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The Tax-Exempt Fund of California
Semi-Annual Report
for the six months
ended February 28, 1995
[The American Funds Group(R)]
THE TAX-EXEMPT FUND OF CALIFORNIA(SM) seeks a high level of current income
free from federal and California income taxes primarily through investments in
California municipal bonds. Additionally, the fund seeks to preserve capital.
Fund results in this report were computed without a sales charge unless
otherwise indicated. Here are the total returns and average annual compound
returns for periods ended March 31, 1995 (the most recent calendar quarter) on
an investment at the 4.75% maximum sales charge with all distributions
reinvested:
<TABLE>
<CAPTION>
Total Average Annual
Return Compound Return
<S> <C> <C>
Lifetime (since 10/28/86) +67.66% +6.33%
Five Year +39.44 +6.88
One Year + 1.94 --
</TABLE>
Sales charges are lower for accounts of $25,000 or more. The fund's 30-day
yield as of March 31, 1995, calculated in accordance with the Securities and
Exchange Commission formula, was 4.98%. The fund's distribution rate as of that
date was 5.29%. The SEC yield reflects income earned by the fund, while the
distribution rate reflects dividends actually paid by the fund. Fund results
through August 1988 do not reflect service and distribution expenses now paid
under its Plan of Distribution. Such expenses may not exceed 0.25% of the
fund's average net assets per year and currently amount to approximately 0.18%.
THE FIGURES IN THIS REPORT REFLECT PAST RESULTS. SHARE PRICE AND RETURN WILL
VARY, SO YOU MAY HAVE A GAIN OR LOSS OF PRINCIPAL WHEN YOU SELL YOUR SHARES.
FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR INSURED OR GUARANTEED BY,
THE U.S. GOVERNMENT, ANY FINANCIAL INSTITUTION, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, OR ANY OTHER AGENCY, ENTITY OR PERSON. All investments are subject
to certain risks. For example, those which include bonds are affected by
interest rate fluctuations. Additionally, the fund is more susceptible to
factors adversely affecting issuers of individual state tax-exempt securities
than a more widely diversified municipal bond fund. Accordingly, investors
should maintain a long-term perspective.
FELLOW SHAREHOLDERS:
In the first half of fiscal 1995 - an uncertain and difficult period in the
California municipal bond market - The Tax-Exempt Fund of California produced a
steady stream of double tax-free income and held its value well. For the six
months ended February 28, the fund paid dividends of 43 cents a share. If, like
most shareholders, you reinvested those dividends, your income return was 2.8%,
or 5.6% on an annualized basis. If you are in the maximum 46.2% combined
federal and state tax bracket, you would have had to earn 10.4% from a taxable
investment to match this annualized return.
The monthly dividends more than offset a 0.3% decline in the fund's capital
value and helped generate a 2.6% total return during the fiscal half-year. The
average return recorded by California municipal debt funds for this period was
2.4%, according to Lipper Analytical Services. The Lehman Brothers Municipal
Bond Index, which is unmanaged and measures the national investment-grade
tax-exempt market, posted a six-month return of 2.8%.
The fund began the fiscal year two-thirds of the way through one of the worst
bond markets in history. Bond prices, which had begun falling early in 1994,
continued to slip as the Federal Reserve steadily raised interest rates.
California's municipal bond market suffered more than the broader bond market
during the downturn. The state's economy, with its dependence on the defense
industry and real estate development, lagged the rest of the country in
recovering from the last recession. When the Fed began raising rates,
California's recovery slowed further.
By mid-November, investor sentiment had begun to improve and the bond market
started to move up. California municipal bonds joined the rally but were held
back for a while by the early December filing for bankruptcy by Orange County.
The Tax-Exempt Fund of California owns no bonds issued by the county itself.
However, it does own some bonds sold by four agencies located in the county.
Two of these were unaffected by the negative news stories surrounding the
[SIDEBAR]
<TABLE>
<CAPTION>
Investment Highlights
through 2/28/95
<S> <C>
6-month total return (dividends +2.6%
reinvested plus capital changes)
12-month total return (dividends +1.6%
reinvested plus capital changes)
Tax-free distribution rate for February +5.4%
(annualized) (income return only,
reflecting maximum sales charge)
Taxable equivalent distribution rate +10.0%
(annualized)
(for February, assuming a 46.2%
combined state and federal tax rate)
SEC 30-day yield as of February 28 +5.2%
(reflecting maximum sales charge)
</TABLE>
For current yield information, please call toll-free: 800/421-0180.
[END SIDEBAR]
bankruptcy. The other two fell in price initially; both have regained most of
the value they lost during the days immediately following the filing. The
financial health of the two agencies issuing the bonds has not changed. It is
also important to note that the fund is not leveraged and has no exposure to
the type of volatile derivatives that contributed to the county's problems.
During last year's market downturn, the fund shifted into a defensive
position, shortening the overall maturity of the portfolio. (Short-term bonds
generally fluctuate less in price than long-term bonds.) This lessened the
impact of the downturn and helped your fund hold its value much better than
most similar funds. For the 12 months ended February 28, The Tax-Exempt Fund of
California recorded a total return of 1.6% compared with 0.2% for the average
California municipal debt fund, according to Lipper.
The combination of rising interest rates and regional economic and financial
difficulties has made these past 12 months one of the most turbulent periods in
memory for the California municipal bond market. Now, though, there are signs
that the state's economy is recovering. Several key indicators, including
retail sales, job growth, business lending and income growth, are turning
positive.
California still faces numerous challenges, including crafting a credible
budget for 1995. Despite its problems, the state has the world's seventh
largest economy and offers an immensely varied range of opportunities for
tax-conscious investors. We believe that diversifying investments across the
state, as The Tax-Exempt Fund of California does, is a key to successful,
long-term investing in the California municipal bond market.
We will continue to follow a philosophy of investing for the long term and
diversifying our investments. We look forward to reporting to you again in
another six months, after the close of the fund's fiscal year.
Cordially,
Paul G. Haaga, Jr.
Chairman of the Board
Abner D. Goldstine
President
April 13, 1995
WHY DOUBLE TAX-FREE INVESTING IS WORTHWHILE
The table below is based on current tax rates. To use the table, find your
estimated taxable income to determine your combined federal and California tax
rate. Then look at the right-hand column to see what taxable yield you would
have had to earn to equal the fund's 5.39% tax-free distribution rate in
February.
Because of federal tax increases, many high-income investors are finding that
their returns on taxable fixed-income investments 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 California tax
rate of 42.0%. In this bracket, the fund's current 5.39% distribution rate
would be equivalent to a taxable yield of 9.29%. Investors in the highest
bracket (46.2%) would need a taxable income return of 10.02% to equal the
fund's tax-free rate.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Income Tax Rates Combined The fund's 5.39%
Federal & tax-exempt distri-
California bution rate in
Tax Rate* February/1/ is equiv-
alent to a taxable
income return of:
Your Taxable Income
Single Joint
$17,622-23,350 $35,324-39,000 20.1% 6.75%
23,351-24,519 39,001-49,038 32.3 7.96
24,520-30,987 49,039-61,974 33.8 8.14
30,988-56,550 61,975-94,250 34.7 8.25
56,551-107,464 94,251-143,600 37.4 8.61
107,465-117,950 37.9 8.68
143,601-214,928 42.0 9.29
117,951-214,929 214,929-256,500 42.4 9.36
214,930-256,500 43.0 9.46
256,501-429,858 45.6 9.91
Over 256,500 Over 429,858 46.2 10.02
</TABLE>
*Based on 1995 federal and 1994 California marginal tax rates. The rates do
not include an adjustment for the loss of personal exemptions and the phase-out
of itemized deductions that are applicable to certain taxable income levels.
/1/The fund's distribution rate is based on offering price and therefore
reflects the effects of the maximum sales charge on the initial investment. It
is not a projection of future results. Such results will reflect interest rate
levels, changes in the value of portfolio securities, the effects of portfolio
transactions, fund expenses and applicable sales charges.
THE TAX-EXEMPT FUND OF CALIFORNIA
Investment Portfolio, February 28, 1995
(Unaudited)
<TABLE>
<CAPTION>
Principal Market
Amount Value
(000) (000)
<S> <C> <C>
Tax-Exempt Securities Maturing in More than
One Year - 95.94%
Various Purpose General Obligation Bond, 7.00% 2005 $1,000 $ 1,112
Health Facilities Financing Authority:
Hospital Revenue Bonds:
Downey Community Hospital, Series 1993, 5.75% 2015 8,400 7,505
Kaiser Permanente Medical Care Program, Semiannual
Tender Revenue Bonds, 1985 Tender Bonds, 5.55% 2025 2,000 1,779
Pacific Presbyterian Medical Center Insured Variable
Rate Demand, 1985 Series B, 6.75% 2015 1,800 1,786
St. Joseph Health System, Series 1989 A, 6.90% 2014
(Prerefunded 1999) 1,250 1,365
St. Joseph Health System, Series 1991 A, 6.75% 2021
(Prerefunded 2001) 4,000 4,414
Housing Finance Agency, Home Mortgage Revenue Bonds:
1991 Series A, 7.35% 2011 550 585
1991 Series G, 6.95% 2011 1,490 1,549
Pollution Control Financing Authority:
Pollution Control and Industrial Development Revenue
Bonds (General Motors Corporation Projects),
Series 1984, 5.50% 2008 2,000 1,827
Pollution Control Revenue Bonds (Southern California
Edison Company), 1992 Series B, 6.40% 2024 5,500 5,392
Solid Waste Revenue Bonds (Keller Canyon Landfill
Company Project), Series 1992, 6.875% 2027 7,690 7,825
Public Works Board, Lease Revenue Bonds:
(California Community Colleges, Various Community
College Projects), 1994 Series B, 6.75% 2005 1,000 1,059
The Regents of the University of California,
1993 Series A (Various University of California
Projects), 5.50% 2021 1,000 882
Statewide Communities Development Authority:
Hospital Revenue Certificates of Participation,
Cedar-Sinai Medical Center, Series 1992, 6.50% 2012 1,900 1,932
St. Joseph Health System Obligated Group,
Certificates of Participation, 5.50% 2014 3,000 2,710
Department of Water Resources, Central Valley Project,
Water System Revenue Bonds:
Series F, 7.25% 2010 500 529
Series H, 6.90% 2025 (Prerefunded 2000) 2,000 2,196
City of Berkeley, Health Facility Refunding Revenue
Bonds (Alta Bates Medical Center), 1992 Series A,
6.50% 2011 3,020 2,852
Castaic Lake Water Agency, Refunding Revenue
Certificates of Participation (Water System
Improvement Projects), MBIA Insured, Series 1994A:
7.25% 2007 500 577
7.25% 2010 1,400 1,616
Central Valley Financing Authority, Cogeneration
Project Revenue Bonds (Carson Ice-Gen Project),
1993 Series:
6.10% 2013 5,000 4,731
6.20% 2020 6,500 6,091
Contra Costa County Public Facilities Corporation,
Certificates of Participation (Merrithew Memorial
Hospital Replacement Project), Series of 1992,
6.625% 2022 1,915 1,890
City of Long Beach, Financing Authority Revenue Bonds,
Series 1992, AMBAC Insured, 6.00% 2017 750 755
Department of Airports of the City of Los Angeles,
1989 Series B, 7.40% 2010 1,000 1,053
Los Angeles Convention and Exhibition Center
Authority, Certificates of Participation:
7.375% 2018 (Prerefunded 1999) 2,500 2,773
7.00% 2020 (Prerefunded 1999) 2,000 2,189
Harbor Department of the City of Los Angeles, Revenue
Bonds:
Issue 1988, 7.60% 2018 2,750 3,091
Issue of 1995, 6.625% 2025 4,750 4,831
City of Los Angeles, Waste Water System Revenue Bonds:
Series 1987, 8.125% 2017 (Prerefunded 1997) 1,500 1,654
Series 1990-B, 7.15% 2020 (Prerefunded 2000) 1,000 1,113
Department of Water and Power of the City of Los
Angeles:
Electric Plant Revenue Bonds, Issue of 1990,
7.125% 2030 2,500 2,741
Water Works Refunding Revenue Bonds:
Issue of 1989, 7.00% 2022 1,000 1,078
7.375% 2022 1,645 1,756
County of Los Angeles, Certificates of Participation
(Marina del Rey), Series A:
6.25% 2003 2,135 2,157
6.50% 2008 6,000 5,941
County of Los Angeles, Pension Obligation
Certificates, Series A, 6.875% 2006 2,500 2,612
Los Angeles County Public Works Financing Authority,
Lease Revenue Bonds (Multiple Capital Facilities
Project IV), MBIA Insured, 5.00% 2008 2,410 2,244
Los Angeles State Building Authority:
Lease Revenue Bonds (State of California Department
of General Services Lease), Series 1988 A,
7.50% 2011 (Prerefunded 1998) 3,500 3,827
Lease Revenue Refunding Bonds (State of California
Department of General Services Lease), 1993
Series A, 5.50% 2007 2,000 1,862
Los Angeles County Transportation Commission, Sales
Tax Revenue Bonds:
Series 1989, 7.00% 2019 2,250 2,341
Series 1991-A, 6.75% 2020 (Prerefunded 2001) 2,500 2,762
Marin Municipal Water District Water Revenue Bonds,
Series 1993, 5.65% 2023 1,000 908
The Metropolitan Water District of Southern
California:
Waterworks Refunding Revenue Bonds, Issue of 1986:
6.75% 2022 610 623
6.75% 2022 (Prerefunded 1996) 390 408
Northern California Public Power Agency,
Special Revenue Bonds, 1993 Refunding Series A,
5.60% 2006 4,725 4,485
City of Oakland, Special Refunding Revenue Bonds
(Pension Financing), 1988 Series A, FGIC Insured,
7.60% 2021 1,000 1,091
Port of Oakland:
Refunding Revenue Bonds, 1993 Series F,
MBIA Insured, 0% 2006 3,580 1,839
Revenue Bonds:
1989 Series B, BIG Insured, 7.25% 2016 3,125 3,291
1992 Series E, MBIA Insured, 6.40% 2022 4,670 4,710
County of Orange, Airport Revenue Refunding Bonds,
Series 1993, MBIA Insured, 5.50% 2013 1,000 910
County of Orange (Aliso Viejo), Special Tax Bonds of
Community Facilities District No. 88-1, Series A of
1992:
7.25% 2008 (Prerefunded 2002) 1,500 1,716
7.35% 2018 (Prerefunded 2002) 4,250 4,888
South Orange County, Public Financing Authority,
Special Tax Revenue Bonds, Series B (Junior Lien
Bonds):
6.55% 2002 1,565 1,524
6.65% 2003 1,320 1,274
6.85% 2005 2,715 2,590
7.00% 2006 1,310 1,270
7.25% 2013 2,000 1,931
1994 Sereis C, 9.50% 2004 2,395 3,062
City of Pasadena, Certificates of Participation (1990
Capital Improvements Project), 7.00% 2003
(Prerefunded 2000) 1,000 1,108
Redevelopment Agency of the City of Pittsburg, Los
Medanos Community Development Project, Tax Allocation
Refunding Bonds, AMBAC Insured, Series 1993A,
5.00% 2017 1,000 871
Pleasanton Joint Powers Financing Authority
Reassessment Revenue Bonds, 1993 Series A:
5.40% 1999 1,000 993
5.60% 2000 1,945 1,932
5.70% 2001 3,990 3,960
6.15% 2012 3,910 3,792
Redding Joint Powers Financing Authority, Solid Waste
and Corporation Yard Revenue Bonds, 1993 Series A:
5.00% 2018 4,000 3,198
5.00% 2023 3,000 2,335
Riverside County Transportation Commission, Sales Tax
Revenue Bonds (Limited Tax), 1991 Series A,
6.40% 1999 500 524
County of Sacramento, Single Family Mortgage Revenue
Bonds (GNMA Mortgage-Backed Securities Program),
Issue A of 1987, 9.00% 2019 1,500 2,051
Sacramento City Financing Authority, 1991 Revenue
Bonds, 6.80% 2020 (Prerefunded 2001) 6,000 6,667
County of San Bernardino, Certificates of
Participation, Series B (Capital Facilities
Project), 6.25% 2019 (Prerefunded 2001) 2,000 2,123
City of San Bernardino, SCH Health Care System Revenue
Bonds (Sisters of Charity of the Incarnate Word,
Houston, Texas), Series 1991 A, 7.00% 2021 2,435 2,515
County of San Diego, The San Diego Regional Building
Authority Certificates of Participation (1991 MTS
Tower Refunding Project), Residual Interest
Tax-Exempt Certificates, MBIA Insured, 8.248% 2019 /1/ 500 507
City and County of San Francisco, Airports Commission,
San Francisco International Airport,
Second Series Refunding Revenue Bonds:
FGIC Insured, Issue 5, 6.50% 2019 4,500 4,600
MBIA Insured, Issue 3, 6.20% 2020 500 499
City and County of San Francisco, General Purpose
Sewer Revenue Bonds, Series 1988 A, AMBAC Insured,
7.25% 2015 (Prerefunded 1997) 3,320 3,569
City and County of San Francisco Redevelopment Agency,
Lease Revenue Bonds, Series 1992 (George R. Moscone
Convention Center), 5.50% 2018 3,000 2,658
County of San Joaquin, Certificates of Participation
(1993 General Hospital Project), 6.625% 2020 2,000 1,940
San Joaquin Hills Transportation Corridor Agency
(Orange County), Senior Lien Toll Road Revenue
Bonds:
6.75% 2032 8,150 7,891
5.00% 2033 1,000 735
San Mateo County Transit District, Limited Tax
Bonds, 1990 Series A, MBIA Insured, 6.50% 2020 800 846
Santa Ana Financing Authority, Police Administration
and Holding Facility Lease Revenue Bonds, MBIA
Insured, Series 1994A, 6.25% 2019 1,000 1,038
Santa Clara County Financing Authority, Lease Revenue
Bonds (VMC Facility Replacement Project), AMBAC
Insured, 1994 Series A, 7.75% 2009 2,200 2,647
Southern California Home Financing Authority, Single
Family Mortgage Revenue Bonds (GNMA and FNMA
Mortgage-Backed Securities Program), 1992 Series A,
6.75% 2022 1,120 1,139
Southern California Public Power Authority,
1986 Refunding Series B, Palo Verde Project, 7.125%
2015 (Prerefunded 1996) 1,500 1,578
City of Stockton Hospital Revenue Bonds (St. Joseph's
Hospital of Stockton), Series 1987A, 6.70% 2015 2,000 2,004
The Regents of the University of California:
1991 Certificates of Participation (UCLA Central
Chiller/Cogeneration Facility), 7.00% 2015
(Prerefunded 1999) 1,250 1,373
West Basin Municipal Water District Public Facilities
Corporation, West Basin Water Reclamation Program,
Series 1991, AMBAC Insured, 6.85% 2016
(Prerefunded 2000) 1,250 1,377
---------
211,974
---------
Tax-Exempt Securities Maturing in
One Year or Less - 3.79%
Health Facilities Financing Authority, Refunding
Revenue Bonds (St. Joseph Health System), Variable
Rate Demand Note, Series 1985A, 3.70% 2013 /1/ 800 800
Pollution Control Financing Authority, Pollution
Control Refunding Revenue Bonds (Shell Oil Company
Project), Variable Rate Demand Notes:
1991 Series A:
3.70% 2006 100 100
3.70% 2007 100 100
3.70% 2008 100 100
1991 Series B, 3.70% 2011 100 100
County of Los Angeles, Certificates of Participation
(Marina del Rey), Series A, 4.75% 1995 2,000 1,997
County of Los Angeles, 1994-95 Tax and Revenue
Notes, 4.50% 6/30/95 2,740 2,741
The Metropolitan Water District of Southern
California, Water Revenue Bonds, Issue of 1992,
3.90% 1995 1,950 1,947
County of San Diego, The San Diego Regional Building
Authority Certificates of Participation (1991 MTS
Tower Refunding Project), Floating Auction
Tax-Exempt Certificates, MBIA Insured, 4.198% 2019 500 500
---------
8,385
---------
TOTAL TAX-EXEMPT SECURITIES (cost:$212,679,000) 220,359
Excess of cash and receivables over payables 594
---------
NET ASSETS $220,953
=========
</TABLE>
/1/Coupon rate changes periodically.
See Notes to Financial Statements
The Tax-Exempt Fund of California
Financial Statements
(Unaudited)
Statement of Assets and Liabilities
February 28, 1995 (dollars in thousands)
<TABLE>
<CAPTION>
Assets:
<S> <C> <C>
Tax-exempt securities (cost: $212,679) $220,359
Cash 38
Receivables for-
Sales of investments $ 1
Sales of fund's shares 383
Accrued interest 3,506 3,890
--------- ---------
224,287
Liabilities:
Payables for-
Purchases of investments 1,964
Repurchases of fund's shares 812
Dividends payable 402
Management services 73
Accrued expenses 83 3,334
--------- ---------
Net Assets at February 28, 1995-
Equivalent to $15.35 per share on
14,392,248 shares of beneficial
interest issued and outstanding;
unlimited shares authorized $220,953
=========
Statement of Operations
for the six months ended February 28, 1995
(dollars in thousands)
Investment Income:
Income:
Interest on tax-exempt securities $6,964
---------
Expenses:
Management services fee $459
Distribution expenses 185
Transfer agent fee 26
Reports to shareholders 30
Registration statement and prospectus 9
Postage, stationery and supplies 9
Trustees' fees 14
Auditing and legal fees 36
Custodian fee 5
Taxes (other than federal income tax) 5
Other expenses 7 785
--------- ---------
Net investment income 6,179
---------
Realized Gain and Unrealized
Appreciation on Investments:
Net realized gain 235
Net unrealized appreciation:
Beginning of period 9,064
End of period 7,681
---------
Net change in unrealized appreciation (1,383)
---------
Net realized gain and change in
unrealized appreciation on investments (1,148)
---------
Net Increase in Net Assets Resulting
from Operations $5,031
=========
See Notes to Financial Statements
Statement of Changes in Net Assets
(dollars in thousands) Six
Months Ended Year Ended
February 28, August 31,
1995* 1994
--------- ---------
Operations:
Net investment income $ 6,179 $ 11,900
Net realized gain (loss) on investments 235 (875)
Net change in unrealized appreciation
on investments (1,383) (11,274)
--------- ---------
Net increase (decrease) in net assets
resulting from operations 5,031 (249)
--------- ---------
Dividends and Distributions Paid to
Shareholders:
Dividend from net investment income (6,172) (11,899)
Distributions from net realized gain
on investments - (851)
--------- ---------
Total dividends and distributions (6,172) (12,750)
--------- ---------
Capital Share Transactions:
Proceeds from shares sold:
1,397,871 and 3,510,938
shares, respectively 20,824 55,665
Proceeds from shares issued in reinvestment
of net investment income dividends and
distributions of net realized gain on
investments: 253,969 and 527,612 shares,
respectively 3,783 8,349
Cost of shares repurchased:
1,907,630 and 3,079,542 ahares,
respectively (28,123) (48,523)
--------- ---------
Net (decrease) increase in net assets
resulting from capital share transactions (3,516) 15,491
--------- ---------
Total (Decrease) Increase in Net Assets (4,657) 2,492
Net Assets:
Beginning of period 225,610 223,118
--------- ---------
End of period $220,953 $225,610
========= =========
</TABLE>
*Unaudited
See Notes to Financial Statements
Notes to Financial Statements Unaudited
1. The American Funds Tax-Exempt Series II (the "trust") is registered under
the Investment Company Act of 1940 as an open-end, diversified management
investment company and has initially issued one series of shares, The
Tax-Exempt Fund of California (the "fund"). The following paragraphs summarize
the significant accounting policies consistently followed by the fund in the
preparation of its financial statements:
Tax-exempt securities with original or remaining maturities in excess of 60
days are valued at prices obtained from a national municipal bond pricing
service. The pricing service takes into account various factors such as
quality, yield and maturity of tax-exempt securities comparable to those held
by the fund, as well as actual bid and asked prices on a particular day. Other
securities with original or remaining maturities in excess of 60 days,
including securities for which pricing service values are not available, are
valued at the mean of their quoted bid and asked prices. All securities with
60 days or less to maturity are valued at amortized cost, which approximates
market value. Securities for which market quotations are not readily available
are valued at fair value as determined in good faith by the Valuation Committee
of the Board of Trustees.
As is customary in the mutual fund industry, securities transactions are
accounted for on the date the securities are purchased or sold. Realized gains
and losses from securities transactions are reported on an identified cost
basis. Interest income is reported on the accrual basis. Premiums and
original issue discounts on securities purchased are amortized over the life of
the respective securities. Dividends are declared on a daily basis after the
determination of the fund's net investment income and paid to shareholders on a
monthly basis.
Pursuant to the custodian agreement, the fund receives credit against its
custodian fee for imputed interest on certain balances with the custodian bank.
The custodian fee of $5,000 included $1,000 that was paid by the credits rather
than in cash.
2. It is the fund's policy to continue to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its net investment income, including any net realized gain on
investments, to its shareholders. Therefore, no federal income tax provision
is required.
As of February 28, 1995, net unrealized appreciation on investments for book
and federal income tax purposes aggregated $7,681,000, of which $10,090,000
related to appreciated securities and $2,409,000 related to depreciated
securities. During the six months ended February 28, 1995, the fund realized,
on a tax basis, a net capital gain of $235,000 on securities transactions. The
fund has available at February 28, 1995 a net capital loss carryforward
totaling $35,000, which may be used to offset capital gains realized during
subsequent years through 2002 and thereby relieve the fund and its shareholders
of any federal income tax liability with respect to capital gains that are so
offset. It is the intention of the fund not to make distributions from capital
gains while there is a capital loss carryforward. There was no difference
between book and tax realized gains on securities transactions for the six
months ended February 28, 1995. The cost of portfolio securities for book and
federal income tax purposes was $212,679,000 at February 28, 1995.
3. The fee of $459,000 for management services was paid pursuant to an
agreement with Capital Research and Management Company (CRMC), with which
certain officers and Trustees of the trust are affiliated. The Investment
Advisory and Service Agreement provides for monthly fees, accrued daily, based
on an annual rate of 0.30% of the first $60 million of average net assets;
0.21% of such assets in excess of $60 million; and 3.00% of the fund's monthly
gross investment income.
Pursuant to a Plan of Distribution, the fund may expend up to 0.25% of its
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 fund's Board of Trustees. Fund
expenses under the Plan include payments to dealers to compensate them for
their selling and servicing efforts. During the six months ended February 28,
1995, distribution expenses under the Plan were $185,000. As of February 28,
1995, accrued and unpaid distribution expenses were $85,000.
American Funds Service Company (AFS), the transfer agent for the fund, was
paid a fee of $26,000. American Funds Distributors, Inc. (AFD), the principal
underwriter of the fund's shares, received $54,000 (after allowances to
dealers) as its portion of the sales charges paid by purchasers of the fund's
shares. Such sales charges are not an expense of the fund and, hence, are not
reflected in the accompanying statement of operations.
Trustees who are unaffiliated with CRMC 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 fund. As of February 28,
1995, aggregate amounts deferred were $14,000.
CRMC is owned by The Capital Group Companies, Inc. AFS and AFD are both
wholly owned subsidiaries of CRMC. Certain of the Trustees and officers of the
trust are or may be considered to be affiliated with CRMC, AFS and AFD. No
such persons received any remuneration directly from the fund.
4. As of February 28, 1995, accumulated undistributed net realized gain on
investments was $235,000 and paid-in-capital was $213,944,000.
The fund made purchases and sales of investment securities, excluding
short-term securities, of $46,960,000 and $44,509,000, respectively, during the
six months ended February 28, 1995.
Per-Share Data and Ratios
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Six
months
ended
February Year ended August 31
28, 1995/1/ 1994 1993 1992 1991 1990
Net Asset Value, Beginning
of Period $15.40 $16.30 $15.21 $14.59 $13.87 $14.16
------- ------- ------- ------- ------- -------
Income from Investment
Operations:
Net investment income .43 .84 .84 .85 .85 .84
Net realized and
unrealized gain
(loss) on investments (.05) (.84) 1.09 .62 .72 (.29)
------- ------- ------- ------- ------- -------
Total income from
investment operations .38 .00 1.93 1.47 1.57 .55
------- ------- ------- ------- ------- -------
Less Distributions:
Dividends from net
investment income (.43) (.84) (.84) (.85) (.85) (.84)
Distributions from net
realized gains - (.06) - - - -
------- ------- ------- ------- ------- -------
Total distributions (.43) (.90) (.84) (.85) (.85) (.84)
------- ------- ------- ------- ------- -------
Net Asset Value, End of Period $15.35 $15.40 $16.30 $15.21 $14.59 $13.87
======= ======= ======= ======= ======= =======
Total Return/2/ 2.58%/3/ 0.13% 13.08% 10.36% 11.56% 3.96%
Ratios/Supplemental Data:
Net assets, end of period
(in millions) $221 $226 $223 $148 $111 $86
Ratio of expenses to average
net assets .36%/3/ .71% .71% .74% .85% .93%
Ratio of net income to
average net assets 2.86%/3/ 5.28% 5.36% 5.66% 5.89% 5.92%
Portfolio turnover rate 21.4%/3/ 15.1 % 16.8 % 20.3 % 33.7 % 20.2 %
</TABLE>
/1/Unaudited
/2/This was calculated without
deducting a sales charge.
The maximum sales charge is
4.75% of the fund's
offering price.
/3/Based on operations for the
period shown and, accordingly,
not representative of a full
year's operations.
OFFICES OF THE FUND AND OF THE INVESTMENT ADVISER,
CAPITAL RESEARCH AND MANAGEMENT COMPANY
333 South Hope Street
Los Angeles, California 90071-1443
135 South State College Boulevard
Brea, California 92621-5804
TRANSFER AGENT FOR SHAREHOLDER ACCOUNTS
American Funds Service Company
P.O. Box 2205
Brea, California 92622-2205
P.O. Box 659522
San Antonio, Texas 78265-9522
P.O. Box 6007
Indianapolis, Indiana 46206-6007
P.O. Box 2280
Norfolk, Virginia 23501-2280
CUSTODIAN OF ASSETS
The Chase Manhattan Bank, N.A.
One Chase Manhattan Plaza
New York, New York 10081-0001
COUNSEL
Morrison & Foerster
345 California Street
San Francisco, California 94104-2675
PRINCIPAL UNDERWRITER
American Funds Distributors, Inc.
333 South Hope Street
Los Angeles, California 90071-1462
FOR INFORMATION ABOUT YOUR ACCOUNT OR ANY OF THE FUND'S SERVICES, PLEASE
CONTACT YOUR SECURITIES DEALER OR FINANCIAL PLANNER, OR CALL THE FUND'S
TRANSFER AGENT, TOLL-FREE, AT 800/421-0180.
This report is for the information of shareholders of The Tax-Exempt Fund of
California, 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 fund. If used as
sales material after June 30, 1995, this report must be accompanied by an
American Funds Group Statistical Update for the most recently completed
calendar quarter.
[The American Funds Group(R)]
Litho in USA MED/AL
Lit. No. TEFCA-013-0495
Printed on recycled paper
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