SEC. File Nos. 33-6180
811-4694
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
Registration Statement
Under
the Securities Act of 1933
Post-Effective Amendment No. 12
and
Registration Statement
Under
The Investment Company Act of 1940
Amendment No. 14
THE AMERICAN FUNDS TAX-EXEMPT SERIES II
(Exact Name of Registrant as specified in charter)
333 South Hope Street
Los Angeles, California 90071
(Address of principal executive offices)
Registrant's telephone number, including area code:
(213) 486-9200
JULIE F. WILLIAMS
333 South Hope Street
Los Angeles, California 90071
(name and address of agent for service)
Copies to:
Cary I. Klafter, Esq.
MORRISON & FOERSTER
345 California Street
San Francisco, California 94104
(Counsel for the Registrant)
The Registrant has filed a declaration pursuant to rule 24f-2
registering an indefinite number of shares under the Securities Act of 1933.
On October 16, 1995, it filed its 24f-2 notice for fiscal 1995.
Approximate date of proposed public offering:
It is proposed that this filing become effective on November 1, 1995,
pursuant to paragraph (b) of rule 485.
THE AMERICAN FUNDS TAX-EXEMPT SERIES II
The Tax-Exempt Fund of California
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
ITEM NUMBER OF
PART "A" OF FORM N-1A CAPTIONS IN PROSPECTUS (PART "A")
<S> <C> <C>
1. COVER PAGE COVER PAGE
2. SYNOPSIS SUMMARY OF EXPENSES
3. CONDENSED FINANCIAL INFORMATION FINANCIAL HIGHLIGHTS
4. GENERAL DESCRIPTION OF REGISTRANT INVESTMENT OBJECTIVE AND POLICIES
5. MANAGEMENT OF THE FUND SUMMARY OF EXPENSES: FUND ORGANIZATION AND
MANAGEMENT
6. CAPITAL STOCK AND OTHER SECURITIES INVESTMENT OBJECTIVES AND POLICIES; CERTAIN
SECURITIES AND INVESTMENT TECHNIQUES;
FUND ORGANIZATION AND MANAGEMENT;
DIVIDENDS, DISTRIBUTIONS AND TAXES
7. PURCHASE OF SECURITIES BEING OFFERED PURCHASING SHARES
8. REDEMPTION OR REPURCHASE REDEEMING SHARES
9. LEGAL PROCEEDINGS N/A
</TABLE>
<TABLE>
<CAPTION>
ITEM NUMBER OF CAPTIONS IN STATEMENT OF
PART "B" OF FORM N-1A ADDITIONAL INFORMATION (PART "B")
<S> <C> <C>
10. COVER PAGE COVER
11. TABLE OF CONTENTS TABLE OF CONTENTS
12. GENERAL INFORMATION AND HISTORY GENERAL INFORMATION; INVESTMENT RESTRICTIONS
13. INVESTMENT OBJECTIVES AND POLICIES DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES;
INVESTMENT RESTRICTIONS
14. MANAGEMENT OF THE REGISTRANT TRUST OFFICERS AND TRUSTEES; MANAGEMENT
15. CONTROL PERSONS AND PRINCIPAL HOLDERS TRUST OFFICERS AND TRUSTEES
OF SECURITIES
16. INVESTMENT ADVISORY AND OTHER SERVICES MANAGEMENT
17. BROKERAGE ALLOCATION AND OTHER PRACTICES EXECUTION OF PORTFOLIO TRANSACTIONS
18. CAPITAL STOCK AND OTHER SECURITIES NONE
19. PURCHASE, REDEMPTION AND PRICING OF PURCHASE OF SHARES; SHAREHOLDER
SECURITIES BEING OFFERED ACCOUNT SERVICES AND PRIVILEGES
20. TAX STATUS DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES
21. UNDERWRITER MANAGEMENT -- PRINCIPAL UNDERWRITER
22. CALCULATION OF PERFORMANCE DATA INVESTMENT RESULTS
23. FINANCIAL STATEMENTS FINANCIAL STATEMENTS
</TABLE>
<TABLE>
<CAPTION>
ITEM IN PART "C"
<S> <C>
24. FINANCIAL STATEMENTS AND EXHIBITS
25. PERSONS CONTROLLED BY OR UNDER
COMMON CONTROL WITH REGISTRANT
26. NUMBER OF HOLDERS OF SECURITIES
27. INDEMNIFICATION
28. BUSINESS AND OTHER CONNECTIONS OF
INVESTMENT ADVISER
29. PRINCIPAL UNDERWRITERS
30. LOCATION OF ACCOUNTS AND RECORDS
31. MANAGEMENT SERVICES
32. UNDERTAKINGS
</TABLE>
SIGNATURE PAGE
<PAGE>
Prospectus
THE TAX-EXEMPT FUND OF CALIFORNIA(SM)
AN OPPORTUNITY FOR INCOME
FREE FROM FEDERAL AND CALIFORNIA
INCOME TAXES. ADDITIONALLY, THE
FUND SEEKS TO PRESERVE CAPITAL.
[LOGO OF THE AMERICAN FUNDS GROUP(R)]
November 1, 1995
THE TAX-EXEMPT FUND OF CALIFORNIA
333 South Hope Street
Los Angeles, CA 90071
The fund's investment objective is to provide investors with a high level of
current income exempt from federal and California income taxes. Consistent with
this primary objective is the additional objective of preservation of capital.
It seeks to achieve its objectives by investing primarily in investment grade
tax-exempt securities issued by the State of California, its political
subdivisions, municipalities and public authorities.
This prospectus presents information you should know before investing in the
fund. It should be retained for future reference.
You may obtain the statement of additional information for the fund dated
November 1, 1995, which contains the fund's financial statements, without
charge, by writing to the Secretary of the fund at the above address or
telephoning 800/421-0180. These requests will be honored within three business
days of receipt.
SHARES OF THE FUND 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. THE PURCHASE OF
FUND SHARES INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
20-010-1195
<PAGE>
================================================================================
SUMMARY
OF EXPENSES
Average annual
expenses paid over a
10-year period would
be approximately
$13 per year,
assuming a $1,000
investment and a 5%
annual return.
TABLE OF CONTENTS
Summary of Expenses.............................. 2
Financial Highlights............................. 3
Investment Objectives and Policies............... 3
Certain Securities and Investment Techniques..... 4
Investment Results............................... 7
Dividends, Distributions and Taxes............... 7
Fund Organization and Management................. 8
The American Funds Shareholder Guide............. 12-20
Purchasing Shares................................ 12
Reducing Your Sales Charge....................... 15
Shareholder Services............................. 16
Redeeming Shares................................. 18
Retirement Plans................................. 20
IMPORTANT PHONE NUMBERS
Shareholder Services: 800/421-0180 ext. 1
Dealer Services: 800/421-9900 ext. 11
American FundsLine(R): 800/325-3590
(24-hour information)
This table is designed to help you understand costs of investing in the fund.
These are historical expenses; your actual expenses may vary.
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge on purchases
(as a percentage of offering price)................................. 4.75%/1/
The fund has no sales charge on reinvested dividends, deferred sales charge,/2/
redemption fees or exchange fees.
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management fees..................................................... 0.42%
12b-1 expenses...................................................... 0.18%/3/
Other expenses (including audit, legal, shareholder
services, transfer agent and custodian expenses).................... 0.13%
Total fund operating expenses....................................... 0.73%
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following
cumulative expenses on a
$1,000 investment, assuming
a 5% annual return./4/ $55 $70 $86 $134
</TABLE>
/1/ Sales charges are reduced for certain large purchases. (See "The American
Funds Shareholder Guide: Purchasing Shares--Sales Charges.")
/2/ Purchases of $1 million or more are not subject to an initial sales charge
as described in this prospectus. However, a contingent deferred sales charge
of 1% applies on certain redemptions within 12 months following such
purchases. (See "The American Funds Shareholder Guide: Redeeming Shares--
Contingent Deferred Sales Charge.")
/3/ These expenses may not exceed 0.25% of the fund's average net assets
annually. (See "Fund Organization and Management--Plan of Distribution.")
Due to these distribution expenses, long-term shareholders may pay more than
the economic equivalent of the maximum front-end sales charge permitted by
the National Association of Securities Dealers.
/4/ Use of this assumed 5% return is required by the Securities and Exchange
Commission; it is not an illustration of past or future investment results.
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES; ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN.
2
<PAGE>
================================================================================
FINANCIAL The following information has been audited by Deloitte
HIGHLIGHTS & Touche LLP, independent accountants, whose unquali-
(For a share fied report covering each of the most recent five years
outstanding is incorporated by reference in the statement of addi-
throughout the tional information. This information should be read in
fiscal year) conjunction with the financial statements and accompa-
nying notes which are also included in the statement of
additional information.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31
-----------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987/1/
------ ------ ------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Begin-
ning of Year.......... $15.40 $16.30 $15.21 $14.59 $13.87 $14.16 $13.63 $13.72 $14.29
------ ------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income.. .86 .84 .84 .85 .85 .84 .86 .82 .65
Net realized and
unrealized gain (loss)
on investments........ .34 (.84) 1.09 .62 .72 (.29) .53 (.09) (.57)
------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations............ 1.20 .00 1.93 1.47 1.57 .55 1.39 .73 .08
------ ------ ------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net in-
vestment income....... (.86) (.84) (.84) (.85) (.85) (.84) (.86) (.82) (.65)
Distributions from net
realized gains........ -- (.06) -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions.... (.86) (.90) (.84) (.85) (.85) (.84) (.86) (.82) (.65)
------ ------ ------ ------ ------ ------ ------ ------ ------
Net Asset Value, End of
Year.................. $15.74 $15.40 $16.30 $15.21 $14.59 $13.87 $14.16 $13.63 $13.72
====== ====== ====== ====== ====== ====== ====== ====== ======
Total Return/2/........ 8.16% 0.13% 13.08% 10.36% 11.56% 3.96% 10.41% 5.51% 0.39%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of year
(in millions)......... $ 233 $ 226 $ 223 $ 148 $ 111 $ 86 $ 68 $ 42 $ 33
Ratio of expenses to
average net assets.... .73% .71% .71% .74% .85% .93% 1.00% .93% .62%/3/
Ratio of net income to
average net assets.... 5.65% 5.28% 5.36% 5.66% 5.89% 5.92% 6.06% 6.02% 4.80%/3/
Portfolio turnover
rate.................. 41.36% 15.08% 16.82% 20.28% 33.72% 20.19% 44.56% 80.15% 0.00%
</TABLE>
--------
/1/ The period ended August 31, 1987 represents the initial period of
operations from October 28, 1986 to August 31, 1987.
/2/ This was calculated without deducting a sales charge. The maximum sales
charge is 4.75% of the fund's offering price.
/3/ These ratios are based on operations for the period shown and are not
representative of a full years' operations.
INVESTMENT The fund's primary investment objective is a high level
OBJECTIVES of current income exempt from federal and California
AND POLICIES income taxes. Consistent with this primary objective is
the additional objective of preserving the fund's capi-
The fund's goal is tal. Treating high current income as the primary in-
to provide you vestment objective means that the fund may forego op-
with high current portunities that would result in capital gains and may
income exempt from accept prudent risks to capital value, in each case to
federal and take advantage of opportunities for higher current in-
California income come. For example, the fund may purchase, at prices
taxes while above their principal amounts, bonds that provide a
preserving your higher yield and interest income than current market
capital. rates.
As a matter of fundamental policy, the fund will under
normal market conditions invest at least 80% of its as-
sets in, or derive at least 80% of its income from, se-
curities that are exempt from both federal and Califor-
nia income taxes. The assets of the fund will be in-
vested primarily in securities rated at the time of
purchase within the four highest categories for bonds
and the two highest categories for notes and commercial
paper by either Moody's Investors Service, Inc. (Aaa,
Aa, A, and Baa for bonds; MIG 1 and MIG 2 for notes;
and Prime-1 and Prime-2 for commercial paper) or Stan-
dard & Poor's Corporation (AAA, AA, A, and BBB for
bonds; SP-1 and SP-2 for notes; and A-1 and A-2 for
commercial paper)
3
<PAGE>
================================================================================
or in securities that are not rated but are determined
to be of comparable quality by Capital Research and
Management Company, the fund's investment adviser.
Bonds rated Baa or BBB are considered "investment
grade" but also have certain speculative characteris-
tics. Up to 20% of the fund's assets may be invested in
tax-exempt bonds rated Ba and BB or below (or in compa-
rable unrated tax-exempt bonds). Bonds rated Ba or BB
or below or unrated securities that are determined to
be of equivalent quality are commonly known as "junk"
or "high-yield, high-risk" bonds. The ratings are more
fully described in the statement of additional informa-
tion.
The average monthly composition of the fund's portfolio
based on the higher of the Moody's or S&P ratings for
the fiscal year ended August 31, 1995 was as follows:
bonds--Aaa/AAA-37.70%; Aa/AA-12.49%; A/A-22.09%;
Baa/BBB-13.39%; and non-rated-10.27%; some or all of
these non-rated securities were determined to be equiv-
alent to securities rated by Moody's or S&P as follows:
Baa/BBB-3.44%; and Ba/BB-6.83%. Money market instru-
ments and cash made up 4.06% of the fund's portfolio.
The fund may invest up to 20% of its assets in certain
tax-exempt securities, the interest on which would con-
stitute an item of tax preference subject to federal
alternative minimum tax on corporations and individu-
als. See "Certain Securities and Investment Techniques"
below. When, in the opinion of Capital Research and
Management Company abnormal market conditions require a
temporary defensive position, the fund may invest in
taxable short-term fixed-income securities.
The fund's investment restrictions (which are described
in the statement of additional information) and objec-
tives cannot be changed without shareholder approval.
All other investment practices may be changed by the
fund's board.
ACHIEVEMENT OF THE FUND'S INVESTMENT OBJECTIVES CANNOT,
OF COURSE, BE ASSURED DUE TO THE RISK OF CAPITAL LOSS
FROM FLUCTUATING PRICES INHERENT IN ANY INVESTMENT IN
SECURITIES.
CERTAIN RISKS The market value of fixed-income securities
SECURITIES AND generally vary inversely with the level of interest
INVESTMENT rates--when interest rates rise, their values will
TECHNIQUES generally decline and vice versa. The magnitude of
these changes generally will be greater the longer the
Investing in bonds remaining maturity of the security. Fluctuations in the
involves certain value of the fund's investments will be reflected in
risks. its net asset value per share which typically decline
when interest rates rise.
High-yield, high-risk bonds (bonds rated Ba or BB or
below or comparable unrated bonds) typically are sub-
ject to greater market fluctuations and to greater risk
of loss of income and principal due to default by the
issuer than are higher-rated bonds. Their values tend
to reflect short-term corporate, economic and market
developments and investor perceptions of the issuer's
credit quality to a greater extent than higher-rated
bonds. In
4
<PAGE>
================================================================================
addition, it may be more difficult to dispose of, or to
determine the value of, high-yield, high-risk bonds.
Bonds rated Ba or BB or below are considered specula-
tive. [Bonds rated Ca or CC are described by the rat-
ings agencies as "speculative in a high degree; often
in default or [having] other marked shortcomings."]
Capital Research and Management Company attempts to re-
duce the risks described above through diversification
of the portfolio and by analysis of each issuer as well
as by monitoring broad economic trends and corporate
and legislative developments.
MUNICIPAL LEASE OBLIGATIONS The fund may invest in mu-
nicipal lease revenue obligations. The fund currently
intends to purchase only municipal lease revenue obli-
gations that are determined to be liquid by Capital Re-
search and Management Company. In determining whether
these securities are liquid, Capital Research and Man-
agement Company will consider, among other things, the
credit quality and support, including strengths and
weaknesses of the issuer and lessee, the terms of the
lease, frequency and volume of trading and number of
dealers.
WHEN-ISSUED SECURITIES AND FIRM COMMITMENT AGREEMENTS
The fund may purchase securities on a delayed delivery
or "when-issued" basis and enter into firm commitment
agreements (transactions whereby the payment obligation
and interest rate are fixed at the time of the
transaction but the settlement is delayed). The fund as
purchaser assumes the risk of any decline in the value
of the security beginning on the date of the agreement
or purchase. As the fund's aggregate commitments under
these transactions increase, the opportunity for
leverage similarly may increase. (See the statement of
additional information.)
VARIABLE AND FLOATING RATE OBLIGATIONS The fund may
invest in variable and floating rate obligations which
have interest rates that are adjusted at designated
intervals, or whenever there are changes in the market
rates of interest on which the interest rates are
based. The rate adjustment feature tends to limit the
extent to which the market value of the obligation will
fluctuate.
MATURITY There are no restrictions on the maturity
composition of the portfolio, although it is
anticipated that the fund normally will be invested
substantially in intermediate-term (3 to 10 years to
maturity) and long-term (over 10 years to maturity)
securities.
SPECIAL CONSIDERATIONS Because the fund will invest
primarily in securities issued by the State of
California, its political subdivisions, municipalities
and public authorities, the fund is more susceptible to
factors adversely affecting issuers of California
securities than would be a comparable municipal bond
mutual fund which has not concentrated in issuers in a
single state.
5
<PAGE>
================================================================================
The fund may invest up to 20% of its total assets in
"private activity" bonds which pay interest
constituting an item of tax preference subject to an
alternative minimum tax on corporations and
individuals. Accordingly, a portion of the fund's
dividends may be an item of tax preference in computing
a shareholder's alternative minimum tax for federal
income tax purposes. In addition, with respect to
corporate shareholders of the fund, all interest on
municipal bonds and other tax-exempt obligations,
including exempt-interest dividends paid by the fund,
is included in adjusted current earnings in calculating
federal and California alternative minimum taxable
income, and may also affect corporate federal
"environmental tax" liability.
MULTIPLE PORTFOLIO COUNSELOR SYSTEM The basic invest-
ment philosophy of Capital Research and Management Com-
pany is to seek fundamental values at reasonable pric-
es, using a system of multiple portfolio counselors in
managing mutual fund assets. Under this system the
portfolio of the fund is divided into segments which
are managed by individual counselors. Each counselor
decides how their segment will be invested (within the
limits provided by the fund's objectives and policies
and by Capital Research and Management Company's in-
vestment committee). In addition, Capital Research and
Management Company's research professionals make in-
vestment decisions with respect to a portion of the
fund's portfolio. The primary individual portfolio
counselors for the fund are listed below.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
YEARS OF EXPERIENCE
AS INVESTMENT
PROFESSIONAL
YEARS OF EXPERIENCE (APPROXIMATE)
PORTFOLIO AS PORTFOLIO
COUNSELORS FOR COUNSELOR FOR
THE TAX-EXEMPT FUND PRIMARY TITLE(S) THE TAX-EXEMPT FUND WITH CAPITAL
OF CALIFORNIA OF CALIFORNIA RESEARCH AND
(APPROXIMATE) MANAGEMENT
COMPANY OR ITS TOTAL
AFFILIATES YEARS
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
David A. Hoag Vice President, 2 years 4 years 8 years
Capital Research Company**
- ----------------------------------------------------------------------------------------------
Neil L. Langberg Senior Vice President of Since the fund 17 years 17 years
the Fund. began operations*
Vice President--Investment
Management Group, Capital
Research and Management
Company
- ----------------------------------------------------------------------------------------------
Mark R. Macdonald Vice President--Investment 1 year 1 year 10 years
Management Group, Capital
Research and Management
Company
- ----------------------------------------------------------------------------------------------
</TABLE>
* The fund began operations on October 28, 1986.
** A wholly owned subsidiary of Capital Research and Management Company.
6
<PAGE>
================================================================================
INVESTMENT The fund may from time to time compare its investment
RESULTS results to various unmanaged indices or other mutual
funds in reports to shareholders, sales literature and
The fund has advertisements. The results may be calculated on a
averaged a total total return, yield and/or distribution rate basis for
return of 6.51% a various periods, with or without sales charges. Results
year (assuming the calculated without a sales charge will be higher. Total
maximum sales returns assume the reinvestment of all dividends and
charge was paid) capital gain distributions.
over its lifetime
(October 28, 1986 The fund's yield and the average annual total returns
through September are calculated in accordance with Securities and
30, 1995). Exchange Commission requirements which provide that the
maximum sales charge be reflected. The fund's
distribution rate is calculated by annualizing the
current month's dividend and dividing by the average
price for the month. For the 30-day period ended
September 30, 1995, the fund's SEC yield was 4.75% and
the distribution rate was 5.13%, at maximum offering
price. The SEC yield reflects income earned by the
fund, while the distribution rate reflects dividends
paid by the fund. Among the elements used to calculate
the SEC yield are the dividend and interest income
earned and expenses paid by the fund, whereas the
income paid to shareholders is used to calculate the
distribution rate. The fund's total return over the
past 12 months and average annual total returns over
the past five-year and lifetime periods, as of
September 30, 1995, were 4.99%, 7.60%, and 6.51%,
respectively. Of course, past results are not an
indication of future results. Further information
regarding the fund's investment results is contained in
the fund's annual report which may be obtained without
charge by writing to the Secretary of the fund at the
address indicated on the cover of this prospectus.
DIVIDENDS, DIVIDENDS AND DISTRIBUTIONS The fund declares dividends
DISTRIBUTIONS from its net investment income daily and distributes
AND TAXES the accrued dividends to shareholders each month.
Dividends begin accruing one day after payment of
Income shares is received by the fund or American Funds
distributions are Service Company. All capital gains, if any, are
made each month. distributed annually, usually in December. When a
capital gain is declared, the net asset value per share
is reduced by the amount of the payment.
TAXES The fund intends to operate as a "regulated
investment company" under the Internal Revenue Code.
For any fiscal year in which the fund so qualifies and
distributes to shareholders all of its net investment
income and any net capital gains, the fund itself is
relieved of federal income tax.
As a regulated investment company, the fund is
permitted to pass through to its shareholders tax-
exempt income subject to certain requirements which the
fund intends to satisfy. This favorable tax treatment
may not apply to shareholders who are "substantial
users" (or "related persons") of facilities financed by
securities held by the fund. See the statement of
additional information.
It is anticipated that federal exempt-interest
dividends paid by the fund and derived from interest on
bonds exempt from California income taxation under the
Constitution or statutes of California ("California
municipal securities") will also be exempt from
California corporate and personal income tax (although
not from California franchise tax). To the
7
<PAGE>
================================================================================
extent the fund's dividends are derived from interest
on debt obligations other than California municipal
securities, such dividends will be subject to
California state income tax even though the dividends
may be exempt from federal income tax.
Any fund dividends derived from taxable interest income
and any distributions of capital gains will not be
exempt from federal or California income tax. With
respect to states other than California, distributions
of net investment income may be taxable to investors
under state or local law as dividend income even though
all or a portion of such distributions may be derived
from interest on otherwise tax-exempt obligations
which, if realized directly, would be exempt from such
income taxes. For example, a state may require that a
fund hold a specified percentage of its bonds in order
for the fund to pass through interest paid on these
bonds to its shareholders on a state tax-exempt basis,
whereas if the bonds were held directly by shareholders
the interest would be exempt from state tax.
You will be advised as to the federal and the
California personal income tax consequences of
dividends and capital gain distributions. You are
required by the Internal Revenue Code to report to the
federal government all fund exempt-interest dividends
(and all other tax-exempt interest).
IF YOU HAVE NOT FURNISHED A CERTIFIED CORRECT TAXPAYER
IDENTIFICATION NUMBER (GENERALLY YOUR SOCIAL SECURITY
NUMBER) AND HAVE NOT CERTIFIED THAT WITHHOLDING DOES
NOT APPLY, OR IF THE INTERNAL REVENUE SERVICE HAS
NOTIFIED THE FUND THAT THE TAXPAYER IDENTIFICATION
NUMBER LISTED ON YOUR ACCOUNT IS INCORRECT ACCORDING TO
ITS RECORDS OR THAT YOU ARE SUBJECT TO BACKUP
WITHHOLDING, FEDERAL LAW GENERALLY REQUIRES THE FUND TO
WITHHOLD 31% FROM ANY DIVIDENDS (OTHER THAN TAX-EXEMPT
DIVIDENDS) AND/OR REDEMPTIONS (INCLUDING EXCHANGE
REDEMPTIONS). Amounts withheld are applied to your
federal tax liability; a refund may be obtained from
the Service if withholding results in overpayment of
taxes.
This is a brief summary of the tax laws that affect
your investment in the fund. Please see the statement
of additional information and your tax adviser for
further information.
FUND FUND ORGANIZATION AND VOTING RIGHTS The fund, an open-
ORGANIZATION end, diversified management investment company, was
AND organized as a Massachusetts business trust in 1986.
MANAGEMENT The fund's board supervises fund operations and
performs duties required by applicable state and
The fund is a federal law. Members of the board who are not employed
member of The by Capital Research and Management Company or its
American Funds affiliates are paid certain fees for services rendered
Group, which is to the fund as described in the statement of additional
managed by one of information. They may elect to defer all or a portion
the largest and of these fees through a deferred compensation plan in
most experienced effect for the fund. Shareholders have one vote per
investment share owned and, at the request of the holders of at
advisers. least 10% of the shares, the fund will hold a meeting
at which any member of the board could be removed by a
majority vote. There will not usually be a shareholder
meeting in any year except, for example, when the
election of the board is required to be acted upon by
shareholders under the Investment Company Act of 1940.
8
<PAGE>
================================================================================
THE INVESTMENT ADVISER Capital Research and Management
Company, a large and experienced investment management
organization founded in 1931, is the investment adviser
to the fund and other funds, including those in The
American Funds Group. Capital Research and Management
Company is located at 333 South Hope Street, Los
Angeles, CA 90071 and at 135 South State College
Boulevard, Brea, CA 92621. (See "The American Funds
Shareholder Guide--Investment Minimums and Fund
Numbers" for a listing of funds in The American Funds
Group.) Capital Research and Management Company manages
the investment portfolio and business affairs of the
fund and receives a fee at the annual rate of 0.30% of
the first $60 million of the fund's net assets, plus
0.21% of net assets in excess of $60 million, plus 3%
of annual gross income. Assuming net assets of $225
million and gross income levels of 4%, 5%, 6%, 7%, 8%
and 9%, management fees would be .35%, .38%, .41%,
.44%, .47% and .50%, respectively.
Capital Research and Management Company is a wholly
owned subsidiary of The Capital Group Companies, Inc.
(formerly "The Capital Group, Inc."), which is located
at 333 South Hope Street, Los Angeles, CA 90071. The
research activities of Capital Research and Management
Company are conducted by affiliated companies which
have offices in Los Angeles, San Francisco, New York,
Washington, D.C., London, Geneva, Singapore, Hong Kong
and Tokyo.
Capital Research and Management Company and its
affiliated companies have adopted a personal investing
policy that is consistent with the recommendations
contained in the report dated May 9, 1994 issued by the
Investment Company Institute's Advisory Group on
Personal Investing. (See the statement of additional
information.)
PORTFOLIO TRANSACTIONS Orders for the fund's portfolio
securities transactions are placed by Capital Research
and Management Company, which strives to obtain the
best available prices, taking into account the costs
and quality of executions. Fixed-income securities are
generally traded on a "net" basis with a dealer acting
as principal for its own account without a stated
commission, although the price of the security usually
includes a profit to the dealer. In underwritten
offerings, securities are usually purchased at a fixed
price which includes an amount of compensation to the
underwriter, generally referred to as the underwriter's
concession or discount. On occasion, securities may be
purchased directly from an issuer, in which case no
commissions or discounts are paid.
Subject to the above policy, when two or more brokers
are in a position to offer comparable prices and
executions, preference may be given to brokers that
have sold shares of the fund or have provided
investment research, statistical, and other related
services for the benefit of the fund and/or of other
funds served by Capital Research and Management
Company.
9
<PAGE>
================================================================================
PRINCIPAL UNDERWRITER American Funds Distributors,
Inc., a wholly owned subsidiary of Capital Research and
Management Company, is the principal underwriter of the
fund's shares. American Funds Distributors is located
at 333 South Hope Street, Los Angeles, CA 90071, 135
South State College Boulevard, Brea, CA 92621, 8000 IH-
10 West, San Antonio, TX 78230, 8332 Woodfield Crossing
Boulevard, Indianapolis, IN 46240, and 5300 Robin Hood
Road, Norfolk, VA 23513. Telephone conversations with
American Funds Distributors may be recorded or
monitored for verification, recordkeeping and quality
assurance purposes.
PLAN OF DISTRIBUTION The fund has a plan of
distribution or "12b-1 Plan" under which it may finance
activities primarily intended to sell shares, provided
the categories of expenses are approved in advance by
the board and the expenses paid under the plan were
incurred within the last 12 months and accrued while
the plan is in effect. Expenditures by the fund under
the plan may not exceed 0.25% of its average net assets
annually (all of which may be for service fees). (See
"Purchasing Shares--Sales Charges" below.)
TRANSFER AGENT American Funds Service Company, a wholly
owned subsidiary of Capital Research and Management
Company, is the transfer agent and performs shareholder
service functions. It was paid a fee of $59,000 for the
fiscal year ended August 31, 1995. Telephone
conversations with American Funds Service Company may
be recorded or monitored for verification,
recordkeeping and quality assurance purposes.
10
<PAGE>
================================================================================
AMERICAN FUNDS SERVICE COMPANY SERVICE AREAS
SERVICE ADDRESS AREAS SERVED
AREA
------------------------------------------------------------
WEST P.O. Box 2205 AK, AZ, CA, HI, ID,
Brea, CA 92622-2205 MT, NV, OR, UT, WA
Fax: 714/671-7080 and outside the U.S.
------------------------------------------------------------
CENTRAL- P.O. Box 659522 AR, CO, IA, KS, LA,
WEST San Antonio, TX 78265-9522 MN, MO, ND, NE, NM,
Fax: 210/530-4050 OK, SD, TX, and WY
------------------------------------------------------------
CENTRAL- P.O. Box 6007 AL, IL, IN, KY, MI,
EAST Indianapolis, IN 46206-6007 MS, OH, TNand WI
Fax: 317/735-6620
------------------------------------------------------------
EAST P.O. Box 2280 CT, DE, FL, GA, MA,
Norfolk, VA 23501-2280 MD, ME, NC, NH, NJ,
Fax: 804/670-4773 NY, PA, RI, SC, VA,
VT, WV and
Washington, D.C.
------------------------------------------------------------
ALL SHAREHOLDERS MAY CALL AMERICAN FUNDS SERVICE
COMPANY AT 800/421-0180 FOR SERVICE.
------------------------------------------------------------
[MAP OF THE UNITED STATES OF AMERICA]
------------------------------------------------------------
West (light grey); Central-West (white); Central-East
(dark grey), East (blue)
11
<PAGE>
THE AMERICAN FUNDS SHAREHOLDER GUIDE
----------------------------------------------------------
PURCHASING SHARES METHOD INITIAL INVESTMENT ADDITIONAL INVESTMENTS
----------------------------------------------------------
See "Investment $50 minimum (except
Minimums and Fund where a lower
Numbers" for minimum is noted
initial under "Investment
investment Minimums and Fund
minimums. Numbers").
Your investment ----------------------------------------------------------
dealer can help By Visit any Mail directly to
you establish your contacting investment dealer your investment
account--and help your who is registered dealer's address
you add to it investment in the state printed on your
whenever you like. dealer where the account statement.
purchase is made
and who has a
sales agreement
with American
Funds
Distributors.
----------------------------------------------------------
By mail Make your check Fill out the account
payable to the additions form at the
fund and mail to bottom of a recent
the address account statement,
indicated on the make your check
account payable to the fund,
application. write your account
Please indicate number on your check,
an investment and mail the check
dealer on the and form in the
account envelope provided
application. with your account
statement.
----------------------------------------------------------
By wire Call 800/421-0180 Your bank should wire
to obtain your your additional
account investments in the
number(s), if same manner as
necessary. Please described under
indicate an "Initial Investment."
investment dealer
on the account.
Instruct your
bank to wire
funds to:
Wells Fargo Bank
155 Fifth Street
Sixth Floor
San Francisco,
CA 94106
(ABA #121000248)
For credit to the
account of:
American Funds
Service Company
a/c #4600-076178
(fund name)
(your fund acct.
no.)
----------------------------------------------------------
THE FUNDS AND AMERICAN FUNDS DISTRIBUTORS RESERVE
THE RIGHT TO REJECT ANY PURCHASE ORDER.
----------------------------------------------------------
SHARE PRICE Shares are purchased at the next offering
price after the order is received by the fund or
American Funds Service Company. In the case of orders
sent directly to the fund or American Funds Service
Company, an investment dealer MUST be indicated. This
price is the net asset value plus a sales charge, if
applicable. Dealers are responsible for promptly
transmitting orders. (See the statement of additional
information under "Purchase of Shares--Price of
Shares.")
The net asset value per share is determined as of the
close of trading (currently 4:00 p.m., New York time) on
each day the New York Stock Exchange is open. The
current value of the fund's total assets, less all
liabilities, is divided by the total number of shares
outstanding and the result, rounded to the nearer cent,
is the net asset value per share. The net asset value
per share of the money market funds normally will remain
constant at $1.00 based on the funds' current practice
of valuing their shares using the penny-rounding method
in accordance with rules of the Securities and Exchange
Commission.
SHARE CERTIFICATES Shares are credited to your account
and certificates are not issued unless specifically
requested. This eliminates the costly problem of lost or
destroyed certificates.
12
<PAGE>
================================================================================
If you would like certificates issued, please request
them by writing to American Funds Service Company.
There is usually no charge for issuing certificates in
reasonable denominations. CERTIFICATES ARE NOT
AVAILABLE FOR THE MONEY MARKET FUNDS.
INVESTMENT MINIMUMS AND FUND NUMBERS Here are the
minimum initial investments required by the funds in
The American Funds Group along with fund numbers for
use with our automated phone line, American
FundsLine(R) (see description below):
<TABLE>
<CAPTION>
MINIMUM
INITIAL FUND
FUND INVESTMENT NUMBER
- ---- ---------- ------
<S> <C> <C>
STOCK AND STOCK/BOND FUNDS
AMCAP Fund(R)...................................... $1,000 02
American Balanced Fund(R).......................... 500 11
American Mutual Fund(R)............................ 250 03
Capital Income Builder(R).......................... 1,000 12
Capital World Growth and Income Fund(SM)........... 1,000 33
EuroPacific Growth Fund(R)......................... 250 16
Fundamental Investors(SM).......................... 250 10
The Growth Fund of America(R)...................... 1,000 05
The Income Fund of America(R)...................... 1,000 06
The Investment Company of America(R)............... 250 04
The New Economy Fund(R)............................ 1,000 14
New Perspective Fund(R)............................ 250 07
SMALLCAP World Fund(SM)............................ 1,000 35
Washington Mutual Investors Fund(SM)............... 250 01
<CAPTION>
MINIMUM
INITIAL FUND
FUND INVESTMENT NUMBER
- ---- ---------- ------
<S> <C> <C>
BOND FUNDS
American High-Income Municipal Bond FundSM......... $1,000 40
American High-Income Trust(R)...................... 1,000 21
The Bond Fund of America(SM)....................... 1,000 08
Capital World Bond Fund(R)......................... 1,000 31
Intermediate Bond Fund of America(R)............... 1,000 23
Limited Term Tax-Exempt Bond Fund of America(SM)... 1,000 43
The Tax-Exempt Bond Fund of America(SM)............ 1,000 19
The Tax-Exempt Fund of California(R)*.............. 1,000 20
The Tax-Exempt Fund of Maryland(R)*................ 1,000 24
The Tax-Exempt Fund of Virginia(R)*................ 1,000 25
U.S. Government Securities Fund(SM)................ 1,000 22
MONEY MARKET FUNDS
The Cash Management Trust of America(R)............ 2,500 09
The Tax-Exempt Money Fund of America(SM)........... 2,500 39
The U.S. Treasury Money Fund of America(SM)........ 2,500 49
</TABLE>
--------
* Available only in certain states.
For retirement plan investments, the minimum is $250,
except that the money market funds have a minimum of
$1,000 for individual retirement accounts (IRAs).
Minimums are reduced to $50 for purchases through
"Automatic Investment Plans" (except for the money
market funds) or to $25 for purchases by retirement
plans through payroll deductions and may be reduced or
waived for shareholders of other funds in The American
Funds Group. TAX-EXEMPT FUNDS SHOULD NOT SERVE AS
RETIREMENT PLAN INVESTMENTS. The minimum is $50 for
additional investments (except as noted above).
SALES CHARGES The sales charges you pay when purchasing
the stock, stock/bond, and bond funds of The American
Funds Group are set forth below. The money market funds
of The American Funds Group are offered at net asset
value. (See "Investment Minimums and Fund Numbers" for
a listing of the funds.)
13
<PAGE>
================================================================================
<TABLE>
<CAPTION>
DEALER
SALES CHARGE AS CONCESSION
PERCENTAGE OF THE: AS PERCENTAGE
------------------ OF THE
AMOUNT OF PURCHASE NET AMOUNT OFFERING OFFERING
AT THE OFFERING PRICE INVESTED PRICE PRICE
--------------------- ---------- -------- -------------
<S> <C> <C> <C>
STOCK AND STOCK/BOND FUNDS
Less than $50,000................. 6.10% 5.75% 5.00%
$50,000 but less than $100,000.... 4.71 4.50 3.75
BOND FUNDS
Less than $25,000................. 4.99 4.75 4.00
$25,000 but less than $50,000..... 4.71 4.50 3.75
$50,000 but less than $100,000.... 4.17 4.00 3.25
STOCK, STOCK/BOND, AND BOND FUNDS
$100,000 but less than $250,000... 3.63 3.50 2.75
$250,000 but less than $500,000... 2.56 2.50 2.00
$500,000 but less than $1,000,000. 2.04 2.00 1.60
$1,000,000 or more................ none none (see below)
</TABLE>
Commissions of up to 1% will be paid to dealers who
initiate and are responsible for purchases of $1
million or more, for purchases by any employer-
sponsored 403(b) plan or defined contribution plan
qualified under Section 401(a) of the Internal Revenue
Code including a "401(k)" plan with 200 or more
eligible employees (paid pursuant to the fund's plan of
distribution), and for purchases made at net asset
value by certain retirement plans of organizations with
collective retirement plan assets of $100 million or
more as set forth in the statement of additional
information (paid by American Funds Distributors).
American Funds Distributors, at its expense (from a
designated percentage of its income), will, during
calendar year 1996, provide additional promotional
incentives to dealers. Currently these incentives are
limited to the top one hundred dealers who have sold
shares of the fund or other funds in The American Funds
Group. These incentive payments will be based on a pro
rata share of a qualifying dealer's sales. American
Funds Distributors will, on an annual basis, determine
the advisability of continuing these promotional
incentives.
Any employer-sponsored 403(b) plan or defined
contribution plan qualified under Section 401(a) of the
Internal Revenue Code including a "401(k)" plan with
200 or more eligible employees or any other purchaser
investing at least $1 million in shares of the fund (or
in combination with shares of other funds in The
American Funds Group other than the money market funds)
may purchase shares at net asset value; however, a
contingent deferred sales charge of 1% is imposed on
certain redemptions within one year of the purchase.
(See "Redeeming Shares--Contingent Deferred Sales
Charge.")
Qualified dealers currently are paid a continuing
service fee not to exceed 0.25% of average net assets
(0.15% in the case of the money market funds) annually
in order to promote selling efforts and to compensate
them for
14
<PAGE>
================================================================================
providing certain services. (See "Fund Organization and
Management-- Plan of Distribution.") These services
include processing purchase and redemption
transactions, establishing shareholder accounts and
providing certain information and assistance with
respect to the fund.
NET ASSET VALUE PURCHASES The stock, stock/bond and
bond funds may sell shares at net asset value to: (1)
current or retired directors, trustees, officers and
advisory board members of the funds managed by Capital
Research and Management Company, employees of
Washington Management Corporation, employees and
partners of The Capital Group Companies, Inc. and its
affiliated companies, certain family members of the
above persons, and trusts or plans primarily for such
persons; (2) current registered representatives,
retired registered representatives with respect to
accounts established while active, or full-time
employees (and their spouses, parents, and children) of
dealers who have sales agreements with American Funds
Distributors (or who clear transactions through such
dealers) and plans for such persons or the dealer; (3)
companies exchanging securities with the fund through a
merger, acquisition or exchange offer; (4) trustees or
other fiduciaries purchasing shares for certain
retirement plans of organizations with retirement plan
assets of $100 million or more; (5) insurance company
separate accounts; (6) accounts managed by subsidiaries
of The Capital Group Companies, Inc.; and (7) The
Capital Group Companies, Inc., its affiliated companies
and Washington Management Corporation. Shares are
offered at net asset value to these persons and
organizations due to anticipated economies in sales
effort and expense.
REDUCING AGGREGATION Sales charge discounts are available for
YOUR SALES certain aggregated investments. Qualifying investments
CHARGE include those by you, your spouse and your children
under the age of 21, if all parties are purchasing
You and your shares for their own account(s), which may include
immediate family purchases through employee benefit plan(s) such as an
may combine IRA, individual-type 403(b) plan or single-participant
investments to Keogh-type plan or by a business solely controlled by
reduce your costs. these individuals (for example, the individuals own the
entire business) or by a trust (or other fiduciary
arrangement) solely for the benefit of these
individuals. Individual purchases by a trustee(s) or
other fiduciary(ies) may also be aggregated if the
investments are (1) for a single trust estate or
fiduciary account, including an employee benefit plan
other than those described above or (2) made for two or
more employee benefit plans of a single employer or of
affiliated employers as defined in the Investment
Company Act of 1940, again excluding employee benefit
plans described above, or (3) for a diversified common
trust fund or other diversified pooled account not
specifically formed for the purpose of accumulating
fund shares. Purchases made for nominee or street name
accounts (securities held in the name of an investment
dealer or another nominee such as a bank trust
department instead of the customer) may not be
aggregated with those made for other accounts and may
not be aggregated with other nominee or street name
accounts unless otherwise qualified as described above.
15
<PAGE>
================================================================================
CONCURRENT PURCHASES To qualify for a reduced sales
charge, you may combine concurrent purchases of two or
more funds in The American Funds Group, except direct
purchases of the money market funds. (Shares of the
money market funds purchased through an exchange,
reinvestment or cross-reinvestment from a fund having a
sales charge do qualify.) For example, if you
concurrently invest $25,000 in one fund and $25,000 in
another, the sales charge would be reduced to reflect a
$50,000 purchase.
RIGHT OF ACCUMULATION The sales charge for your invest-
ment may also be reduced by taking into account the
current value of your existing holdings in The American
Funds Group. Direct purchases of the money market funds
are excluded. (See account application.)
STATEMENT OF INTENTION You may reduce sales charges on
all investments by meeting the terms of a statement of
intention, a non-binding commitment to invest a certain
amount in fund shares subject to a commission within a
13-month period. Five percent of the statement amount
will be held in escrow to cover additional sales
charges which may be due if your total investments over
the statement period are insufficient to qualify for a
sales charge reduction. (See account application and
the statement of additional information under "Purchase
of Shares--Statement of Intention.")
YOU MUST LET YOUR INVESTMENT DEALER OR AMERICAN FUNDS
SERVICE COMPANY KNOW IF YOU QUALIFY FOR A REDUCTION IN
YOUR SALES CHARGE USING ONE OR ANY COMBINATION OF THE
METHODS DESCRIBED ABOVE.
SHAREHOLDER AUTOMATIC INVESTMENT PLAN You may make regular monthly
SERVICES or quarterly investments through automatic charges to
your bank account. Once a plan is established, your ac-
The fund offers count will normally be charged by the 10th day of the
you a valuable month during which an investment is made (or by the
array of services 15th day of the month in the case of any retirement
designed to plan for which Capital Guardian Trust Company--another
increase the affiliate of The Capital Group Companies, Inc.--acts as
convenience and trustee or custodian).
flexibility of
your investment-- AUTOMATIC REINVESTMENT Dividends and capital gain dis-
services you can tributions are reinvested in additional shares at no
use to alter your sales charge unless you indicate otherwise on the
investment program account application. You also may elect to have divi-
as your needs and dends and/or capital gain distributions paid in cash by
circumstances informing the fund, American Funds Service Company or
change. your investment dealer.
CROSS-REINVESTMENT You may cross-reinvest dividends or
dividends and capital gain distributions paid by one
fund into another fund in The American Funds Group,
subject to conditions outlined in the statement of ad-
ditional information. Generally, to use this service
the value of your account in the paying fund must equal
at least $5,000.
EXCHANGE PRIVILEGE You may exchange shares into other
funds in The American Funds Group. Exchange purchases
are subject to the
16
<PAGE>
================================================================================
minimum investment requirements of the fund purchased
and no sales charge generally applies. However,
exchanges of shares from the money market funds are
subject to applicable sales charges on the fund being
purchased, unless the money market fund shares were
acquired by an exchange from a fund having a sales
charge, or by reinvestment or cross-reinvestment of
dividends or capital gain distributions.
You may exchange shares by writing to American Funds
Service Company (see "Redeeming Shares"), by contacting
your investment dealer, by using American FundsLine(R)
(see "Shareholder Services--American FundsLine(R)" be-
low), or by telephoning 800/421-0180 toll-free, faxing
(see "Transfer Agent" above for the appropriate fax
numbers) or telegraphing American Funds Service Compa-
ny. (See "Telephone Redemptions and Exchanges" below.)
Shares held in corporate-type retirement plans for
which Capital Guardian Trust Company serves as trustee
may not be exchanged by telephone, fax or telegraph.
Exchange redemptions and purchases are processed simul-
taneously at the share prices next determined after the
exchange order is received. (See "Purchasing Shares--
Share Price.") THESE TRANSACTIONS HAVE THE SAME TAX
CONSEQUENCES AS ORDINARY SALES AND PURCHASES.
AUTOMATIC EXCHANGES You may automatically exchange
shares (in amounts of $50 or more) among any of the
funds in The American Funds Group on any day (or pre-
ceding business day if the day falls on a non-business
day) of each month you designate. You must either meet
the minimum initial investment requirement for the re-
ceiving fund OR the originating fund's balance must be
at least $5,000 and the receiving fund's minimum must
be met within one year.
AUTOMATIC WITHDRAWALS You may make automatic
withdrawals of $50 or more as follows: five or more
times per year if you have an account of $10,000 or
more, or four or fewer times per year if you have an
account of $5,000 or more. Withdrawals are made on or
about the 15th day of each month you designate, and
checks will be sent within seven days. (See "Other
Important Things to Remember.") Additional investments
in a withdrawal account must not be less than one
year's scheduled withdrawals or $1,200, whichever is
greater. However, additional investments in a
withdrawal account may be inadvisable due to sales
charges and tax liabilities.
THESE SERVICES ARE AVAILABLE ONLY IN STATES WHERE THE
FUND TO BE PURCHASED MAY BE LEGALLY OFFERED AND MAY BE
TERMINATED OR MODIFIED AT ANY TIME UPON 60 DAYS'
WRITTEN NOTICE.
ACCOUNT STATEMENTS Your account is opened in accordance
with your registration instructions. Transactions in
the account, such as additional investments and
dividend reinvestments, will be reflected on regular
confirmation statements from American Funds Service
Company.
17
<PAGE>
================================================================================
AMERICAN FUNDSLINE(R) You may check your share balance,
the price of your shares, or your most recent account
transaction, redeem shares (up to $10,000 per fund, per
account each day), or exchange shares around the clock
with American FundsLine(R). To use this service, call
800/325-3590 from a TouchTone(TM) telephone.
Redemptions and exchanges through American FundsLine(R)
are subject to the conditions noted above and in
"Redeeming Shares--Telephone Redemptions and Exchanges"
below. You will need your fund number (see the list of
funds in The American Funds Group under "Purchasing
Shares--Investment Minimums and Fund Numbers"),
personal identification number (the last four digits of
your Social Security number or other tax identification
number associated with your account) and account
number.
---------------------------------------------------------
REDEEMING By writing to Send a letter of instruction
SHARES American specifying the name of the fund, the
Funds Service number of shares or dollar amount to
You may take money Company (at be sold, your name and account
out of your the number. You should also enclose any
account whenever appropriate share certificates you wish to
you please. address redeem. For redemptions over $50,000
indicated and for certain redemptions of
under "Fund $50,000 or less (see below), your
Organization signature must be guaranteed by a
and bank, savings association, credit
Management-- union, or member firm of a domestic
Transfer stock exchange or the National
Agent") Association of Securities Dealers,
Inc., that is an eligible guarantor
institution. You should verify with
the institution that it is an
eligible guarantor prior to signing.
Additional documentation may be
required for redemption of shares
held in corporate, partnership or
fiduciary accounts. Notarization by a
Notary Public is not an acceptable
signature guarantee.
---------------------------------------------------------
By contacting If you redeem shares through your
your investment dealer, you may be charged
investment for this service. SHARES HELD FOR YOU
dealer IN YOUR INVESTMENT DEALER'S STREET
NAME MUST BE REDEEMED THROUGH THE
DEALER.
---------------------------------------------------------
You may have You may use this option, provided the
a redemption account is registered in the name of
check sent to an individual(s), a UGMA/UTMA
you by using custodian, or a non-retirement plan
American trust. These redemptions may not
FundsLine(R) exceed $10,000 per day, per fund
or by account and the check must be made
telephoning, payable to the shareholder(s) of
faxing, or record and be sent to the address of
telegraphing record provided the address has been
American used with the account for at least 10
Funds Service days. See "Transfer Agent" and
Company "Exchange Privilege" above for the
(subject to appropriate telephone or fax number.
the
conditions
noted in this
section and
in "Telephone
Redemptions
and
Exchanges"
below)
---------------------------------------------------------
In the case Upon request (use the account
of the money application for the money market
market funds, funds) you may establish telephone
you may have redemption privileges (which will
redemptions enable you to have a redemption sent
wired to your to your bank account) and/or check
bank by writing privileges. If you request
telephoning check writing privileges, you will be
American provided with checks that you may use
Funds Service to draw against your account. These
Company checks may be made payable to anyone
($1,000 or you designate and must be signed by
more) or by the authorized number of registered
writing a shareholders exactly as indicated on
check ($250 your checking account signature card.
or more)
---------------------------------------------------------
A SIGNATURE GUARANTEE IS NOT CURRENTLY REQUIRED FOR ANY
REDEMPTION OF $50,000 OR LESS PROVIDED THE REDEMPTION
CHECK IS MADE PAYABLE TO THE REGISTERED SHAREHOLDER(S)
AND IS MAILED TO THE ADDRESS OF RECORD, PROVIDED THE
ADDRESS HAS BEEN USED WITH THE ACCOUNT FOR AT LEAST 10
DAYS.
18
<PAGE>
================================================================================
THE PRICE YOU RECEIVE FOR THE SHARES YOU REDEEM IS THE
NET ASSET VALUE NEXT DETERMINED AFTER YOUR ORDER AND
ALL REQUIRED DOCUMENTATION ARE RECEIVED BY THE FUND OR
AMERICAN FUNDS SERVICE COMPANY. (SEE "PURCHASING
SHARES--SHARE PRICE.")
TELEPHONE REDEMPTIONS AND EXCHANGES By using the
telephone (including American FundsLine(R)), fax or
telegraph redemption and/or exchange options, you agree
to hold the fund, American Funds Service Company, any
of its affiliates or mutual funds managed by such
affiliates, and each of their respective directors,
trustees, officers, employees and agents harmless from
any losses, expenses, costs or liability (including
attorney fees) which may be incurred in connection with
the exercise of these privileges. Generally, all
shareholders are automatically eligible to use these
options. However, you may elect to opt out of these
options by writing American Funds Service Company (you
may reinstate them at any time also by writing American
Funds Service Company). If American Funds Service
Company does not employ reasonable procedures to
confirm that the instructions received from any person
with appropriate account information are genuine, the
fund may be liable for losses due to unauthorized or
fraudulent instructions. In the event that shareholders
are unable to reach the fund by telephone because of
technical difficulties, market conditions, or a natural
disaster, redemption and exchange requests may be made
in writing only.
CONTINGENT DEFERRED SALES CHARGE A contingent deferred
sales charge of 1% applies to certain redemptions
within the first year on investments of $1 million or
more and on any investment made with no initial sales
charge by any employer-sponsored 403(b) plan or defined
contribution plan qualified under Section 401(a) of the
Internal Revenue Code including a "401(k)" plan with
200 or more eligible employees. The charge is 1% of the
lesser of the value of the shares redeemed (exclusive
of reinvested dividends and capital gain distributions)
or the total cost of such shares. Shares held for the
longest period are assumed to be redeemed first for
purposes of calculating this charge. The charge is
waived for exchanges (except if shares acquired by
exchange were then redeemed within 12 months of the
initial purchase); for distributions from qualified
retirement plans and other employee benefit plans; for
redemptions resulting from participant-directed
switches among investment options within a participant-
directed employer-sponsored retirement plan; for
distributions from 403(b) plans or IRAs due to death,
disability or attainment of age 59 1/2; for tax-free
returns of excess contributions to IRAs; for
redemptions through certain automatic withdrawals not
exceeding 10% of the amount that would otherwise be
subject to the charge; and for redemptions in
connection with loans made by qualified retirement
plans.
REINSTATEMENT PRIVILEGE You may reinvest proceeds from
a redemption or a dividend or capital gain distribution
without sales charge (any contingent deferred sales
charge paid will be credited to your
19
<PAGE>
================================================================================
account) in any fund in The American Funds Group. Send
a written request and a check to American Funds Service
Company within 90 days after the date of the redemption
or distribution. Reinvestment will be at the next
calculated net asset value after receipt. The tax
status of a gain realized on a redemption will not be
affected by exercise of the reinstatement privilege,
but a loss may be nullified if you reinvest in the same
fund within 30 days. If you redeem your shares within
90 days after purchase and the sales charge on the
purchase of other shares is waived under the
reinstatement privilege, the sales charge you
previously paid for the shares may not be taken into
account when you calculate your gain or loss on that
redemption.
OTHER IMPORTANT THINGS TO REMEMBER The net asset value
for redemptions is determined as indicated under
"Purchasing Shares--Share Price." Because each stock,
stock/bond and bond fund's net asset value fluctuates,
reflecting the market value of the fund's portfolio,
the amount a shareholder receives for shares redeemed
may be more or less than the amount paid for them.
Redemption proceeds will not be mailed until sufficient
time has passed to provide reasonable assurance that
checks or drafts (including certified or cashier's
checks) for shares purchased have cleared (which may
take up to 15 calendar days from the purchase date).
Except for delays relating to clearance of checks for
share purchases or in extraordinary circumstances (and
as permissible under the Investment Company Act of
1940), redemption proceeds will be paid on or before
the seventh day following receipt of a proper
redemption request.
A fund may, with 60 days' written notice, close your
account if, due to a redemption, the account has a
value of less than the minimum required initial
investment. (For example, a fund may close an account
if a redemption is made shortly after a minimum initial
investment is made.)
RETIREMENT You may invest in the funds through various retirement
PLANS plans including the following plans for which Capital
Guardian Trust Company acts as trustee or custodian:
IRAs, Simplified Employee Pension plans, 403(b) plans
and Keogh- and corporate-type business retirement
plans. For further information about any of the plans,
agreements, applications and annual fees, contact
American Funds Distributors or your investment dealer.
To determine which retirement plan is appropriate for
you, please consult your tax adviser. TAX-EXEMPT FUNDS
SHOULD NOT SERVE AS INVESTMENTS FOR RETIREMENT PLANS.
FOR MORE INFORMATION, PLEASE REFER TO THE ACCOUNT
APPLICATION OR THE STATEMENT OF ADDITIONAL INFORMATION.
IF YOU HAVE ANY QUESTIONS ABOUT ANY OF THE SHAREHOLDER
SERVICES DESCRIBED HEREIN OR YOUR ACCOUNT, PLEASE
CONTACT YOUR INVESTMENT DEALER OR AMERICAN FUNDS
SERVICE COMPANY.
[RECYCLE LOGO] This prospectus has been printed on
recycled paper that meets the
guidelines of the United States
Environmental Protection Agency
20
THE AMERICAN FUNDS TAX-EXEMPT SERIES II
THE TAX-EXEMPT FUND OF CALIFORNIA
Part B
Statement of Additional Information
NOVEMBER 1, 1995
This document is not a prospectus but should be read in conjunction with
the current Prospectus dated November 1, 1995 of The American Funds Tax-Exempt
Series II (the "Trust"). The Trust currently consists of one series, The
Tax-Exempt Fund of California (the "fund"). The Prospectus may be obtained
from your investment dealer or financial planner or by writing to the Trust at
the following address:
The American Funds Tax-Exempt Series II
Attention: Secretary
333 South Hope Street
Los Angeles, CA 90071
(213) 486-9200
Table of Contents
<TABLE>
<CAPTION>
ITEM PAGE
NO.
<S> <C>
DESCRIPTION OF CERTAIN SECURITIES AND INVESTMENT TECHNIQUES 1
INVESTMENT RESTRICTIONS 8
TRUST OFFICERS AND TRUSTEES 11
MANAGEMENT 14
DIVIDENDS AND DISTRIBUTIONS 17
ADDITIONAL INFORMATION CONCERNING TAXES 17
PURCHASE OF SHARES 21
SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES 23
EXECUTION OF PORTFOLIO TRANSACTIONS 24
GENERAL INFORMATION 24
INVESTMENT RESULTS 25
DESCRIPTION OF RATINGS FOR DEBT SECURITIES 29
FINANCIAL STATEMENTS ATTACHE
D
</TABLE>
DESCRIPTION OF CERTAIN SECURITIES AND INVESTMENT TECHNIQUES
INVESTMENT POLICIES -- Up to 20% of the fund's total assets may be invested in
tax-exempt securities that are rated below the four highest categories by
Standard & Poor's Corporation ("S&P") or by Moody's Investors Service, Inc.
("Moody's) (or equivalent securities that are not rated). These bonds are
commonly known as "junk bonds" or high-yield, high-risk bonds. See
"Description of Ratings for Debt Securities" below.
CERTAIN RISK FACTORS RELATING TO HIGH-YIELD, HIGH-RISK BONDS
SENSITIVITY TO INTEREST RATE AND ECONOMIC CHANGES - High-yield, high-risk bonds
can be sensitive to adverse economic changes and corporate/political
developments. During an economic downturn or substantial period of rising
interest rates, highly leveraged issuers or issuers whose revenue is very
sensitive to economic conditions may experience financial stress that would
adversely affect their ability to service their principal and interest payment
obligations, to meet projected business goals, and to obtain additional
financing. If the issuer of a bond defaulted on its obligations to pay
interest or principal or entered into bankruptcy proceedings, the fund may
incur losses or expenses in seeking recovery of amounts owed to it. In
addition, periods of economic uncertainty and changes can be expected to result
in increased volatility of market prices and yields of high-yield, high-risk
bonds.
PAYMENT EXPECTATIONS - High-yield, high-risk bonds may contain redemption or
call provisions. If an issuer exercised these provisions in a declining
interest rate market, the fund would have to replace the security with a lower
yielding security, resulting in a decreased return for investors. Conversely,
a high-yield, high-risk bond's value will decrease in a rising interest rate
market, as will the value of the fund's assets.
LIQUIDITY AND VALUATION - There may be little trading in the secondary market
for particular bonds, which may affect adversely the fund's ability to value
accurately or dispose of such bonds. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may decrease the
values and liquidity of high-yield, high-risk bonds, especially in a thin
market.
Subsequent to its purchase by the fund, an issue of municipal bonds or notes
may cease to be rated or its rating may be reduced below the minimum rating
required for its purchase. Neither event requires the elimination of such
obligation from the fund's portfolio, but Capital Research and Management
Company (the "Investment Adviser") will consider such an event in its
determination of whether the fund should continue to hold such obligation in
its portfolio. If, however, as a result of downgrades or otherwise, the fund
holds more than 20% of its net assets in high-yield, high-risk bonds, the fund
will dispose of the excess as expeditiously as possible.
MUNICIPAL BONDS -- Municipal bonds are generally debt obligations issued to
obtain funds for various public purposes, including the construction of public
facilities. Municipal bonds may be used to refund outstanding obligations, to
obtain funds for general operating expenses or for public improvements or for
lending private institutions or corporations funds for the construction of
educational facilities, hospitals, housing, industrial facilities or for other
public purposes. The interest on these obligations is generally not included
in gross income for federal income tax purposes. See "Additional Information
Concerning Taxes" below. Opinions relating to the validity of municipal bonds
and to the exclusion from gross income for federal income tax purposes and,
where applicable, the exemption from state and local income tax are rendered by
bond counsel to the respective issuing authorities at the time of issuance.
The two principal classifications of municipal bonds are general obligation
and limited obligation (or revenue) bonds. General obligation bonds are
secured by the issuer's pledge of its full faith and credit including, if
available, its taxing power for the payment of principal and interest. Issuers
of general obligation bonds include states, counties, cities, towns and various
regional or special districts. The proceeds of these obligations are used to
fund a wide range of public facilities such as the construction or improvement
of schools, highways and roads, water and sewer systems and facilities for a
variety of other public purposes. Lease revenue bonds or certificates of
participation in leases are payable from annual lease rental payments from a
state or locality. Annual rental payments are payable to the extent such
rental payments are appropriated annually.
Typically, the only security for a limited obligation or revenue bond is the
net revenue derived from a particular facility or class of facilities financed
thereby or, in some cases, from the proceeds of a special tax or other special
revenues. Revenue bonds have been issued to fund a wide variety of
revenue-producing public capital projects including: electric, gas, water and
sewer systems; highways, bridges and tunnels; port and airport facilities;
colleges and universities; hospitals; and convention, recreational and housing
facilities. Although the security behind these bonds varies widely, many
provide additional security in the form of a debt service reserve fund which
may also be used to make principal and interest payments on the issuer's
obligations. In addition, some revenue obligations (as well as general
obligations) are insured by a bond insurance company or backed by a letter of
credit issued by a banking institution.
Revenue bonds also include, for example, pollution control, health care and
housing bonds, which, although nominally issued by municipal authorities, are
generally not secured by the taxing power of the municipality but are secured
by the revenues of the authority derived from payments by the private entity
which owns or operates the facility financed with the proceeds of the bonds.
Obligations of housing finance authorities have a wide range of security
features including reserve funds and insured or subsidized mortgages, as well
as the net revenues from housing or other public projects. Most of these bonds
do not generally constitute the pledge of the credit of the issuer of such
bonds. The credit quality of such revenue bonds is usually directly related to
the credit standing of the user of the facility being financed or of an
institution which provides a guarantee, letter of credit, or other credit
enhancement for the bond issue.
There are, in addition, a variety of hybrid and special types of municipal
obligations as well as numerous differences in the security of municipal bonds,
both within and between the two primary classifications described above.
The amount of information about the financial condition of an issuer of
municipal bonds may not be as extensive as that which is made available by
corporations whose equity securities are publicly traded.
TEMPORARY INVESTMENTS -- The fund may invest in short-term municipal
obligations of up to one year in maturity during periods of temporary defensive
strategy or when such investments are considered advisable for liquidity.
Generally, the income from all such securities is exempt from federal income
tax. See "Additional Information Concerning Taxes" below. Further, a portion
of the fund's assets, which will normally be less than 20%, may be held in cash
or invested in high quality taxable short-term securities of up to one year in
maturity. Such temporary investments may include: (1) obligations of the U.S.
Treasury; (2) obligations of agencies and instrumentalities of the U.S.
Government; (3) money market instruments, such as certificates of deposit
issued by domestic banks, corporate commercial paper, and bankers' acceptances;
and (4) repurchase agreements (which are described below).
WHEN-ISSUED SECURITIES AND FIRM COMMITMENT AGREEMENTS - The fund may
purchase securities on a delayed delivery or "when-issued" basis and enter into
firm commitment agreements (transactions whereby the payment obligation and
interest rate are fixed at the time of the transaction but the settlement is
delayed). The fund as purchaser assumes the risk of any decline in value of
the security beginning on the date of the agreement or purchase. As the fund's
aggregate commitments under these transactions increase, the opportunity for
leverage similarly may increase.
The fund will not use these transactions for leveraging purposes, and will
identify liquid assets such as cash, U.S. Government securities or other
appropriate high-grade debt obligations in an amount sufficient to meet its
payment obligations in these transactions. Although these transactions will
not be entered into for leveraging purposes, to the extent the fund's aggregate
commitments under these transactions exceed its holdings of cash and securities
that do not fluctuate in value (such as short-term money market instruments),
the fund temporarily will be in a leveraged position (in other words, it will
have an amount greater than its net assets subject to market risk). Should the
fund be in a leveraged position during a period of declining bond prices,
greater depreciation of its net assets would likely occur than were it not in
such a position. The fund will not borrow money to settle these transactions
and, therefore, will liquidate other portfolio securities in advance of
settlement if necessary to generate addetional cash to meet its obligations
thereunder.
REPURCHASE AGREEMENTS -- Although the fund has no current intention of doing so
during the next 12 months, it may enter on a temporary basis into repurchase
agreements, under which the fund buys a security and obtains a simultaneous
commitment from the seller to repurchase the security at a specified time and
price. Repurchase agreements permit the fund to maintain liquidity and earn
income over periods of time as short as overnight. The seller must maintain
with the fund's custodian collateral equal to at least 100% of the repurchase
price including accrued interest, as monitored daily by the Investment Adviser.
The fund will only enter into repurchase agreements involving securities in
which it could otherwise invest and with selected banks and securities dealers
whose financial condition is monitored by the Investment Adviser. If the
seller under the repurchase agreement defaults, the fund may incur a loss if
the value of the collateral securing the repurchase agreement has declined and
may incur disposition costs in connection with liquidating the collateral. If
bankruptcy proceedings are commenced with respect to the seller, realization
upon the collateral by the fund may be delayed or limited.
PORTFOLIO MANAGEMENT -- In seeking to achieve the fund's objectives, the
Investment Adviser causes the fund to purchase securities which it believes
represent the best values then currently available in the marketplace. Such
values are a function of yield, maturity, issue classification and quality
characteristics, coupled with expectations regarding the economy, movements in
the general level and term structure of interest rates, political developments,
and variations in the supply of funds available for investment in the
tax-exempt market relative to the demand for the funds placed upon it. These
latter factors change continuously and should be met with a dynamic, responsive
approach to the investment process. Some of the more important portfolio
management techniques that are utilized by the Investment Adviser are set forth
below.
ADJUSTMENT OF MATURITIES -- The Investment Adviser seeks to anticipate
movements in interest rates and adjusts the maturity distribution of the
portfolio accordingly. Longer term securities ordinarily yield more than
shorter term securities but are subject to greater and more rapid price
fluctuation. Keeping in mind the fund's objective of producing a high level of
current income, the Investment Adviser will increase the fund's exposure to
this price volatility only when it appears likely to increase current income
without undue risk to capital.
ISSUE CLASSIFICATION -- Securities with the same general quality rating and
maturity characteristics, but which vary according to the purpose for which
they were issued, often tend to trade at different yields. These yield
differentials tend to fluctuate in response to political and economic
developments, as well as temporary imbalances in normal supply/demand
relationships. The Investment Adviser monitors these fluctuations closely, and
will attempt to adjust portfolio concentrations in various issue
classifications according to the value disparities brought about by these yield
relationship fluctuations.
QUALITY -- Securities issued for similar purposes and with the same general
maturity characteristics, but which vary according to the creditworthiness of
their respective issuers, tend to trade at different yields. These yield
differentials also tend to fluctuate in response to political, economic and
supply/demand factors. The Investment Adviser will attempt to take advantage
of these fluctuations by adjusting the concentration of portfolio securities in
any given quality category according to the value disparities produced by these
yield relationship fluctuations.
The Investment Adviser believes that, in general, the market for municipal
bonds is less liquid than that for taxable fixed-income securities.
Accordingly, the ability of the fund to make purchases and sales of securities
in the foregoing manner may, at any particular time and with respect to any
particular securities, be limited (or non-existent).
PORTFOLIO TURNOVER -- Portfolio changes will be made without regard to the
length of time particular investments may have been held. High portfolio
turnover involves correspondingly greater transaction costs in the form of
dealer spreads or brokerage commissions, and may result in the realization of
net capital gains, which are taxable when distributed to shareholders.
Fixed-income securities are generally traded on a net basis and usually neither
brokerage commissions nor transfer taxes are involved. The fund does not
anticipate its portfolio turnover to exceed 100% annually. The fund's
portfolio turnover rate would exceed 100% if each security in the fund's
portfolio was replaced once every year. See "Financial Highlights" in the
Prospectus for the fund's portfolio turnover for each of the last eight
years.
RISK FACTORS RELATING TO CALIFORNIA DEBT OBLIGATIONS -- The following
describes certain risks with respect to debt obligations of California issuers
in which the fund may invest. Such information constitutes only a brief
summary, does not purport to be a complete description, and is based on
information drawn from official statements relating to securities offerings of
the State of California and various local agencies in California, available as
of the date of this Prospectus. While the Investment Adviser has not
independently verified such information, it has no reason to believe that such
information is not correct in all material respects. In addition to this
current information, future California constitutional amendments, legislative
measures, executive orders, administrative regulations, court decisions and
voter initiatives could have an adverse effect on the debt obligations of
California issuers. The initiative process is used quite often in California,
resulting in numerous initiative items on the ballot for most state and local
elections, any of which could affect the ability of public entities to pay
their obligations.
The Internal Revenue Code of 1986 imposes limitations on the use and
investment of the proceeds of state and local governmental bonds and of other
funds of the issuers of such bonds. These limitations must be satisfied on a
continuing basis to maintain the exclusion from gross income of interest on
such bonds. The provisions of the Code generally apply to bonds issued after
August 15, 1986. Bond counsel qualify their opinions as to the federal tax
status of new issues of bonds by making such opinions contingent on the
issuer's future compliance with these limitations. Any failure on the part of
an issuer to comply could cause the interest on its bonds to become taxable to
investors retroactive to the date the bonds were issued. These restrictions in
the Code also may affect the availability of certain municipal securities.
Certain debt obligations held by the fund may be obligations of issuers which
rely in whole or in substantial part on California state revenues for the
continuance of their operations and the payment of their obligations. Certain
state property and other state tax revenues and moneys from the state's general
fund are appropriated by the state legislature each fiscal year for
distribution to counties, cities and their various taxing entities, such as
school districts, to assist such local entities in providing essential
governmental functions, including those required by state law. Whether and to
what extent the California Legislature will continue to appropriate a portion
of the state's general fund to counties, cities and their various entities, is
not entirely certain. To the extent local entities do not receive money from
the state to pay for their operations and services, their ability to pay debt
service on obligations held by the fund may be impaired.
Certain of the debt obligations may be obligations of issuers who rely in
whole or in part on ad valorem real or personal property taxes as a source of
revenue or may be leases subject to annual appropriation by the lessor.
Article XIIIA of the California Constitution limits the taxing powers of
California public agencies. Article XIIIA provides that the maximum ad valorem
tax on real property cannot exceed one percent of the full cash value of the
property, and effectively prohibits the levying of any other ad valorem
property tax, even with voter approval. Full cash value is defined as the
County Assessor's valuation of real property as shown on the 1975-76 tax bill
under "full cash value" or, thereafter, the appraisal value of real property
when purchased, newly constructed, or when a change in ownership has occurred
after the 1975 assessment. The full cash value is subject to annual adjustment
to reflect inflation at a rate not to exceed two percent or a reduction in the
consumer price index or comparable local data, or declining property value
caused by damage, destruction or other factors. Article XIIIB of the
California Constitution limits the amount of appropriations of state and of
local governments from "proceeds of taxes" to the amount of appropriations of
the entity for the prior year, adjusted for changes in the cost of living,
population and certain other adjustments. Both Article XIIIA and Article XIIIB
were adopted by the people of the State of California pursuant to the State's
initiative constitutional amendment process.
Certain debt obligations held by the fund may be obligations payable solely
from lease payments on real property leased to the state, cities, counties or
their various public entities, especially since the adoption of Article XIIIA
described above because such leases are structured so as not to create a
statutory "debt" of the leasing entity. However, to insure that a debt is not
technically created, California law requires that the lessor is not required to
make lease payments during any period that it is denied use and occupancy of
the property lease in proportion to such loss. Moreover, the lessor does not
agree to pay lease payments beyond the current fiscal year; it only agrees to
include lease payments in its annual budget for each fiscal year. In case of a
default under the lease, the only remedy available against the lessor is that
of reletting the property; no acceleration of lease payments is permitted.
Each of these factors presents a risk that the lease financing obligations held
by the fund would not be paid in a timely manner.
Certain debt obligations held by the fund may be obligations which are payable
solely from the revenues of health care institutions. Certain provisions under
California law may adversely affect these revenues and, consequently, payment
on those debt obligations.
The federally sponsored Medicaid program for health care services to eligible
welfare beneficiaries in California is known as the Medi-Cal program. In the
past, the Medi-Cal program has provided a cost-based system of reimbursement
for inpatient care furnished to Medi-Cal beneficiaries by any eligible
hospital. The State now selectively contracts by county with California
hospitals to provide reimbursement for nonemergency inpatient services to
Medi-Cal beneficiaries, generally on a flat per diem payment basis regardless
of cost. California law also permits private health plans and insurers to
contract selectively with hospitals for services to beneficiaries on negotiated
terms, generally at rates lower than standard charges. It is expected that
hospitals that do not contract with health plans and insurers will experience
some decrease in patient census.
Debt obligations payable solely from revenues of health care institutions may
also be insured by the state pursuant to an insurance program operated by the
Office of Statewide Health Planning and Development (the "Office"). Most such
debt obligations are secured by a mortgage of real property in favor of the
Office and the holders. If a default occurs on such insured debt obligations,
the Office may either continue to make debt service payments on the obligations
or foreclose on the mortgage and request the State Treasurer to issue
debentures payable from a reserve fund established under the insurance program
or from unappropriated state funds. At the request of the Office, Arthur D.
Little, Inc. prepared a study in September, 1986 to evaluate the adequacy of
the reserve fund established under the insurance program, and based on certain
formulations and assumptions found the reserve fund underfunded. There has
been no further such study to date. A similar ADL study in 1983 also had found
the reserve fund to be underfunded at that time. Moreover, moneys in the
reserve fund may be reappropriated by the California Legislature. In 1987, the
Legislature reappropriated $1.2 million of the reserve fund for other purposes
and reserves authority to do so in the future.
Certain debt obligations held by the fund may be obligations which are secured
in whole or in part by a mortgage or deed of trust on real property.
California has five principal statutory provisions which limit the remedies of
a creditor secured by a mortgage or deed of trust. Two limit the creditor's
right to obtain a deficiency judgment, one limitation being based on the method
of foreclosure and the other on the type of debt secured. Under the former, a
deficiency judgment is barred when the foreclosure is accomplished by means of
nonjudicial trustee's sale. Under the latter, a deficiency judgment is barred
when the foreclosed mortgage or deed of trust secures certain purchase money
obligations. Another California statute, commonly known as the "one form of
action" rule, requires creditors secured by real property to exhaust their real
property security by foreclosure before bringing a personal action against the
debtor. The fourth statutory provision limits any deficiency judgment obtained
by a creditor secured by real property following a judicial sale of such
property to the excess of the outstanding debt over the fair value of the
property at the time of the sale, thus preventing the creditor from obtaining a
large deficiency judgment against the debtor as the result of low bids at a
judicial sale. The fifth statutory provision gives the debtor the right to
redeem the real property from any judicial foreclosure sale as to which a
deficiency judgment may be ordered against the debtor.
Upon the default of a mortgage or deed of trust with respect to California
real property, the creditor's nonjudicial foreclosure rights under the power of
sale contained in the mortgage or deed of trust are subject to the constraints
imposed by California law upon transfers of title to real property by private
power of sale. During the three-month period beginning with the filing of a
formal notice of default, the debtor is entitled to reinstate the mortgage by
making any overdue payments. Under standard loan servicing procedures, the
filing of the formal notice of default does not occur unless at least three
full monthly payments have become due and remain unpaid. The power of sale is
exercised by posting and publishing a notice of sale for at least 20 days after
expiration of the three-month reinstatement period. Therefore, the effective
minimum period for foreclosing on a mortgage could be in excess of seven months
after the initial default. Such time delays in collections could disrupt the
flow of revenues available to an issuer for the payment of debt service on the
outstanding obligations if such defaults occur with respect to a substantial
number of mortgages or deeds of trust securing an issuer's obligations.
In addition, a court could find that there is sufficient involvement of the
issuer in the nonjudicial sale of property securing a mortgage for such private
sale to constitute "state action," and could hold that the private
right-of-sale proceedings violate the due process requirements of the federal
or state constitutions, consequently preventing an issuer from using the
nonjudicial foreclosure remedy described above.
Certain debt obligations held by the fund may be obligations which finance the
acquisition of single-family home mortgages for low and moderate income
mortgagors. These obligations may be payable solely from revenues derived from
the home mortgages, and are subject to California's statutory limitations
described above applicable to obligations secured by real property. Under
California antideficiency legislation, there is no personal recourse against a
mortgagor of a single family residence purchased with the loan secured by the
mortgage, regardless of whether the creditor chooses judicial or nonjudicial
foreclosure.
Under California law, mortgage loans secured by single-family owner-occupied
dwellings may be prepaid at any time. Prepayment charges on such mortgage
loans may be imposed only with respect to voluntary prepayments made during the
first five years during the term of the mortgage loan, and cannot in any event
exceed six months' advance interest on the amount prepaid in excess of 20% of
the original principal amount of the mortgage loan. This limitation could
affect the flow of revenues available to an issuer for debt service on the
outstanding debt obligations which financed such home mortgages.
INVESTMENT RESTRICTIONS
The fund has adopted certain investment restrictions which may not be changed
without a majority vote of its outstanding shares. Such majority is defined by
the Investment Company Act of 1940 (the "1940 Act") as the vote of the lesser
of (i) 67% or more of the outstanding voting securities present at a meeting,
if the holders of more than 50% of the outstanding voting securities are
present in person or by proxy, or (ii) more than 50% of the outstanding voting
securities. These restrictions provide that the fund may not:
1. Invest more than 5% of the value of its total assets in the securities of
any one issuer [or hold more than 10% of any class of securities of any one
issuer (for this purpose all indebtedness of an issuer shall be deemed a single
class)], provided that this limitation shall apply only to 75% of the value of
the fund's total assets and, provided further, that the limitation shall not
apply to obligations of the U.S. Government or its agencies or
instrumentalities;
2. Enter into any repurchase agreement maturing in more than seven days
(unless subject to a demand feature of seven days or less) if any such
investment, together with any illiquid securities held by the fund, exceeds 10%
of the value of its total assets;
3. Buy or sell real estate in the ordinary course of its business; however,
the fund may invest in securities secured by real estate or interests therein;
4. Acquire securities subject to legal or contractual restrictions on
disposition;
5. Make loans to others, except for the purchase of debt securities or
entering into repurchase agreements;
6. Sell securities short, except to the extent that the fund
contemporaneously owns or has the right to acquire at no additional cost
securities identical to those sold short;
7. Purchase securities on margin, except such short-term credits as may be
necessary for the clearance of purchases or sales;
8. Borrow money, except from banks for temporary or emergency purposes, not
in excess of 5% of the value of the fund's total assets, excluding the amount
borrowed. This borrowing provision is intended to facilitate the orderly sale
of portfolio securities to accommodate unusually heavy redemption requests, if
they should occur; it is not intended for investment purposes;
9. Mortgage, pledge, or hypothecate its assets, except in an amount up to 10%
of the value of its total assets, but only to secure borrowings for temporary
or emergency purposes;
10. Underwrite any issue of securities, except to the extent that the purchase
of municipal bonds directly from the issuer in accordance with the fund's
investment objective, policies and restrictions, and later resale may be deemed
to be an underwriting;
11. Invest in companies for the purpose of exercising control or management;
12. Purchase securities of other investment companies, except in connection
with a merger, consolidation, acquisition, or reorganization;
13. Buy or sell commodities or commodity contracts or oil, gas or other
mineral exploration or development programs;
14. Write, purchase or sell puts, calls, straddles, spreads or any
combination thereof;
15. Purchase or retain the securities of any issuer, if, to the knowledge of
the fund, those individual officers and Trustees of the Trust, its Investment
Adviser, or principal underwriter, each owning beneficially more than 1/2 of 1%
of the securities of such issuer, together own more than 5% of the securities
of such issuer;
16. Invest more than 5% of the value of the fund's total assets in securities
of any issuer with a record of less than three years continuous operation,
including predecessors, except those issued or guaranteed by the U.S.
Government or its agencies or instrumentalities, or municipal bonds rated at
least "A" by either Moody's Investors Service, Inc. or Standard & Poor's
Corporation; or
17. Invest more than 25% of its assets in securities of any industry,
although for purposes of this limitation, the issuers of municipal securities
and U. S. Government obligations are not considered to be part of any industry.
For the purpose of the fund's investment restrictions, the identification of
the issuer of municipal bonds which are not general obligation bonds is made by
the Investment Adviser on the basis of the characteristics of the obligation as
described, the most significant of which is the ultimate source of funds for
the payment of principal of and interest on such bonds.
For purposes of Investment Restriction #13, the term "oil, gas or other
mineral exploration or development programs" includes oil, gas or other mineral
exploration or development leases.
Notwithstanding Investment Restriction #12, the fund may invest in
securities of other investment companies if deemed advisable by its officers in
connection with the administration of a deferred compensation plan adopted by
the Trustees pursuant to an exemptive order granted by the Securities and
Exchange Commission.
Another policy of the fund which is not deemed a fundamental policy, and thus
may be changed by the Board of Trustees without shareholder approval, is that
the fund may not invest 25% or more of its assets in securities the interest on
which is paid from revenues of similar type projects (such as hospitals and
health facilities; turnpikes and toll roads; ports and airports; or colleges
and universities). The fund may, however, invest more than an aggregate of 25%
of its total assets in industrial development bonds.
TRUST OFFICERS AND TRUSTEES
Trustees and Trustee Compensation
<TABLE>
<CAPTION>
NAME, ADDRESS AND AGE POSITION WITH PRINCIPAL OCCUPATION(S) AGGREGATE TOTAL COMPENSATION TOTAL NUMBER
REGISTRANT DURING PAST 5 YEARS COMPENSATION FROM ALL FUNDS OF FUND BOARDS
(POSITIONS WITHIN THE (INCLUDING MANAGED BY CAPITAL ON WHICH
ORGANIZATIONS LISTED MAY VOLUNTARILY DEFERRED RESEARCH AND TRUSTEE SERVES
HAVE CHANGED DURING THIS COMPENSATION /1/) MANAGEMENT /2/
PERIOD) FROM THE COMPANY COMPANY /2/
DURING FISCAL YEAR
ENDED AUGUST 31,
1995
<S> <C> <C> <C> <C> <C>
++ H. Frederick Christie Trustee Private Investor. The Mission Group $2,309 /3/ $136,600 18
P.O. Box 144 (non-utility holding Company,
Palos Verdes Estates, CA 90274 subsidiary of Southern California
Age: 62 Edison Company), former President
and Chief Executive Officer
Diane C. Creel Trustee Chairwoman, CEO and President, $2,256 $30,675 12
100 W. Broadway The Earth Technology Corporation
Suite 5000
Long Beach, CA 90802
Age: 46
Martin Fenton, Jr. Trustee Chairman, Senior Resource Group $2,722 /3/ $102,700 16
4350 Executive Drive (management of senior living
Suite 101 centers)
San Diego, CA 92121-2116
Age: 60
Leonard R. Fuller Trustee President, Fuller & Company, Inc. $2,111 $31,575 12
4337 Marina City Drive (financial management consulting
Suite 841 ETN firm)
Marina del Rey, CA 90292
Age: 48
+* Abner D. Goldstine President, Capital Research and Management none /4/ none /4/ 12
Age: 65 PEO and Company, Senior Vice President
Trustee and Director
+** Paul G. Haaga, Jr. Chairman of Capital Research and Management none /4/ none /4/ 14
Age: 46 the Board Company, Senior Vice President
and Director
Herbert Hoover III Trustee Private Investor $2,127 $60,050 14
200 S. Los Robles Avenue
Suite 520
Pasadena, CA 91101-2431
Age: 67
Richard G. Newman Trustee Chairman, President and CEO, $2,741 /3/ $39,050 12
3250 Wilshire Boulevard AECOM Technology Corporation
Los Angeles, CA 90010-1599 (architectural engineering)
Age: 60
Peter Valli Trustee Chairman and CEO, BW/IP $2,450 /3/ $37,050 12
200 Oceangate Boulevard International Inc. (industrial
Suite 900 manufacturing)
Long Beach, CA 90802
Age: 68
</TABLE>
+ Trustees who are considered "interested persons as defined in the Investment
Company Act of 1940, as amended (the "1940 Act"), on
the basis of their affiliation with the fund's Investment Adviser, Capital
Research and Management Company.
++ May be deemed an "interested person" of the fund due to membership on the
board of directors of the parent company of a registered broker-dealer.
* Address is 11100 Santa Monica Boulevard, Los Angeles, CA 90025
** Address is 333 South Hope Street, Los Angeles, CA 90071
/1/ Amounts may be deferred by eligible Trustees under a non-qualified deferred
compensation plan adopted by the Fund in 1994. Deferred amounts accumulate at
an earnings rate determined by the total return of one or more funds in The
American Funds Group as designated by the Trustee.
/2/ Capital Research and Management Company manages The American Funds Group
consisting of 28 funds: AMCAP Fund, Inc., American Balanced Fund, Inc.,
American High-Income Municipal Bond Fund, Inc., American High-Income Trust,
American Mutual Fund, Inc., The Bond Fund of America, Inc., The Cash Management
Trust of America, Capital Income Builder, Inc., Capital World Growth and Income
Fund, Inc., Capital World Bond Fund, Inc., EuroPacific Growth Fund, Fundamental
Investors, Inc., The Growth Fund of America, Inc., The Income Fund of America,
Inc., Intermediate Bond Fund of America, The Investment Company of America,
Limited Term Tax-Exempt Bond Fund of America, The New Economy Fund, New
Perspective Fund, Inc., SMALLCAP World Fund, Inc., The Tax-Exempt Bond Fund of
America, Inc., The Tax-Exempt Fund of California, The Tax-Exempt Fund of
Maryland, The Tax-Exempt Fund of Virginia, The Tax-Exempt Money Fund of
America, The U. S. Treasury Money Fund of America, U.S. Government Securities
Fund and Washington Mutual Investors Fund, Inc. Capital Research and
Management Company also manages American Variable Insurance Series and Anchor
Pathway Fund which serve as the underlying investment vehicle for certain
variable insurance contracts; and Bond Portfolio for Endowments, Inc. and
Endowments, Inc. whose shares may be owned only by tax-exempt organizations.
/3/ Since the plan's adoption, the total amount of deferred compensation
accrued by the fund (plus earnings thereon) for participating Trustees is as
follows:
H. Frederick Christie ($724), Martin Fenton, Jr. ($5,807), Richard G. Newman
($6,373) and Peter C. Valli ($5,610).
/4/ Paul G. Haaga, Jr. and Abner D. Goldstine are affiliated with the
Investment Adviser and, accordingly, receive no compensation from the Fund.
OFFICERS
(with their principal occupations during the past five years)#
*** Neil L. Langberg, SENIOR VICE PRESIDENT. Capital Research and Management
Company, Vice President, Investment Management Group
** Mary C. Cremin, VICE PRESIDENT AND TREASURER. Capital Research and
Management Company, Senior Vice President - Fund Business Management Group
* Michael J. Downer, VICE PRESIDENT. Capital Research and Management Company,
Senior Vice President - Fund Business Management Group
* Julie F. Williams, SECRETARY. Capital Research and Management Company,
Vice President - Fund Business Management Group
* Kimberly S. Verdick, ASSISTANT SECRETARY. Capital Research and Management
Company,
Assistant Vice President - Fund Business Management Group
** Nymia M. Cucueco, ASSISTANT TREASURER. Capital Research and Management
Company,
Vice President - Fund Business Management Group
** Anthony W. Hynes, Jr., ASSISTANT TREASURER. Capital Research and Management
Company,
Vice President - Fund Business Management Group
# Positions within the organizations listed may have changed during this
period.
* Address is 333 South Hope Street, Los Angeles, CA 90071.
** Address is 135 South State College Boulevard, Brea, CA 92621.
*** Address is 11100 Santa Monica Boulevard, Los Angeles, CA 90025
No compensation is paid by the fund to any officer or Trustee who is a
director or officer of the Investment Adviser. The fund pays annual fees of
$1,200 to Trustees who are not affiliated with the Investment Adviser, plus
$200 for each Board of Trustees meeting attended, plus $200 for each meeting
attended as a member of a committee of the Board of Trustees. The Trustees may
elect, on a voluntary basis, to defer all or a portion of these fees through a
deferred compensation plan in effect for the fund. The fund also reimburses
certain expenses of the Trustees who are not affiliated with the Investment
Adviser. As of October 1, 1995, the officers and Trustees and their families
as a group, owned beneficially or of record fewer than 1% of the outstanding
shares of the fund.
As of October 1, 1995, the following shareholder owned 5% or more of the
fund's outstanding shares: Don Valentine - 5.62%.
MANAGEMENT
INVESTMENT ADVISER - The Investment Adviser, founded in 1931, maintains
research facilities in the U.S. and abroad, with a staff of professionals, many
of whom have years of investment experience. The Investment Adviser's research
professionals travel several million miles a year, making more than 5,000
research visits in more than 50 countries around the world. The Investment
Adviser believes that it is able to attract and retain quality personnel.
An affiliate of the Investment Adviser compiles indices for major stock
markets around the world and compiles and edits the Morgan Stanley Capital
International Perspective, providing financial and market information about
more than 2,400 companies around the world.
The Investment Adviser is responsible for more than $100 billion of stocks,
bonds and money market instruments and serve over five million investors of all
types throughout the world. These investors include privately owned businesses
and large corporations, as well as schools, colleges, foundations and other
non-profit and tax-exempt organizations.
INVESTMENT ADVISORY AND SERVICE AGREEMENT - The Investment Advisory and
Service Agreement (the "Agreement") between the Trust and the Investment
Adviser will continue in effect until May 31, 1996, unless sooner terminated,
and may be renewed from year to year thereafter, provided that any such renewal
has been specifically approved at least annually as to a fund by (i) the Board
of Trustees, or by the vote of a majority (as defined in the 1940 Act) of the
outstanding voting securities of the fund, and (ii) the vote of a majority of
Trustees who are not parties to the Agreement or interested persons (as defined
in the 1940 Act) of any such party, cast in person at a meeting called for the
purpose of voting on such approval. The Agreement provides that the Investment
Adviser has no liability to the Trust for its acts or omissions in the
performance of its obligations to the Trust not involving willful misconduct,
bad faith, gross negligence or reckless disregard of its obligations under the
Agreement. The Agreement also provides that either party has the right to
terminate, without penalty, upon 60 days' written notice to the other party and
that the Agreement automatically terminates in the event of its assignment (as
defined in the 1940 Act).
Subject to the expense limitation described below, the fund pays all expenses
not specifically assumed by the Investment Adviser, including, but not limited
to, registration and filing fees with federal and state agencies; blue sky
expenses; expenses of shareholders' meetings; the expense of reports to
existing shareholders; expenses of printing proxies and prospectuses; insurance
premiums; legal and auditing fees; dividend disbursement expenses; the expense
of the issuance transfer, and redemption of its shares; custodian fees;
printing and preparation of registration statements; taxes; the fund's
distribution expenses pursuant to the Plan of Distribution; compensation, fees
and expenses paid to Trustees unaffiliated with the Investment Adviser;
association dues; and costs of stationery, forms and certificates prepared
exclusively for the fund.
The Investment Adviser has agreed to waive its fees by any amount necessary to
assure that fund expenses do not exceed applicable expense limitations in any
state in which the fund's shares are being offered for sale. Only one state
(California) continues to impose expense limitations on funds registered for
sale therein. The California provision currently limits annual expenses to the
sum of 2-1/2% of the first $30 million of average net assets, 2% of the next
$70 million and 1-1/2% of the remaining average net assets. Expenses pursuant
to the fund's Plan of Distribution are excluded from this limit. Other
expenses which are not subject to this limit include interest, taxes, brokerage
commissions, transaction costs, and extraordinary items such as litigation and
any amounts excludable under the applicable regulation. Expenditures,
including costs incurred in connection with the purchase or sale of portfolio
securities, which are capitalized in accordance with generally accepted
accounting principles applicable to investment companies, are accounted for as
capital items and not as expenses.
During the fiscal years ended August 31, 1995, 1994, and 1993, the
Investment Adviser's total fees amounted to $943,000, $931,000, and $758,000,
respectively.
PRINCIPAL UNDERWRITER - American Funds Distributors, Inc. (the "Principal
Underwriter") is the Trust's principal underwriter. The Trust has adopted a
Plan of Distribution (the "Plan"), pursuant to rule 12b-1 under the 1940 Act
(see "Principal Underwriter" in the Prospectus). The Principal Underwriter
receives amounts payable pursuant to the Plan (see below) and commissions
consisting of that portion of the sales charge remaining after the discounts
which it allows to investment dealers. Commissions retained by the Principal
Underwriter on sales of fund shares during the fiscal year ended August 31,
1995 amounted to $100,000 after allowance of $400,000 to dealers. During the
fiscal years ended August 31, 1994 and 1993 the Principal Underwriter retained
$167,000 and 203,000, respectively.
As required by rule 12b-1, the Plan (together with the Principal
Underwriting Agreement) has been approved by the full Board of Trustees and
separately by a majority of the Trustees who are not "interested persons" of
the fund and who have no direct or indirect financial interest in the operation
of the Plan or the Principal Underwriting Agreement, and the Plan has been
approved by the vote of a majority of the outstanding voting securities of the
fund. The officers and Trustees who are "interested persons" of the Trust may
be considered to have a direct or indirect financial interest in the operation
of the Plan due to present or past affiliations with the investment adviser and
related companies. Potential benefits of the plan to the fund are improved
shareholder services, savings to the fund in transfer agency costs, savings to
the fund in advisory fees and other expenses, benefits to the investment
process from growth or stability of assets and maintenance of a financially
healthy management organization. The selection and nomination of Trustees who
are not "interested persons" of the Trust shall be committed to the discretion
of the Trustees who are not "interested persons" during the existence of the
Plan. The Plan is reviewed quarterly and must be renewed annually by the Board
of Trustees.
Under the Plan the fund may expend up to 0.25% of its average net assets
annually to finance any activity which is primarily intended to result in the
sale of fund shares, provided the Board of Trustees has approved the category
of expenses for which payment is being made. These include service fees for
qualified dealers and dealer commissions and wholesaler compensation on sales
of shares exceeding $1 million (including purchases by any employer-sponsored
403(b) plan or purchases by any defined contribution plan qualified under
Section 401(a) of the Internal Revenue Code including a "401(k)" plan with 200
or more eligible employees). Only expenses incurred during the preceding 12
months and accrued while the Plan is in effect may be paid by the fund. During
the Trust's fiscal year ended August 31, 1995, the fund paid or accrued
$409,000 under the Plan as compensation to dealers. As of August 31, 1995,
accrued and unpaid distribution expenses were $97,000.
The Glass-Steagall Act and other applicable laws, among other things,
generally prohibit federally chartered or supervised banks from engaging in the
business of underwriting, selling or distributing securities, but permit banks
to make shares of mutual funds available to their customers and to perform
administrative and shareholder servicing functions. However, judicial or
administrative decisions or interpretations of such laws, as well as changes in
either federal or state statutes or regulations relating to the permissible
activities of banks or their subsidiaries or affiliates, could prevent a bank
from continuing to perform all or a part of its servicing activities. If a
bank were prohibited from so acting, shareholder clients of such bank would be
permitted to remain shareholders of the fund and alternate means for continuing
the servicing of such shareholders would be sought. In such event, changes in
the operation of the fund might occur and shareholders serviced by such bank
might no longer be able to avail themselves of any automatic investment or
other services then being provided by such bank. It is not expected that
shareholders would suffer with adverse financial consequences as a result of
any of these occurrences.
In addition, state securities laws on this issue may differ from the
interpretations of federal law expressed herein and certain banks and financial
institutions may be required to be registered as dealers pursuant to state law.
DIVIDENDS AND DISTRIBUTIONS
DIVIDENDS AND DISTRIBUTIONS - For the purpose of calculating dividends, daily
net investment income of the fund consists of: (a) all interest income accrued
on the fund's investments including any discount or premium ratably amortized
to the date of maturity or determined in such other manner as may be deemed
appropriate; minus (b) all liabilities accrued, including interest, taxes and
other expense items, amounts determined and declared as dividends or
distributions and reserves for contingent or undetermined liabilities, all
determined in accordance with generally accepted accounting principles.
Dividends generally are taxable to shareholders at the time they are paid.
However, dividends declared in October, November and December and made payable
to shareholders of record in such a month are treated as paid and are thereby
taxable as of December 31, provided that the fund pays the dividend no later
than the end of January of the following year.
ADDITIONAL INFORMATION CONCERNING TAXES
The following is only a summary of certain additional federal, state and local
tax considerations generally affecting the fund and its shareholders. No
attempt is made to present a detailed explanation of the tax treatment of the
fund or its shareholders, and the discussion here and in the fund's Prospectus
is not intended as a substitute for careful tax planning. Investors are urged
to consult their tax advisers with specific reference to their own tax
situations.
FEDERAL TAXES - The fund is not intended to constitute a balanced investment
program and is not designed for investors seeking capital appreciation or
maximum tax-exempt income irrespective of fluctuations in principal. Shares of
the fund generally would not be suitable for tax-exempt institutions or
tax-deferred retirement plans (E.G., plans qualified under Section 401 of the
Internal Revenue Code, Keogh-type plans and individual retirement accounts).
Such retirement plans would not gain any benefit from the tax-exempt nature of
the fund's dividends because such dividends would be ultimately taxable to
beneficiaries when distributed to them. In addition, the fund may not be an
appropriate investment for entities which are "substantial users" of facilities
financed by industrial development bonds or "related persons" thereof.
"Substantial user" is defined under U.S. Treasury Regulations to include a
non-exempt person who regularly uses a part of such facilities in his trade or
business and whose gross revenues derived with respect to the facilities
financed by the issuance of bonds are more than 5% of the total revenues
derived by all users of such facilities, or who occupies more than 5% of the
usable area of such facilities or for whom such facilities or a part thereof
were specifically constructed, reconstructed or acquired. "Related persons"
include certain related natural persons, affiliated corporations, a partnership
and its partners and an S Corporation and its shareholders.
The fund intends to meet all the requirements and has elected the tax status
of a "regulated investment company" under the provisions of Subchapter M of the
Internal Revenue Code of 1986 (the "Code"). Under Subchapter M, if the fund
distributes within specified times at least 90% of the sum of its taxable and
tax-exempt net investment income, it will be taxed only on that portion, if
any, which it retains.
To qualify, the fund must (a) derive at least 90% of its gross income from
dividends, interest, payments with respect to securities loans, and gains from
the sale or other disposition of stock, securities, currencies, or other income
derived with respect to its business of investing in such stock, securities, or
currencies; (b) derive less than 30% of its gross income from the gains or the
sale or other disposition of stock or securities held less than three months,
and (c) diversify its holdings so that, at the end of each fiscal quarter, (i)
at least 50% of the market value of the fund's assets is represented by cash,
cash items, U.S. Government securities, securities of other regulated
investment companies, and other securities which must be limited, in respect of
any one issuer to an amount not greater than 5% of the fund's assets and 10% of
the outstanding voting securities of such issuer, and (ii) not more than 25% of
the value of its assets is invested in the securities of any one issuer (other
than U.S. Government securities or the securities of other regulated investment
companies) or in two or more issuers which the fund controls and which are
engaged in the same or similar trades or businesses or related trades or
businesses.
The percentage of total dividends paid by the fund with respect to any taxable
year which qualify for exclusion from gross income ("exempt-interest
dividends") will be the same for all shareholders receiving dividends during
such year. In order for the fund to pay exempt-interest dividends during any
taxable year, at the close of each fiscal quarter at least 50% of the aggregate
value of the Trust's and fund's assets must consist of tax-exempt obligations.
Not later than 60 days after the close of its taxable year, the fund will
notify each shareholder of the portion of the dividends paid by the fund to the
shareholder with respect to such taxable year which constitutes exempt-interest
dividends. The aggregate amount of dividends so designated cannot, however,
exceed the excess of the amount of interest excludable from gross income from
tax under Section 103 of the Code received by the fund during the taxable year
over any amounts disallowed as deductions under Sections 265 and 171(a)(2) of
the Code.
Interest on indebtedness incurred by a shareholder to purchase or carry fund
shares is not deductible for federal income tax purposes if the fund
distributes exempt-interest dividends during the shareholder's taxable year.
If a shareholder receives an exempt-interest dividend with respect to any share
and such share is held for six months or less, any loss on the sale or exchange
of such share will be disallowed to the extent of the amount of such
exempt-interest dividend.
While the fund does not expect to realize substantial long-term capital
gains, any net realized long-term capital gains will be distributed annually.
The fund will have no tax liability with respect to such gains, and the
distributions will be taxable to shareholders as long-term capital gains,
regardless of how long a shareholder has held fund shares. Such distributions
will be designated as a capital gains dividend in a written notice mailed by
the fund to shareholders not later than 60 days after the close of the fund's
taxable year. If a shareholder receives a designated capital gain distribution
(treated by the shareholder as a long-term capital gain) with respect to any
fund share and such fund share is held for six months or less, then (unless
otherwise disallowed) any loss on the sale or exchange of that fund share will
be treated as long-term capital loss to the extent of the designated capital
gain distribution. The fund may also make a distribution of net realized
long-term capital gains near the end of the calendar year to comply with
certain requirements of the Code. Gain recognized on the disposition of a debt
obligation (including tax-exempt obligations purchased after April 30, 1993)
purchased by the fund at a market discount (generally, at a price less than its
principal amount) will be treated as ordinary income to the extent of the
portion of the market discount which accrued during the period of time the fund
held the debt obligation.
Similarly, while the fund does not expect to earn any significant investment
company taxable income, in the event that any taxable income is earned by the
fund it will be distributed. In general, the fund's investment company taxable
income will be its taxable income (for example, its short-term capital gains)
subject to certain adjustments and excluding the excess of any net long-term
capital gain for the taxable year over the net short-term capital loss, if any,
for such year. The fund would be taxed on any undistributed investment company
taxable income. Since any such income will be distributed, it will be taxable
to shareholders as ordinary income (whether distributed in cash or additional
shares).
If a shareholder exchanges or otherwise disposes of shares of the fund
within 90 days of having acquired such shares, and if, as a result of having
acquired those shares, the shareholder subsequently pays a reduced sales charge
for shares of the fund, or of a different fund, the sales charge previously
incurred in acquiring the fund's shares shall not be taken into account (to the
extent such previous sales charges do not exceed the reduction in sales
charges) for the purposes of determining the amount of gain or loss on the
exchange, but will be treated as having been incurred in the acquisition of
such other funds. Also, any loss realized on a redemption or exchange of
shares of a fund will be disallowed to the extent substantially identical
shares are reacquired within the 61-day period beginning 30 days before and
ending 30 days after the shares are disposed of.
Under the Code, a nondeductible excise tax of 4% is imposed on the excess of a
regulated investment company's "required distribution" for the calendar year
ending within the regulated investment company's taxable year over the
"distributed amount" for such calendar year. The term "required distribution"
means the sum of (i) 98% of ordinary income (generally net investment income)
for the calendar year, (ii) 98% of capital gain (both long-term and short-term)
for the one-year period ending on October 31 (as though the one-year period
ending on October 31 were the regulated investment company's taxable year), and
(iii) the sum of any untaxed, undistributed net investment income and net
capital gains of the regulated investment company for prior periods. The term
"distributed amount" generally means the sum of (i) amounts actually
distributed by the fund from its current year's ordinary income and capital
gain net income and (ii) any amount on which the fund pays income tax during
the periods described above. The fund intends to meet these distribution
requirements to avoid the excise tax liability.
If for any taxable year the fund does not qualify for the special tax
treatment afforded regulated investment companies, all of its taxable income
will be subject to tax at regular corporate rates (without any deduction for
distributions to its shareholders). In such event, dividend distributions
would be taxable to shareholders to the extent of earnings and profits, and may
be eligible for the dividends-received deduction for corporations. Under
normal circumstances, no part of the distributions to shareholders by the fund
is expected to qualify for the dividends-received deduction allowed to
corporate shareholders.
As of the date of this statement of additional information, the maximum
individual tax rate applicable to ordinary income is 39.6% (effective tax rates
may be higher for some individuals due to phase out of exemptions and
elimination of deductions); the maximum individual tax rate applicable to net
capital gains is 28%; and the maximum corporate tax applicable to ordinary
income and net capital gains is 35%. However, to eliminate the benefit of
lower marginal corporate income tax rates, (corporations which have taxable
income in excess of $100,000 for a taxable year will be required to pay an
additional amount of tax of up to $11,750 and corporations which have taxable
income in excess of $15,000,000 for a taxable year will be required to pay an
additional amount of tax of up to $100,000. Naturally, the amount of tax
payable by a taxpayer will be affected by a combination of tax law rules
covering, e.g., deductions, credits, deferrals, exemptions, sources of income
and other matters.
The interest on "private activity" bonds as defined under the Code is an
item of tax preference subject to the alternative minimum tax ("AMT") on
corporations and individuals. As of the date of this statement of additional
information, individuals are subject to an AMT at a maximum marginal rate of
28% and corporations at a rate of 20%. Shareholders will not be permitted to
deduct any of their share of fund expenses in computing alternative minimum
taxable income. With respect to corporate shareholders, all interest on
municipal bonds and other tax-exempt obligations, including exempt-interest
dividends paid by the fund, is included in adjusted book income and adjusted
current earnings in calculating federal alternative minimum taxable income, and
may also affect corporate federal "environmental tax" liability.
Fund shareholders are required by the Code to report to the federal government
all exempt-interest dividends, and all other tax-exempt interest received
during tax years beginning on or after January 1, 1987.
Under the Code, distributions of net investment income by the Funds to a
nonresident alien individual, nonresident alien fiduciary of a trust or estate,
foreign corporation, or foreign partnership (a "foreign shareholder") will be
subject to U.S. withholding tax (at a rate of 30% or a lower treaty rate, if
applicable). Withholding will not apply if a dividend paid by the fund is
"effectively connected" with a U.S. trade or business, in which case the
reporting and withholding requirements applicable to U.S. citizens, U.S.
residents, or domestic corporations will apply.
CALIFORNIA TAXES - The fund itself is not subject to tax in California if it
qualifies for exemption from federal tax under the Code as described above.
If, at the close of each quarter of its taxable year, at least 50% of the
value of the total assets of the fund consists of securities the interest on
which is exempt from taxation under the Constitution or statutes of California
("California Municipal Securities"), the fund will be qualified to pay
dividends exempt from California corporate or personal income tax to its
shareholders (hereinafter referred to as "California exempt-interest
dividends"). The fund intends to qualify under the above requirement so that
it can pay California exempt-interest dividends. If the fund fails to so
qualify, no part of the fund's dividends will be exempt from California
corporate or personal income tax.
Not later than 60 days after the close of its taxable year, the fund will
notify each shareholder of the portion of the dividends paid by the fund to the
shareholder with respect to such taxable year that is exempt from California
corporate or personal income tax. The total amount of California
exempt-interest dividends paid by the fund to all of its shareholders with
respect to any taxable year cannot exceed the amount of interest received by
the fund during such year on California Municipal Securities less any expenses
or expenditures (including any expenditures attributable to the acquisition of
additional fund securities and dividends paid to the fund's corporate
shareholders) that are deemed to have been paid from such interest. Dividends
paid by the fund in excess of this limitation will be treated as ordinary
dividends subject to California corporate or personal income tax at ordinary
rates. For purposes of the limitation, expenses or other expenditures paid
during any year generally will be deemed to have been paid with funds
attributable to interest received by the fund from California Municipal
Securities for such year in the same ratio as such interest from California
Municipal Securities bears to the total gross income earned by the fund for the
year. The effect of this accounting convention is that amounts of interest
from California Municipal Securities received by the fund that would otherwise
be available for distribution as California exempt-interest dividends will be
reduced by the expenses and expenditures deemed to have been paid from such
amounts.
California has "conformity legislation" making federal alternative minimum tax
provisions generally applicable for California personal and corporate income
tax purposes; however, California does not include interest on private activity
bonds as an item of tax preference for personal and corporate income tax
purposes. Under these rules, dividends from the fund attributable to interest
on all tax-exempt obligations may be includable in adjusted book income and
adjusted current earnings for purposes of the alternative minimum tax on
corporations.
In cases where shareholders are "substantial users" or "related persons" with
respect to California Municipal Securities held by the fund, such shareholders
should consult their tax advisers to determine whether California
exempt-interest dividends paid by the fund with respect to such obligations
retain their California corporate or personal income tax exclusion. In this
connection, rules similar to those regarding the possible unavailability of
federal exempt-interest dividend treatment to "substantial users" are
applicable for California state tax purposes. See "Additional Information
Concerning Taxes--Federal Taxes" above.
Long-term and/or short-term capital gain distributions will not constitute
California exempt-interest dividends and will be taxed as ordinary dividends.
Moreover, interest on indebtedness incurred by a shareholder to purchase or
carry fund shares is not deductible for California corporate or personal income
tax purposes if the fund distributes California exempt-interest dividends
during the shareholder's taxable year.
The foregoing is only a summary of some of the important California corporate
or personal income tax considerations generally affecting the fund and its
shareholders. No attempt is made to present a detailed explanation of the
California income tax treatment of the fund or its shareholders, and this
discussion is not intended as a substitute for careful planning. Further, it
should be noted that the portion of any fund dividends constituting California
exempt-interest dividends is excludable from income for California income tax
purposes only. Any dividends paid to fund shareholders subject to California
state franchise tax will be taxed as ordinary dividends to such shareholders,
notwithstanding that all or a portion of such dividends is exempt from
California income tax. Accordingly, potential investors in the fund,
including, in particular, corporate investors which may be subject to
California franchise tax, should consult their own tax advisers with respect to
the application of such taxes to the receipt of fund dividends and as to their
particular California tax situation in general.
PURCHASE OF SHARES
PRICE OF SHARES - Purchases of shares are made at the offering price next
determined after the purchase order is received by the fund or American Funds
Service Company; this offering price is effective for orders received prior to
the time of determination of the net asset value and, in the case of orders
placed with dealers, accepted by the Principal Underwriter prior to its close
of business. The dealer is responsible for promptly transmitting purchase
orders to the Principal Underwriter. Orders received by the investment dealer,
the Transfer Agent, or the fund after the time of the determination of the net
asset value will be entered at the next calculated offering price. Prices
which appear in the newspaper are not always indicative of prices at which you
will be purchasing and redeeming shares of the fund, since such prices
generally reflect the previous day's closing price whereas purchases and
redemptions are made at the next calculated price.
The price you pay for shares, the public offering price, is based on the
net asset value per share which is calculated once daily at the close of
trading (currently 4:00 p.m., New York time) each day the New York Stock
Exchange is open. The New York Stock Exchange is currently closed on weekends
and on the following holidays: New Year's Day, President's Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas Day. The
net asset value per share is determined as follows:
1. Municipal bonds and notes and any other securities with more than 60
days remaining to maturity normally are valued at prices obtained from a
national municipal bond pricing service except that, where such prices are not
available or determined by the fund's officers not to represent market value,
they are valued at prices representing the mean between bid and asked
quotations (on the sale of similar issues) obtained from one or more
broker/dealers dealing in such municipal bonds and notes.
All securities with 60 days or less to maturity are amortized to maturity
based on their cost to the fund if acquired within 60 days of maturity or, if
already held by the fund on the 60th day, based on the value determined on the
61st day. The maturities of variable or floating rate instruments, or
instruments with the right to sell them at par to the issuer or dealer, are
deemed to be the time remaining until the next interest adjustment date or
until they can be redeemed at par.
Where market prices or market quotations are not readily available, securities
are valued at fair value as determined in good faith by the Board of Trustees
or a committee thereof. The fair value of all other assets is added to the
value of securities to arrive at the total assets;
2. There are deducted from the total assets, thus determined, the liabilities,
including accruals of taxes and other expense items; and
3. The net assets so obtained are then divided by the total number of shares
outstanding and the result, rounded to the nearer cent, is the net asset value
per share.
Any purchase order may be rejected by the Principal Underwriter or by the
Trust. The Trust will not knowingly sell fund shares (other than for the
reinvestment of dividends or capital gain distributions) directly or indirectly
or through a unit investment trust to any other investment company, person or
entity, where, after the sale, such investment company, person, or entity would
own beneficially directly, indirectly, or through a unit investment trust more
than 4.5% of the outstanding shares of the fund without the consent of a
majority of the Board of Trustees.
STATEMENT OF INTENTION - The reduced sales charges and offering prices set
forth in the Prospectus apply to purchases of $25,000 or more made within a
13-month period subject to the following statement of intention (the Statement)
terms. The Statement is not a binding obligation to purchase the indicated
amount. When a shareholder elects to utilize the Statement in order to qualify
for a reduced sales charge, shares equal to 5% of the dollar amount specified
in the Statement will be held in escrow in the shareholder's account out of the
initial purchase (or subsequent purchases, if necessary) by the Transfer Agent.
All dividends and capital gain distributions shares held in escrow will be
credited to the shareholder's account in shares (or paid in cash, if
requested). If the intended investment is not completed within the specified
13-month period, the purchaser will remit to the Principal Underwriter the
difference between the sales charge actually paid and the sales charge which
would have been paid if the total of such purchases had been made at a single
time. If the difference is not paid within 45 days after written request by
the Principal Underwriter or the securities dealer, the appropriate number of
shares held in escrow will be redeemed to pay such difference. If the proceeds
from this redemption are inadequate, the purchaser will be liable to the
Principal Underwriter for the balance still outstanding. The Statement may be
revised upward at any time during the 13-month period, and such a revision will
be treated as a new Statement, except that the 13-month period during which the
purchase must be made will remain unchanged and there will be no retroactive
reduction of the sales charges paid on prior purchases. Existing holdings
eligible for rights of accumulation (see the prospectus and account
application) may be credited toward satisfying the Statement. During the
Statement period reinvested dividends and capital gain distributions,
investments in money market funds, and investments made under a right of
reinstatement will not be credited toward satisfying the Statement.
In the case of purchase orders by the trustees of certain retirement plans
by payroll deduction, the sales charge for the investments made during the
13-month period will be handled as follows: The regular monthly payroll
deduction investment will be multiplied by 13 and then multiplied by 1.5. The
current value of existing American Funds investments (other than money market
fund investments) and any rollovers or transfers reasonably anticipated to be
invested in
non-money market American Funds during the 13-month period are added to the
figure determined above. The sum is the Statement amount and applicable
breakpoint level. On the first investment and all other investments made
pursuant to the Statement, a sales charge will be assessed according to the
sales charge breakpoint thus determined. There will be no retroactive
adjustments in sales charges on investments previously made during the 13-month
period.
Shareholders purchasing shares at a reduced sales charge under a Statement
indicate their acceptance of these terms with their first purchase.
DEALER COMMISSIONS - The following commissions will be paid, as described in
the prospectus, to dealers who initiate and are responsible for purchases of $1
million or more, for purchases by any employer-sponsored 403(b) plan or
purchases by any defined contribution plan qualified under Section 401(a) of
the Internal Revenue Code including a "401(k)" plan with 200 or more eligible
employees, and for purchases made at net asset value by certain retirement
plans of organizations with collective retirement plan assets of $100 million
or more: 1.00% on amounts of $1 million to $2 million, 0.80% on amounts over
$2 million to $3 million, 0.50% on amounts over $3 million to $50 million,
0.25% on amounts over $50 million to $100 million, and 0.15% on amounts over
$100 million. The level of dealer commissions will be determined based on
sales made over a 12-month period commencing from the date of the first sale at
net asset value. See "The American Funds Shareholder Guide" in the fund's
Prospectus for more information.
SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES
AUTOMATIC INVESTMENT PLAN - The automatic investment plan enables shareholders
to make regular monthly or quarterly investments in shares through automatic
charges to their bank accounts. With shareholder authorization and bank
approval, the Transfer Agent will automatically charge the bank account for the
amount specified ($50 minimum), which will be automatically invested in shares
at the offering price on or about the 10th day of the month (or on or about the
15th day of the month in the case of retirement plan accounts.) Bank accounts
will be charged on the day or a few days before investments are credited,
depending on the bank's capabilities, and shareholders will receive a
confirmation statement showing the current transaction. Participation in the
plan will begin within 30 days after receipt of the account application. If
your bank account cannot be charged due to insufficient funds, a stop-payment
order or closing of your account, the plan may be terminated and the related
investment reversed. The shareholder may change the amount of the investment
or discontinue the plan at any time by writing the Transfer Agent.
AUTOMATIC WITHDRAWALS - Withdrawal payments are not to be considered as
dividends, yield or income. Automatic investments may not be made into a
shareholder account from which there are automatic withdrawals. Withdrawals of
amounts exceeding reinvested dividends and distributions and increases in share
value would reduce the aggregate value of the shareholder's account. The
Transfer Agent arranges for the redemption by the fund of sufficient shares,
deposited by the shareholder with the Transfer Agent, to provide the withdrawal
payment specified.
CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS - A shareholder in one fund
may elect to cross-reinvest dividends or dividends and capital gain
distributions paid by that fund (the "paying fund") into any other fund in The
American Funds Group (the "receiving fund") subject to the following
conditions: (i) the aggregate value of the shareholder's account(s) in the
paying fund(s) must equal or exceed $5,000 (this condition is waived if the
value of the account in the receiving fund equals or exceeds that fund's
minimum initial investment requirement), (ii) as long as the value of the
account in the receiving fund is below that fund's minimum initial investment
requirement, dividends and capital gain distributions paid by the receiving
fund must be automatically reinvested in the receiving fund, and (iii) if this
privilege is discontinued with respect to a particular receiving fund, the
value of the account in that fund must equal or exceed the fund's minimum
initial investment requirement or the fund shall have the right, if the
shareholder fails to increase the value of the account to such minimum within
90 days after being notified of the deficiency, automatically to redeem the
account and send the proceeds to the shareholder. These cross-reinvestments of
dividends and capital gain distributions will be at net asset value (without
sales charge).
EXECUTION OF PORTFOLIO TRANSACTIONS
There are occasions on which portfolio transactions for the fund may be
executed as part of concurrent authorizations to purchase or sell the same
security for other funds served by the Investment Adviser, or for trusts or
other accounts served by affiliated companies of the Investment Adviser.
Although such concurrent authorizations potentially could be either
advantageous or disadvantageous to the fund, they are effected only when the
Investment Adviser believes that to do so is in the interest of the fund. When
such concurrent authorizations occur, the objective is to allocate the
executions in an equitable manner.
Brokerage commissions paid on portfolio transactions, including dealer
concessions on underwriting, for the fiscal year ended August 31, 1995 amounted
to $125,000.
GENERAL INFORMATION
CUSTODIAN OF ASSETS - Securities and cash owned by the fund, including proceeds
from the sale of shares of the fund and of securities in the fund's portfolio,
are held by The Chase Manhattan Bank, N.A., One Chase Manhattan Plaza, New
York, NY 10081, as Custodian.
INDEPENDENT ACCOUNTANTS - Deloitte & Touche LLP, 1000 Wilshire Boulevard,
15th floor, Los Angeles, CA 90017, has served as the Trust's independent
auditors since its inception, providing audit services, preparation of tax
returns and review of certain documents to be filed with the Securities and
Exchange Commission. The financial statements included in this Statement of
Additional Information have been so included in reliance on the report of the
independent auditors given on the authority of said firm as experts in
accounting and auditing.
REPORTS TO SHAREHOLDERS - The Trust's fiscal year ends on August 31.
Shareholders are provided, at least semiannually, with reports showing the
investment portfolio, financial statements and other information. The fund's
annual financial statements are audited annually by the Trust's independent
auditors, whose selection is determined annually by the Trustees.
PERSONAL INVESTING POLICY - Capital Research and Management Company and its
affiliated companies have adopted a personal investing policy consistent with
Investment Company Institute guidelines. This policy includes: a ban on
acquisitions of securities pursuant to an initial public offering; restrictions
on acquisitions of private placement securities; pre-clearance and reporting
requirements; review of duplicate confirmation statements; annual
recertification of compliance with codes of ethics; disclosure of personal
holdings by certain investment personnel prior to recommendation for purchase
for the fund; blackout periods on personal investing for certain investment
personnel; ban on short-term trading profits for investment personnel;
limitations on service as a director of publicly traded companies; and
disclosure of personal securities transactions.
The financial statements including the investment portfolio and the report of
Independent Auditors contained in the Annual Report are included in this
Statement of Additional Information. The following information is not included
in the Annual Report:
<TABLE>
<CAPTION>
DETERMINATION OF NET ASSET VALUE, REDEMPTION PRICE AND
OFFERING PRICE PER SHARE -- AUGUST 31, 1995
<S> <C>
Net asset value and redemption price per share
(Net assets divided by shares outstanding) $15.74
Offering price per share (100/95.25 of per share
net asset value, which takes into account the $16.52
fund's current maximum sales charge)
</TABLE>
SHAREHOLDER AND TRUSTEE RESPONSIBILITY - Under the laws of certain states,
including Massachusetts, where the Trust was organized, and California, where
the Trust's principal office is located, shareholders of a Massachusetts
business trust may, under certain circumstances, be held personally liable as
partners for the obligations of the Trust. However, the risk of a shareholder
incurring any financial loss on account of shareholder liability is limited to
circumstances in which the Trust itself would be unable to meet its
obligations. The Declaration of Trust contains an express disclaimer of
shareholder liability for acts or obligations of the Trust and provides that
notice of the disclaimer may be given in each agreement, obligation, or
instrument which is entered into or executed by the Trust or Trustees. The
Declaration of Trust provides for indemnification out of Trust property of any
shareholder held personally liable for the obligations of the Trust and also
provides for the Trust to reimburse such shareholder for all legal and other
expenses reasonably incurred in connection with any such claim or liability.
Under the Declaration of Trust, the Trustees or officers are not liable for
actions or failure to act; however, they are not protected from liability by
reason of their willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of their office. The Trust
will provide indemnification to its Trustees and officers as authorized by its
By-Laws and by the 1940 Act and the rules and regulations thereunder.
SHAREHOLDER VOTING RIGHTS - All shares of the fund have equal voting rights and
may be voted in the elections of Trustees and on other matters submitted to the
vote of shareholders. As permitted by Massachusetts law, there will normally
be no meetings of shareholders for the purpose of electing Trustees unless and
until such time as less than a majority of the Trustees holding office have
been elected by shareholders. At that time, the Trustees then in office will
call a shareholders meeting for the election of Trustees. The Trustees must
call a meeting of shareholders for the purpose of voting upon the question of
removal of any trustee when requested to do so by the record holders of 10% of
the outstanding shares. At such meeting, a trustee may be removed after the
holders of record of not less than two-thirds of the outstanding shares have
declared that the trustee be removed either by declaration in writing or by
votes cast in person or by proxy. Except as set forth above, the Trustees
shall continue to hold office and may appoint successor Trustees. The shares
do not have cumulative voting rights, which means that the holders of a
majority of the shares voting for the election of Trustees can elect all the
Trustees. No amendment may be made to the Trust's Declaration of Trust without
the affirmative vote of a majority of the outstanding shares of the fund except
that amendments may be made upon the sole approval of the Trustees to conform
the Declaration of Trust to the requirements of applicable Federal laws or
regulations or the requirements of the regulated investment company provisions
of the Code, however, the Trustees shall not be held liable for failing to do
so. If not terminated by the vote or written consent of a majority of the
outstanding shares, the Trust will continue indefinitely.
The Trust currently issues shares in one series, but the Board of Trustees may
establish additional series of shares in the future. Each "series" of shares
represents interests in a separate portfolio and has its own investment
objective and policies. When more than one series of shares is outstanding,
shares of all series will vote together for a single set of Trustees, and on
other matters affecting the entire Trust, with each share entitled to a single
vote. On matters affecting only one series, only the shareholders of that
series shall be entitled to vote. On matters relating to more than one series
but affecting the series differently, separate votes by series are required.
INVESTMENT RESULTS
The fund's yield is 4.73% based on a 30-day (or one month) period ended
August 31, 1995, computed by dividing the net investment income per share
earned during the period by the maximum offering price per share on the last
day of the period, according to the following formula:
YIELD = 2[( a-b/cd + 1)/6/ - 1]
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the period that were
entitled to receive dividends.
d = the maximum offering price per share on the last day of the period.
The fund may also calculate a tax equivalent yield based on a 30-day (or
one month) period ended no later than the date of the most recent balance sheet
included in the registration statement, computed by dividing that portion of
the yield (as computed by the formula stated above) which is tax-exempt by one
minus a stated income tax rate and adding the product to that portion, if any,
of the yield that is not tax-exempt. The fund's tax-equivalent yield based on
the maximum combined effective federal/state tax rate of 46.24% for the 30-day
(or one month) period ended August 31, 1995 was 8.80%.
The fund may also calculate a distribution rate on a taxable and tax
equivalent basis. The distribution rate is computed by annualizing the current
month's dividend and dividing by the average price for the month. The taxable
equivalent distribution rate will reflect the most current federal and state
tax rates available. The current distribution rate may differ from the current
yield.
The fund's total return over the past 12 months and average annual total
returns for the past five-year and lifetime periods ending on August 31, 1995
were 3.01%, 7.51% and 6.51%, respectively. The average annual total return
("T") is computed by equating the value at the end of the period ("ERV") with a
hypothetical initial investment of $1,000 ("P") over a period of years ("n")
according to the following formula as required by the Securities and Exchange
Commission: P(1+T)/n/ = ERV. During its lifetime, the fund had a total return
of 74.6%.
The following assumptions will be reflected in computations made in accordance
with the formula stated above: (1) deduction of the maximum sales load of
4.75% from the $1,000 initial investment; (2) reinvestment of dividends and
distributions at net asset value on the reinvestment date determined by the
Board; and (3) a complete redemption at the end of any period illustrated. The
fund will calculate total return for five and ten-year periods after such
periods have elapsed. In addition, the fund may provide lifetime average total
return figures.
SEE THE DIFFERENCE TIME CAN MAKE IN AN INVESTMENT PROGRAM
<TABLE>
<CAPTION>
... and taken all
distributions in shares,
If you had invested your investment would
$10,000 in the fund have been worth this
this many years ago... much at August 31, 1995
<S> <C> <C>
| |
Periods
Number of Years 9/1-8/31 Value
1 1994 - 1995 $ 10,301
2 1993 - 1995 10,317
3 1992 - 1995 11,664
4 1991 - 1995 12,872
5 1990 - 1995 14,364
6 1989 - 1995 14,926
7 1988 - 1995 16,484
8 1987 - 1995 17,398
9 1986*- 1995 17,461
</TABLE>
ILLUSTRATION OF A $10,000 INVESTMENT IN THE FUND WITH DIVIDENDS REINVESTED
(For the lifetime of the Fund October 28, 1986 through August 31, 1995)
<TABLE>
<CAPTION>
COST OF SHARES VALUE OF SHARES**
Fiscal Total From From From
Year End Annual Dividends Investment Initial Capital Gains Dividends Total
Aug. 31 Dividends (cumulative) Cost Investment Reinvested Reinvested Value
<S> <C> <C> <C> <C> <C> <C> <C>
1987* $ 431 $ 431 $ 10,431 $ 9,147 $ 0 $ 415 $ 9,562
1988 582 1,013 11,013 9,087 0 1,002 10,089
1989 651 1,664 11,664 9,440 0 1,700 11,140
1990 682 2,346 12,346 9,247 0 2,334 11,581
1991 724 3,070 13,070 9,727 0 3,192 12,919
1992 771 3,841 13,841 10,140 0 4,118 14,258
1993 806 4,647 14,647 10,867 0 5,256 16,123
1994 875 5,522 15,522 10,267 57 5,820 16,144
1995 932 6,454 16,454 10,493 58 6,910 17,461
</TABLE>
* From inception on October 28, 1986
** Results assume deduction of the maximum sales charge of 4.75% from the
initial purchase payment.
EXPERIENCE OF INVESTMENT ADVISER - Capital Research and Management Company
manages nine common stock funds that are at least 10 years old. In all of the
10-year periods during which those funds were managed by Capital Research and
Management Company since 1964 (115 in all), those funds have had better total
returns than the Standard and Poor's 500 Stock Composite Index in 94 of the 115
periods.
Note that past results are not an indication of future investment results.
Also, the fund has different investment policies than the funds mentioned
above. These results are included solely for the purpose of informing
investors about the experience and history of Capital Research and Management
Company, the fund's Investment Adviser.
The fund may also refer to results compiled by organizations such as Lipper
Analytical Services, Morningstar, Inc. and Wiesenberger Investment Companies
Services. Additionally, the fund may, from time to time, refer to results
published in various newspapers or periodicals, including Barrons, Forbes,
Fortune, Institutional Investor, Kiplinger's Personal Finance Magazine, Money,
U.S. News and World Report and The Wall Street Journal.
DESCRIPTION OF RATINGS FOR DEBT SECURITIES
The ratings of Moody's Investors Service, Inc. and Standard & Poor's
Corporation represent their opinions as to the quality of the municipal bonds
which they undertake to rate. It should be emphasized, however, that ratings
are general and are not absolute standards of quality. Consequently, municipal
bonds with the same maturity, coupon and rating may have different yields,
while municipal bonds of the same maturity and coupon with different ratings
may have the same yield.
Moody's Investors Service, Inc. rates the long-term debt securities issued by
various entities from "Aaa" to "C." Moody's applies the numerical modifiers 1,
2, and 3 in each generic rating classification from AA through B in its
corporate bond rating system. The modifier 1 indicates that the security ranks
in the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the issue ranks in the
lower end of its generic rating category. Ratings are described as follows:
BONDS --
"Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as 'gilt
edge.' Interest payments are protected by a large or by an exceptionally
stable margin, and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues."
"Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities, or fluctuation of
protective elements may be of greater amplitude, or there may be other elements
present which make the long-term risks appear somewhat larger than the Aaa
securities."
"Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future."
"Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and, in
fact, have speculative characteristics as well."
"Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class."
"Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small."
"Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest."
"Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or having other marked
shortcomings."
"Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing."
NOTES --
"The MIG 1 designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing.
The MIG 2 designation denotes high quality. Margins of protection are ample
although not as large as in the preceding group."
COMMERCIAL PAPER --
"Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics:
-- Leading market positions in well established industries.
-- High rates of return on funds employed.
-- Conservative capitalization structures with moderate reliance on debt and
ample asset protection.
-- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
-- Well established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while appropriate, may
be more affected by external conditions. Ample alternate liquidity is
maintained."
Standard & Poor's Corporation rates the long-term securities debt of various
entities in categories ranging from "AAA" to "D" according to quality. The
ratings from "AA" to "CCC" may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within the major rating categories.
Ratings are described as follows:
BONDS --
"Debt rated 'AAA' has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong."
"Debt rated 'AA' has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree."
"Debt rated 'A' has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories."
"Debt rated 'BBB' is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories."
"BB, B, CCC, CC, C -- Regarded, on balance, as predominantly speculative with
respect to capacity to pay interest and repay principal in accordance with the
terms of the obligation. BB indicates the lowest degree of speculation and C
the highest degree of speculation. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions."
"The rating 'C1' is reserved for income bonds on which no interest is being
paid."
"Debt rated 'D' is in payment default. The 'D' rating category is used when
interest payments or principal payments are not made on the date due even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The 'D' rating also will be
used upon the filing of a bankruptcy petition if debt service payments are
jeopardized."
NOTES --
"The SP-1 rating denotes a very strong or strong capacity to pay principal and
interest. Those issues determined to possess overwhelming safety
characteristics will be given a plus (+) designation.
The SP-2 rating denotes a satisfactory capacity to pay principal and
interest."
COMMERCIAL PAPER --
"The A-1 designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+)
designation.
The A-2 designation indicates a capacity for timely payment on issues so
designated is strong; however, the relative degree of safety is not as high as
for issues designated A-1."
THE TAX-EXEMPT FUND OF CALIFORNIA
Investment Portfolio, August 31, 1995
<TABLE>
<CAPTION>
Principal Market
Amount Value
(000) (000)
<S> <C> <C>
Tax-Exempt Securities Maturing in More than
One Year - 95.27%
Various Purpose General Obligation Bond, 7.00% 2005 $1,000 $1,144
Health Facilities Financing Authority:
Hospital Revenue Bonds:
Downey Community Hospital, Series 1993, 5.75% 2015 8,400 7,927
Kaiser Permanente Medical Care Program, Semi-annual
Tender Revenue Bonds, 1985 Tender Bonds, 5.55% 2025 2,000 1,811
Pacific Presbyterian Medical Center Insured Variable
Rate Demand, 1985 Series B, 6.75% 2015 1,750 1,804
St. Joseph Health System:
Series 1989 A, 6.90% 2014 (Prerefunded 1999) 1,250 1,387
Series 1991 A, 6.75% 2021 (Prerefunded 2001) 4,000 4,516
Hospital Revenue Refunding Bonds (Saint Francis
Memorial Hospital), Series 1993A, 5.75% 2005 1,150 1,128
Housing Finance Agency, Home Mortgage Revenue Bonds:
1991 Series A, 7.35% 2011 550 591
1991 Series G, 6.95% 2011 1,490 1,568
1995 Series G, 5.65% 2025 1,000 1,007
1995 Series K, 5.55% 2021 2,500 2,524
Pollution Control Financing Authority:
Pollution Control Revenue Bonds:
(Pacific Gas and Electric Company), 1993 Series B,
5.85% 2023 1,000 963
(Southern California Edison Company), 1992 Series B,
6.40% 2024 1,500 1,522
Solid Waste Revenue Bonds (Keller Canyon Landfill
Company Project), Series 1992, 6.875% 2027 5,200 5,424
Public Works Board, Lease Revenue Bonds:
(California Community Colleges, Various Community
College Projects), 1994 Series B, 6.75% 2005 1,000 1,095
The Regents of the University of California,
1993 Series A (Various University of California
Projects), 5.50% 2021 1,000 902
Rural Home Mortgage Finance Authority, Single Family
Mortgage Revenue Bonds (Mortgage-Backed Securities
Program), 1995 Series B, 7.75% 2026/1/ 1,500 1,667
Statewide Communities Development Authority:
Hospital Revenue Certificates of Participation,
Cedar-Sinai Medical Center, Series 1992, 6.50% 2012 1,900 1,988
Sisters of Charity of Leavenworth Health Services
Corporation, Certificates of Participation,
Series 1994, 5.00% 2023 2,000 1,684
St. Joseph Health System Obligated Group,
Certificates of Participation, 5.50% 2014 3,000 2,800
Department of Water Resources, Central Valley Project,
Water System Revenue Bonds:
Series F, 7.25% 2010 500 544
Series H, 6.90% 2025 (Prerefunded 2000) 2,000 2,243
County of Alameda, 1993 Refunding Certificates of
Participation (Santa Rita Jail Project), MBIA Insured:
5.375% 2009 1,500 1,468
5.00% 2023 1,000 890
City of Berkeley, Health Facility Refunding Revenue
Bonds (Alta Bates Medical Center), 1992 Series A,
6.50% 2011 3,020 3,034
Castaic Lake Water Agency, Refunding Revenue
Certificates of Participation (Water System
Improvement Projects), MBIA Insured, Series 1994A:
7.25% 2007 500 587
7.25% 2010 1,400 1,655
Central Valley Financing Authority, Cogeneration
Project Revenue Bonds (Carson Ice-Gen Project),
1993 Series:
6.10% 2013 3,500 3,407
6.20% 2020 6,500 6,245
Culver City Redevelopment Financing Authority, 1993
Tax Allocation Refunding Revenue Bonds, AMBAC
Insured, 5.00% 2023 2,500 2,165
Foothill/Eastern Transportation Corridor Agency, Toll
Road Revenue Bonds, Series 1995A:
6.00% 2016 1,500 1,426
6.00% 2034 3,000 2,746
5.00% 2035 1,000 784
City of Long Beach, Financing Authority Revenue Bonds,
Series 1992, AMBAC Insured, 6.00% 2017 750 774
Department of Airports of the City of Los Angeles,
1989 Series B, 7.40% 2010 1,000 1,074
Los Angeles Convention and Exhibition Center
Authority, Certificates of Participation:
7.375% 2018 (Prerefunded 1999) 2,500 2,821
7.00% 2020 (Prerefunded 1999) 2,000 2,230
Harbor Department of the City of Los Angeles, Revenue
Bonds:
Issue 1988, 7.60% 2018 1,750 1,978
Issue 1995, 6.625% 2025 4,750 4,952
City of Los Angeles, Waste Water System Revenue Bonds:
Series 1987, 8.125% 2017 (Prerefunded 1997) 1,500 1,661
Series 1990-B, 7.15% 2020 (Prerefunded 2000) 1,000 1,129
Department of Water and Power of the City of Los
Angeles:
Electric Plant Revenue Bonds, Issue of 1990,
7.125% 2030 2,500 2,800
Water Works Refunding Revenue Bonds:
Issue of 1989, 7.00% 2022 1,000 1,095
Issue of 1986, 7.375% 2022 1,000 1,067
County of Los Angeles, Certificates of Participation
(Marina del Rey), Series A:
6.25% 2003 4,635 4,567
6.50% 2008 6,000 6,012
Los Angeles County Metropolitan Transportation
Authority, Proposition C Sales Tax Revenue Bonds,
Second Senior Bonds, Series 1995-A, AMBAC Insured,
5.90% 2008 1,030 1,074
County of Los Angeles, Pension Obligation
Certificates, Series A, 6.875% 2006 1,000 1,033
Los Angeles County Public Works Financing Authority,
Lease Revenue Bonds (Multiple Capital Facilities
Project IV), MBIA Insured, 5.00% 2008 2,410 2,322
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 3,853
Lease Revenue Refunding Bonds (State of California
Department of General Services Lease), 1993
Series A, 5.50% 2007 2,000 1,968
Los Angeles County Transportation Commission, Sales
Tax Revenue Bonds:
Series 1989, 7.00% 2019 2,250 2,424
Series 1991-A, 6.75% 2020 (Prerefunded 2001) 2,500 2,837
Marin Municipal Water District Water Revenue Bonds,
Series 1993, 5.65% 2023 1,000 948
The Metropolitan Water District of Southern
California, Waterworks Refunding Revenue Bonds,
Issue of 1986:
6.75% 2022 610 630
6.75% 2022 (Prerefunded 1996) 390 406
Northern California Public Power Agency,
Special Revenue Bonds, 1993 Refunding Series A,
5.60% 2006 4,725 4,759
City of Oakland, Special Refunding Revenue Bonds
(Pension Financing), 1988 Series A, FGIC Insured,
7.60% 2021 1,000 1,111
Port of Oakland, Revenue Bonds:
1989 Series B, BIG Insured, 7.25% 2016 3,125 3,339
1992 Series E, MBIA Insured, 6.40% 2022 4,670 4,783
County of Orange, Airport Revenue Refunding Bonds,
Series 1993, MBIA Insured:
5.25% 2007 1,500 1,442
5.25% 2008 500 474
5.50% 2013 1,000 922
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 1,746
7.35% 2018 (Prerefunded 2002) 4,250 5,023
Orange County Local Transportation Authority, First
Senior Fixed-Rate Bonds:
AMBAC Insured, 6.00% 2007 1,000 1,039
MBIA Insured, 6.00% 2009 1,500 1,535
South Orange County, Public Financing Authority,
Special Tax Revenue Bonds, Series B (Junior Lien
Bonds):
6.55% 2002 1,565 1,586
6.65% 2003 1,320 1,343
6.85% 2005 2,715 2,745
7.00% 2006 1,310 1,325
7.25% 2013 2,000 2,012
City of Pasadena, Certificates of Participation (1990
Capital Improvements Project), 7.00% 2003
(Prerefunded 2000) 1,000 1,133
Redevelopment Agency of the City of Pittsburg, Los
Medanos Community Development Project, Tax Allocation
Refunding Bonds, AMBAC Insured, Series 1993A,
5.25% 2015 2,195 2,022
Pleasanton Joint Powers Financing Authority,
Reassessment Revenue Bonds, 1993 Series A:
5.40% 1999 1,000 1,006
5.60% 2000 1,940 1,951
5.70% 2001 3,980 4,014
6.15% 2012 3,900 3,876
Redding Joint Powers Financing Authority, Solid Waste
and Corporation Yard Revenue Bonds, 1993 Series A:
5.00% 2018 4,000 3,298
5.00% 2023 2,000 1,612
Riverside County Transportation Commission, Sales Tax
Revenue Bonds (Limited Tax), 1991 Series A,
6.40% 1999 500 532
County of Sacramento, Single Family Mortgage Revenue
Bonds (GNMA Mortgage-Backed Securities Program),
Issue A of 1987, 9.00% 2019 1,500 2,053
Sacramento Cogeneration Authority, Cogeneration
Project Revenue Bonds (Proctor & Gamble Project),
1995 Series:
6.00% 2003 700 702
7.00% 2005 1,700 1,854
6.50% 2014 1,000 1,012
6.375% 2010 3,500 3,550
6.50% 2021 4,000 3,985
Sacramento City Financing Authority, 1991 Revenue
Bonds, 6.80% 2020 (Prerefunded 2001) 5,500 6,283
County of San Bernardino, Certificates of
Participation, Series B (Capital Facilities
Project), 6.25% 2019 (Prerefunded 2001) 2,000 2,192
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 2,622
County of San Diego, The San Diego Regional Building
Authority, Certificates of Participation (1991 MTS
Tower Refunding Project), MBIA Insured, 6.223% 2019 1,000 1,015
City and County of San Francisco, General Purpose
Sewer Revenue Bonds, Series 1988 A, AMBAC Insured,
7.25% 2015 (Prerefunded 1997) 3,320 3,592
City and County of San Francisco Redevelopment Agency,
Lease Revenue Bonds, Series 1992 (George R. Moscone
Convention Center), 5.50% 2018 4,560 4,101
County of San Joaquin, Certificates of Participation
(1993 General Hospital Project), 6.625% 2020 1,000 997
San Joaquin Hills Transportation Corridor Agency
(Orange County), Senior Lien Toll Road Revenue
Bonds:
6.75% 2032 3,000 3,031
5.00% 2033 1,000 782
Santa Ana Financing Authority, Police Administration
and Holding Facility Lease Revenue Bonds, MBIA
Insured, Series 1994A, 6.25% 2019 1,000 1,055
Santa Clara County Financing Authority, Lease Revenue
Bonds (VMC Facility Replacement Project), AMBAC
Insured, 1994 Series A, 7.75% 2009 2,200 2,703
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 1,147
Southern California Public Power Authority,
1986 Refunding Series B, Palo Verde Project, 7.125%
2015 (Prerefunded 1996) 1,500 1,573
The Regents of the University of California:
1991 Certificates of Participation (UCLA Central
Chiller/Cogeneration Facility), 7.00% 2015
(Prerefunded 1999) 1,250 1,400
Government of Guam, General Obligation Bonds, 1995
Series A, 4.90% 1997/2/ 1,500 1,509
---------
222,087
---------
Tax-Exempt Securities Maturing in
One Year or Less - 4.06%
Pollution Control Financing Authority, Variable Rate
Resource Recovery Revenue Bonds (Atlantic Richfield
Company Project), Series 1994A, 3.65% 12/1/24/3/ 500 500
County of Los Angeles, 1995-96 Tax and Revenue
Notes, Series A, 4.50% 7/1/96 5,200 5,222
State of California, 1994 Revenue Anticipation
Warrants, Series C, FGIC Insured 5.75% 4/25/96 3,700 3,745
---------
9,467
---------
TOTAL TAX-EXEMPT SECURITIES (cost:$218,857,000) 231,554
Excess of cash and receivables over payables 1,561
---------
NET ASSETS $233,115
=========
</TABLE>
/1/Represents a when-issued security.
/2/Interest payments on bonds issued by the governments of U.S. territories,
including Guam, the U.S. Virgin Islands and Puerto Rico, are free of state and
federal taxes.
/3/Coupon rate changes periodically.
See Notes to Financial Statements
The Tax-Exempt Fund of California
Financial Statements
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
<S> <C> <C>
August 31, 1995 (dollars in thousands)
Assets:
Tax-exempt securities (cost: $218,857) $231,554
Cash 621
Receivables for-
Sales of fund's shares $ 55
Accrued interest 3,380 3,435
--------- ---------
235,610
Liabilities:
Payables for-
Purchases of investments 1,653
Repurchases of fund's shares 109
Dividends payable 509
Management services 82
Accrued expense 142 2,495
--------- ---------
Net Assets at August 31, 1995-
Equivalent to $15.74 per share on
14,810,189 shares of beneficial
interest issued and outstanding;
unlimited shares authorized $233,115
=========
Statement of Operations
for the year ended August 31, 1995
(dollars in thousands)
Investment Income:
Income:
Interest on tax-exempt securities $14,168
---------
Expenses:
Management services fee $943
Distribution expenses 409
Transfer agent fee 59
Reports to shareholders 62
Registration statement and prospectus 9
Postage, stationery and supplies 21
Trustees' fees 18
Auditing and legal fees 39
Custodian fee 12
Taxes (other than federal income tax) 4
Other expenses 43 1,619
--------- ---------
Net investment income 12,549
---------
Realized Gain and Unrealized
Appreciation on Investments:
Net realized gain 871
Net unrealized appreciation:
Beginning of year 9,064
End of year 12,697
---------
Net change in unrealized appreciation 3,633
---------
Net realized gain and change in
unrealized appreciation on investments 4,504
---------
Net Increase in Net Assets Resulting
from Operations $17,053
=========
See Notes to Financial Statements
Statement of Changes in Net Assets
(dollars in thousands)
Year ended August 31,
1995 1994
--------- ---------
Operations:
Net investment income $ 12,549 $ 11,900
Net realized gain (loss) on investments 871 (875)
Net change in unrealized appreciation
on investments 3,633 (11,274)
--------- ---------
Net increase (decrease) in net assets
resulting from operations 17,053 (249)
--------- ---------
Dividends and Distributions Paid to
Shareholders:
Dividend from net investment income (12,552) (11,899)
Distributions from net realized gain
on investments - (851)
--------- ---------
Total dividends and distributions (12,552) (12,750)
--------- ---------
Capital Share Transactions:
Proceeds from shares sold:
2,513,117 and 3,510,938
shares, respectively 38,225 55,665
Proceeds from shares issued in reinvestment
of net investment income dividends and
distributions of net realized gain on
investments: 498,341 and 527,612 shares,
respectively 7,598 8,349
Cost of shares repurchased:
2,849,307 and 3,079,542 shares,
respectively (42,819) (48,523)
--------- ---------
Net increase in net assets
resulting from capital share transactions 3,004 15,491
--------- ---------
Total Increase in Net Assets 7,505 2,492
Net Assets:
Beginning of year 225,610 223,118
--------- ---------
End of year $233,115 $225,610
========= =========
</TABLE>
See Notes to Financial Statements
Notes to Financial Statements
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. However, in
circumstances where the investment adviser deems it appropriate to do so,
securities will be valued at the mean of their representative quoted bid and
asked prices, or, if such prices are not available, at the mean of such prices
for securities of comparable maturity, quality and type. 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
determination of the fund's net investment income and paid to shareholders on a
monthly basis.
Pursuant to the custodian agreement, the fund may receive credit against its
custodian fee for imputed interest on certain balances with the custodian bank.
The custodian fee of $12,000 includes $3,000 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 August 31, 1995, net unrealized appreciation on investments for book and
federal income tax purposes aggregated $12,697,000, of which $13,408,000
related to appreciated securities and $711,000 related to depreciated
securities.
During the year ended August 31, 1995, the fund realized, on a tax basis, a net
capital gain of $871,000 on securities transactions. The fund has available at
August 31, 1995, a net capital loss carryforward totaling $43,000, 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 year ended August 31, 1995. The cost of
portfolio securities for book and federal income tax purposes was $218,857,000
at August 31, 1995.
3. The fee of $943,000 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 year ended August 31, 1995,
distribution expenses under the Plan were $409,000. As of August 31, 1995,
accrued and unpaid distribution expenses were $97,000.
American Funds Service Company (AFS), the transfer agent for the fund, was
paid a fee of $59,000. American Funds Distributors, Inc. (AFD), the principal
underwriter of the fund's shares, received $100,000 (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 of the fund 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 August
31, 1995, aggregate amounts deferred were $16,000.
CRMC is owned by The Capital Group Companies, Inc. AFS and AFD are both
wholly owned subsidiaries of CRMC. Certain 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 August 31, 1995, accumulated undistributed net realized loss on
investments was $43,000 and paid-in capital was $220,461,000.
The fund made purchases and sales of investment securities, excluding
short-term securities, of $93,716,000 and $87,514,000, respectively, during the
year ended August 31, 1995.
Per-Share Data and Ratios
<TABLE>
<CAPTION>
Year ended August 31
1995 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Year $15.40 $16.30 $15.21 $14.59 $13.87 $14.16
------- ------- ------- ------ ------- -------
-
Income from Investment
Operations:
Net investment income .86 .84 .84 .85 .85 .84
Net realized and
unrealized gain
(loss) on investments .34 (.84) 1.09 .62 .72 (.29)
------- ------- ------- ------ ------- -------
-
Total income from
investment operations 1.20 .00 1.93 1.47 1.57 .55
------- ------- ------- ------ ------- -------
-
Less Distributions:
Dividends from net
investment income (.86) (.84) (.84) (.85) (.85) (.84)
Distributions from net
realized gains - (.06) - - - -
------- ------- ------- ------ ------- -------
-
Total distributions (.86) (.90) (.84) (.85) (.85) (.84)
------- ------- ------- ------ ------- -------
-
Net Asset Value, End of Year $15.74 $15.40 $16.30 $15.21 $14.59 $13.87
======= ======= ======= ====== ======= =======
=
Total Return* 8.16% 0.13% 13.08% 10.36% 11.56% 3.96%
Ratios/Supplemental Data:
Net assets, end of year
(in millions) $233 $226 $223 $148 $111 $86
Ratio of expenses to average
net assets .73% .71% .71% .74% .85% .93%
Ratio of net income to
average net assets 5.65% 5.28% 5.36% 5.66% 5.89% 5.92%
Portfolio turnover rate 41.36% 15.08% 16.82% 33.72% 20.20%
20.28%
</TABLE>
*This was calculated without deducting a sales charge. The maximum sales
charge is 4.75% of the fund's offering price.
PART C
THE TAX-EXEMPT FUND OF CALIFORNIA
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(A) FINANCIAL STATEMENTS:
Included in Prospectus - Part A
Condensed Financial Information
Included in Statement of Additional Information - Part B
Investment Portfolio Notes to Financial Statements
Statement of Assets and Liabilities Selected Per-Share Data and Ratios
Statement of Operations Report of Independent Accountants
Statement of Changes in Net Assets
(B) EXHIBITS:
1. On file (see SEC file Nos. 811-4694 and 33-6180)
2. On file (see SEC file Nos. 811-4694 and 33-6180)
3. None.
4. On file (see SEC file Nos. 811-4694 and 33-6180)
5. On file (see SEC file Nos. 811-4694 and 33-6180)
6. On file (see SEC file Nos. 811-4694 and
33-6180)
7. None.
8. On file (see SEC file Nos. 811-4694 and 33-6180)
9. Form of Shareholder Services Agreement between Registrant and American
Funds Service Company, as amended 1/1/95.
10. Not applicable to this filing.
11. Consent of independent auditors
12. None.
13. On file (see SEC file Nos. 811-4694 and 33-6180)
14. None.
15. On file (see SEC file Nos. 811-4694 and 33-6180)
16. Updates to previously filed schedule for computation of each performance
quotation provided in the Registration Statement in response to Item 22 (see
SEC file Nos. 811-4694 and 33-6180).
17. Financial data schedule.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
As of August 31, 1995.
<TABLE>
<CAPTION>
Number of
Title of Class Record-Holder
s
<S> <C>
Shares of Beneficial 4,608
Interest (no par value)
</TABLE>
ITEM 27. INDEMNIFICATION.
Registrant is a joint-insured under an Investment Advisor/Mutual Fund
Errors and Omissions Policy written by American International Surplus Lines
Insurance Company, Chubb Custom Insurance Company, and ICI Mutual Insurance
Company which insures its officers and trustees against certain liabilities.
However, in no event will Registrant maintain insurance to indemnify any such
person for any act for which the Registrant itself is not permitted to
indemnify the individual.
Article VI of the Trust's By-Laws states:
(a) The Trust shall indemnify any Trustee or officer of the Trust who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than action by or in the right of the Trust) by reason
of the fact that such person is or was such Trustee or officer or an employee
or agent of the Trust, or is or was serving at the request of the Trust as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding if
such person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the Trust, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe such
person's conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
the person did not act in good faith or in a manner reasonably believed to be
opposed to the best interests of the Trust, and, with respect to any criminal
action or proceeding, had reasonable cause to believe that such person's
conduct was unlawful.
(b) The Trust shall indemnify any Trustee or officer of the Trust who was or
is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the Trust to procure a judgment in its
favor by reason of the fact that such person is or was such Trustee or officer
or an employee or agent of the Trust, or is or was serving at the
request of the Trust as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), actually and
ITEM 27. INDEMNIFICATION (CONT.)
reasonably incurred by such person in connection with the defense or settlement
of such action or suit if such person acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interests of the
Trust, except that no indemnification shall be made in respect of any claim,
issue or matter as to which such person shall have been adjudged to be liable
for negligence or misconduct in the performance of such person's duty to the
Trust unless and only to the extent that the court in which such action or suit
was brought, or any other court having jurisdiction in the premises, shall
determine upon application that, despite the adjudication of liability but in
view of all circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which such court shall deem proper.
(c) To the extent that a Trustee or officer of the Trust has been successful
on the merits in defense of any action, suit or proceeding referred to in
subparagraphs (a) or (b) above or in defense of any claim, issue or matter
therein, such person shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by such person in connection
therewith, without the necessity for the determination as to the standard of
conduct as provided in subparagraph (d).
(d) Any indemnification under subparagraph (a) or (b) (unless ordered by a
court) shall be made by the Trust only as authorized in the specific case upon
a determination that indemnification of the Trustee or officer is proper under
the standard of conduct set forth in subparagraph (a) or (b). Such
determination shall be made (i) by the Board by a majority vote of a quorum
consisting of Trustees who were not parties to such action, suit or proceeding,
and are disinterested Trustees or (ii) if such a quorum of disinterested
Trustees so directs, by independent legal counsel in a written opinion.
(e) Expenses incurred in defending a civil or criminal action, suit or
proceeding may be paid by the Trust in advance of the final disposition of such
action, suit or proceeding, as authorized in the particular case,upon receipt
of an undertaking and security by or on behalf of the Trustee or officer to
repay such amount unless it shall ultimately be determined that such person is
entitled to be indemnified by the Trust as authorized herein.
(f) Agents and employees of the Trust who are not Trustees or officers of the
Trust may be indemnified under the same standards and procedures set forth
above, in the discretion of the Board.
(g) Any indemnification pursuant to this Article shall not be deemed exclusive
of any other rights to which those indemnified may be entitled and shall
continue as to a person who has ceased to be Trustee or officer and shall inure
to the benefit of the heirs, executors and administrators of such person.
(h) Nothing in the Declaration of Trust or in these By-Laws shall be deemed to
protect any Trustee, officer, distributor, investment adviser or controlling
shareholder of the Trust against
any liability to the Trust or to its shareholders to which such person would
otherwise be subject by reason of willful malfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of such
person's office.
(i) The Trust shall have power to purchase and maintain insurance on behalf of
any
person against any liability asserted against or incurred by such person,
whether or not the Trust
would have the power to indemnify such person against such liability under the
provisions of this
Article. Nevertheless, insurance will not be purchased or maintained by the
Trust if the purchase or maintenance of such insurance would result in the
indemnification of any person in contravention of any rule or regulation of the
SEC. Expenses incurred in defending a civil or criminal action, suit or
proceeding may be paid by the Trust in advance of the final disposition of such
action, suit or proceeding, as authorized in the particular case, upon receipt
of an undertaking by or on behalf of the Trustee or officer to repay such
amount unless it shall ultimately be deter mined that such person is entitled
to be indemnified by the Trust as authorized herein. Such determination must
be made by disinterested Trustees or independent legal counsel.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to Trustees, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a Trustee, officer of controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by
such Trustee, officer of controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
None.
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) American Funds Distributors, Inc. is also the Principal Underwriter of
shares of: AMCAP Fund, Inc., American Balanced Fund, Inc., The American Funds
Income Series, The American Funds Tax-Exempt Series I, American High-Income
Municipal Bond Fund, Inc., American High-Income Trust, American Mutual Fund,
Inc., The Bond Fund of America, Inc., Capital Income Builder, Inc., Capital
World Bond Fund, Inc., Capital World Growth and Income Fund, Inc., The Cash
Management Trust of America, EuroPacific Growth Fund, Fundamental Investors,
Inc., The Growth Fund of America, Inc., The Income Fund of America, Inc.,
Intermediate Bond Fund of America, The Investment Company of America, Limited
Term Tax-Exempt Bond Fund of America, The New Economy Fund, New Perspective
Fund, Inc., SMALLCAP World Fund, Inc., The Tax-Exempt Bond Fund of America, The
Tax-Exempt Money Fund of America, The U.S. Treasury Money Fund of America and
Washington Mutual Investors Fund, Inc.
<TABLE>
<CAPTION>
(B) (1) (2) (3)
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICES
BUSINESS ADDRESS WITH UNDERWRITER WITH REGISTRANT
<S> <C> <C>
# David L. Abzug Assistant Vice President None
John A. Agar Regional Vice President None
1501 N. University Drive
Little Rock, AR 72207
Robert B. Aprison Regional Vice President None
2983 Bryn Wood Drive
Madison, WI 53711
& Richard Armstrong Assistant Vice President None
* William W. Bagnard Vice President None
Steven L. Barnes Vice President None
8000 Town Line Avenue South
Suite 204
Minneapolis, MN 55438
Michelle A. Bergeron Regional Vice President None
1190 Rockmart Circle
Kennesaw, GA 30144
Joseph T. Blair Vice President None
27 Drumlin Road
West Simsbury, CT 06092
Ian B. Bodell Vice President None
3100 West End Avenue,
Suite 870
Nashville, TN 37215
Michael L. Brethower Vice President None
108 Hagen Court
Georgetown, TX 78628
C. Alan Brown Regional Vice President None
4619 McPherson Avenue
St. Louis, MO 63108
* Daniel C. Brown Director, Sr. Vice President None
@ J. Peter Burns Vice President None
Brian C. Casey Regional Vice President None
9508 Cable Drive
Kensington, MD 20895
Victor C. Cassato Vice President None
999 Green Oaks Drive
Littleton, CO 80121
Christopher J. Cassin Regional Vice President None
231 Burlington
Clarendon Hills, IL 60514
Denise M. Cassin Regional Vice President None
1425 Vallejo, #203
San Francisco, CA 94109
* Larry P. Clemmensen Director, Treasurer None
* Kevin G. Clifford Senior Vice President None
Ruth M. Collier Vice President None
145 West 67th St. Ste. 12K
New York, NY 10023
Thomas E. Cournoyer Vice President None
2333 Granada Boulevard
Coral Gables, FL 33134
Douglas A. Critchell Vice President None
3521 Rittenhouse Street, N.W.
Washington, D.C. 20015
* Carl D. Cutting Vice President None
Michael A. Dilella Vice President None
P.O. Box 661
Ramsey, NJ 07446
G. Michael Dill Senior Vice President None
3622 E. 87th Street
Tulsa, OK 74137
Kirk D. Dodge Vice President None
2617 Salisbury Road
Ann Arbor, MI 48103
Peter J. Doran Senior Vice President None
1205 Franklin Avenue
Garden City, NY 11530
* Michael J. Downer Secretary Vice President
Robert W. Durbin Vice President None
74 Sunny Lane
Tiffin, OH 44883
+ Lloyd G. Edwards Vice President None
@ Richard A. Eychner Vice President None
* Paul H. Fieberg Senior Vice President None
John Fodor Regional Vice President None
5 Marlborough Street
Suite 51
Boston, MA 02116
* Mark P. Freeman, Jr. Director, President None
Clyde E. Gardner Vice President None
Route 2, Box 3162
Osage Beach, MO 65065
# Evelyn K. Glassford Vice President None
Jeffrey J. Greiner Regional Vice President None
5898 Heather Glen Court
Dublin, OH 43017
* Paul G. Haaga, Jr. Director Chairman of the
Board
David E. Harper Vice President None
R.D., 1 Box 210, Rte. 519
Baptistown, NJ 08825
Ronald R. Hulsey Regional Vice President None
6744 Avalon
Dallas, TX 75214
* Robert L. Johansen Vice President, Controller None
* V. John Kriss Senior Vice President None
Arthur J. Levine Vice President None
12558 Highlands Place
Fishers, IN 46038
# Karl A. Lewis Assistant Vice President None
T. Blake Liberty Regional Vice President None
12585-E East Tennessee Circle
Aurora, CO 80012
* Heather A. Maier Assistant Vice President-Institutional None
Investment Services Division
Steve A. Malbasa Regional Vice President None
13405 Lake Shore Blvd.
Cleveland, OH 44110
Steven M. Markel Vice President None
5241 South Race Street
Littleton, CO 90121
* John C. Massar Vice President None
* E. Lee McClennahan Vice President None
Laurie B. McCurdy Regional Vice President None
6008 E. Anderson Drive
Scottsdale, AZ 85255
& John V. McLaughlin Senior Vice President None
Terry W. McNabb Vice President None
2002 Barrett Station Road
St. Louis, MO 63131
* R. William Melinat Vice President - Institutional None
Investment Services Division
David R. Murray Regional Vice President None
25701 S.E. 32nd Place
Issaquah, WA 98027
Stephen S. Nelson Vice President None
7215 Trevor Court
Charlotte, NC 28226
* Barbara G. Nicholich Assistant Vice President - None
Institutional Investment Services
Division
William E. Noe Regional Vice President None
12535 Barkley
Overland Park, KS 66209
Peter A. Nyhus Regional Vice President None
3084 Wilds Ridge Court
Prior Lake, MN 55372
Eric P. Olson Regional Vice President None
62 Park Drive
Glenview, IL 60025
Frederic Phillips Regional Vice President None
32 Ridge Avenue
Newton Centre, MA 02159
# Candance D. Pilgrim Assistant Vice President None
Carl S. Platou Regional Vice President None
4021 96th Avenue, S.E.
Mercer Island, WA 98040
* John O. Post, Jr. Vice President None
Steven J. Reitman Vice President None
212 The Lane
Hinsdale, IL 60521
Brian A. Roberts Regional Vice President None
12025 Delmahoy Drive
Charlotte, NC 28277
* George L. Romine, Jr. Vice President - Institutional None
Investment Services Division
George S. Ross Vice President None
55 Madison Avenue
Morristown, NJ 07960
* Julie D. Roth Vice President None
Douglas F. Rowe Regional Vice President None
104 River Road
Georgetown, TX 78628
* Christopher S. Rowey Regional Vice President None
Dean B. Rydquist Vice President None
1080 Bay Pointe Crossing
Alpharetta, GA 30202
Richard R. Samson Vice President None
4604 Glencoe Avenue, No. 4
Marina del Rey, CA 90292
Joe D. Scarpitti Regional Vice President None
25760 Kensington Drive
Westlake, OH 44145
* R. Michael Shanahan Chairman of the Board None
David W. Short Senior Vice President None
1000 RIDC Plaza, Suite 212
Pittsburgh, PA 15238
* Victor S. Sidhu Vice President - Institutional None
Investment Services Division
William P. Simon, Jr. Vice President None
554 Canterbury Lane
Berwyn, PA 19312
* John C. Smith Assistant Vice President - None
Institutional Investment Services
Division
# Mark S. Smith Director, Senior Vice President None
* Mary E. Smith Assistant Vice President - None
Institutional Investment Services
Division
Rodney G. Smith Regional Vice President None
2350 Lakeside Blvd., #850
Richardson, TX 75082
Nicholas D. Spadaccini Regional Vice President None
855 Markley Woods Way
Cincinnati, OH 45230
Daniel S. Spradling Senior Vice President None
#4 West Fourth Avenue, Suite 406
San Mateo, CA 94402
Craig R. Strauser Regional Vice President None
17040 Summer Place
Lake Oswego, OR 97035
Francis N. Strazzeri Regional Vice President None
31641 Saddletree Drive
Westlake Village, CA 91361
& James P. Toomey Assistant Vice President None
+ Christopher E. Trede Assistant Vice President None
George F. Truesdail Vice President None
400 Abottsford Court
Charlotte, NC 28270
Scott W. Ursin-Smith Regional Vice President None
606 Glenwood Avenue
Mill Valley, CA 94941
@ Andrew J. Ward Vice President None
* David M. Ward Assistant Vice President - None
Institutional Investment Services
Division
Thomas E. Warren Regional Vice President None
4001 Crockers Lake Blvd.,
#1012
Sarasota, FL 34238
# J. Kelly Webb Senior Vice President None
Gregory J. Weimer Regional Vice President None
125 Surrey Drive
Canonsburg, PA 15317
# Timothy W. Weiss Director None
** N. Dexter Williams Vice President None
Timothy J. Wilson Regional Vice President None
113 Farmview Place
Venetia, PA 15367
* Marshall D. Wingo Senior Vice President None
* Robert L. Winston Director, Sr. Vice President None
William R. Yost Regional Vice President None
9320 Overlook Trail
Eden Prairie, MN 55347
Janet M. Young Regional Vice President None
1616 Vermont
Houston, TX 77006
</TABLE>
* Business Address, 333 South Hope Street, Los Angeles, CA 90071
** Business Address, Four Embarcadero Center, Suite 1800, San Francisco, CA
94111
# Business Address, 135 South State College Boulevard, Brea, CA 92621
& Business Address, 8000 IH-10 West, Suite 1400, San Antonio, TX 78230
@ Business Address, 5300 Robin Hood Road, Norfolk, VA 23513
+ Business Address, 8332 Woodfield Crossing Blvd., Indianapolis, IN 46240
% Business Address, 3000 K. Street, N.W., Suite 230, Washington, D.C.
20007-5124
(c) None.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
Accounts, books and other records required by Rules 31a-1 and 31a-2 under the
Investment Company Act of 1940, as amended, are maintained and kept in the
offices of the Fund and its investment adviser, Capital Research and Management
Company, 333 South Hope Street, Los Angeles, CA 90071. Certain accounting
records are maintained and kept in the offices of the Fund's accounting
department, 135 South State College Blvd., Brea, CA 92621.
Records covering shareholder accounts are maintained and kept by the transfer
agent, American Funds Service Company, 135 South State College Blvd., Brea, CA
92621, 8332 Woodfield Crossing Blvd., Indianapolis, IN 46240, 8000 IH-10 West,
Suite 1400, San Antonio, TX 78230 and 5300 Robin Hood Road, Norfolk, VA 23514.
Records covering portfolio transactions are also maintained and kept by the
custodian, The Chase Manhattan Bank, One Chase Manhattan Plaza, New York, NY
10081.
ITEM 31. MANAGEMENT SERVICES.
None.
ITEM 32. UNDERTAKINGS.
(c) As reflected in the prospectus, the fund undertakes to provide each
person to whom a prospectus is delivered with a copy of the fund's latest
annual report to shareholders, upon request and without charge.
SIGNATURE OF REGISTRANT
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Los Angeles, and State of California, on the 25th
day of October, 1995.
THE AMERICAN FUNDS TAX-EXEMPT SERIES II
By /s/ Paul G. Haaga, Jr.
(Paul G. Haaga, Jr., Chairman of the Board)
Pursuant to the requirements of the Securities Act of 1933, this amendment to
registration statement has been signed below on October 25, 1995, by the
following persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
<S> <C> <C>
(1) Principal Executive Officer:
/s/ Abner D. Goldstine President and Trustee
(Abner D. Goldstine)
(2) Principal Financial Officer and
Principal Accounting Officer:
/s/ Mary C. Cremin Treasurer
(Mary C. Cremin)
(3) Trustees:
H. Frederick Christie* Trustee
Martin Fenton, Jr.* Trustee
/s/ Abner D. Goldstine President and Trustee
(Abner D. Goldstine)
/s/ Paul G. Haaga, Jr. Chairman of the Board
(Paul G. Haaga, Jr.)
Diane C. Creel/1/ Trustee
Leonard R. Fuller/1/ Trustee
Herbert Hoover III* Trustee
Richard G. Newman* Trustee
Peter C. Valli* Trustee
</TABLE>
*By /s/ Julie F. Williams
Julie F. Williams, Attorney-in-Fact
/1/ Powers of Attorney are attached hereto.
Counsel represents that this amendment does not contain disclosures that would
make the amendment ineligible for effectiveness under the provisions of Rule
485(b).
/s/ Michael J. Downer
Michael J. Downer
C-14
POWER OF ATTORNEY
I, Diane C. Creel, the undersigned Trustee of The Tax-Exempt Fund of
California, a Massachusetts business trust, revoking all prior powers of
attorney given as a Trustee of The Tax-Exempt Fund of California do hereby
constitute and appoint Mary C. Cremin, Michael J. Downer, Paul G. Haaga, Jr.,
Kimberly S. Verdick and Julie F. Williams, or any of them, to act as
attorneys-in-fact for and in my name, place and stead (1) to sign my name as
Trustee of said Trust to any and all Registration Statements of The Tax-Exempt
Fund of California, File Nos. 33-6180 and 811-4694, under the Securities Act of
1933 as amended and the Investment Company Act of 1940, as amended, and any and
all amendments thereto, said Registration Statements and amendments to be filed
with the Securities and Exchange Commission, and to any and all reports,
applications or renewal of applications required by any State in the United
States of America in which this Trust is registered to sell shares, and (2) to
deliver any and all such Registration Statements and amendments, so signed, for
filing with the Securities and Exchange Commission under the provisions of the
Securities Act of 1933 as amended and/or the Investment Company Act of 1940, as
amended, granting to said attorneys-in-fact, and each of them, full power and
authority to do and perform every act and thing whatsoever requisite and
necessary to be done in and about the premises as fully to all intents and
purposes as the undersigned might or could do if personally present, hereby
ratifying and approving the acts of said attorneys-in-fact.
EXECUTED at Los Angeles, California, this 12th day of December, 1994.
/s/ Diane C. Creel
Diane C. Creel, Trustee
POWER OF ATTORNEY
I, Leonard R. Fuller, the undersigned Trustee of The Tax-Exempt Fund of
California, a Massachusetts business trust, revoking all prior powers of
attorney given as a Trustee of The Tax-Exempt Fund of California do hereby
constitute and appoint Mary C. Cremin, Michael J. Downer, Paul G. Haaga, Jr.,
Kimberly S. Verdick and Julie F. Williams, or any of them, to act as
attorneys-in-fact for and in my name, place and stead (1) to sign my name as
Trustee of said Trust to any and all Registration Statements of The Tax-Exempt
Fund of California, File Nos. 33-6180 and 811-4694, under the Securities Act of
1933 as amended and the Investment Company Act of 1940, as amended, and any and
all amendments thereto, said Registration Statements and amendments to be filed
with the Securities and Exchange Commission, and to any and all reports,
applications or renewal of applications required by any State in the United
States of America in which this Trust is registered to sell shares, and (2) to
deliver any and all such Registration Statements and amendments, so signed, for
filing with the Securities and Exchange Commission under the provisions of the
Securities Act of 1933 as amended and/or the Investment Company Act of 1940, as
amended, granting to said attorneys-in-fact, and each of them, full power and
authority to do and perform every act and thing whatsoever requisite and
necessary to be done in and about the premises as fully to all intents and
purposes as the undersigned might or could do if personally present, hereby
ratifying and approving the acts of said attorneys-in-fact.
EXECUTED at Los Angeles, California, this 12th day of December, 1994.
/s/ Leonard R. Fuller
Leonard R. Fuller, Trustee
SHAREHOLDER SERVICES AGREEMENT
1. The parties to this Agreement, which is effective as of January 1, 1995,
are THE TAX-EXEMPT FUND OF CALIFORNIA (hereinafter called "the Fund") and
American Funds Service Company, a California corporation (hereinafter called
"AFS"). AFS is a wholly owned subsidiary of Capital Research and Management
Company (hereinafter called "CRMC"). This Agreement will continue in effect
until amended or terminated in accordance with its terms.
2. The Fund hereby employs AFS, and AFS hereby accepts such employment by the
Fund, as its transfer agent. In such capacity AFS will provide the services of
stock transfer agent, dividend disbursing agent, redemption agent, and such
additional related services as the Fund may from time to time require, all of
which services are sometimes referred to herein as "shareholder services."
3. AFS has entered into substantially identical agreements with other
investment companies for which CRMC serves as investment adviser. (For the
purposes of this Agreement, such investment companies, including the Fund, are
called "participating investment companies.")
4. AFS has entered into an agreement with DST Systems, Inc. (hereinafter
called "DST"), to provide AFS with electronic data processing services
sufficient for the performance of the shareholder services referred to in
paragraph 2.
5. The Fund, together with the other participating companies, will maintain a
Review and Advisory Committee, which Committee will review and may make
recommendations to the boards of the participating investment companies
regarding all fees and charges provided for in this Agreement, as well as
review the level and quality of the shareholder services rendered to the
participating investment companies and their shareholders. Each participating
investment company may select one director or trustee who is not affiliated
with CRMC, or any of its affiliated companies, or with Washington Management
Corporation or any of its affiliated companies, to serve on the Review and
Advisory Committee.
6. AFS will provide to the participating investment companies the shareholder
services referred to herein in return for the following fees:
ANNUAL ACCOUNT MAINTENANCE FEE (PAID MONTHLY):
$.67 per month for each open account on AFS books or in Level 2 or 4
Networking ($8.04 per year)
$.09 per month for each open account maintained in Street Name or Level 1 or
3 Networking ($1.08 per year)
No annual fee will be charged for a participant account underlying a 401(k)
or other defined contribution plan where the plan maintains a single account
on AFS books and responds to all participant inquiries
EXHIBIT 9
TRANSACTION FEES:
$2.00 per non-automated transaction
$0.50 per automated transaction
For this purpose, "transactions" shall include all types of transactions
included in an "activity index" as reported to the Review and Advisory
Committee at least annually. AFS will bill the Fund monthly, on or shortly
after the first of each calendar month, and the Fund will pay to AFS within
five business days of such billing.
Any revision of the schedule of charges set forth herein shall require the
affirmative vote of a majority of the members of the board of
directors/trustees of the Fund.
7. All fund-specific charges from third parties -- including DST charges,
payments described in the next sentence, postage, NSCC transaction charges and
similar out-of-pocket expenses -- will be passed through directly to the Fund
or other participating investment companies, as applicable. AFS, subject to
approval of its board of directors, is authorized in its discretion to
negotiate payments to third parties for account maintenance and/or transaction
processing services provided such payments do not exceed the anticipated
savings to the Fund, either in fees payable to AFS hereunder or in other direct
Fund expenses, that AFS reasonably anticipates would be realized by the Fund
from using the services of such third party rather than maintaining the
accounts directly on AFS' books and/or processing non-automated transactions.
8. It is understood that AFS may have income in excess of its expenses and may
accumulate capital and surplus. AFS is not, however, permitted to distribute
any net income or accumulated surplus to its parent, CRMC, in the form of a
dividend without the affirmative vote of a majority of the members of the
boards of directors/trustees of the Fund and all participating investment
companies.
9. This Agreement may be amended at any time by mutual agreement of the
parties, with agreement of the Fund to be evidenced by affirmative vote of a
majority of the members of the board of directors/trustees of the Fund.
10. This Agreement may be terminated on 180 days' written notice by either
party. In the event of a termination of this Agreement, AFS and the Fund will
each extend full cooperation in effecting a conversion to whatever successor
shareholder service provider(s) the Fund may select, it being understood that
all records relating to the Fund and its shareholders are property of the Fund.
11. In the event of a termination of this Agreement by the Fund, the Fund will
pay to AFS as a termination fee the Fund's proportionate share of any costs of
conversion of the Fund's shareholder service from AFS to a successor. In the
event of termination of this Agreement and all corresponding agreements with
all the participating investment companies, all assets of AFS will be sold or
otherwise converted to cash, with a view to the liquidation of AFS when it
ceases to provide shareholder services for the participating investment
companies. To the extent any such assets are sold by AFS to CRMC and/or any of
its affiliates, such sales shall be at fair market value at the time of sale as
agreed upon by AFS, the purchasing company or companies, and the Review and
Advisory Committee. After all assets of AFS have been converted to cash and
all liabilities of AFS have been paid or discharged, an amount equal to any
capital or paid-in surplus of AFS that shall have been contributed by CRMC or
its affiliates shall be set aside in cash for distribution to CRMC upon
liquidation of AFS. Any other capital or surplus and any assets of AFS
remaining after the foregoing provisions for liabilities and return of capital
or paid-in surplus to CRMC shall be distributed to the participating investment
companies in such proportions as may be determined by the Review and Advisory
Committee.
12. In the event of disagreement between the Fund and AFS, or between the Fund
and other participating investment companies as to any matter arising under
this Agreement, which the parties to the disagreement are unable to resolve,
the question shall be referred to the Review and Advisory Committee for
resolution. If the Review and Advisory Committee is unable to resolve the
question to the satisfaction of both parties, either party may elect to submit
the question to arbitration; one arbitrator to be named by each party to the
disagreement and a third arbitrator to be selected by the two arbitrators named
by the original parties. The decision of a majority of the arbitrators shall
be final and binding on all parties to the arbitration. The expenses of such
arbitration shall be paid by the party electing to submit the question to
arbitration.
13. The obligations of the Fund under this Agreement are not binding upon any
of the directors, trustees, officers, employees, agents or shareholders of the
Fund individually, but bind only the Fund itself. AFS agrees to look solely to
the assets of the Fund for the satisfaction of any liability of the Fund in
respect to this Agreement and will not seek recourse against such directors,
trustees, officers, employees, agents or shareholders, or any of them or their
personal assets for such satisfaction.
AMERICAN FUNDS SERVICE COMPANY The Tax-Exempt Fund of California
By_________________________________ By_________________________________
Don R. Conlan, Chairman Paul G. Haaga, Jr., Chairman
By_________________________________ By_________________________________
Kenneth R. Gorvetzian, Secretary Julie F. Williams, Secretary
INDEPENDENT AUDITORS' CONSENT
We consent to (a) the use in this Post-Effective Amendment No. 12 to
Registration Statement
No. 33-6180 of The American Funds Tax-Exempt Series II: Tax-Exempt Fund of
California on Form N-1A of our report dated September 22, 1995 appearing in the
Financial Statements, which are included in Part B, the Statement of Additional
Information of such Registration Statement, (b) the reference to us under the
heading "General Information" in such Statement of Additional Information, and
(c) the reference to us under the heading "Financial Highlights" in the
Prospectus, which is a part of such Registration Statement.
DELOITTE & TOUCHE LLP
Los Angeles, California
October 26, 1995
<PAGE>
<TABLE>
<CAPTION>
THE TAX-EXEMPT FUND OF CALIFORNIA
SALES NET ASSET INITIAL
INITIAL OFFERING CHARGE SHARES VALUE NET ASSET
DATE INVESTMENT PRICE INCLUDED PURCHASED PER SHARE VALUE
10/01/94 1000.00 15.88 4.75 % 62.972 15.130 953
DIVIDENDS AND CAPITAL GAINS REINVESTED
============COST OF SHARES============= ================VALUE OF SHARES=====================
CURRENT CUM. TOTAL CURRENT FROM FROM
CUM INCOME INCOME INVM'T CAP GAIN FROM CAP GAINS SUB- DIVS TOTAL SHARES
DATE INV'M'T DIVS DIVS COST DISTRIB'N INV'M'T REINV'D TOTAL REINV'D VALUE HELD
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
9/30/95 1000 56 56 1056 0 992 0 992 57 1049.92 66.619
TOTAL $ 0
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE TAX-EXEMPT FUND OF CALIFORNIA
SALES NET ASSET INITIAL
INITIAL OFFERING CHARGE SHARES VALUE NET ASSET
DATE INVESTMENT PRICE INCLUDED PURCHASED PER SHARE VALUE
10/01/90 1000.00 14.51 4.75 % 68.918 13.820 952
DIVIDENDS AND CAPITAL GAINS REINVESTED
============COST OF SHARES============= ================VALUE OF SHARES=====================
CURRENT CUM. TOTAL CURRENT FROM FROM
CUM INCOME INCOME INVM'T CAP GAIN FROM CAP GAINS SUB- DIVS TOTAL SHARES
DATE INV'M'T DIVS DIVS COST DISTRIB'N INV'M'T REINV'D TOTAL REINV'D VALUE HELD
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
9/30/91 1000 60 60 1060 0 1013 0 1013 61 1074.36 73.086
9/30/92 1000 63 123 1123 0 1045 0 1045 127 1172.87 77.315
9/30/93 1000 67 190 1190 0 1131 0 1131 207 1338.86 81.588
9/30/94 1000 72 262 1262 5 1043 5 1048 260 1308.68 86.496
9/30/95 1000 77 339 1339 0 1086 5 1091 351 1442.15 91.507
TOTAL $ 5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE TAX-EXEMPT FUND OF CALIFORNIA
SALES NET ASSET INITIAL
INITIAL OFFERING CHARGE SHARES VALUE NET ASSET
DATE INVESTMENT PRICE INCLUDED PURCHASED PER SHARE VALUE
10/28/86 1000.00 15.00 4.75 % 66.667 14.287 952
DIVIDENDS AND CAPITAL GAINS REINVESTED
============COST OF SHARES============= ================VALUE OF SHARES=====================
CURRENT CUM. TOTAL CURRENT FROM FROM
CUM INCOME INCOME INVM'T CAP GAIN FROM CAP GAINS SUB- DIVS TOTAL SHARES
DATE INV'M'T DIVS DIVS COST DISTRIB'N INV'M'T REINV'D TOTAL REINV'D VALUE HELD
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
9/30/87 1000 47 47 1047 0 863 0 863 42 905.98 70.014
9/30/88 1000 59 106 1106 0 921 0 921 107 1028.37 74.412
9/30/89 1000 66 172 1172 0 935 0 935 173 1108.74 79.083
9/30/90 1000 68 240 1240 0 921 0 921 238 1159.65 83.911
9/30/91 1000 73 313 1313 0 980 0 980 328 1308.09 88.986
9/30/92 1000 77 390 1390 0 1011 0 1011 417 1428.04 94.136
9/30/93 1000 82 472 1472 0 1094 0 1094 536 1630.17 99.340
9/30/94 1000 88 560 1560 6 1009 6 1015 578 1593.40 105.314
9/30/95 1000 93 653 1653 0 1051 6 1057 698 1755.90 111.415
TOTAL $ 6
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE TAX-EXEMPT FUND OF CALIFORNIA
SALES NET ASSET INITIAL
INITIAL OFFERING CHARGE SHARES VALUE NET ASSET
DATE INVESTMENT PRICE INCLUDED PURCHASED PER SHARE VALUE
9/01/94 1000.00 16.17 4.75 % 61.843 15.400 952
DIVIDENDS AND CAPITAL GAINS REINVESTED
============COST OF SHARES============= ================VALUE OF SHARES=====================
CURRENT CUM. TOTAL CURRENT FROM FROM
CUM INCOME INCOME INVM'T CAP GAIN FROM CAP GAINS SUB- DIVS TOTAL SHARES
DATE INV'M'T DIVS DIVS COST DISTRIB'N INV'M'T REINV'D TOTAL REINV'D VALUE HELD
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
8/31/95 1000 55 55 1055 0 973 0 973 57 1030.12 65.446
TOTAL $ 0
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE TAX-EXEMPT FUND OF CALIFORNIA
SALES NET ASSET INITIAL
INITIAL OFFERING CHARGE SHARES VALUE NET ASSET
DATE INVESTMENT PRICE INCLUDED PURCHASED PER SHARE VALUE
9/01/90 1000.00 14.56 4.75 % 68.681 13.870 953
DIVIDENDS AND CAPITAL GAINS REINVESTED
============COST OF SHARES============= ================VALUE OF SHARES=====================
CURRENT CUM. TOTAL CURRENT FROM FROM
CUM INCOME INCOME INVM'T CAP GAIN FROM CAP GAINS SUB- DIVS TOTAL SHARES
DATE INV'M'T DIVS DIVS COST DISTRIB'N INV'M'T REINV'D TOTAL REINV'D VALUE HELD
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
8/31/91 1000 60 60 1060 0 1002 0 1002 60 1062.71 72.838
8/31/92 1000 63 123 1123 0 1045 0 1045 127 1172.83 77.109
8/31/93 1000 66 189 1189 0 1120 0 1120 206 1326.30 81.368
8/31/94 1000 72 261 1261 5 1058 5 1063 265 1328.00 86.234
8/31/95 1000 77 338 1338 0 1081 5 1086 350 1436.39 91.257
TOTAL $ 5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE TAX-EXEMPT FUND OF CALIFORNIA
SALES NET ASSET INITIAL
INITIAL OFFERING CHARGE SHARES VALUE NET ASSET
DATE INVESTMENT PRICE INCLUDED PURCHASED PER SHARE VALUE
10/28/86 1000.00 15.00 4.75 % 66.667 14.287 952
DIVIDENDS AND CAPITAL GAINS REINVESTED
============COST OF SHARES============= ================VALUE OF SHARES=====================
CURRENT CUM. TOTAL CURRENT FROM FROM
CUM INCOME INCOME INVM'T CAP GAIN FROM CAP GAINS SUB- DIVS TOTAL SHARES
DATE INV'M'T DIVS DIVS COST DISTRIB'N INV'M'T REINV'D TOTAL REINV'D VALUE HELD
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
8/31/87 1000 43 43 1043 0 915 0 915 41 956.22 69.695
8/31/88 1000 58 101 1101 0 909 0 909 99 1008.89 74.020
8/31/89 1000 65 166 1166 0 944 0 944 169 1113.98 78.671
8/31/90 1000 68 234 1234 0 925 0 925 233 1158.06 83.494
8/31/91 1000 72 306 1306 0 973 0 973 318 1291.94 88.550
8/31/92 1000 77 383 1383 0 1014 0 1014 411 1425.82 93.742
8/31/93 1000 81 464 1464 0 1087 0 1087 525 1612.31 98.915
8/31/94 1000 87 551 1551 6 1027 6 1033 581 1614.35 104.828
8/31/95 1000 93 644 1644 0 1049 6 1055 691 1746.10 110.934
TOTAL $ 6
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE TAX-EXEMPT FUND OF CALIFORNIA
SALES NET ASSET INITIAL
INITIAL OFFERING CHARGE SHARES VALUE NET ASSET
DATE INVESTMENT PRICE INCLUDED PURCHASED PER SHARE VALUE
10/28/86 10000.00 15.00 4.75 % 666.667 14.287 9525
DIVIDENDS AND CAPITAL GAINS REINVESTED
============COST OF SHARES============= ================VALUE OF SHARES=====================
CURRENT CUM. TOTAL CURRENT FROM FROM
CUM INCOME INCOME INVM'T CAP GAIN FROM CAP GAINS SUB- DIVS TOTAL SHARES
DATE INV'M'T DIVS DIVS COST DISTRIB'N INV'M'T REINV'D TOTAL REINV'D VALUE HELD
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
8/31/87 10000 431 431 10431 0 9147 0 9147 415 9562.25 696.957
8/31/88 10000 582 1013 11013 0 9087 0 9087 1002 10089.29 740.227
8/31/89 10000 651 1664 11664 0 9440 0 9440 1700 11140.01 786.724
8/31/90 10000 682 2346 12346 0 9247 0 9247 2333 11580.63 834.941
8/31/91 10000 724 3070 13070 0 9727 0 9727 3192 12919.33 885.492
8/31/92 10000 771 3841 13841 0 10140 0 10140 4118 14258.22 937.424
8/31/93 10000 806 4647 14647 0 10867 0 10867 5256 16123.44 989.168
8/31/94 10000 875 5522 15522 60 10267 57 10324 5819 16143.90 1048.305
8/31/95 10000 932 6454 16454 0 10493 58 10551 6910 17461.37 1109.363
TOTAL $ 60
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE TAX-EXEMPT FUND OF CALIFORNIA
SALES NET ASSET INITIAL
INITIAL OFFERING CHARGE SHARES VALUE NET ASSET
DATE INVESTMENT PRICE INCLUDED PURCHASED PER SHARE VALUE
9/01/87 10000.00 14.40 4.75 % 694.444 13.720 9528
DIVIDENDS AND CAPITAL GAINS REINVESTED
============COST OF SHARES============= ================VALUE OF SHARES=====================
CURRENT CUM. TOTAL CURRENT FROM FROM
CUM INCOME INCOME INVM'T CAP GAIN FROM CAP GAINS SUB- DIVS TOTAL SHARES
DATE INV'M'T DIVS DIVS COST DISTRIB'N INV'M'T REINV'D TOTAL REINV'D VALUE HELD
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
8/31/88 10000 580 580 10580 0 9465 0 9465 587 10052.94 737.560
8/31/89 10000 649 1229 11229 0 9833 0 9833 1266 11099.85 783.888
8/31/90 10000 680 1909 11909 0 9632 0 9632 1906 11538.88 831.931
8/31/91 10000 721 2630 12630 0 10132 0 10132 2740 12872.73 882.298
8/31/92 10000 769 3399 13399 0 10562 0 10562 3644 14206.79 934.043
8/31/93 10000 804 4203 14203 0 11319 0 11319 4746 16065.31 985.602
8/31/94 10000 872 5075 15075 60 10694 57 10751 5334 16085.70 1044.526
8/31/95 10000 928 6003 16003 0 10931 58 10989 6409 17398.40 1105.362
TOTAL $ 60
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE TAX-EXEMPT FUND OF CALIFORNIA
SALES NET ASSET INITIAL
INITIAL OFFERING CHARGE SHARES VALUE NET ASSET
DATE INVESTMENT PRICE INCLUDED PURCHASED PER SHARE VALUE
9/01/88 10000.00 14.31 4.75 % 698.812 13.630 9525
DIVIDENDS AND CAPITAL GAINS REINVESTED
============COST OF SHARES============= ================VALUE OF SHARES=====================
CURRENT CUM. TOTAL CURRENT FROM FROM
CUM INCOME INCOME INVM'T CAP GAIN FROM CAP GAINS SUB- DIVS TOTAL SHARES
DATE INV'M'T DIVS DIVS COST DISTRIB'N INV'M'T REINV'D TOTAL REINV'D VALUE HELD
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
8/31/89 10000 615 615 10615 0 9895 0 9895 621 10516.70 742.705
8/31/90 10000 644 1259 11259 0 9693 0 9693 1239 10932.67 788.224
8/31/91 10000 684 1943 11943 0 10196 0 10196 2000 12196.45 835.946
8/31/92 10000 728 2671 12671 0 10629 0 10629 2831 13460.47 884.975
8/31/93 10000 761 3432 13432 0 11391 0 11391 3830 15221.40 933.828
8/31/94 10000 826 4258 14258 57 10762 54 10816 4424 15240.70 989.656
8/31/95 10000 879 5137 15137 0 10999 55 11054 5430 16484.42 1047.295
TOTAL $ 57
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE TAX-EXEMPT FUND OF CALIFORNIA
SALES NET ASSET INITIAL
INITIAL OFFERING CHARGE SHARES VALUE NET ASSET
DATE INVESTMENT PRICE INCLUDED PURCHASED PER SHARE VALUE
9/01/89 10000.00 14.87 4.75 % 672.495 14.160 9523
DIVIDENDS AND CAPITAL GAINS REINVESTED
============COST OF SHARES============= ================VALUE OF SHARES=====================
CURRENT CUM. TOTAL CURRENT FROM FROM
CUM INCOME INCOME INVM'T CAP GAIN FROM CAP GAINS SUB- DIVS TOTAL SHARES
DATE INV'M'T DIVS DIVS COST DISTRIB'N INV'M'T REINV'D TOTAL REINV'D VALUE HELD
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
8/31/90 10000 583 583 10583 0 9328 0 9328 571 9899.17 713.711
8/31/91 10000 619 1202 11202 0 9812 0 9812 1231 11043.48 756.921
8/31/92 10000 659 1861 11861 0 10229 0 10229 1958 12187.97 801.313
8/31/93 10000 689 2550 12550 0 10962 0 10962 2820 13782.42 845.547
8/31/94 10000 748 3298 13298 51 10356 49 10405 3394 13799.92 896.099
8/31/95 10000 796 4094 14094 0 10585 50 10635 4291 14926.13 948.293
TOTAL $ 51
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE TAX-EXEMPT FUND OF CALIFORNIA
SALES NET ASSET INITIAL
INITIAL OFFERING CHARGE SHARES VALUE NET ASSET
DATE INVESTMENT PRICE INCLUDED PURCHASED PER SHARE VALUE
9/01/90 10000.00 14.56 4.75 % 686.813 13.870 9526
DIVIDENDS AND CAPITAL GAINS REINVESTED
============COST OF SHARES============= ================VALUE OF SHARES=====================
CURRENT CUM. TOTAL CURRENT FROM FROM
CUM INCOME INCOME INVM'T CAP GAIN FROM CAP GAINS SUB- DIVS TOTAL SHARES
DATE INV'M'T DIVS DIVS COST DISTRIB'N INV'M'T REINV'D TOTAL REINV'D VALUE HELD
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
8/31/91 10000 596 596 10596 0 10021 0 10021 606 10627.28 728.395
8/31/92 10000 635 1231 11231 0 10446 0 10446 1282 11728.67 771.116
8/31/93 10000 663 1894 11894 0 11195 0 11195 2068 13263.02 813.682
8/31/94 10000 720 2614 12614 50 10577 47 10624 2655 13279.87 862.329
8/31/95 10000 766 3380 13380 0 10810 48 10858 3505 14363.63 912.556
TOTAL $ 50
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE TAX-EXEMPT FUND OF CALIFORNIA
SALES NET ASSET INITIAL
INITIAL OFFERING CHARGE SHARES VALUE NET ASSET
DATE INVESTMENT PRICE INCLUDED PURCHASED PER SHARE VALUE
9/01/91 10000.00 15.32 4.75 % 652.742 14.590 9523
DIVIDENDS AND CAPITAL GAINS REINVESTED
============COST OF SHARES============= ================VALUE OF SHARES=====================
CURRENT CUM. TOTAL CURRENT FROM FROM
CUM INCOME INCOME INVM'T CAP GAIN FROM CAP GAINS SUB- DIVS TOTAL SHARES
DATE INV'M'T DIVS DIVS COST DISTRIB'N INV'M'T REINV'D TOTAL REINV'D VALUE HELD
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
8/31/92 10000 569 569 10569 0 9928 0 9928 582 10510.46 691.023
8/31/93 10000 594 1163 11163 0 10640 0 10640 1245 11885.42 729.167
8/31/94 10000 645 1808 11808 44 10052 42 10094 1806 11900.52 772.761
8/31/95 10000 687 2495 12495 0 10274 43 10317 2554 12871.68 817.769
TOTAL $ 44
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE TAX-EXEMPT FUND OF CALIFORNIA
SALES NET ASSET INITIAL
INITIAL OFFERING CHARGE SHARES VALUE NET ASSET
DATE INVESTMENT PRICE INCLUDED PURCHASED PER SHARE VALUE
9/01/92 10000.00 15.97 4.75 % 626.174 15.210 9524
DIVIDENDS AND CAPITAL GAINS REINVESTED
============COST OF SHARES============= ================VALUE OF SHARES=====================
CURRENT CUM. TOTAL CURRENT FROM FROM
CUM INCOME INCOME INVM'T CAP GAIN FROM CAP GAINS SUB- DIVS TOTAL SHARES
DATE INV'M'T DIVS DIVS COST DISTRIB'N INV'M'T REINV'D TOTAL REINV'D VALUE HELD
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
8/31/93 10000 539 539 10539 0 10207 0 10207 563 10770.03 660.738
8/31/94 10000 584 1123 11123 40 9643 38 9681 1102 10783.73 700.242
8/31/95 10000 622 1745 11745 0 9856 39 9895 1768 11663.78 741.028
TOTAL $ 40
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE TAX-EXEMPT FUND OF CALIFORNIA
SALES NET ASSET INITIAL
INITIAL OFFERING CHARGE SHARES VALUE NET ASSET
DATE INVESTMENT PRICE INCLUDED PURCHASED PER SHARE VALUE
9/01/93 10000.00 17.11 4.75 % 584.454 16.300 9527
DIVIDENDS AND CAPITAL GAINS REINVESTED
============COST OF SHARES============= ================VALUE OF SHARES=====================
CURRENT CUM. TOTAL CURRENT FROM FROM
CUM INCOME INCOME INVM'T CAP GAIN FROM CAP GAINS SUB- DIVS TOTAL SHARES
DATE INV'M'T DIVS DIVS COST DISTRIB'N INV'M'T REINV'D TOTAL REINV'D VALUE HELD
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
8/31/94 10000 517 517 10517 36 9001 34 9035 503 9538.70 619.396
8/31/95 10000 550 1067 11067 0 9199 34 9233 1084 10317.10 655.470
TOTAL $ 36
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE TAX-EXEMPT FUND OF CALIFORNIA
SALES NET ASSET INITIAL
INITIAL OFFERING CHARGE SHARES VALUE NET ASSET
DATE INVESTMENT PRICE INCLUDED PURCHASED PER SHARE VALUE
9/01/94 10000.00 16.17 4.75 % 618.429 15.400 9524
DIVIDENDS AND CAPITAL GAINS REINVESTED
============COST OF SHARES============= ================VALUE OF SHARES=====================
CURRENT CUM. TOTAL CURRENT FROM FROM
CUM INCOME INCOME INVM'T CAP GAIN FROM CAP GAINS SUB- DIVS TOTAL SHARES
DATE INV'M'T DIVS DIVS COST DISTRIB'N INV'M'T REINV'D TOTAL REINV'D VALUE HELD
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
8/31/95 10000 550 550 10550 0 9734 0 9734 567 10301.01 654.448
TOTAL $ 0
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE TAX-EXEMPT FUND OF CALIFORNIA
SALES NET ASSET INITIAL
INITIAL OFFERING CHARGE SHARES VALUE NET ASSET
DATE INVESTMENT PRICE INCLUDED PURCHASED PER SHARE VALUE
9/01/95 10000.00 16.52 4.75 % 605.327 15.740 9528
DIVIDENDS AND CAPITAL GAINS REINVESTED
============COST OF SHARES============= ================VALUE OF SHARES=====================
CURRENT CUM. TOTAL CURRENT FROM FROM
CUM INCOME INCOME INVM'T CAP GAIN FROM CAP GAINS SUB- DIVS TOTAL SHARES
DATE INV'M'T DIVS DIVS COST DISTRIB'N INV'M'T REINV'D TOTAL REINV'D VALUE HELD
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
8/31/95 10000 0 0 10000 0 9528 0 9528 0 9527.85 605.327
TOTAL $ 0
</TABLE>
SCHEDULE FOR COMPUTATION OF EACH PERFORMANCE QUOTATION
PROVIDED IN THE REGISTRATION STATEMENT
(1) ENDING REDEMPTION VALUE AND TOTAL RETURN
Value of an initial investment at the end of a period and total return for the
period are computed as set forth below.
(A) Initial investment DIVIDED BY
Public offering price for one share at
beginning of period EQUALS
Number of shares initially purchased
(B) Number of shares initially purchased PLUS
Number of shares acquired at net asset
value through reinvestment of dividends
and capital gain distributions during period EQUALS
Number of shares purchased during period
(C) Number of shares purchased during period MULTIPLIED BY
Net asset value of one share as of the last day
of the period EQUALS
Value of investment at end of period
(D) Value of investment at end of period DIVIDED BY
Initial investment MINUS ONE
AND THEN MULTIPLIED
BY 100 EQUALS
Total return for the period expressed as a
percentage
EXHIBIT 16
(2) AVERAGE ANNUAL TOTAL RETURN
Average annual total return quotations for the 1, 5, and lifetime periods ended
August 31, 1995 are computed according to the formula set forth below.
P(1+T)/n/ = ERV
WHERE: P = a hypothetical initial investment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 investment as of
the end of 1, 5 and lifetime periods (computed in accordance with the formula
shown in (1), above)
THUS:
AVERAGE ANNUAL TOTAL RETURN AT PUBLIC OFFERING PRICE:
1 Year Total Return 1,000(1+T)/1/ = $1,030.12
T = 3.01%
5 Year Average Annual Total Return 1,000(1+T)/5/ = $1,436.39
T = 7.51%
Lifetime Average Annual Total Return 1,000(1+T)/8.84/ =
$1,746.10
T = 6.51%
Hypothetical illustrations which are based on $1,000 and $10,000 initial
investments used to obtain ending values over various time periods are
attached.
(3) YIELD
Yield is computed as set forth below.
(A) Dividends and interest earned during the period MINUS
Expenses accrued for the period EQUALS
Net investment income
(B) Net income investment DIVIDED BY
Average daily number of shares
outstanding during the period that
were entitled to receive dividends EQUALS
Net investment income per share earned
during the period
(C) Net investment income per share earned
during the period DIVIDED BY
Maximum offering price per share on
last day of the period EQUALS
Current month's yield
(D) Current months yield PLUS ONE RAISED
TO THE SIXTH POWER EQUALS
Semiannual compounded yield
(E) Semiannual compounded yield MINUS ONE
MULTIPLIED BY
TWO EQUALS
Annualized rate
<TABLE> <S> <C>
<ARTICLE> 6
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-START> SEP-1-1994
<PERIOD-END> AUG-31-1995
<INVESTMENTS-AT-COST> 218,857
<INVESTMENTS-AT-VALUE> 231,554
<RECEIVABLES> 3,435
<ASSETS-OTHER> 621
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 235,610
<PAYABLE-FOR-SECURITIES> 1,653
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 842
<TOTAL-LIABILITIES> 2,495
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 220,461
<SHARES-COMMON-STOCK> 14,810,189
<SHARES-COMMON-PRIOR> 14,648,038
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (43)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 12,697
<NET-ASSETS> 233,115
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 14,168
<OTHER-INCOME> 0
<EXPENSES-NET> 1,619
<NET-INVESTMENT-INCOME> 12,549
<REALIZED-GAINS-CURRENT> 871
<APPREC-INCREASE-CURRENT> 3,633
<NET-CHANGE-FROM-OPS> 17,053
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 12,552
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 12,513,117
<NUMBER-OF-SHARES-REDEEMED> 2,849,307
<SHARES-REINVESTED> 498,341
<NET-CHANGE-IN-ASSETS> 162,151
<ACCUMULATED-NII-PRIOR> 9,064
<ACCUMULATED-GAINS-PRIOR> (914)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 943
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 676
<AVERAGE-NET-ASSETS> 222,089
<PER-SHARE-NAV-BEGIN> 15.40
<PER-SHARE-NII> .86
<PER-SHARE-GAIN-APPREC> .34
<PER-SHARE-DIVIDEND> .86
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.74
<EXPENSE-RATIO> .007
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
