(Logo: The American Funds Group(R))
The American Funds Tax-Exempt Series I
The Tax-Exempt Fund of Maryland
The Tax-Exempt Fund of Virginia
Annual Report / July 31, 1999
(Graphic: Maryland Map)
(Graphic: Virginia Map)
The Tax-Exempt Fund of Maryland(R) and The Tax-Exempt Fund of Virginia(R)
seek a high level of current income free from Federal and their respective
state income taxes. Additionally, each Fund seeks to preserve capital.
The Tax-Exempt Fund of Maryland and The Tax-Exempt Fund of Virginia are two
of the 29 funds in The American Funds Group,(R) the nation's third-largest
mutual fund family. For more than six decades, Capital Research and
Management Company, the American Funds adviser, has invested with a
long-term focus based on thorough research and attention to risk.
Fund results in this report were computed without a sales charge unless
otherwise indicated. Here are the average annual compound returns with all
distributions reinvested for periods ended June 30, 1999 (the most recent
calendar quarter), assuming payment of the 4.75% maximum sales charge at
the beginning of the stated periods:
Maryland Fund Virginia Fund
10 years +6.07% +6.00%
5 years +5.45 +5.09
12 months -2.63 -2.85
Sales charges are lower for accounts of $25,000 or more.
The Funds' 30-day yields as of August 31, 1999, calculated in accordance
with the Securities and Exchange Commission formula, at maximum sales
charge, were 4.12% for the Maryland Fund and 4.09% for the Virginia Fund.
The Funds' distribution rates as of that date were 4.50% and 4.47%,
respectively. The SEC yield reflects income each Fund expects to earn
based on current holdings, while the distribution rate is based solely on
the Fund's past dividends. Accordingly, the Funds' SEC yields and
distribution rates may differ. For the latest yields based on actual
distributions, call toll-free 800/325-3590.
The figures in this report reflect past results and are not predictive of
future results. Share price and return will vary, so you may lose money.
Investing for short periods makes losses more likely. Investments are not
FDIC-insured, nor are they deposits of or guaranteed by a bank or any other
entity.
All investments are subject to certain risks. Investments in the Funds are
subject to interest rate fluctuations. Additionally, each Fund is more
susceptible to factors adversely affecting issuers of its state's
tax-exempt securities than a more widely diversified municipal bond fund.
Income may be subject to Federal alternative minimum taxes. Certain other
income, as well as capital gain distributions, may be taxable.
Fellow Shareholders
The first half of the fiscal year ended July 31 was an outstanding period
for municipal bonds. Unfortunately, the second half did not follow suit.
Over the fiscal year as a whole, The Tax-Exempt Fund of Maryland's net
asset value fell by 47 cents, from $16.04 to $15.57 a share. Similarly, The
Tax-Exempt Fund of Virginia's share price dropped by 54 cents, from $16.36
to $15.82. The declines were more than offset by monthly dividend payments,
which totaled 75 cents a share for the Maryland Fund and 73 cents a share
for the Virginia Fund. In addition, the Funds provided capital gain
distributions of 9.5 cents a share and 17.9 cents a share, respectively.
If, like most shareholders, you reinvested your dividends and capital
gains, your total return was:
2.3% for the Maryland Fund
2.2% for the Virginia Fund
These figures may not seem impressive, but taxable bonds, as measured by
the unmanaged Lehman Brothers Aggregate Bond Index, provided a total return
of only 2.5% _ before taxes. Meanwhile, the inflation rate, as measured
by the Consumer Price Index, rose by 2.1%.
The Maryland Fund's income return of 4.8%, with dividends reinvested, was
the equivalent of 8.5% from a taxable investment if you are in the highest
combined Federal, state and local tax bracket. The Virginia Fund's income
return of 4.6%, with dividends reinvested, was the equivalent of 8.1% from
a taxable investment if you're in the highest combined Federal and state
tax bracket.
The first half was the best of times
In the Funds' semi-annual report, we talked about how a "flight to quality"
resulted from last year's economic crises in emerging markets, and how the
collapse of a huge hedge fund had accelerated demand for U.S. Treasury
bonds. As prices for Treasuries hit new highs, absolute yields dropped to
levels in the same range as those paid by municipal bonds _ which made
munis especially attractive because the income they provide is typically
not subject to tax.
Seeking to add liquidity to the global economy and to ensure that the
domestic economy would weather the storm, the Federal Reserve Board reduced
the Federal funds rate _ the rate banks charge each other for overnight
loans _ three times, from 5.50% to 4.75%. This gave investors greater
confidence that inflation would remain under control, which led them to bid
up bond prices still further and to begin returning to less conservative
investments.
Reversal in the second half
When emerging markets began to recover in the first half of calendar 1999,
investors flew back to them _ forsaking far less volatile investments such
as municipal bonds.
By the end of June, the ebbing threat of a global economic meltdown led the
Federal Reserve to feel comfortable tapping the brakes on U.S. economic
growth by raising the Federal funds rate back to 5.00%. The rate increase
plus reduced demand depressed municipal bond prices.
What helped and hurt the Funds
When interest rates change, bonds with the longest maturities tend to
experience the most substantial price changes. The average maturities of
both The Tax-Exempt Fund of Maryland and The Tax-Exempt Fund of Virginia
were relatively short when rates increased.
Some individual holdings in each portfolio contributed more than others to
investment results. The Virginia Fund, for instance, benefited from
refunding of general obligation bonds issued by Norfolk and Roanoke. The
cities replaced the original bonds with new ones escrowed in Treasury
bonds, which carry a AAA rating _ worth more in the marketplace.
Both portfolios, of course, also included holdings that did not do well.
In the Virginia Fund, for example, two Henrico County bonds suffered when
issuer Browning-Ferris was bought by Allied Waste. This acquisition _
which created the nation's second-largest solid waste disposal company _
was highly leveraged and the bond ratings dropped below investment grade.
But the Fund's research analysts have studied Allied and believe it will
quickly sell assets to reduce debt, which should improve creditworthiness.
Looking ahead
While the Federal Reserve raised the Federal funds rate again _ to 5.25%
_ in August, and could still push interest rates higher, it seems likely
that the recent price declines among municipal bonds represented most, if
not all, of a correction in the muni market.
Meanwhile, the U.S. Treasury _ flush from a budget surplus that has
minimized government-borrowing needs _ has announced a plan to begin
paying off the national debt by offering fewer new issues and retiring
older ones. This potential reduction in the supply of Treasury bonds could
enhance the popularity of municipal bonds. However, a number of government
agencies could fill the gap by issuing taxable bonds that might also tempt
quality-oriented fixed-income investors and thus influence the direction
of the markets.
As always, Capital Research's experienced analysts will keep a close eye on
developments at the Federal and state government level, in the municipal
bond markets and among bond issuers. Their extensive proprietary research
efforts will continue to be directed toward providing you with a high level
of tax-free income _ and to preserving your capital.
We look forward to updating you again in March, in the Funds' semi-annual
report.
Sincerely,
(signature) (signature)
James H. Lemon, Jr. Harry J. Lister
Chairman President
September 20, 1999
Preparing for the Year 2000 _ The Funds' key service providers _ Capital
Research and Management Company, the investment adviser, Washington
Management Corporation, the business manager, and American Funds Service
Company, the transfer agent _ have updated all computer systems to process
date-related information properly following the turn of the century. Other
preparations continue, including external monitoring and contingency
planning. If you'd like more detailed information, please call Shareholder
Services at 800/421-0180, ext. 21, or visit our Web site at
www.americanfunds.com.
Growth of $10,000 investment
(Graph comparing the Lehman Brothers Municipal Bond Index<F2> rising to
$25,407, The Tax-Exempt Fund of Virginia<F1> rising to $21,746, The
Tax-Exempt Fund of Maryland<F1> rising to $21,265, and the Consumer Price
Index (inflation) rising to $15,196 from 8/14/86 through fiscal year ended
July 31, 1999.)
Year Ended LEHMAN MUNI
July 31 MARYLAND VIRGINIA BOND INDEX CPI
8/14/86 $ 9,525 $ 9,525 $10,000 $10,000
1987 9,444 9,798 10,439 10,374
1988 10,122 10,412 11,173 10,802
1989 11,313 11,620 12,534 11,340
1990 11,918 12,302 13,402 11,887
1991 12,804 13,288 14,573 12,416
1992 14,433 14,989 16,575 12,808
1993 15,508 16,081 18,040 13,163
1994 15,728 16,360 18,378 13,528
1995 16,920 17,597 19,825 13,902
1996 17,927 18,558 21,133 14,312
1997 19,634 20,247 23,300 14,631
1998 20,791 21,726 24,697 14,877
1999 21,265 21,746 25,407 15,196
(the following data is embedded in the graph described above)
Average Annual Compound Returns<F1>
(for periods ended July 31, 1999)
1 Year 5 Years 10 Years
The Tax-Exempt Fund of Maryland -2.58% +5.19% +6.00%
The Tax-Exempt Fund of Virginia -2.67% +4.83% +5.95%
Results reflect payment of the maximum sales charge of 4.75% on the $10,000
investment; thus, the net amount invested was $9,525. As outlined in the
prospectus, the sales charge is reduced for larger investments.
[FN]
<F1>Assumes reinvestment of all distributions and payment of the 4.75%
maximum sales charge at the beginning of the stated periods.
<F2>The index is a national index not limited to Maryland and Virginia
bonds. It is unmanaged and does not reflect sales charges commissions or
expenses.
</FN>
Past results are not predictive of future results.
The Tax-Exempt Fund of Maryland
As of July 31, 1999
(graphic: Map of Maryland)
Quality Diversification:
Moody's/S&P Ratings (best of either)
(graphic: pie chart with following percentages:)
Aaa/AAA 45.9%
Aa/AA 16.4%
A/A 10.0%
Baa/BBB 10.7%
Lower than BBB or not rated 09.8%
Cash and Equivalents 07.2%
Maturity Diversification<F1>:
(Graphic: pie chart with following percentages:)
Under 1 year 07.2%
1 to 10 years 57.2%
10+ to 20 years 27.5%
20+ to 30 years 06.8%
30+ years 01.3%
Average Life<F2> 9.19 years
[FN]
<F1>Securities are included at pre-refunded dates, not maturity dates.
<F2>Average life more accurately reflects the potential impact of call
options. Should no call options be exercised, the average maturity of the
Maryland Fund is 13.53 years.
</FN>
Why triple tax-free investing can be worthwhile
<TABLE>
<CAPTION>
Tax-free yields vs. taxable yields
Your taxable income Combined In Maryland, a tax-exempt yield of:
Federal and 4% 5% 6% 7%
Single Joint MD tax rate<F1> is equivalent to a taxable yield of:
<S> <S> <C> <C> <C> <C> <C>
$ 3,000 - 25,750 $ 3,000 - 43,050 21.4% 5.1% 6.4% 7.6% 8.9%
25,751 - 62,450 43,051 - 104,050 33.4 6.0 7.5 9.0 10.5
62,451 - 130,250 104,051 - 158,550 36.2 6.3 7.8 9.4 11.0
130,251 - 283,150 158,551 - 283,150 40.8 6.8 8.4 10.1 11.8
Over 283,150 Over 283,150 44.1 7.2 8.9 10.7 12.5
<FN>
<F1>Based on 1999 Federal and Maryland state and county tax rates (at 7.5%
individually calculated for each bracket and averaged to fit within Federal
brackets). The rates do not include an adjustment for the loss of personal
exemptions and the phase-out of itemized deductions that are applicable at
certain taxable income levels.
</FN>
</TABLE>
To use this table, find your estimated taxable income to determine your
combined Federal and Maryland tax rate. Then look at the right-hand column
to see what you would have had to earn from a taxable investment to equal
the Fund's 4.50% tax-free distribution rate in August.
Because of tax increases in recent years, many high-income investors are
finding that their returns on taxable fixed-income issues have to be even
higher to match those currently offered by tax-exempt municipals. For
instance, a couple with a taxable income of $150,000 faces a combined
Federal and Maryland tax rate of 36.2%. In this bracket, the Fund's current
4.50% distribution rate would be equivalent to a return on a taxable
fixed-income investment of 7.05%.
Investment Portfolio
July 31, 1999
The Tax-Exempt
Fund of Maryland
(graphic: Map of Maryland)
<TABLE>
<CAPTION>
Principal
Amount Market
(000) Value
<S> <C> <C>
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 455 474,069
University of Maryland System Auxiliary Facility and Tuition
Revenue Bonds, 1993 Refunding Series C, 5.00% 2010 1,000 1,002,830
1,905,468
General Obligations (Local) _ .96%
Anne Arundel County, Consolidated Water and Sewer, 1993
Refunding Series, 5.30% 2016 500 500,910
Harford County Consolidated Public Improvement Bonds,
Series 1992, 5.80% 2010 530 561,196
1,062,106
General Obligations (State) _ 5.51%
Maryland General Obligation Bonds, State and Local Facilities,
Second Series:
Loan of 1997, 4.75% 2000 1,000 1,012,450
Loan of 1999, 5.00% 2011 1,500 1,504,365
Loan of 1999, 5.25% 2012 2,000 2,039,200
Commonwealth of Puerto Rico, Public Improvement
Refunding Bonds, Series 1998, 5.00% 2007 1,500 1,521,975
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)<F1> 1,725 1,731,503
Good Samaritan Hospital Issue, Revenue Bonds, Escrowed to Maturity,
Series 1993, 5.70% 2009 1,000 1,057,780
Howard County, General Hospital Issue, Escrowed to Maturity,
Series 1993:
5.50% 2013 2,000 2,061,800
5.50% 2021 1,000 1,008,970
Johns Hopkins Hospital Issue, Revenue Refunding Bonds,
Series 1993, 5.60% 2009 850 882,649
Suburban Hospital Issue, Revenue Refunding Bonds,
Series 1993, 5.125% 2021 1,500 1,376,085
Prince George's County (Dimensions Health Corporation Issue):
Hospital Revenue Bonds, Series 1992, 7.20% 2006 $ 215 $ 227,967
Project and Refunding Revenue Bonds, Series 1994, 5.375% 2014 2,985 2,754,468
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 2,000 2,083,880
1994 First Series, 5.70% 2017 2,085 2,126,721
1994 Fifth Series, AMT, 5.875% 2017 165 167,958
1990 First Series, 7.60% 2017 405 416,223
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 2,000 1,993,281
Series 1994 A, AMT, 6.60% 2025 860 906,216
Commonwealth of Puerto Rico Housing Finance Corporation,
Single Family Mortgage Revenue Bonds, 1st Portfolio,
1988 Series B, 7.65% 2022 80 83,260
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 500 537,645
Series 1984 B, 6.50% 2011 500 537,645
Puerto Rico Ports Authority, Special Facilities Revenue Bonds
(American Airlines, Inc. Project), 1996 Series A, AMT, 6.25% 2026 1,000 1,050,410
2,125,700
Insured _ 21.57%
City of Baltimore:
Consolidated Public Improvement Bonds of 1998,
Series A, FGIC Insured, 5.375% 2010 $1,185 $ 1,228,347
Project and Refunding Revenue Bonds (Water Projects),
Series A, FGIC Insured:
1998, 5.375% 2015 1,000 1,013,150
1994, 6.00% 2015 1,500 1,639,875
1994, 5.00% 2024 1,220 1,163,965
Calvert County, Economic Development Refunding Revenue Bonds,
(Asbury-Solomons Island Facility), Series 1997, MBIA Insured:
5.00% 2009 1,000 1,010,060
5.00% 2010 1,000 1,002,780
5.00% 2017 1,000 963,360
5.00% 2027 1,000 938,310
Charles County, Consolidated Public Improvement Bonds of 1993,
Series A, FGIC Insured, 5.25% 2003 715 738,309
City of Frederick, General Improvement Bonds, 1992 Refunding
Series, FGIC Insured, 6.125% 2008 890 952,772
Maryland Health and Higher Educational Facilities Authority:
Johns Hopkins Medical Institutions Parking Facilities Issue,
Parking Revenue Bonds, Series 1996, AMBAC Insured, 5.50% 2011 1,200 1,236,168
Helix Health Issue, Revenue Bonds, Series 1997,
AMBAC Insured, 5.00% 2007 1,250 1,275,750
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 2,000 2,251,580
Upper Chesapeake Hospitals Issue, Revenue Bonds,
Series 1998 A, 5.50% 2020 1,000 1,001,770
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 1,000 1,156,660
Public Improvement Bonds of 1987, 6.75% 2006 25 25,313
Washington Metropolitan Area Transit Authority, Gross Revenue
Transit Refunding Bonds, FGIC Insured, Series 1993, 6.00% 2008 1,480 1,604,779
23,814,743
Lease Revenue (State) _ .37%
Maryland Stadium Authority, Sports Facilities Lease Revenue
Bonds, Series 1989 D, AMT, 7.50% 2010 $ 400 $ 413,184
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 1,000 964,040
5.45% 2012 1,000 957,920
5.50% 2014 1,525 1,454,774
Maryland Health and Higher Educational Facilities Authority,
First Mortgage Revenue Bonds, PUMH of Maryland, Inc. Issue
(Heron Point of Chestertown), Series 1998A:
5.75%, 2019 1,500 1,461,450
5.75%, 2026 1,640 1,591,636
Prince George's County, Refunding Revenue Bonds, Collington
Episcopal Life Care Community, Inc., Series 1994 A, 6.00% 2013 2,500 2,541,600
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 2,000 2,120,780
Prince George's County, Mortgage Revenue Bonds (GNMA
Collateralized-Langley Gardens Apartments Project),
Series 1997 A, 5.60% 2017 1,130 1,157,097
5,398,437
Pre-Refunded<F2> _ 10.75%
Calvert County, Economic Development Revenue Bonds
(Asbury-Solomons Island Facility), Series 1995, 8.625% 2024 (2005) 2,300 2,763,841
Frederick County, Public Facilities Bonds:
1991 Series B, 6.30% 2011 (2002) 1,370 1,475,435
1986 Series, 7.40% 2012 (2001) 310 338,046
Harford County, Consolidated Public Improvement Bonds,
Series 1992, 5.80% 2010 (2002) 970 1,033,603
Howard County, Metropolitan District Refunding Bonds,
1991 Series A, 6.625% 2021 (2001) 500 524,585
Maryland State Health and Higher Educational Facilities Authority:
Memorial Hospital of Cumberland Issue, Revenue Refunding
Bonds, Series 1992, 6.50% 2010 (2004) $ 750 $ 819,128
Suburban Hospital Issue Revenue Bonds, Series 1992,
6.50% 2017 (2002) 500 541,205
University of Maryland Medical System Issue, Revenue Bonds,
Series 1991 A, FGIC Insured, 6.50% 2021 (2001) 1,000 1,046,180
Prince George's County, Hospital Revenue Bonds (Dimensions
Health Corporation Issue), Series 1992, 7.20% 2006 (2002) 1,035 1,138,821
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) 1,050 1,105,113
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 3,500 3,750,845
Montgomery County, Northeast Maryland Waste Disposal Authority,
Solid Waste Revenue Bonds, Series A, AMT:
6.00% 2006 1,115 1,182,502
6.00% 2007 1,000 1,061,000
Series 1993, 6.30% 2016 1,000 1,048,900
7,043,247
Special Obligations _ 3.96%
Montgomery County Revenue Authority, Golf Course System Revenue
Bonds, Series 1996 A, 6.00% 2014 2,355 2,397,955
Virgin Islands Public Finance Authority, Revenue and Refunding Bonds
(Virgin Islands Matching Fund Loan Notes), Series 1998 A:
5.20% 2009 1,000 992,910
5.20% 2010 1,000 983,800
4,374,665
Tax Assessment Bonds _ 2.00%
Prince George's County, Special Obligation Bonds (Woodview Village
Infrastructure Improvements), Series 1997 A, 8.00% 2026 1,970 2,202,893
Turnpikes & Toll Roads Revenue _ .97%
Maryland Transportation Authority Facilities Project,
Transportation Facilities Projects Revenue Bonds,
Series 1992, 5.80% 2006 $1,000 $ 1,073,510
Water & Sewer Revenue _ 1.93%
Maryland Water Quality Financing Administration, Revolving
Loan Fund Revenue Bonds, Series 1991 B, 0% 2005 700 528,542
Washington Suburban Sanitary District, Refunding Bonds,
Series 1997, 5.75% 2017 1,510 1,606,566
2,135,108
102,394,364
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<F3> 2,800 2,800,000
Industrial Development Revenue _ 2.17%
Montgomery County, Maryland, Variable Rate Economic Development
Revenue Bonds (The Institute for Genomic Research, Inc. Facility),
Series 1999, 3.20% 20093 2,400 2,400,000
Pre-Refunded<F2> _ 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) 250 262,718
University of Maryland System Auxiliary Facility and Tuition
Revenue Bonds, 1989 Series B, 7.00% 2007 (1999) 600 615,540
Commonwealth of Puerto Rico, Housing Bank and Finance Agency,
Single Family Mortgage Revenue Bonds, Homeownership 5th Portfolio,
1986 Series, 7.50% 2015 (2000) 495 510,592
1,388,850
6,588,850
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
<FN>
<F1>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.
<F2>Parenthetical year represents date of pre-refunding.
<F3>Coupon rate changes periodically.
</FN>
</TABLE>
See Notes to Financial Statements
Financial Statements
The Tax-Exempt
Fund of Maryland
(graphic: Map of Maryland)
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 Fund's shares $ 52
Interest 1,124 1,176
110,687
Liabilities:
Payables for _
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
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
Statement of Changes in Net Assets
Year ended July 31
(dollars in thousands) 1999 1998
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:
Dividends paid from net investment income (4,983) (4,491)
Distributions 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
Per-Share Data and Ratios
The Tax-Exempt
Fund of Maryland
(graphic: map of Maryland)
<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 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<F1> 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%
<FN>
<F1>Excludes maximum sales charge of 4.75%.
</FN>
</TABLE>
See Notes to Financial Statements
The Tax-Exempt Fund of Virginia
As of July 31, 1999
(graphic: Map of Virginia)
Quality Diversification:
Moody's/S&P Ratings (best of either)
(graphic: pie chart showing the following percentages:)
Aaa/AAA 40.5%
Aa/AA 31.5%
A/A 7.9%
Baa/BBB 05.6%
Lower than BBB or not rated 09.8%
Cash and Equivalents 04.7%
Maturity Diversification<F1>:
(graphic: pie chart showing the following percentages:)
Under 1 year 04.7%
1 to 10 years 58.2%
10+ to 20 years 31.3%
20+ to 30 years 05.8%
Average Life<F2> 8.56 years
[FN]
<F1>Securities are included at pre-refunded dates, not maturity dates.
<F2>Average life more accurately reflects the potential impact of call
options. Should no call options be exercised, the average maturity of the
Virginia Fund is 12.38 years.
</FN>
Why double tax-free investing can be worthwhile
<TABLE>
<CAPTION>
Tax-free yields vs. taxable yields
Your taxable income Combined In Virginia, a tax-exempt yield of:
Federal and 4% 5% 6% 7%
Single Joint VA tax rate<F1> is equivalent to a taxable yield of:
<S> <S> <C> <C> <C> <C> <C>
$ 3,000 - 5,000 $ 3,000 - 5,000 17.6% 4.9% 6.1% 7.3% 8.5%
$ 5,001 - 17,000 $ 5,001 - 17,000 19.3 5.0 6.2 7.4 8.7
$ 17,001 - 25,750 $ 17,001 - 43,050 19.9 5.0 6.2 7.5 8.7
$ 25,751 - 62,450 $ 43,051 - 104,050 32.1 5.9 7.4 8.8 10.3
$ 62,451 - 130,250 $104,051 - 158,550 35.0 6.2 7.7 9.2 10.8
$130,251 - 283,150 $158,551 - 283,150 39.7 6.6 8.3 10.0 11.6
Over 283,150 Over 283,150 43.1 7.0 8.8 10.5 12.3
<FN>
<F1>Based on 1999 Federal and Virginia tax rates (at 3% to 5.75%
individually calculated for each bracket and averaged to fit within Federal
brackets). The rates do not include an adjustment for the loss of personal
exemptions and the phase-out of itemized deductions that are applicable at
certain taxable income levels.
</FN>
</TABLE>
To use this table, find your estimated taxable income to determine your
combined Federal and Virginia tax rate. Then look at the right-hand column
to see what you would have had to earn from a taxable investment to equal
the Fund's 4.47% tax-free distribution rate in August.
Because of tax increases in recent years, many high-income investors are
finding that their returns on taxable fixed-income issues have to be even
higher to match those currently offered by tax-exempt municipals. For
instance, a couple with a taxable income of $150,000 faces a combined
Federal and Virginia tax rate of 35.0%. In this bracket, the Fund's current
4.47% distribution rate would be equivalent to a return on a taxable
fixed-income investment of 6.88%.
Investment Portfolio
July 31, 1999
The Tax-Exempt
Fund of Virginia
(graphic: Map of Virginia)
<TABLE>
<CAPTION>
Principal
Amount Market
(000) Value
<S> <C> <C>
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 $1,000 $ 1,034,430
General Obligations (Local) _ 6.61%
Arlington County:
Public Improvement Bonds, Series 1996, 6.00% 2011 1,000 1,095,480
Refunding Bonds, Series 1993, 6.00% 2012 1,000 1,096,310
Chesapeake:
Public Improvement Bonds, Series 1992, 6.00% 2006 1,600 1,702,624
Refunding Bonds, Series 1993, 5.40% 2008 1,000 1,047,340
City of Hampton, Public Improvement Refunding Bonds,
Series 1998, 5.00% 2013 1,030 1,022,512
Leesburg Refunding Bonds, Series 1993, 5.60% 2008 1,195 1,245,931
Lynchburg Public Improvement Refunding Bonds, Series 1993,
5.25% 2009 1,000 1,019,800
8,229,997
General Obligations (State) _ .63%
Commonwealth of Virginia, Public Facilities Bonds, 1993 Series A,
5.40% 2005 750 790,628
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 1,015 1,008,829
5.00% 2009 1,020 1,006,240
5.00% 2010 505 493,562
Fairfax County:
Industrial Development Authority Hospital, Revenue Refunding Bonds
(INOVA Health Systems Hospital Project), Series 1993 A:
5.00% 2007 750 759,645
5.25% 2019 2,500 2,464,900
5.00% 2023 500 472,275
Industrial Development Authority, Health Care Revenue
Refunding Bonds (INOVA Health System Project), Series 1998 A,
5.00% 2011 1,500 1,474,020
Industrial Development Authority of Halifax County,
Virginia, Hospital Refunding Revenue Bonds
(Halifax Regional Hospital, Inc.), Series 1998:
4.65% 2007 $ 600 $ 582,150
4.80% 2009 1,000 961,500
Industrial Development Authority of Henry County, Hospital Revenue
Bonds (Memorial Hospital of Martinsville and Henry County),
Series 1997, 6.00% 2017 2,000 2,058,580
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 2,100 2,156,784
6.50% 2007 1,000 1,079,130
Norfolk Industrial Development Authority, Hospital Revenue
Bonds (Sentara Hospitals-Norfolk Project), Series A 1994,
5.00% 2020 1,000 921,820
Peninsula Ports Authority, Health System Revenue and Refunding
Bonds (Riverside Health System Project):
Series 1992 A, 5.00% 2008 1,200 1,196,964
Series 1998, 5.00% 2009 1,100 1,089,363
17,725,762
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 105 109,280
Virginia Housing Development Authority, Commonwealth
Mortgage Bonds:
1994 Series H, Sub-Series H-1, 6.10% 2003 500 520,775
1995 Series A-AMT, Sub-Series A-1, 6.60% 2004 1,000 1,026,070
1998 Series E, Sub-Series E-1, 4.50% 2005 1,190 1,178,969
1992 Series A, 7.10% 2022 380 388,550
3,223,644
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 1,000 1,050,410
2,960,740
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, Series 1998B,
5.375% 2012 $3,000 $ 2,997,150
Industrial Development Authority of Augusta County, Virginia,
Hospital Refunding Revenue Bonds (Augusta Health Care, Inc.),
AMBAC Insured, Series 1998, 5.00% 2005 1,000 1,019,650
Chesapeake Certificates of Participation, MBIA Insured,
1993 Series, 5.40% 2005 1,000 1,042,750
Industrial Development Authority of Danville, Virginia,
Hospital Revenue Bonds (Danville Regional Medical Center),
Series 1998, AMBAC Insured:
5.25% 2012 1,995 2,012,815
5.25% 2013 2,000 2,014,780
Fairfax County Industrial Development Authority,
Hospital Revenue Refunding Bonds (INOVA Health System
Hospitals Project), Series 1993 A, FSA Insured, 5.25% 2019 1,000 985,960
Fairfax County Redevelopment and Housing Authority, Multifamily
Housing Revenue Bonds (Grand View Apartments Project),
Series 1998 A, FHA Insured, 5.05% 2010 1,000 992,510
Industrial Development Authority of the County of Hanover,
Hospital Revenue Bonds (Memorial Regional Medical Center
Project at Hanover Medical Park), Series 1995, MBIA Insured:
6.50% 2010 1,375 1,548,965
6.375% 2018 1,000 1,123,380
Loudoun County:
Industrial Development Authority, Hospital Revenue Bonds,
FSA Insured, 6.00% 2005 1,000 1,069,030
Sanitation Authority, Water and Sewer System Revenue Bonds,
FGIC Insured, Series 1992, 6.25% 2010 2,000 2,141,420
Industrial Development Authority of the City of Norfolk,
Health Care Revenue Bonds (Bon Secours Health System), Series 1997,
MBIA Insured, 5.00% 2007 1,250 1,262,750
Northern Virginia Transportation District Commission,
(Virginia Railway Express Project):
Commuter Rail Revenue Bonds, Series 1997,
MBIA Insured, 5.20% 2013 1,000 1,001,410
Commuter Rail Revenue Refunding Bonds, Series 1998,
FSA Insured, 5.375% 2014 1,000 1,013,150
Pamunkey Regional Jail Authority, Jail Facility Revenue Bonds,
Series 1996, MBIA Insured, 5.70% 2010 $1,000 $ 1,043,830
Industrial Development Authority of the County of Prince William
(Virginia), Hospital Facility Refunding Revenue Bonds (Potomac
Hospital Corporation of Prince William), Series 1998, FSA Insured,
5.00% 2008 1,475 1,480,826
Richmond Metropolitan Authority, Expressway Revenue and
Refunding Bonds, FGIC Insured, Series 1998, 5.25% 2012 1,000 1,018,350
Southeastern Public Service Authority of Virginia, Senior Revenue
Refunding Bonds, Series 1998, AMBAC Insured, 5.00% 2015 3,000 2,933,850
City of Virginia Beach Development Authority, Hospital Revenue
Bonds (Virginia Beach General Hospital Project), Series 1993,
AMBAC Insured, 6.00% 2011 1,000 1,086,410
Washington, D.C. Metropolitan Area Airports Authority,
Airport System Revenue and Refunding Bonds, MBIA Insured AMT:
Series 1998 B, 5.25% 2010 1,000 1,015,560
Series 1992 A, 6.625% 2019 750 804,593
29,609,139
Lease Revenue (State) _ 1.63%
Virginia Public Building Authority:
Public Facilities Revenue Refunding Bonds, Series 1998A, 5.00% 2004 1,000 1,029,170
Public Facilities Revenue Bonds, Series 1998B, 5.00% 2010 1,000 1,002,510
2,031,680
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 2,730 2,702,700
Industrial Development Authority of the County of James City,
Virginia, Residential Care Facility First Mortgage Revenue Bonds
(Williamsburg Landing, Inc.), Series 1996A, 6.625% 2019 3,000 3,121,320
5,824,020
Multi-Family Housing _ 4.89%
Virginia Housing Development Authority, Multi-Family Housing Bonds:
1995 Series H, 5.45% 2005 1,255 1,293,127
1998 Series I-AMT, 4.60% 2009 1,320 1,289,323
1998 Series I-AMT, 4.70% 2010 1,240 1,209,235
1997 Series B-AMT, 5.80% 2010 1,185 1,250,365
1996 Series B, 5.95% 2016 1,000 1,049,870
6,091,920
Pre-Refunded<F1> _ 14.90%
Danville, Virginia Industrial Development Authority, Hospital
Revenue Bonds, Danville Regional Medical Center, Series 1994,
FGIC Insured, 6.00% 2007 (2004) $1,000 $ 1,081,420
Fairfax County Economic Development Authority, Parking
Revenue Bonds (Huntington Metrorail Station Project),
Series 1990 A, 6.75% 2015 (2000) 500 526,085
Henry County Public Service Authority, Water and Sewer Revenue
Bonds, FGIC Insured, Series 1990, 7.20% 2019 (2000) 1,250 1,316,563
Newport News General Obligation, Water Bonds, Series A 1992,
6.125% 2009 (2002) 1,170 1,248,554
Norfolk:
Capital Improvement and Refunding Bonds, Series 1992 A,
6.00% 2011 (2001) 500 524,300
Industrial Development Authority, Hospital Revenue Bonds:
(Children's Hospital of the King's Daughters Obligated
Group), Series 1991, AMBAC Insured, 7.00% 2011 (2001) 400 428,288
(Sentara Hospitals-Norfolk Project), Series 1991, 7.00% 2020 (2000) 250 264,618
Peninsula Ports Authority:
Health Care Facilities Revenue and Refunding Bonds
(Mary Immaculate Project), 1994 Series, 6.875% 2010 (2004) 1,900 2,145,347
Health System Revenue and Refunding Bonds (Riverside Health
System Project), Series 1992 A, 6.625% 2010 (2002) 1,300 1,408,186
Prince William County Service Authority, Water and Sewer
System Revenue Bonds, Series 1991, FGIC Insured, 6.50% 2021 (2001) 680 723,880
Roanoke:
Public Improvement and Refunding Bonds, Series 1992 B:
6.375% 2009 (2001) 250 265,803
6.40% 2011 (2001) 500 534,150
Valley Resource Authority, Solid Waste System Revenue Bonds,
Series 1992, 5.75% 2012 (2002) 1,500 1,592,160
Water System Revenue Bonds, Series 1991, FGIC Insured,
6.50% 2021 (2001) 750 798,398
University of Virginia, Hospital Revenue Bonds, 1984 Series A,
HIBI Insured, 9.875% 2001 (2000) 10 10,910
Upper Occoquan Sewage Authority, Regional Sewerage System
Revenue Bonds, Series 1991, MBIA Insured, 6.00% 2021 (2001) 700 725,788
Virginia Beach, Virginia Development Authority (Sentara
Bayside Hospital), 6.60% 2009 (2001) 1,000 1,072,070
Virginia College Building Authority Educational Facilities Revenue
Bonds (Marymount University Project), Series 1992, 6.875% 2007 (2002) $1,650 $ 1,771,110
Virginia Public Building Authority, State Building Revenue Bonds,
Series 1991 A, 6.50% 2011 (2001) 1,750 1,864,783
Virginia Resources Authority, Water and Sewer Systems Revenue Bonds,
Series 1990, 7.25% 2011 (2000) 250 264,655
18,567,068
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 2,000 1,909,860
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 1,000 1,023,020
Series 1998 A, 5.20% 2009 1,000 992,910
2,015,930
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 1,600 1,613,024
State Authority _ 4.88%
Virginia Public School Authority, School Financing Bonds:
(1997 Resolution), Series 1998 A, 5.25% 2007 2,000 2,081,460
(1987 Resolution), 1991 Refunding Series C, 6.25% 2007 1,500 1,592,460
(1991 Resolution), Series 1994 A, 6.20% 2014 1,500 1,610,175
Virginia Resources Authority, Water System Refunding Revenue Bonds,
1992 Series A, 6.45% 2013 750 797,136
6,081,231
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 2,000 2,009,080
Virginia Gateway, Community Development Authority
(Prince William County, Virginia), Special Assessment Bonds,
Series 1999, 6.25% 2026 2,500 2,415,100
4,424,180
Turnpikes & Toll Roads Revenue _ 1.61%
Pocahontas Parkway Association, Route 895 Connector, Toll Road
Revenue Bonds, Series 1998A, 5.25% 2009 $2,000 $ 2,001,500
Water & Sewer Revenue _ 3.71%
Chesterfield County Water and Sewer Revenue Refunding Bonds,
Series 1992, 6.375% 2009 1,250 1,346,450
City of Richmond, Virginia, Public Utility Revenue and Refunding
Bonds, Series 1998 A:
5.25% 2009 1,500 1,531,920
5.25% 2011 1,000 1,005,970
Rivanna Water and Sewer Authority, Regional Water and Sewer
System Refunding Revenue Bonds, Series 1991, 6.40% 2007 645 684,622
Virginia Resources Authority, Water and Sewer System Revenue Bonds
(Pooled Loan Program), 1986 Series A, 7.50% 2017 50 50,458
4,619,420
118,754,173
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<F2> 700 700,000
Pre-Refunded<F1> _ 2.33%
Fairfax County Industrial Development Authority, Hospital Revenue
Bonds (Fairfax Hospital System Project), INOVA Health Systems,
Series 1991 C, 6.801% 2023 (2001)<F2> 1,000 1,068,890
Industrial Development Authority of the City of Roanoke, Virginia,
Hospital Revenue Bonds (Roanoke Memorial Hospital Projects),
Series 1990, MBIA Insured, 7.25% 2017 (2000) 750 789,480
Virginia Resources Authority, Solid Waste Disposal System Revenue
Bonds, 1990 Series A, 7.30% 2015 (2000)<F2> 1,000 1,044,230
2,902,600
3,602,600
TOTAL TAX-EXEMPT SECURITIES (cost: $119,546,000) 122,356,773
Excess of cash and receivables over payables 2,220,911
NET ASSETS $124,577,684
<FN>
<F1>Parenthetical year represents date of pre-refunding.
<F2>Coupon rate changes periodically.
</FN>
</TABLE>
See Notes to Financial Statements
Financial Statements
The Tax-Exempt
Fund of Virginia
(graphic: Map of Virginia)
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
Statement of Changes in Net Assets
Year ended July 31
(dollars in thousands) 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:
Dividends paid from net investment income (5,453) (5,001)
Distributions 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
Per-Share Data and Ratios
The Tax-Exempt
Fund of Virginia
(graphic: Map of Virginia)
<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 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<F1> 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%
<FN>
<F1>Excludes maximum sales charge of 4.75%.
</FN>
</TABLE>
See Notes to Financial Statements1 Excludes maximum sales charge of 4.75%.
Notes to Financial Statements
1. 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 an open-end,
diversified management investment company and has initially issued two
series of shares, The Tax-Exempt Fund of Maryland and The Tax-Exempt Fund
of Virginia (the "Funds"). The Funds seek a high level of current income
exempt from Federal and their respective state income taxes. Additionally,
each Fund seeks to preserve capital.
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 share-
holders 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 WMC.
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 amounts 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.
4. Investment Transactions and Other Disclosures
As of July 31, 1999:
The Tax-Exempt The Tax-Exempt
Fund of Maryland Fund of Virginia
Accumulated
undistributed net
realized gain (loss)
on investments $ _ $ (11,000)
Paid-in capital 107,263,000 121,778,000
Purchases and sales of
investment securities,
excluding short-term
securities, during the
year ended July 31, 1999:
Purchases 22,172,000 28,272,000
Sales 11,766,000 15,114,000
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.
Report of Independent Accountants
To the Board of Trustees and Shareholders of
The American Funds Tax-Exempt Series I
In our opinion, the accompanying statements of assets and liabilities,
including the investment portfolios, and the related statements of
operations and of changes in net assets and the per-share data and ratios
present fairly, in all material respects, the financial position of The
Tax-Exempt Fund of Maryland and The Tax-Exempt Fund of Virginia
(constituting The American Funds Tax-Exempt Series I, hereafter referred to
as the "Trust") at July 31, 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
audits 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.
(signature)
PricewaterhouseCoopers LLP
Los Angeles, California
August 31, 1999
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.
The American Funds Tax-Exempt Series I
Board of Trustees
James H. Lemon, Jr.
Chairman of the Trust
Chairman and Chief Executive Officer,
The Johnston-Lemon Group, Incorporated
Stephen Hartwell
Chairman Emeritus of the Trust
Chairman, Washington Management Corporation
Harry J. Lister
President of the Trust
President, Washington Management Corporation
Cyrus A. Ansary
President, Investment Services International Company
Jean Head Sisco
Partner, Sisco Associates
T. Eugene Smith
President, T. Eugene Smith, Inc.
Stephen G. Yeonas
Chairman and Chief Executive Officer,
Stephen G. Yeonas Company
Other Officers
Howard L. Kitzmiller
Senior Vice President, Secretary/Treasurer of the Trust
Director, Senior Vice President, Secretary and
Assistant Treasurer, Washington Management Corporation
Lois A. Erhard
Vice President of the Trust
Vice President, Washington Management Corporation
Michael W. Stockton
Assistant Vice President, Assistant Secretary and
Assistant Treasurer of the Trust
Assistant Vice President, Assistant Secretary and
Assistant Treasurer, Washington Management Corporation
J. Lanier Frank
Assistant Vice President of the Trust
Assistant Vice President, Washington Management Corporation
Office of the Funds and of the Business Manager
Washington Management Corporation
1101 Vermont Avenue, NW Washington, DC 20005-3585
202/842-5665
Investment Manager
Capital Research and Management Company
333 South Hope Street
Los Angeles, CA 90071-1443
135 South State College Boulevard
Brea, CA 92821-5804
Transfer Agent
American Funds Service Company
P.O. Box 2280
Norfolk, VA 23501-2280
Custodian of Assets
The Chase Manhattan Bank
One Chase Manhattan Plaza
New York, NY 10081-0001
Counsel
Thompson, O'Donnell, Markham, Norton & Hannon
805 Fifteenth Street, NW
Washington, DC 20005-2216
Principal Underwriter
American Funds Distributors, Inc.
333 South Hope Street
Los Angeles, CA 90071-1462
Independent Accountants
PricewaterhouseCoopers LLP
400 South Hope Street
Los Angeles, CA 90071-2889
For information about your account or any of the Funds' services, please
contact your financial adviser. You may also call American Funds Service
Company, toll-free, at 800/421-0180 or visit www.americanfunds.com on the
World Wide Web.
This report is for the information of shareholders in the Funds that
comprise The American Funds Tax-Exempt Series I, but it may also be used as
sales literature when preceded or accompanied by the current prospectus,
which gives details about charges, expenses, investment objectives and
operating policies of the Funds. If used as sales material after September
30, 1999, this report must be accompanied by an American Funds Group
Statistical Update for the most recently completed calendar quarter.
(graphic: recycle logo)
Printed on recycled paper
TEFMD/TEFVA-011-0999
(Logo: The American Funds Group(R))
The American Funds Tax-Exempt Series I
The Tax-Exempt Fund of Maryland
The Tax-Exempt Fund of Virginia
Annual Report / July 31, 1999
