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. 13
and
Registration Statement
Under
The Investment Company Act of 1940
Amendment No. 15
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)
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 15, 1996, it filed its 24f-2 notice for fiscal 1996.
Approximate date of proposed public offering:
It is proposed that this filing become effective on January 1, 1997,
pursuant to paragraph (a) of rule 485.
<PAGE>
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 Expenses
3. Condensed Financial Information Financial Highlights; Investment Results
4. General Description of Registrant Fund Organization and Management; Investment Policies
and Risks; Securities and Investment Techniques
5. Management of the Fund Financial Highlights; Fund Organization and
Management
6. Capital Stock and Other Securities Investment Policies and Risks;
Fund Organization and Management;
Dividends, Distributions and Taxes
7. Purchase of Securities Being Offered Purchasing Shares; Fund Organization and Management;
Other Important Things to Remember
8. Redemption or Repurchase Selling 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 N/A
13. Investment Objectives and Description of Certain Securities; Fundamental
Policies Policies and Investment Restrictions
14. Management of the Registrant Trust Officers and Trustees
15. Control Persons and Principal Trust Officers and Trustees; Fund Organization and
Holders Management (Part "A")
16. Investment Advisory and Other Fund Officers and Trustees; Fund Organization and
Services Management (Part "A"); General Information; Management
17. Brokerage Allocation and Other Execution of Portfolio Transactions; Fund Organization
Practices and Management (Part "A")
18. Capital Stock and Other N/A
Securities
19. Purchase, Redemption and Pricing Purchase of Shares; Redeeming Shares; Shareholder
of Securities Being Offered Account Services and Privileges; Purchasing Shares
(Part "A"); General Information
20. Tax Status Dividends and Distributions; Additional Information
Concerning Taxes
21. Underwriter Management; Fund Organization and Management
(Part "A")
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
JANUARY 1, 1997
THE TAX-EXEMPT FUND OF CALIFORNIA
333 South Hope Street
Los Angeles, CA 90071
The fund's investment objective is to provide shareholders 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. You should keep it on file for future reference.
More detailed information about the fund, including the fund's financial
statements, is contained in the statement of additional information dated
January 1, 1997, which has been filed with the Securities and Exchange
Commission and is available to you without charge, by writing to the Secretary
of the fund at the above address or by calling American Funds Service Company.
PHONE NUMBERS TO CALL FOR SERVICE AND INFORMATION
Call American Funds Service Company
for shareholder services 800/421-0180 ext. 1
Call American Funds Distributors
for dealer services 800/421-9900 ext. 11
Call American FundsLine(R)
for 24-hour information 800/325-3590
Telephone conversations may be recorded or monitored for verification,
recordkeeping and quality assurance purposes.
YOU MAY LOSE MONEY BY INVESTING IN THE FUND. The likelihood of loss is greater
if you intend to invest for a shorter period of time. Your investment in the
fund is not a deposit or obligation of, or insured or guaranteed by, any entity
or person including the U.S. Government and the Federal Deposit Insurance
Corporation.
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.
20-010-0197
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
Expenses Fund Organization and Management
Financial Highlights Shareholder Services
Investment Policies and Risks Purchasing Shares
Securities and Investment Techniques Selling Shares
Investment Results Other Important Things to Remember
Dividends, Distributions and Taxes
</TABLE>
EXPENSES
THE EFFECT OF THE EXPENSES DESCRIBED BELOW IS REFLECTED IN THE FUND'S SHARE
PRICE OR RETURN.
You may pay certain shareholder transaction expenses when you buy or sell
shares of a fund. Annual fund operating expenses are paid out of the fund's
assets and are factored into its share price.
Shareholder Transaction Expenses
Maximum sales charge on purchases
(as a percentage of offering price) 4.75%
SALES CHARGES ARE REDUCED OR ELIMINATED FOR LARGER PURCHASES. The fund has no
sales charge on reinvested dividends, and no deferred sales charge or
redemption or exchange fees. A contingent deferred sales charge of 1% applies
on certain redemptions made within 12 months following purchases without a
sales charge.
<TABLE>
<CAPTION>
Annual Fund Operating Expenses (as a percentage of average net assets)
<S> <C>
Management fees %
12b-1 expenses %/1/
Other expenses %
Total fund operating expenses %
</TABLE>
/1/ 12b-1 expenses may not exceed 0.25% of the fund's average net assets
annually. 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.
Examples
Assuming a hypothetical annual return of 5% and shareholder transaction and
operating expenses as described above, for every $1,000 you invested, you would
pay the following expenses annually:
<TABLE>
<S> <C>
One year $
Three years
Five years
Ten years
</TABLE>
THESE EXAMPLES ARE NOT MEANT TO REPRESENT YOUR ACTUAL INVESTMENT RESULTS OR
EXPENSES, WHICH MAY VARY.
FINANCIAL HIGHLIGHTS
The following information has been derived from the fund's financial statements
which have been audited by Deloitte & Touche LLP, independent accountants.
This table should be read together with the financial statements which are
included in the statement of additional information and the annual report.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Years ended 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987/1/
August 31
Net Asset Value, $ $ $ $ $ $ $ $ $ $
Beginning of Period
INCOME FROM
INVESTMENT OPERATIONS
Net investment income
Net realized and
unrealized gain
(loss) on investments
Total income from
investment operations
LESS DISTRIBUTIONS
Dividends from net
investment income
Distributions from
net realized gains
Total distributions
Net Asset Value, End $ $
of Period
Total Return/2/ % % % % % % % % % %/3/
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of $ $ $ $ $ $ $ $ $ $
period (in millions)
Ratio of expenses to % % % % % % % % % %/3/
average net assets
Ratio of net income % % % % % % % % % %/3/
to average net assets
Portfolio turnover % % % % % % % % % %/3/
rate
</TABLE>
/1/The period ended August 31, 1987 represents the initial period of operations
from October 28, 1986 to August 31, 1987.
/2/Excludes maximum sales charge of 4.75%.
/3/Based on operations for the period shown and, accordingly, not
representative of a full year's operations.
INVESTMENT POLICIES AND RISKS
The fund's investment objective is to provide shareholders with a high level of
current income exempt from federal and California income taxes. Consistent
with this primary objective is the additional objective of preserving the
fund's capital.
Under normal market conditions, the fund will invest at least 80% of its assets
in, or derive at least 80% of its income from, securities that are exempt from
both federal and California income taxes. The assets of the fund will be
invested 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. or Standard & Poor's
Corporation or in securities that are unrated but determined to be of
comparable quality. Up to 20% of the fund's assets may be invested in
tax-exempt bonds rated Ba and BB or below (or in comparable unrated tax-exempt
bonds). The fund may invest up to 20% of assets in certain tax-exempt
securities believed to pay interest constituting an item of tax preference
subject to alternative minimum taxes; therefore, while the fund's distributions
are not subject to regular federal income tax, a portion may be included in
determining a shareholder's federal alternative minimum tax. A COMPLETE
DESCRIPTION OF THE INVESTMENT POLICIES IS CONTAINED IN THE FUND'S STATEMENT
OF ADDITIONAL INFORMATION.
The fund's investment restrictions (which are described in the statement of
additional information) and objective may not be changed without shareholder
approval. All other investment practices may be changed by the fund's board of
trustees.
ACHIEVEMENT OF THE FUND'S INVESTMENT OBJECTIVE CANNOT, OF COURSE, BE ASSURED
DUE TO THE RISK OF CAPITAL LOSS FROM FLUCTUATING PRICES INHERENT IN ANY
INVESTMENT IN SECURITIES.
SECURITIES AND INVESTMENT TECHNIQUES
DEBT SECURITIES Bonds and other debt securities are used by issuers to borrow
money. The issuer pays the investor a fixed or variable rate of interest, and
must repay the amount borrowed at maturity. Some debt securities, such as zero
coupon bonds, do not pay current interest, but are purchased at a discount from
their face values.
In general, bond prices rise when interest rates fall, and vice versa. Debt
securities have varying levels of sensitivity to changes in interest rates and
varying degrees of quality as measured by Moody's Investors Service, Inc.
(which rates bonds from Aaa to C) or Standard & Poor's Corporation (which rates
bonds from AAA to D) or as rated by the fund's investment adviser. Longer-term
bonds are generally more sensitive to interest rate changes than short-term
bonds.
The fund may invest its assets in securities rated Ba and BB or below. These
securities are commonly known as "junk" or "high-yield, high-risk" bonds.
High-yield, high-risk bonds have speculative characteristics and involve
greater risk of default or price changes due to changes in the issuer's
creditworthiness, or they may already be in default. The market prices of
these securities may fluctuate more than higher-quality securities and may
decline significantly. It may be more difficult to dispose of, or to determine
the value of, high-yield, high-risk bonds.
Bonds rated Ba and BB or below are considered speculative; bonds rated Ca or CC
are described by the ratings agencies as "speculative in a high degree;
often in default or [having] other marked shortcomings." See the statement of
additional information for a complete description of the bond ratings.
Capital Research and Management Company attempts to reduce the risks described
above through diversification of the portfolio and by credit analysis of each
issuer as well as by monitoring broad economic trends and corporate and
legislative developments.
During the previous fiscal year, money market instruments and cash made up %
of the fund's portfolio. The average monthly composition of the fund's
portfolio based on the higher of Moody's or S&P ratings for the fiscal year
ended August 31, 1996 was as follows:
Aaa/AAA - %
Aa/AA- %
A/A - %
Baa/BBB - %
Ba/BB - %
Non-rated- %
Some or all of these non-rated securities were determined to be equivalent to
securities rated by Moody's or S&P as follows:
Baa/BBB - %
Ba/BB - %
B/B - %
FORWARD COMMITMENTS The fund may purchase securities on a when-issued or
delayed-delivery basis or sell them on a delayed-delivery basis and enter into
firm commitment agreements. These are trading practices in which payment and
delivery for the securities take place at a future date. The fund does not
participate in further gains or losses with respect to the security. If the
other party to a delayed delivery transactions fails to deliver or pay for the
securities, the fund could miss a favorable price or yield opportunity, or
could experience a loss.
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 securities with maturities in excess of three years.
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.
MULTIPLE PORTFOLIO COUNSELOR SYSTEM The basic investment philosophy of Capital
Research and Management Company is to seek fundamental values at reasonable
prices, 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. Counselors decide how their
respective segments will be invested (within the limits provided by the fund's
objective and policies and by Capital Research and Management Company's
investment committee). In addition, Capital Research and Management Company's
research professionals make investment decisions with respect to a portion of
the fund's portfolio. The primary individual portfolio counselors for the fund
are listed on the following page.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PORTFOLIO PRIMARY YEARS OF YEARS OF EXPERIENCE AS
COUNSELORS TITLE(S) EXPERIENCE AS INVESTMENT PROFESSIONAL
FOR THE PORTFOLIO (APPROXIMATE)
TAX-EXEMPT COUNSELOR FOR
FUND OF THE TAX-EXEMPT FUND
CALIFORNIA OF CALIFORNIA
(APPROXIMATE)
WITH CAPITAL TOTAL YEARS
RESEARCH AND
MANAGEMENT
COMPANY
OR ITS AFFILIATES
David A. Vice 3 years 5 years 9 years
Hoag President,
Capital
Research
Company*
Neil L. Senior Since the 18 years 18 years
Langberg Vice fund began
President operations**
of the
fund.
Vice
President
-
Investment
Management
Group,
Capital
Research
and
Management
Company
Mark R. Vice Since the 2 years 11 years
Macdonald President fund began
of the operations**
fund.
Vice
President
-
Investment
Management
Group,
Capital
Research
and
Management
Company
* A wholly owned subsidiary of Capital Research and Management Company
** The fund began operations on October 28, 1986
</TABLE>
INVESTMENT RESULTS
THE FUND MAY FROM TIME TO TIME COMPARE INVESTMENT RESULTS TO VARIOUS INDICES OR
OTHER MUTUAL FUNDS. FUND RESULTS MAY BE CALCULATED ON A TOTAL RETURN, YIELD,
AND/OR DISTRIBUTION RATE BASIS. RESULTS CALCULATED WITHOUT A SALES CHARGE WILL
BE HIGHER.
+ TOTAL RETURN is the change in value of an investment in the fund over a
given period, assuming reinvestment of any dividends and capital gain
distributions.
+ YIELD refers to the income generated by an investment in the fund over a
given period of time, expressed as an annual percentage rate. Because yield is
calculated using a formula mandated by the Securities and Exchange Commission
that differs from other accounting methods, the quoted yield may not equal the
income actually paid to shareholders.
+ DISTRIBUTION RATE reflects dividends that were paid by the fund. The
distribution rate is calculated by annualizing the current month's dividend and
dividing by the average price for the month. The SEC yield reflects income the
fund expects to earn based on its current portfolio of securities, while the
distribution rate is based solely on the fund's past dividends. Accordingly,
the fund's SEC yield and distribution rate may differ.
<TABLE>
<CAPTION>
<S> <C> <C>
AVERAGE ANNUAL
COMPOUND RETURNS/#/
FUND/*/ LEHMAN/**/
One year +_____% +_____%
Five year +_____% +_____%
Lifetime /##/ +_____% +_____%
30-DAY
Yield/#/ Distribution Rate
_____% %
</TABLE>
/#/ All returns are as of September 30, 1996.
/*/ These fund results were calculated according to a standard that is required
by the Securities and Exchange Commission. The maximum sales charge has been
deducted.
/**/ Lehman Brothers Municipal Bond Index represents the long-term investment
grade municipal bond market.
/##/ The fund began investment operations October 28, 1986.
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, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS The fund declares dividends from its net investment
income daily and distributes the accrued dividends to shareholders each month.
Dividends begin accruing one day after payment for shares is received by the
fund or American Funds Service Company. Capital gains, if any, are usually
distributed in November or December. When a capital gain is distributed, the
net asset value per share is reduced by the amount of the payment.
TAXES In any fiscal year in which the fund so qualifies and distributes to
shareholders all of its net investment income and net capital gains, the fund
itself is relieved of federal income tax. The fund is permitted to pass
through to its shareholders tax-exempt income subject to certain requirements.
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. However, the fund may invest in obligations which pay interest that is
subject to state and local taxes when distributed by the fund. Dividends
derived from taxable interest income or distributions of capital gains will not
be exempt from federal, state or local income tax.
Capital gains are taxable whether they are reinvested or received in
cash--unless you are exempt from taxation or entitled to tax deferral. Early
each year, you will be notified as to the amount and tax status of all income
distributions paid during the prior year. 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).
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 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 gains 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).
YOU MUST PROVIDE THE FUND WITH A CERTIFIED CORRECT TAXPAYER IDENTIFICATION
NUMBER (GENERALLY YOUR SOCIAL SECURITY NUMBER) AND CERTIFY THAT YOU ARE NOT
SUBJECT TO BACKUP WITHHOLDING. IF YOU FAIL TO DO SO THE IRS CAN REQUIRE THE
FUND TO WITHHOLD 31% OF YOUR TAXABLE DISTRIBUTIONS AND REDEMPTIONS. Federal
law also requires the fund to withhold 30% or the applicable tax treaty rate
from dividends paid to certain nonresident alien, non-U.S. partnership and
non-U.S. corporation shareholder accounts.
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 ORGANIZATION AND MANAGEMENT
FUND ORGANIZATION AND VOTING RIGHTS The fund, an open-end, diversified
management investment company, was organized as a Massachusetts business trust
in 1986. All fund operations are supervised by the fund's board of trustees
who meet periodically and perform duties required by applicable state and
federal laws. The fund does not hold annual meetings of shareholders.
However, significant corporate matters which require shareholder approval, such
as certain elections of board members or a change in a fundamental investment
policy, will be presented to shareholders at a meeting called for such purpose.
Shareholders have one vote per share owned.
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 headquartered at 333
South Hope Street, Los Angeles, CA 90071. Capital Research and Management
Company manages the investment portfolio and business affairs of the fund. The
management fee paid by the fund to Capital Research and Management Company is
composed of a basic management fee which may not exceed 0.30% of the fund's
average net assets annually and declines at certain asset levels, plus 3% of
the fund's annual gross income. The total management fee paid by the fund for
the previous fiscal year is listed above under "Expenses."
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.) This policy has also been incorporated into the
fund's "code of ethics" which is available from the fund's Secretary upon
request.
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 preceding 12 months and accrued
while the plan is in effect. The 12b-1 fee paid by the fund for the last
fiscal year is listed above under "Expenses."
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
a concession or discount. On occasion, securities may be purchased directly
from an issuer, in which case no commissions or discounts are paid. In the
over-the-counter market, purchases and sales are transacted directly with
principal market-makers except in those circumstances where it appears better
prices and executions are available elsewhere.
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 who
have sold shares of the fund or have provided investment research, statistical,
and other related services for the benefit of the fund and/or other funds
served by Capital Research and Management Company.
PRINCIPAL UNDERWRITER AND TRANSFER AGENT American Funds Distributors, Inc. and
American Funds Service Company serve as the principal underwriter and transfer
agent for the fund, respectively. They are headquartered at 333 South Hope
Street, Los Angeles, CA 90071 and 135 South State College Boulevard, Brea, CA
92821, respectively.
AMERICAN FUNDS SERVICE COMPANY SERVICE AREA
<TABLE>
<CAPTION>
SERVICE ADDRESS AREAS SERVED
AREA
<S> <C> <C>
WEST P.O. Box 2205 AK, AZ, CA, HI,
Brea, CA 92822-2205 ID, MT, NV, OR,
Fax: 714/671-7080 UT, WA and
outside the U.S.
CENTRAL- P.O. Box 659522 AR, CO, IA, KS,
WEST San Antonio, TX 78265-9522 LA, MN, MO, ND,
Fax: 210/530-4050 NE, NM, OK, SD,
TX, and WY
CENTRAL- P.O. Box 6007 AL, IL, IN, KY,
EAST Indianapolis, IN 46206-6007 MI, MS, OH, TN
Fax: 317/735-6620 and WI
EAST P.O. Box 2280 CT, DE, FL, GA,
Norfolk, VA 23501-2280 MA, MD, ME, NC,
Fax: 804/670-4773 NH, NJ, 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.
</TABLE>
SHAREHOLDER SERVICES
The fund offers you a valuable array of services you can use to alter your
investment program as your needs and circumstances change. These services,
which are summarized below, are available only in states where they may be
legally offered and may be terminated or modified at any time upon 60 days'
written notice. A COMPLETE DESCRIPTION OF SHAREHOLDER SERVICES AND ACCOUNT
POLICIES IS CONTAINED IN THE FUND'S STATEMENT OF ADDITIONAL INFORMATION. In
addition, an easy-to-read guide to owning a fund in The American Funds Group
titled "Welcome to the Family" is sent to new shareholders and isavailable upon
request.
PURCHASING SHARES
HOW TO PURCHASE SHARES You may open an account by contacting any investment
dealer authorized to sell the fund's shares. You may add to your account
through your dealer or directly through American Funds Service Company by mail,
wire, or bank debit. You may also establish or add to your account by
exchanging shares from any of your other accounts in The American Funds Group
(see below).
Various purchase options are available as described below subject to certain
investment minimums and limitations described in the statement of additional
information.
+ Automatic Investment Plan
You may invest monthly or quarterly through automatic withdrawals from your
bank account.
+ Automatic Reinvestment
You may reinvest your dividends and capital gain distributions into the fund
(with no sales charge). This will be done automatically UNLESS you elect to
have the dividends and/or capital gain distributions paid to you in cash.
+ Cross-Reinvestment
You may invest your dividend and capital gain distributions into any other fund
in The American Funds Group.
+ Exchange Privilege
You may exchange your shares into other funds in The American Funds Group with
no sales charge. Exchanges of shares from the money market funds that were
initially purchased with no sales charge will generally be subject to the
appropriate sales charge. You may also elect to automatically exchange shares
among any of the funds in The American Funds Group. Exchange requests may be
made in writing, by telephone including American FundsLine(R) (see below) or by
fax. EXCHANGES HAVE THE SAME TAX CONSEQUENCES AS ORDINARY SALES AND PURCHASES.
+ Retirement Plans
You may invest in the funds through various retirement plans. For further
information contact your investment dealer or American Funds Distributors.
SHARE PRICE The fund's share price, also called net asset value, is determined
as of the close of trading (normally 4:00 p.m., Eastern time) every day the New
York Stock Exchange is open. The fund calculates its net asset value per share
by dividing the total value of its assets after subtracting liabilities by the
number of its shares outstanding. Shares are purchased at the offering price
next determined after your investment is received and accepted by American
Funds Service Company. The offering price is the net asset value plus a sales
charge, if applicable.
SHARE CERTIFICATES Shares are credited to your account and certificates are
not issued unless you request them by writing to American Funds Service
Company.
INVESTMENT MINIMUMS
To establish an account $1,000
To add to an account $50
SALES CHARGES You may pay a sales charge when purchasing shares. Sales charges
may be reduced for larger purchases as indicated below.
<TABLE>
<S> <C> <C> <C>
Investment Sales Charge as a Percentage of Dealer Concession as % of Offering Price
Offering Price Net Amount Invested
Less than $25,000 4.75% 4.99% 4.00%
$25,000 but less than $50,000 4.50% 4.71% 3.75%
$50,000 but less than $100,000 4.00% 4.17% 3.25%
$100,000 but less than $250,000 3.50% 3.63% 2.75%
$250,000 but less than $500,000 2.50% 2.56% 2.00%
$500,000 but less than $1 million 2.00% 2.04% 1.60%
$1 million or more and certain
other investments described below see below see below see below
</TABLE>
PURCHASES NOT SUBJECT TO SALES CHARGES Investments of $1 million or more and
investments made by employer-sponsored defined contribution-type plans with 200
or more eligible employees are sold with no initial sales charge. A 1%
CONTINGENT DEFERRED SALES CHARGE MAY BE IMPOSED ON CERTAIN REDEMPTIONS MADE
WITHIN ONE YEAR OF PURCHASE BY THESE ACCOUNTS. A dealer concession of up to 1%
may be paid by the fund from its Plan of Distribution on these investments.
Investments by retirement plans with $100 million or more in assets may be made
with no sales charge and are not subject to a contingent deferred sales charge.
A dealer concession of up to 1% may be paid by American Funds Distributors on
these investments. Investments by certain individuals and entities including
employees and other associated persons of dealers authorized to sell shares of
the fund and Capital Research and Management Company and its affiliated
companies are not subject to a sales charge.
ADDITIONAL DEALER COMPENSATION In addition to the concessions listed, up to
0.25% of average net assets is paid annually to qualified dealers for providing
certain services pursuant to the fund's Plan of Distribution. During 1996,
American Funds Distributors will also provide additional compensation to the
top one hundred dealers who have sold shares of funds in The American Funds
Group based on the pro rata share of a qualifying dealer's sales.
REDUCING YOUR SALES CHARGE You and your immediate family may combine
investments to reduce your costs. You must let your investment dealer or
American Funds Service Company know if you qualify for a reduction in your
sales charge using one or any combination of the methods described below.
+ Aggregation
Investments that may be aggregated include those made by you, your spouse and
your children under the age of 21, if all parties are purchasing shares for
their own account(s), including any retirement plan or business account solely
"controlled by", as well as any trust account solely for the benefit, of these
individuals. Investments made for multiple employee benefit plans of a single
employer or "affiliated" employers may be aggregated provided they are not also
aggregated with individual accounts. Finally, investments made by a common
trust fund or other diversified pooled account not specifically formed for the
purpose of accumulating fund shares may be aggregated.
Purchases made for nominee or street name accounts will generally not be
aggregated with those made for other accounts unless qualified as described
above.
+ Concurrent Purchases
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.
+ Right of Accumulation
You may take into account the current value of your existing holdings in The
American Funds Group to determine your sales charge. Direct purchases of the
money market funds are excluded.
+ Statement of Intention
You may enter into a non-binding commitment to invest a certain amount in
non-money market fund shares over a 13-month period. A portion of your account
may be held in escrow to cover additional sales charges which may be due if
your total investments over the statement period are insufficient to qualify
for a sales charge reduction.
SELLING SHARES
HOW TO SELL SHARES You may sell (redeem) shares in your account by contacting
your investment dealer or American Funds Service Company. You may also use
American FundsLine(R) (see below). You may also sell shares in amounts of $50
or more automatically. If you sell shares through your investment dealer you
may be charged for this service. Shares held for you in your dealer's street
name must be sold through the dealer.
Shares are sold at the net asset value next determined after your request is
received and accepted by American Funds Service Company. Sale requests may be
made in writing, by telephone including American FundsLine(R) (see below) or by
fax. Sales by telephone or fax are limited to $10,000 in accounts registered
to individual(s) (including non-retirement trust accounts). In addition,
checks must be made payable to the registered shareholder(s) and mailed to an
address of record that has been used with the account for at least 10 days.
Proceeds will not be mailed until sufficient time has passed to provide
reasonable assurance that checks or drafts (including certified or cashier's
check) for shares purchased have cleared. Except for delays relating to
clearance of checks for share purchases or in extraordinary circumstances (and
as permissible under the Investment Company Act of 1940), sale proceeds will be
paid on or before the seventh day following receipt and acceptance of an order.
The fund may, with 60 days' written notice, close your account if due to a sale
of shares, the account has a value of less than the minimum required initial
investment.
Generally, written requests to sell shares must be signed by you and must
include any shares you wish to sell that are in certificate form. Your
signature must be guaranteed by a bank, savings association, credit union, or
member firm of a domestic stock exchange or the National Association of
Securities Dealers, Inc., that is an eligible guarantor institution. A
signature guarantee is not currently required for any sale of $50,000 or less
provided the check is made payable to the registered shareholder(s) and is
mailed to the address of record on the account, provided the address has been
used with the account for at least 10 days. Additional documentation may be
required for sale of shares held in corporate, partnership or fiduciary
accounts.
You may reinvest proceeds from a redemption or a dividend or capital gain
distribution without a sales charge in any fund in The American Fund Group
within 90 days after the date of the redemption or distribution. Reinvestment
will be at the next calculated net asset value after receipt and acceptance by
American Funds Service Company.
OTHER IMPORTANT THINGS TO REMEMBER
AMERICAN FUNDSLINE(R) You may check your share balance, the price of your
shares, or your most recent account transactions, sell 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
TouchTonet telephone.
TELEPHONE PURCHASES, SALES AND EXCHANGES Unless you opt out of the telephone
(including American FundsLine(R)) or fax purchase, sale and/or exchange options
(see below), 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 also reinstate them at any time by writing to
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.
ACCOUNT STATEMENTS You will receive regular confirmation statements reflecting
transactions in your account. Purchases through automatic investment plans
will be confirmed at least quarterly.
This prospectus has been printed on recycled paper using soy-based ink.
<PAGE>
The American Funds Tax-Exempt Series II
THE TAX-EXEMPT FUND OF CALIFORNIA
Part B
Statement of Additional Information
January 1, 1997
This document is not a prospectus but should be read in conjunction with
the current Prospectus dated January 1, 1997 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 1
Techniques
Investment Restrictions 8
Trust Officers and Trustees 11
Management 14
Dividends and Distributions 17
Additional Information Concerning Taxes 17
Purchase of Shares 22
Redeeming Shares 29
Shareholder Account Services and Privileges 30
Execution of Portfolio Transactions 32
General Information 32
Investment Results 34
Description of Ratings for Debt Securities 37
Financial Statements
</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 defaults on its obligations to pay interest
or principal or enters 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 is likely to decrease in a rising interest
rate market as is generally true with all bonds.
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.
MUNICIPAL LEASE OBLIGATIONS - The fund may invest in municipal Lease Revenue
obligations that are determined to be liquid by Capital Research and Management
Company. In determining whether these securities are liquid, Capital Research
and Management 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.
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 in which it may invest on a when issued or delayed delivery basis or
sell them on a delayed-delivery basis. These are trading practices in which
payment and delivery for the securities take place at a future date. 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
increases.
The fund 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 market values of the fund's portfolio
securities decline while the fund is in a leveraged position 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 additional 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.
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 10 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 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 issued or guaranteed by 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 PRINCIPAL AGGREGATE TOTAL TOTAL
WITH OCCUPATION(S) COMPENSATION COMPENSATION NUMBER
REGISTRANT DURING PAST 5 (INCLUDING FROM ALL OF FUND
YEARS (POSITIONS VOLUNTARILY FUNDS BOARDS ON
WITHIN THE DEFERRED MANAGED BY WHICH
ORGANIZATIONS COMPENSATION/1/) CAPITAL TRUSTEE
LISTED MAY HAVE FROM THE COMPANY RESEARCH AND SERVES/2/
CHANGED DURING DURING FISCAL MANAGEMENT
THIS PERIOD) YEAR ENDED COMPANY/2/
AUGUST 31, 1996 FOR THE YEAR
ENDED
AUGUST 31,
1996
<S> <C> <C> <C> <C> <C>
++ H. Frederick Trustee Private $ $ 18
Christie Investor. The
P.O. Box 144 Mission Group
Palos Verdes Estates, (non-utility
CA 90274 holding Company,
Age: 63 subsidiary of
Southern
California
Edison Company),
former President
and Chief
Executive
Officer
Diane C. Creel Trustee CEO and $ $ 12
100 W. Broadway President,
Suite 5000 The Earth
Long Beach, CA 90802 Technology
Age: 47 Corporation
(environmental
engineering)
Martin Fenton, Jr. Trustee Chairman, Senior $ $ 16
4350 Executive Drive Resource Group
Suite 101 (management of
San Diego, CA 92121-2116 senior living
Age: 61 centers)
Leonard R. Fuller Trustee President, $ $ 12
4337 Marina City Drive Fuller &
Suite 841 ETN Company, Inc.
Marina del Rey, CA (financial
90292 management
Age: 49 consulting
firm)
+* Abner D. Goldstine President, Capital Research none/4/ none/4/ 12
Age: 66 PEO and and Management
Trustee Company, Senior
Vice President
and Director
+**Paul G. Haaga, Jr. Chairman Capital Research none/4/ none/4/ 14
Age: 47 of and Management
the Board Company, Senior
Vice President
and Director
Herbert Hoover III Trustee Private Investor $ $ 14
1520 Circle Drive
San Marino, CA 91108
Age: 68
Richard G. Newman Trustee Chairman, $ $ 13
3250 Wilshire President and
Boulevard CEO,
Los Angeles, CA 90010-1599 AECOM Technology
Age: 61 Corporation
(architectural
engineering)
Peter Valli Trustee Chairman BW/IP $ $ 12
45 Sea Isle Drive International
Long Beach, CA 90803 Inc. (industrial
Age: 69 manufacturing)
</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 $ , Martin Fenton, Jr. $ , Richard G. Newman $
) and Peter C. Valli $ ).
/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. Hall, VICE PRESIDENT. 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
** Anthony W. Hynes, Jr., TREASURER. 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
# 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 92821.
*** 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
$900 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, 1996, 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.
MANAGEMENT
INVESTMENT ADVISER - The Investment Adviser, founded in 1931, maintains
research facilities in the U.S. and abroad (Los Angeles, San Francisco, New
York, Washington D.C., London, Geneva, Singapore, Hong Kong and Tokyo), with a
staff of professionals, many of whom have years of investment experience. The
Investment Adviser is located at 333 South Hope Street, Los Angeles, CA 90071,
and at 135 South State College Boulevard, Brea, CA 92821. The Investment
Adviser's research professionals travel several million miles a year, making
more than 5,000 research visits in more than 50 countries around the world.
The Investment Adviser believes that it is able to attract and retain quality
personnel. The Investment Adviser is a wholly owned subsidiary of The Capital
Group Companies, Inc.
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, 1997, 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, 1996, 1995, and 1994, the
Investment Adviser's total fees amounted to $ , $943,000, and $931,000,
respectively.
PRINCIPAL UNDERWRITER - American Funds Distributors, Inc. (the "Principal
Underwriter") is the principal underwriter of the fund's shares. The Principal
Underwriter is located at 333 South Hope Street, Los Angeles, CA 90071, 135
South State College Boulevard, Brea, CA 92821, 8000 IH-10 West, San Antonio,
TX 78230, 8332 Woodfield Crossing Boulevard, Indianapolis, IN 46240, and 5300
Robin Hood Road, Norfolk, VA 23513. The Trust has adopted a Plan of
Distribution (the "Plan"), pursuant to rule 12b-1 under the 1940 Act. 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, 1996 amounted to $ after allowance of $ to dealers. During the
fiscal years ended August 31, 1995 and 1994 the Principal Underwriter retained
$100,000 and $167,000 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, 1996, the fund paid or accrued $
under the Plan as compensation to dealers. As of August 31, 1996, accrued and
unpaid distribution expenses were $ .
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 - The fund declares dividends from its net
investment income daily and distributes the accrued dividends to shareholders
each month. The percentage of the distribution that is tax-exempt may vary
from distribution to distribution. 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.
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
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METHOD INITIAL INVESTMENT ADDITIONAL INVESTMENTS
See "Investment Minimums and $50 minimum (except where a lower
Fund Numbers" for initial minimum is noted under "Investment
investment minimums. Minimums and Fund Numbers").
By contacting Visit any investment dealer who Mail directly to your investment
your is registered in the state where dealer's address printed on your
investment the purchase is made and who account statement.
dealer has a sales agreement with
American Funds Distributors.
By mail Make your check payable to the Fill out the account additions form at the
fund and mail to the address bottom of a recent account statement, make
indicated on the account your check payable to the fund, write your
application. Please indicate an account number on your check, and mail
investment dealer on the account the check and form in the envelope
application. provided with your account statement.
By telephone Please contact your investment Complete the "Investments by Phone"
dealer to open account, then section on the account application or
follow the procedures for American FundsLink Authorization Form.
additional investments. Once you establish the privilege, you, your
financial advisor or any person with your
account information can call American
FundsLine(R) and make investments by
telephone (subject to conditions noted in
"Telephone Purchases, Redemptions and
Exchanges" below).
By wire Call 800/421-0180 to obtain Your bank should wire your additional
your account number(s), if investments in the same manner as
necessary. Please indicate an described under "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.
</TABLE>
PRICE OF SHARES - Purchases of shares are made at the offering price next
determined after the purchase order is received by the fund or American Funds
Service Company; this offering price is effective for orders received prior to
the time of determination of the net asset value and, in the case of orders
placed with dealers, accepted by the Principal Underwriter prior to its close
of business. In case of orders sent directly to the fund or American Funds
Service Company, an investment dealer MUST be indicated. The dealer is
responsible for promptly transmitting purchase orders to the Principal
Underwriter. Orders received by the investment dealer, the Transfer Agent, or
the fund after the time of the determination of the net asset value will be
entered at the next calculated offering price. Prices which appear in the
newspaper are not always indicative of prices at which you will be purchasing
and redeeming shares of the fund, since such prices generally reflect the
previous day's closing price whereas purchases and redemptions are made at the
next calculated closing price. The net asset value per share of the money
market funds normally will remain constant at $1.00 based on the fund's current
practice of valuing their shares using the penney-rounding method in accordance
with rules of the Securities and Exchange Commission.
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 value of 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.
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):
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FUND MINIMUM FUND
INITIAL NUMBER
INVESTMENT
STOCK AND STOCK/BOND FUNDS
AMCAP Fund(R) 02
$1,000
American Balanced Fund(R) 11
500
American Mutual Fund(R) 03
250
Capital Income Builder(R) 12
1,000
Capital World Growth and Income 33
Fund(sm) 1,000
EuroPacific Growth Fund(R) 16
250
Fundamental Investors(sm) 10
250
The Growth Fund of America(R) 05
1,000
The Income Fund of America(R) 06
1,000
The Investment Company of America(R) 04
250
The New Economy Fund(R) 14
1,000
New Perspective Fund(R) 07
250
SMALLCAP World Fund(sm) 35
1,000
Washington Mutual Investors Fund(sm) 01
250
BOND FUNDS
American High-Income Municipal Bond 40
Fund(sm) $1,000
American High-Income Trust(R) 21
1,000
The Bond Fund of America(sm) 08
1,000
Capital World Bond Fund(R) 31
1,000
Intermediate Bond Fund of America(R) 23
1,000
Limited Term Tax-Exempt Bond Fund of 43
America(sm) 1,000
The Tax-Exempt Bond Fund of 19
America(sm) 1,000
The Tax-Exempt Fund of 20
California(R)* 1,000
The Tax-Exempt Fund of Maryland(R)* 24
1,000
The Tax-Exempt Fund of Virginia(R)* 25
1,000
U.S. Government Securities Fund(sm) 22
1,000
MONEY MARKET FUNDS
The Cash Management Trust of 09
America(R) 2,500
The Tax-Exempt Money Fund of 39
America(sm) 2,500
The U.S. Treasury Money Fund of 49
America(sm) 2,500
___________
*Available only in certain states.
</TABLE>
For retirement plan investments, the minimum is $250, except that the money
market funds have a minimum of $1,000 for individual retirement accounts
(IRAs). Minimums are reduced to $50 for purchases through "Automatic
Investment Plans" (except for the money market funds) or to $25 for purchases
by retirement plans through payroll deductions and may be reduced or waived for
shareholders of other funds in The American Funds Group. TAX-EXEMPT FUNDS
SHOULD NOT SERVE AS RETIREMENT PLAN INVESTMENTS. The minimum is $50 for
additional investments (except as noted above).
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 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.)
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AMOUNT OF PURCHASE SALES CHARGE AS DEALER
AT THE OFFERING PRICE PERCENTAGE OF THE: CONCESSION
AS PERCENTAGE
OF THE
OFFERING
PRICE
NET AMOUNT OFFERING
INVESTED PRICE
STOCK AND STOCK/BOND
FUNDS
Less than $50,000 6.10% 5.75% 5.00%
$50,000 but less than 4.71 4.50 3.75
$100,000
BOND FUNDS
Less than $25,000 4.99 4.75 4.00
$25,000 but less than 4.71 4.50 3.75
$50,000
$50,000 but less than 4.17 4.00 3.25
$100,000
STOCK, STOCK/BOND, AND
BOND FUNDS
$100,000 but less than 3.63 3.50 2.75
$250,000
$250,000 but less than 2.56 2.50 2.00
$500,000
$500,000 but less than 2.04 2.00 1.60
$1,000,000
$1,000,000 or more none none (see below)
</TABLE>
Commissions will be paid, to dealers who initiate and are responsible for
purchases of $1 million or more, for 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% 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.
American Funds Distributors, at its expense (from a designated percentage of
its income), will, during calendar year 1996, provide additional compensation
to dealers. Currently these payments are limited to the top one hundred dealers
who have sold shares of the fund or other funds in The American Funds Group.
These payments will be based on a pro rata share of a qualifying dealer's
sales. American Funds Distributors will, on an annual basis, determine the
advisability of continuing these payments.
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 made within twelve months 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
providing certain services. These services include processing purchase and
redemption transactions, establishing shareholder accounts and providing
certain information and assistance with respect to the fund.
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 dealers;
(3) companies exchanging securities with the fund through a merger, acquisition
or exchange offer; (4) trustees or other fiduciaries purchasing shares for
certain retirement plans 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.
AGGREGATION - Sales charge discounts are available for certain aggregated
investments. Qualifying investments include those by you, your spouse and your
children under the age of 21, if all parties are purchasing shares for their
own account(s), which may include purchases through employee benefit plan(s)
such as an IRA, individual-type 403(b) plan or single-participant Keogh-type
plan or by a business solely controlled by 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.
REDEEMING SHARES
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By writing to Send a letter of instruction specifying
American Funds the name of the fund, the number of shares
Service Company (at or dollar amount to be sold, your name and
the appropriate account number. You should also enclose
address indicated any share certificates you wish to redeem.
under "Fund For redemptions over $50,000 and for
Organization and certain redemptions of $50,000 or less
Management - (see below), your signature must be
Transfer Agent") guaranteed by a bank, savings association,
credit union, or member firm of a domestic
stock exchange or the National 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 your If you redeem shares through your
investment dealer investment dealer, you may be charged for
this service. SHARES HELD FOR YOU IN YOUR
INVESTMENT DEALER'S STREET NAME MUST BE
REDEEMED THROUGH THE DEALER.
You may have a You may use this option, provided the
redemption check account is registered in the name of an
sent to you by individual(s), a UGMA/UTMA custodian, or a
using American non-retirement plan trust. These
FundsLine(R) or by redemptions may not exceed $10,000 per
telephoning, day, per fund account and the check must
faxing, or be made payable to the shareholder(s) of
telegraphing record and be sent to the address of
American Funds record provided the address has been used
Service Company with the account for at least 10 days.
(subject to the See "Transfer Agent" and "Exchange
conditions noted in Privilege" below for the appropriate
this section and in telephone or fax number.
"Telephone
Purchases,
Redemptions and
Exchanges" below)
In the case of the Upon request (use the account application
money market funds, for the money market funds) you may
you may have establish telephone redemption privileges
redemptions wired (which will enable you to have a
to your bank by redemption sent to your bank account)
telephoning and/or check writing privileges. If you
American Funds request check writing privileges, you will
Service Company be provided with checks that you may use
($1,000 or more) or to draw against your account. These
by writing a check checks may be made payable to anyone you
($250 or more) designate and must be signed by the
authorized number of registered
shareholders exactly as indicated on your
checking account signature card.
</TABLE>
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.
CONTINGENT DEFERRED SALES CHARGE - A contingent deferred sales charge of 1%
applies to certain redemptions made within twelve months of purchase on
investments of $1 million or more 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.
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 at least quarterly. 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 REINVESTMENT - Dividends and capital gain distributions are
reinvested in additional shares at no sales charge unless you indicate
otherwise on the account application. You also may elect to have dividends
and/or capital gain distributions paid in cash by informing the fund, American
Funds Service Company or you investment dealer.
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).
EXCHANGE PRIVILEGE - You may exchange shares into other funds in The American
Funds Group. Exchange purchases are subject to the minimum investment
requirements of the fund purchased and no sales charge generally applies.
However, exchanges of shares from the money market funds are subject to
applicable sales charges on the fund being purchased, unless the money market
fund shares were acquired by an exchange from a fund having a sales charge, or
by reinvestment or cross-reinvestment of dividends or capital gain
distributions.
You may exchange shares by writing to American Funds Service Company (see
"Redeeming Shares"), by contacting your investment dealer, by using American
FundsLine(R) (see "American FundsLine(R)" below), or by telephoning
800/421-0180 toll-free, faxing (see "Transfer Agent" below for the appropriate
fax numbers) or telegraphing American Funds Service Company. (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 simultaneously at the share prices next determined after the
exchange order is received. (See "Purchase of Shares--Price of Shares.") THESE
TRANSACTIONS HAVE THE SAME TAX CONSEQUENCES AS ORDINARY SALES AND
PURCHASES.
AUTOMATIC EXCHANGES - You may automatically exchange shares (in amounts of $50
or more) among any of the funds in The American Funds Group on any day (or
preceding business day if the day falls on a non-business day) of each month
you designate. You must either meet the minimum initial investment requirement
for the receiving 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.
ACCOUNT STATEMENTS Your account is opened in accordance with your registration
instructions. Transactions in the account, such as additional investments and
dividend reinvestments, will be reflected on regular confirmation statements
from American Funds Service Company. Purchases through automatic investment
plans will be confirmed at least quarterly.
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 "Purchase of
Shares--Investment Minimums and Fund Numbers"), personal identification number
(the last four digits of your Social Security number or other tax
identification number associated with your account) and account number.
TELEPHONE 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.
REDEMPTION OF SHARES
The fund's Declaration of Trust permits the fund to direct the Transfer Agent
to redeem the shares of any shareholder if the shares owned by such shareholder
through redemptions, market decline or otherwise, have a value of less than the
minimum initial investment amount required of new shareholders of that series
or Class, (determined, for this purpose only as the greater of the
shareholder's cost or the current net asset value of the shares, including any
shares acquired through reinvestment of income dividends and capital gain
distributions). Prior notice of at least 60 days will be given to a
shareholder before the involuntary redemption provision is made effective with
respect to the shareholder's account. The shareholder will have not less than
30 days from the date of such notice within which to bring the account up to
the minimum determined as set forth above.
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, 1996 amounted
to $ .
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, 1996
<S> <C>
Net asset value and redemption price per share
(Net assets divided by shares outstanding) $
Offering price per share (100/95.25 of per share
net asset value, which takes into account the $
fund's current maximum sales charge)
</TABLE>
SHAREHOLDER AND TRUSTEE RESPONSIBILITY - Under the laws of certain states,
including Massachusetts, where the Trust was organized, 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 % based on a 30-day (or one month) period ended August
31, 1996, 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, 1996 was %.
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, 1996
were %, % and %, 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, 1996
<S> <C> <C>
Periods
Number of Years 9/1-8/31 Value
1 1995 - 1996
2 1994 - 1996 $
3 1993 - 1996
4 1992 - 1996
5 1991 - 1996
6 1990 - 1996
7 1989 - 1996
8 1988 - 1996
9 1987 - 1996
10 1986*- 1996
</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, 1996)
<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
1996 949 7,403 17,403 10,520 58 7,869 18,447
</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 since January 1, 1966 during which those funds were managed by
Capital Research and Management Company (121 in all), those funds have had
better total returns than the Standard and Poor's 500 Stock Composite Index in
94 of the 121 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."
<PAGE>
PART C
THE TAX-EXEMPT FUND OF CALIFORNIA
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(A) FINANCIAL STATEMENTS:
Included in Prospectus - Part A (to be provided by amendment)
Condensed Financial Information
Included in Statement of Additional Information - Part B (to be provided by
amendment)
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. On file (see SEC file Nos. 811-4694 and 33-6180) On file
10. Not applicable to this filing.
11. Consent of independent auditors (to be provided by amendment)
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). (to be provided by
amendment)
17. Financial data schedule. (to be provided by amendment)
Item 25. Persons Controlled by or Under Common Control with Registrant.
None.
Item 26. Number of Holders of Securities.
As of August 31, 1996.
<TABLE>
<CAPTION>
Number of
Title of Class Record-Holders
<S> <C>
Shares of Beneficial
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 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>
(1) (2) (3)
(b)
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND
BUSINESS ADDRESS WITH UNDERWRITER OFFICES
WITH REGISTRANT
<S> <C> <C> <C>
# David A. Abzug Assistant Vice None
President
John A. Agar Regional Vice President None
1501 N. University Drive,
Suite 227A
Little Rock, AR 72207
Robert B. Aprison Regional Vice President None
2983 Bryn Wood Drive
Madison, WI 53711
& Richard Armstrong Assistant Vice None
President
* 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
4160 Gateswalk Drive
Smyrna, GA 30080
Joseph T. Blair Vice President None
27 Drumlin Road
West Simsbury, CT 06092
John A. Blanchard Regional Vice President None
6421 Aberdeen Road
Mission Hills, KS 66208
Ian B. Bodell Senior 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 Senior 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
609 W. Littleton Blvd.,
Suite 310
Littleton, CO 80120
Christopher J. Cassin Vice President None
231 Burlington
Clarendon Hills, IL 60514
Denise M. Cassin Regional Vice President None
1301 Stoney Creek Drive
San Ramon, CA 94538
* Larry P. Clemmensen Director and Treasurer None
* Kevin G. Clifford Director and Senior None
Vice President
Ruth M. Collier Vice President None
145 West 67th Street,
#12K
New York, NY 10023
Thomas E. Cournoyer Vice President None
2333 Granada Boulevard
Coral Gables, FL 33134
Douglas A. Critchell Vice President None
4116 Woodbine Street
Chevy Chase, MD 20815
* Carl D. Cutting Vice President None
+ Charline Dawkins Assistant Vice None
President
Michael A. Dilella Vice President None
P.O. Box 661
Ramsey, NJ 07446
G. Michael Dill Senior Vice President None
505 E. Main Street, Suite
A
Jenks, OK 74037
Kirk D. Dodge Regional 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
* Paul H. Fieberg Senior Vice President None
John Fodor Regional Vice President None
15 Latisquama Road
Southborough, MA 01772
* Mark P. Freeman, Jr. Director and 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
Frenchtown, NJ 08825
Ronald R. Hulsey Regional Vice President None
6744 Avalon
Dallas, TX 75214
Robert S. Irish Regional Vice President None
1225 Vista Del Mar Drive
Delray Beach, FL 33483
* Michael J. Johnston Chairman of the Board None
* Robert L. Johansen Vice President and None
Controller
# Damien Jordan Senior Vice President None
V. John Kriss Senior Vice President None
P.O. Box 274
Surfside, CA 90743
Arthur J. Levine Vice President None
12558 Highlands Place
Fishers, IN 46038
# Karl A. Lewis Assistant Vice None
President
T. Blake Liberty Regional Vice President None
12585-E East Tennessee
Circle
Aurora, CO 80012
* Lorin E. Liesy Assistant Vice None
President
* Susan G. Lindgren Vice President - None
Institutional
Investment Services
Division
Stephen A. Malbasa Regional Vice President None
13405 Lake Shore Blvd.
Cleveland, OH 44110
Steven M. Markel Vice President None
5241 S. Race Street
Littleton, CO 80121
* John C. Massar Director and Senior None
Vice President
* E. Lee McClennahan Senior Vice President None
Laurie B. McCurdy Regional Vice President None
920 Edgeside Avenue
Tucson, AZ 85748
& 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 - None
Institutional
Investment Services
Division
David R. Murray Regional Vice President None
25701 S.E. 32nd Place
Issaquah, WA 98029
Stephen S. Nelson Vice President None
7215 Trevor Court
Charlotte, NC 28226
William E. Noe Regional Vice President None
304 River Oaks Road
Brentwood, TN 37027
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
Fredric Phillips Regional Vice President None
32 Ridge Avenue
Newton Centre, MA 02161
# Candance D. Pilgrim Assistant Vice None
President
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 S. Ross Vice President None
55 Madison Avenue
Morristown, NJ 07960
* Julie D. Roth Vice President None
* James F. Rothenberg Director None
Douglas F. Rowe Regional Vice President None
30309 Oak Tree Drive
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,
Suite 4
Marina del Rey, CA 90292
Joseph D. Scarpitti Regional Vice President None
25760 Kensington Drive
Westlake, OH 44145
* Daniel B. Seivert Assistant Vice None
President
* R. Michael Shanahan Director None
* David W. Short Director and Senior None
Vice President
* Victor S. Sidhu Vice President - None
Institutional
Investment Services
Division
William P. Simon, Jr. Vice President None
554 Canterbury Lane
Berwyn, PA 19312
* John C. Smith Assistant Vice None
President -
Institutional
Investment Services
Division
* Mary E. Smith Assistant Vice None
President -
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
Thomas A. Stout Regional Vice President None
12913 Kendale Lane
Bowie, MD 20715
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
* Drew Taylor Assistant Vice None
President
& James P. Toomey Assistant Vice None
President
+ Christopher E. Trede Assistant Vice None
President
George F. Truesdail Vice President None
400 Abbotsford 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 None
President -
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
# Laura Wimberly Assistant Vice None
President
@ Marshall D. Wingo Director and Senior None
Vice President
* Robert L. Winston Director and Senior None
Vice President
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
Scott D. Zambon Regional Vice President None
209 Robinson Drive
Tustin Ranch, CA 92782
</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 92821
& 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.
<PAGE>
SIGNATURE OF REGISTRANT
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this 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,
1996.
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
its registration statement has been signed below on October 25, 1996, 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/ Anthony W. Hynes, Jr. Treasurer
(Anthony W. Hynes, Jr.)
(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* Trustee
Leonard R. Fuller* 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
C-15
