking and security by or on behalf of the Trustee or officer to
repay such amount unless it shall ultimately be determined that such person is
entitled to be indemnified by the Trust as authorized herein.
(f) Agents and employees of the Trust who are not Trustees or officers of the
Trust may be indemnified under the same standards and procedures set forth
above, in the discretion of the Board.
(g) Any indemnification pursuant to this Article shall not be deemed exclusive
of any other rights to which those indemnified may be entitled and shall
continue as to a person who has ceased to be Trustee or officer and shall inure
to the benefit of the heirs, executors and administrators of such person.
(h) Nothing in the Declaration of Trust or in these By-Laws shall be deemed to
protect any Trustee, officer, distributor, investment adviser or controlling
shareholder of the Trust against any liability to the Trust or to its
shareholders to which such person would otherwise be subject by reason of
willful malfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of such person's office.
(i) The Trust shall have power to purchase and maintain insurance on behalf of
any person against any liability asserted against or incurred by such person,
whether or not the Trust would have the power to indemnify such person against
such liability under the provisions of this Article. Nevertheless, insurance
will not be purchased or maintained by the Trust if the purchase or maintenance
of such insurance would result in the indemnification of any person in
contravention of any rule or regulation of the Securities and Exchange
Commission. Expenses incurred in defending a civil or criminal action, suit or
proceeding may be paid by the Trust in advance of the final disposition of such
action, suit or proceeding, as authorized in the particular case, upon receipt
of an undertaking by or on behalf of the Trustee or officer to repay such
amount unless it shall ultimately be determined that such person is entitled to
be indemnified by the Trust as authorized herein. Such determination must be
made by disinterested Trustees or independent legal counsel.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to Trustees, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a Trustee, officer of controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by
such Trustee, officer of controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
None.
ITEM 27. PRINCIPAL UNDERWRITERS.
(a) American Funds Distributors, Inc. is also the Principal Underwriter of
shares of: AMCAP Fund, Inc., American Balanced Fund, Inc., The American Funds
Income Series, The American Funds Tax-Exempt Series I, The American Funds
Tax-Exempt Series II, American High-Income Municipal Bond Fund, Inc., American
High-Income Trust, American Mutual Fund, Inc., The Bond Fund of America, Inc.,
Capital Income Builder, Inc., Capital World Bond Fund, Inc., Capital World
Growth and Income Fund, Inc., The Cash Management Trust of America, EuroPacific
Growth Fund, Fundamental Investors, Inc., The Income Fund of America, Inc.,
Intermediate Bond Fund of America, The Investment Company of America, Limited
Term Tax-Exempt Bond Fund of America, The New Economy Fund, New Perspective
Fund, Inc., New World Fund, SMALLCAP World Fund, Inc., The Tax-Exempt Bond Fund
of America, Inc., The Tax-Exempt Money Fund of America, The U.S. Treasury Money
Fund of America and Washington Mutual Investors Fund, Inc.
<TABLE>
<CAPTION>
(B) (1) (2) (3)
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICES
BUSINESS ADDRESS WITH UNDERWRITER WITH REGISTRANT
<S> <C> <C> <C>
David L. Abzug Regional Vice President None
27304 Park Vista Road
Agoura Hills, CA 91301
John A. Agar Vice President None
1501 N. University, Suite 227A
Little Rock, AR 72207
Robert B. Aprison Vice President None
2983 Bryn Wood Drive
Madison, WI 53711
L William W. Bagnard Vice President None
Steven L. Barnes Senior Vice President None
5400 Mount Meeker Road
Boulder, CO 80301
B Carl R. Bauer Assistant Vice President None
Michelle A. Bergeron Vice President None
4160 Gateswalk Drive
Smyrna, GA 30080
Joseph T. Blair Senior Vice President None
27 Drumlin Road
West Simsbury, CT 06092
John A. Blanchard Vice President None
6421 Aberdeen Road
Mission Hills, KS 66208
Ian B. Bodell Senior Vice President None
P.O. Box 1665
Brentwood, TN 37024-1665
Michael L. Brethower Senior Vice President None
2320 North Austin Avenue
Georgetown, TX 78626
C. Alan Brown Regional Vice President None
4129 Laclede Avenue
St. Louis, MO 63108
H J. Peter Burns Vice President None
Brian C. Casey Regional Vice President None
8002 Greentree Road
Bethesda, MD 20817
Victor C. Cassato Senior Vice President None
609 W. Littleton Blvd., Suite 310
Littleton, CO 80120
Christopher J. Cassin Senior Vice President None
111 W. Chicago Avenue, Suite G3
Hinsdale, IL 60521
Denise M. Cassin Vice President None
1301 Stoney Creek Drive
San Ramon, CA 94538
L Larry P. Clemmensen Director None
L Kevin G. Clifford Director, President and Co-Chief Executive Officer None
Ruth M. Collier Senior Vice President None
145 West 67th St., #12K
New York, NY 10023
S David Coolbaugh Assistant Vice President None
Thomas E. Cournoyer Vice President None
2333 Granada Boulevard
Coral Gables, FL 33134
Douglas A. Critchell Senior Vice President None
3521 Rittenhouse Street, N.W.
Washington, D.C. 20015
L Carl D. Cutting Vice President None
Daniel J. Delianedis Regional Vice President None
8689 Braxton Drive
Eden Prairie, MN 55347
Michael A. Dilella Vice President None
P. O. Box 661
Ramsey, NJ 07446
G. Michael Dill Senior Vice President None
505 E. Main Street
Jenks, OK 74037
Kirk D. Dodge Senior Vice President None
633 Menlo Avenue, Suite 210
Menlo Park, CA 94025
Peter J. Doran Senior Vice President None
1205 Franklin Avenue
Garden City, NY 11530
L Michael J. Downer Secretary None
Robert W. Durbin Vice President None
74 Sunny Lane
Tiffin, OH 44883
I Lloyd G. Edwards Senior Vice President None
L Paul H. Fieberg Senior Vice President None
John Fodor Vice President None
15 Latisquama Road
Southborough, MA 01772
Clyde E. Gardner Senior Vice President None
Route 2, Box 3162
Osage Beach, MO 65065
B Evelyn K. Glassford Vice President None
Jeffrey J. Greiner Vice President None
12210 Taylor Road
Plain City, OH 43064
L Paul G. Haaga, Jr. Director None
B Mariellen Hamann Assistant Vice President None
David E. Harper Senior Vice President None
R.D. 1, Box 210, Rte 519
Frenchtown, NJ 08825
Ronald R. Hulsey Vice President None
6744 Avalon
Dallas, TX 75214
Robert S. Irish Regional Vice President None
1225 Vista Del Mar Drive
Delray Beach, FL 33483
Michael J. Johnston Director None
630 Fifth Avenue, 36th Floor
New York, NY 10111
B Damien M. Jordan Vice President None
Arthur J. Levine Senior Vice President None
12558 Highlands Place
Fishers, IN 46038
B Karl A. Lewis Assistant Vice President None
T. Blake Liberty Regional Vice President None
5506 East Mineral Lane
Littleton, CO 80122
Mark Lien Regional Vice President None
5570 Beechwood Terrace
West Des Moines, IA 50266
L Lorin E. Liesy Assistant Vice President None
L Susan G. Lindgren Vice President - Institutional None
Investment Services
LW Robert W. Lovelace Director None
Stephen A. Malbasa Vice President None
13405 Lake Shore Blvd.
Cleveland, OH 44110
Steven M. Markel Senior Vice President None
5241 South Race Street
Littleton, CO 80121
L J. Clifton Massar Director, Senior Vice President None
L E. Lee McClennahan Senior Vice President None
L Jamie R. McCrary Assistant Vice President None
S John V. McLaughlin Senior Vice President None
Terry W. McNabb Vice President None
2002 Barrett Station Road
St. Louis, MO 63131
L R. William Melinat Vice President - Institutional None
Investment Services
David R. Murray Vice President None
60 Briant Drive
Sudbury, MA 01776
Stephen S. Nelson Vice President None
P.O. Box 470528
Charlotte, NC 28247-0528
William E. Noe Regional Vice President None
304 River Oaks Road
Brentwood, TN 37027
Peter A. Nyhus Vice President None
3084 Wilds Ridge Court
Prior Lake, MN 55372
Eric P. Olson Vice President None
62 Park Drive
Glenview, IL 60025
Fredric Phillips Senior Vice President None
175 Highland Avenue, 4th Floor
Needham, MA 02494
B Candance D. Pilgrim Assistant Vice President None
Carl S. Platou Vice President None
4021 96th Avenue, S.E.
Mercer Island, WA 98040
L John O. Post Vice President None
S Richard P. Prior Assistant Vice President None
Steven J. Reitman Senior Vice President None
212 The Lane
Hinsdale, IL 60521
Brian A. Roberts Vice President None
P.O. Box 472245
Charlotte, NC 28247
George S. Ross Senior Vice President None
55 Madison Avenue
Morristown, NJ 07962
L Julie D. Roth Vice President None
L James F. Rothenberg Director None
Douglas F. Rowe Vice President None
30008 Oakland Hills Drive
Georgetown, TX 78628
Christopher S. Rowey Regional Vice President None
9417 Beverlywood Street
Los Angeles, CA 90034
Dean B. Rydquist Senior Vice President None
1080 Bay Pointe Crossing
Alpharetta, GA 30005
Richard R. Samson Senior Vice President None
4604 Glencoe Avenue, #4
Marina del Rey, CA 90292
Joseph D. Scarpitti Vice President None
31465 St. Andrews
Westlake, OH 44145
L R. Michael Shanahan Director None
David W. Short Director, Chairman of the Board and Co-Chief Executive Officer None
1000 RIDC Plaza, Suite 212
Pittsburgh, PA 15238
William P. Simon, Jr. Senior Vice President None
912 Castlehill Lane
Devon, PA 91333
L John C. Smith Assistant Vice President - Institutional Investment Services None
Rodney G. Smith Vice President None
100 N. Central Expressway
Suite 1214
Richardson, TX 75080
Tony Soave Regional Vice President None
8831 Morning Mist Drive
Clarkston, MI 48348
Nicholas D. Spadaccini Regional Vice President None
855 Markley Woods Way
Cincinnati, OH 45230
L Kristen J. Spazafumo Assistant Vice President None
Daniel S. Spradling Senior Vice President None
181 Second Avenue
Suite 228
San Mateo, CA 94401
B Max D. Stites Vice President None
Thomas A. Stout Regional Vice President None
3919 Whooping Crane Circle
Virginia Beach, VA 23455
Craig R. Strauser Vice President None
3 Dover Way
Lake Oswego, OR 97034
Francis N. Strazzeri Senior Vice President None
31641 Saddletree Drive
Westlake Village, CA 91361
L Drew W. Taylor Assistant Vice President None
S James P. Toomey Vice President None
I Christopher E. Trede Vice President None
George F. Truesdail Vice President None
400 Abbotsford Court
Charlotte, NC 28270
Scott W. Ursin-Smith Vice President None
60 Reedland Woods Way
Tiburon, CA 94920
Thomas E. Warren Regional Vice President None
119 Faubel Street
Sarasota, FL 34242
L J. Kelly Webb Senior Vice President, Treasurer None
Gregory J. Weimer Vice President None
206 Hardwood Drive
Venetia, PA 15367
B Timothy W. Weiss Director None
George Wenzel Regional Vice President None
3406 Shakespeare Drive
Troy, MI 48084
N. Dexter Williams Senior Vice President None
P.O. Box 2200
Danville, CA 94526
Timothy J. Wilson Vice President None
113 Farmview Place
Venetia, PA 15367
B Laura L. Wimberly Vice President None
H Marshall D. Wingo Director, Senior Vice President None
L Robert L. Winston Director, Senior Vice President None
William R. Yost Vice President None
9320 Overlook Trail
Eden Prairie, MN 55347
Janet M. Young Regional Vice President None
1616 Vermont
Houston, TX 77006
Scott D. Zambon Regional Vice President None
320 Robinson Drive
Tustin Ranch, CA 92782
</TABLE>
__________
L Business Address, 333 South Hope Street, Los Angeles, CA 90071
LW Business Address, 11100 Santa Monica Boulevard, 15th Floor, Los Angeles, CA
90025
B Business Address, 135 South State College Boulevard, Brea, CA 92821
S Business Address, 3500 Wiseman Boulevard, San Antonio, TX 78251
H Business Address, 5300 Robin Hood Road, Norfolk, VA 23513
I Business Address, 8332 Woodfield Crossing Blvd., Indianapolis, IN 46240
(c) None.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS.
Accounts, books and other records required by Rules 31a-1 and 31a-2 under the
Investment Company Act of 1940, as amended, are maintained and kept in the
offices of the Trust, 1101 Vermont Avenue, N.W., Washington, D.C. 20005, and
its investment adviser, Capital Research and Management Company (CRMC), 333
South Hope Street, Los Angeles, CA 90071. Certain accounting records are
maintained and kept in the offices of CRMC's fund accounting department, 5300
Robin Hood Road, Norfolk, VA 23513.
Records covering shareholder accounts are maintained and kept by the transfer
agent, American Funds Service Company, 135 South State College Blvd., Brea, CA
92821.
Records covering portfolio transactions are also maintained and kept by the
custodian, The Chase Manhattan Bank, One Chase Manhattan Plaza, New York, New
York, 10081.
ITEM 29. MANAGEMENT SERVICES.
None.
ITEM 30. UNDERTAKINGS.
N/A
SIGNATURE OF REGISTRANT
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this amended Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Washington, District of Columbia, on the 10th day of
November, 1999.
THE AMERICAN FUNDS TAX-EXEMPT SERIES I
By
Harry J. Lister, President
Pursuant to the requirements of the Securities Act of 1933, this amendment to
registration statement has been signed below on Novemberr 10, 1999, by the
following persons in the capacities indicated.
SIGNATURE TITLE
(1) Principal Executive Officer:
Harry J. Lister President
(2) Principal Financial Officer and
Principal Accounting Officer:
Howard L. Kitzmiller Senior Vice President, Secretary and Treasurer
(3) Trustees:
James H. Lemon, Jr.* Chairman of the Board
Stephen Hartwell* Chairman Emeritus and Trustee
Harry J. Lister President and Trustee
Cyrus A. Ansary* Trustee
Jean Head Sisco* Trustee
T. Eugene Smith* Trustee
Stephen G. Yeonas* Trustee
*By
Howard L. Kitzmiller, Attorney-in-Fact
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<NAME> THE TAX EXEMPT FUND OF MARYLAND
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<NAME> THE TAX EXEMPT FUND OF VIRGINIA
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