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Previous: DREYFUS GLOBAL GROWTH FUND, 497J, 1996-05-03 |
Next: NEWS COMMUNICATIONS INC, SC 13D/A, 1996-05-03 |
THE TAX-EXEMPT FUND OF CALIFORNIA
SEMI-ANNUAL REPORT
for the six months ended February 29, 1996
[The American Funds Group(r)]
THE TAX-EXEMPT FUND OF CALIFORNIA(SM) seeks a high level of current income free
from federal and California income taxes primarily through investments in
California municipal bonds. Additionally, the fund seeks to preserve capital.
Fund results in this report were computed without a sales charge unless
otherwise indicated. Here are returns, with all distributions reinvested,
through March 31, 1996 (the most recent calendar quarter), assuming payment of
the 4.75% maximum sales charge at the beginning of the stated periods.
Total Average Annual
Return Compound Return
Lifetime (since 10/28/86) +80.56% +6.47%
Five Years +38.66% +6.76%
One Year + 2.59% -
Sales charges are lower for accounts of $25,000 or more. The fund's 30-day
yield as of March 31, 1996, calculated in accordance with the Securities and
Exchange Commission formula, was 4.35%. The fund's distribution rate as of that
date was 4.87%. 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.
THE FIGURES IN THIS REPORT REFLECT PAST RESULTS. SHARE PRICE AND RETURN WILL
VARY, SO YOU MAY LOSE MONEY BY INVESTING IN THE FUND. THE SHORTER THE TIME
PERIOD OF YOUR INVESTMENT, THE GREATER THE POSSIBILITY OF LOSS. FUND SHARES ARE
NOT DEPOSITS OR OBLIGATIONS OF, OR INSURED OR GUARANTEED BY, THE U.S.
GOVERNMENT, ANY FINANCIAL INSTITUTION, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, OR ANY OTHER AGENCY, ENTITY OR PERSON. Income may be subject to
federal alternative minimum taxes. Certain other income, as well as capital
gain distributions, may be taxable.
FELLOW SHAREHOLDERS:
The first half of The Tax-Exempt Fund of California's 1996 fiscal year was a
good time for California. Amid signs that the state's long economic slump was
ending and its fortunes improving, the quality of the state's credit rating
improved.
Against this background, the value of your holdings in the fund saw a
solid increase in the six months ended February 29. Your total return was 5.0%
if, like most shareholders, you reinvested your dividends. If you took your
dividends in cash, you earned an income return of 2.7% and the value of your
shares rose 2.3%. During the period, the fund paid double tax-free dividends
totaling 42 cents a share.
This is the first time in a number of years that the California municipal
market has kept pace with the national average. The unmanaged Lehman Brothers
Municipal Bond Index, which measures the national investment-grade tax-exempt
market, posted a 4.9% gain for the six months.
California's municipal bond market benefited from both falling interest
rates, which boosted the broader bond market, and the state's improving
economy, which gathered strength even as the national economic growth rate
showed signs of weakening. The Federal Reserve Board responded to the slowing
U.S. growth rate by cutting short-term interest rates. Bond prices, which tend
to move inversely to interest rates, rallied as the rates fell.
There were many signs that California's economic slump was ending. During
1995 340,000 jobs were created. The state's construction industry rebounded and
the state government finished calendar 1995 with a budget surplus, according to
the California Legislative Analyst's Office. The state's Department of Finance
predicts personal income for state residents will increase 5.7% in 1996.
The Tax-Exempt Fund of California has always been a research-oriented fund
that focuses on the long term, not one which attempts to "time" the market.
This conservative approach, which seeks to uncover values that others may have
overlooked or have not thoroughly appreciated, has served the fund well over
its lifetime.
As The Tax-Exempt Fund of California enters the second half of fiscal
1996, there are many unresolved issues, both nationally and on the state level,
that are important to investors in tax-exempt municipal funds. In California,
the Los Angeles County government is working to get its budget back on a sound
financial footing after years of short-term fixes. Orange County, which
declared bankruptcy in December 1994, is close to finishing its financial
restructuring, and many of the bonds issued by Orange County agencies,
including several in this fund's portfolio, have recovered the ground they lost
after the bankruptcy filing.
On the national level, discussion of a flat tax has ebbed. A flat tax, in
its most radical form, would eliminate taxes on all interest and dividends.
This would erode the advantage tax-free bonds enjoy. Despite the attention the
flat tax received earlier in the year, we do not foresee action on this issue
in the near future.
The future of the national economy remains unclear. Government statistics
and economic indicators are sending conflicting signals. Some point to
continued slow growth while others suggest the economy is poised for a rebound.
We believe interest rates will stay within a narrow range if inflation, as we
expect, remains subdued. In this uncertain environment, we will continue to
monitor economic growth rates and actions by the Federal Reserve Board as well
as political developments at the state and national levels.
We look forward to reporting to you again in six months.
Cordially,
Paul G. Haaga, Jr. Abner D. Goldstine
Chairman of the Board President
April 12, 1996
Investment Highlights
through 2/29/96
6-month total return +5.0%
(income plus capital changes,
with dividends reinvested)
12-month total return +10.7%
(income plus capital changes,
with dividends reinvested)
Tax-free distribution rate for February 4.8%
(reflecting maximum sales charge)
Taxable equivalent distribution rate 8.9%
(for February, assuming a 46.2%
combined state and federal tax rate)
For current yield information, please call toll-free: 800/421-0180.
WHY DOUBLE TAX-FREE INVESTING IS WORTHWHILE
To use this table, find your estimated taxable income to determine your
combined federal and California tax rate. Then look at the right-hand column to
see what you would have had to earn from a taxable investment to equal the
fund's 4.8% tax-exempt distribution rate in February.
Because of tax increases in recent years, many high-income investors are
finding that their returns on taxable fixed-income issues have to be even
higher to match those currently offered by tax-exempt municipals. For instance,
a couple with a taxable income of $150,000 faces a combined federal and
California tax rate of 42.0%. In this bracket, the fund's current 4.8%
distribution rate would be equivalent to a return on a taxable fixed-income
investment of 8.2%. Investors in the highest bracket (46.2%) would need a
taxable distribution rate of 8.9% to equal the fund's tax-exempt distribution
rate.
Federal Income Tax Rates
<TABLE>
<CAPTION>
Your Taxable Income Combined The fund's 4.8% tax-exempt distribution
Federal & rate in February/2/ is equivalent to a
California taxable distribution rate of:
Tax Rate/1/
Single Joint
<S> <C> <C> <C>
$ 18,068-24,000 $36,136-40,100 20.1 % 6.0%
24,001-25,083 40,101-50,166 32.3 7.1
25,084-31,700 50,167-63,400 33.8 7.2
31,701-58,150 63,401-96,900 34.7 7.3
58,151-109,936 96,901-147,700 37.4 7.6
109,937-121,300 37.9 7.7
147,701-219,872 42.0 8.2
121,301-219,872 219,873-263,750 42.4 8.3
219,873-263,750 43.0 8.4
263,751-439,744 45.6 8.8
Over 263,750 Over 439,744 46.2 8.9
</TABLE>
/1/Based on 1996 federal and 1995 California marginal tax rates. The rates do
not include an adjustment for the loss of personal exemptions and the phase-out
of itemized deductions that are applicable to certain taxable income levels.
/2/The fund's distribution rate in the table is based on offering price and
therefore reflects the effects of the maximum sales charge on the initial
investment. It is not a projection of future results. Such results will reflect
interest rate levels, changes in the value of portfolio securities, the effects
of portfolio transactions, fund expenses and applicable sales charges.
THE TAX-EXEMPT FUND OF CALIFORNIA
<TABLE>
<CAPTION>
<S> <C> <C>
Investment Portfolio, February 29, 1996 Market
Principal
Amount Value
(000) (000)
Tax-Exempt Securities Maturing in More than
One Year - 96.25%
Various Purpose General Obligation Bond, 7.00% 2005 $1,000 $1,172
Health Facilities Financing Authority:
Hospital Revenue Bonds:
Downey Community Hospital, Series 1993, 5.75% 2015 6,400 6,201
Kaiser Permanente Medical Care Program, Semi-annual
Tender Revenue Bonds, 1985 Tender Bonds, 5.55% 2025 2,000 1,928
Pacific Presbyterian Medical Center Insured Variable
Rate Demand, 1985 Series B, 6.75% 2015 1,750 1,856
St. Joseph Health System:
Series 1989 A, 6.90% 2014 (Prerefunded 1999) 1,250 1,384
Series 1991 A, 6.75% 2021 (Prerefunded 2001) 4,000 4,541
Hospital Revenue Refunding Bonds (Saint Francis
Memorial Hospital), Series 1993A, 5.75% 2005 1,150 1,180
Housing Finance Agency:
Home Mortgage Revenue Bonds:
1991 Series A, 7.35% 2011 550 587
1991 Series G, 6.95% 2011 1,490 1,556
1995 Series G, MBIA Insured, 5.65% 2025 1,000 1,006
1995 Series K, 5.55% 2021 2,500 2,504
1996 Series A, MBIA Insured:
5.40% 2007 1,000 1,001
5.30% 2014 1,000 995
Single Family Mortgage Purchase Bonds, Series B2,
AMBAC Insured, 5.7% 2007 3,600 3,652
Pollution Control Financing Authority:
Pollution Control Revenue Bonds (Pacific Gas and
Electric Company):
1992 Series B, 6.35% 2009 3,900 4,129
1993 Series B, 5.85% 2023 1,000 1,004
Solid Waste Revenue Bonds (Keller Canyon Landfill
Company Project), BFI Corp. Guarantee, Series 1992,
6.875% 2027 5,200 5,560
Resource Recovery Revenue Bonds, Waste Management Inc.
Guarantee Bond, Series A, 7.15% 2011 1,500 1,656
Public Works Board, Lease Revenue Bonds:
(California Community Colleges, Various Community
College Projects), 1994 Series B, 6.75% 2005 1,000 1,130
The Regents of the University of California:
1993 Series A (Various University of California
Projects), 5.50% 2021 1,000 958
1994 Series B (Various University of California
Projects), 5.75% 2002 1,000 1,061
Rural Home Mortgage Finance Authority, Single Family
Mortgage Revenue Bonds (Mortgage-Backed Securities
Program), 1995 Series B, 7.75% 2026 3,000 3,354
Statewide Communities Development Authority:
Hospital Revenue Certificates of Participation,
Cedar-Sinai Medical Center, Series 1992, 6.50% 2012 1,900 2,106
Sisters of Charity of Leavenworth Health Services
Corp., Certificates of Participation, Series 1994,
5.00% 2023 2,000 1,805
St. Joseph Health System Obligated Group,
Certificates of Participation, 5.50% 2014 3,000 2,937
Department of Water Resources, Central Valley Project,
Water System Revenue Bonds:
Series F, 7.25% 2010 500 538
Series H, 6.90% 2025 (Prerefunded 2000) 2,000 2,244
County of Alameda, 1993 Refunding Certificates of
Participation (Santa Rita Jail Project), MBIA Insured:
5.375% 2009 1,500 1,534
Castaic Lake Water Agency, Refunding Revenue
Certificates of Participation (Water System
Improvement Projects), MBIA Insured, Series 1994A:
7.50% 2003 1,280 1,516
7.25% 2010 1,400 1,694
Central Valley Financing Authority, Cogeneration
Project Revenue Bonds (Carson Ice-Gen Project),
1993 Series:
6.10% 2013 3,000 3,011
6.20% 2020 5,000 5,027
East Bay Municpal Utility District (Alameda and Contra
Costa Counties), Water System Subordinated Revenue
Refunding Bonds, Series 1996, FGIC Insured, 5.00% 2026 4,000 3,704
Foothill/Eastern Transportation Corridor Agency, Toll
Road Revenue Bonds, Series 1995A:
6.00% 2016 1,500 1,475
6.00% 2034 3,000 2,877
5.00% 2035 1,000 830
City of Fremont, Multifamily Housing revenue Refunding
Bonds (Durham Greens Project), Issue A of 1995,
5.40% 2026 3,000 3,022
Kern High School District (County of Kern), General
Obligation Refunding Bonds, Series 1996A,
MBIA Insured, 6.60% 2016 1,000 1,144
City of Long Beach:
Financing Authority Revenue Bonds,
Series 1992, AMBAC Insured, 6.00% 2017 750 804
Harbor Revenue Bonds, Series 1993, 5.125% 2018 5,000 4,613
Department of Airports of the City of Los Angeles,
1989 Series B, 7.40% 2010 (Prerefunded 1997) 1,000 1,065
Los Angeles Convention and Exhibition Center
Authority, Certificates of Participation:
7.375% 2018 (Prerefunded 1999) 2,500 2,807
7.00% 2020 (Prerefunded 1999) 2,000 2,222
Harbor Department of the City of Los Angeles, Revenue
Bonds:
Issue 1988, 7.60% 2018 1,750 1,962
Issue 1995, 6.625% 2025 4,750 5,099
City of Los Angeles, Waste Water System Revenue Bonds:
Series 1987, 8.125% 2017 (Prerefunded 1997) 1,500 1,639
Series 1990-B, 7.15% 2020 (Prerefunded 2000) 1,000 1,136
Department of Water and Power of the City of Los
Angeles:
Electric Plant Revenue Bonds,
Issue of 1990, 7.125% 2030 2,500 2,794
7.10% 2031 3,000 3,412
Water Works Refunding Revenue Bonds, Issue of 1989,
Issue of 1989, 7.00% 2022 1,000 1,093
County of Los Angeles, Certificates of Participation
(Marina del Rey), Series A:
6.25% 2003 4,635 4,727
6.50% 2008 6,000 6,153
Los Angeles County Metropolitan Transportation
Authority, Proposition C Sales Tax Revenue Bonds,
Second Senior Bonds, Series 1995-A, AMBAC Insured,
5.90% 2008 1,030 1,132
Los Angeles State Building Authority:
Lease Revenue Bonds (State of California Department
of General Services Lease), Series 1988 A,
7.50% 2011 (Prerefunded 1998) 3,500 3,823
Lease Revenue Refunding Bonds (State of California
Department of General Services Lease), 1993
Series A, 5.50% 2007 2,000 2,049
Los Angeles County Transportation Commission, Sales
Tax Revenue Bonds:
Series 1989, 7.00% 2019 2,250 2,438
Series 1991-A, 6.75% 2020 (Prerefunded 2001) 2,500 2,846
Marin Municipal Water District Water Revenue Bonds,
Series 1993, 5.65% 2023 1,000 998
The Metropolitan Water District of Southern
California, Waterworks Refunding Revenue Bonds,
Issue of 1986:
6.75% 2022 610 626
6.75% 2022 (Prerefunded 1996) 390 401
Northern California Public Power Agency,
Special Revenue Bonds, 1993 Refunding Series A,
5.60% 2006 3,725 3,916
City of Oakland, Special Refunding Revenue Bonds
(Pension Financing), 1988 Series A, FGIC Insured,
7.60% 2021 1,000 1,093
Port of Oakland, Revenue Bonds:
1989 Series B, BIG Insured, 7.25% 2016 3,125 3,293
1992 Series E, MBIA Insured, 6.40% 2022 2,670 2,821
County of Orange, Airport Revenue Refunding Bonds,
Series 1993, MBIA Insured:
5.25% 2007 1,500 1,497
5.50% 2013 1,000 970
County of Orange (Aliso Viejo), Special Tax Bonds of
Community Facilities District No. 88-1, Series A of
1992:
7.25% 2008 (Prerefunded 2002) 1,500 1,760
7.35% 2018 (Prerefunded 2002) 4,250 5,039
Orange County Local Transportation Authority, First
Senior Fixed-Rate Bonds:
AMBAC Insured, 6.00% 2007 1,000 1,087
MBIA Insured, 6.00% 2009 1,500 1,618
South Orange County, Public Financing Authority,
Special Tax Revenue Bonds, Series B (Junior Lien
Bonds):
6.55% 2002 1,565 1,590
6.65% 2003 1,320 1,340
6.85% 2005 2,715 2,768
7.00% 2006 1,310 1,343
7.25% 2013 2,000 2,049
City of Pasadena, Certificates of Participation (1990
Capital Improvements Project), 7.00% 2003
(Prerefunded 2000) 1,000 1,134
Redevelopment Agency of the City of Pittsburg, Los
Medanos Community Development Project, Tax Allocation
Refunding Bonds, AMBAC Insured, Series 1993A,
5.25% 2015 2,195 2,093
Pleasanton Joint Powers Financing Authority,
Reassessment Revenue Bonds, 1993 Series A:
5.40% 1999 1,000 1,025
5.60% 2000 1,000 1,025
5.70% 2001 3,975 4,071
6.15% 2012 1,945 1,993
Redding Joint Powers Financing Authority, Solid Waste
and Corporation Yard Revenue Bonds, 1993 Series A:
5.00% 2018 4,000 3,440
5.00% 2023 2,000 1,694
Riverside County Transportation Commission, Sales Tax
Revenue Bonds (Limited Tax), 1991 Series A,
6.40% 1999 500 533
County of Sacramento, Single Family Mortgage Revenue
Bonds (GNMA Mortgage-Backed Securities Program),
Issue A of 1987, 9.00% 2019 1,500 2,146
Sacramento Cogeneration Authority, Cogeneration
Project Revenue Bonds:
1995 Series, 6.50 2005 1,100 1,176
(Proctor & Gamble Project), 1995 Series:
6.00% 2003 1,500 1,561
7.00% 2005 1,700 1,868
6.50% 2014 1,000 1,038
6.375% 2010 3,500 3,639
6.50% 2021 4,000 4,136
Sacramento City Financing Authority, 1991 Revenue
Bonds, 6.80% 2020 (Prerefunded 2001) 5,500 6,311
County of San Bernardino, Certificates of
Participation, Series B (Capital Facilities
Project), 6.25% 2019 (Prerefunded 2001) 2,000 2,200
City of San Bernardino, SCH Health Care System Revenue
Bonds (Sisters of Charity of the Incarnate Word,
Houston, Texas), Series 1991 A, 7.00% 2021 2,435 2,708
City of San Diego/MTDB Authority (San Diego Old Town
Light Rail Transit Extension), 1993 Lease Revenue
Bonds, 5.375% 2023 1,500 1,442
County of San Diego, The San Diego Regional Building
Authority, Certificates of Participation (1991 MTS
Tower Refunding Project), MBIA Insured, 6.223% 2019 1,000 1,059
City and County of San Francisco, General Purpose
Sewer Revenue Bonds, Series 1988 A, AMBAC Insured,
7.25% 2015 (Prerefunded 1997) 3,320 3,556
City and County of San Francisco Redevelopment Agency,
Lease Revenue Bonds, Series 1992 (George R. Moscone
Convention Center), 5.50% 2018 4,560 4,310
County of San Joaquin, Certificates of Participation
(1993 General Hospital Project), 6.625% 2020 1,000 1,038
San Joaquin Hills Transportation Corridor Agency
(Orange County), Senior Lien Toll Road Revenue
Bonds:
6.75% 2032 1,500 1,567
5.00% 2033 1,000 835
Santa Ana Financing Authority, Police Administration
and Holding Facility Lease Revenue Bonds, MBIA
Insured, Series 1994A, 6.25% 2019 1,000 1,110
Santa Clara County Financing Authority, Lease Revenue
Bonds (VMC Facility Replacement Project), AMBAC
Insured, 1994 Series A, 7.75% 2009 2,200 2,794
South Tahoe Joint Powers Financing Authority Refunding
Revenue Bonds (South Tahoe Redevelopment Project Area
No. 1), 1995 Series B, 6.25% 2020 1,500 1,501
Turlock Irrigation District, Revenue Refunding Bonds,
1996 Series A, MBIA Insured, 6.00% 2011 1,000 1,089
Southern California Home Financing Authority, Single
Family Mortgage Revenue Bonds (GNMA and FNMA
Mortgage-Backed Securities Program), 1992 Series A,
6.75% 2022 1,120 1,158
Southern California Public Power Authority,
1986 Refunding Series B, Palo Verde Project, 7.125%
2015 (Prerefunded 1996) 1,500 1,549
The Regents of the University of California:
Refunding Revenue Bonds (1989 Multiple Purpose
Projects), Series C, AMBAC Insured, 5.00% 2023 4,750 4,362
1991 Certificates of Participation (UCLA Central
Chiller/Cogeneration Facility), 7.00% 2015
(Prerefunded 1999) 1,250 1,398
---------
242,461
---------
Tax-Exempt Securities Maturing in
One Year or Less - 4.28%
State of California, 1994 Revenue Anticipation
Warrants, Series C, FGIC Insured 5.75% 4/25/96 4,600 4,615
County of Los Angeles, 1995-96 Tax and Revenue
Notes, Series A, 4.50% 7/1/96 6,150 6,171
---------
10,786
---------
TOTAL TAX-EXEMPT SECURITIES (cost:$236,836,000) 253,247
Excess of payables over cash and receivables (1,345)
---------
NET ASSETS $251,902
=========
</TABLE>
See Notes to Financial Statements
The Tax-Exempt Fund of California
Financial Statements
Statement of Assets and Liabilities
February 29, 1996 (dollars in thousands) (Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
Assets:
Tax-exempt securities (cost: $236,836) $253,247
Cash 16
Receivables for-
Sales of investments $2
Sales of fund's shares 338
Accrued interest 3,749 4,089
------- ---------
257,352
Liabilities:
Payables for-
Purchases of investments 4,670
Repurchases of fund's shares 97
Dividends payable 506
Management services 83
Accrued expenses 94 5,450
------- ---------
Net Assets at February 29, 1996-
Equivalent to $16.10 per share on
15,646,525 shares of beneficial
interest issued and outstanding;
unlimited shares authorized $251,902
=========
Statement of Operations
for the six months ended February 29, 1996
(dollars in thousands)
Investment Income:
Income:
Interest on tax-exempt securities $7,254
---------
Expenses:
Management services fee $500
Distribution expenses 299
Transfer agent fee 35
Reports to shareholders 7
Registration statement and prospectus 3
Postage, stationery and supplies 4
Trustees' fees 8
Auditing and legal fees 18
Custodian fee 5 879
------- ---------
Net investment income 6,375
---------
Realized Gain and Unrealized
Appreciation on Investments:
Net realized gain 1,620
Net unrealized appreciation:
Beginning of period 12,697
End of period 16,411
-------
Net change in unrealized appreciation 3,714
---------
Net realized gain and change in
unrealized appreciation on investments 5,334
---------
Net Increase in Net Assets Resulting
from Operations $11,709
=========
See Notes to Financial Statements
Statement of Changes in Net Assets
(dollars in thousands)
Six months
ended Year ended
February 29, August 31,
1996* 1995
--------- ---------
Operations:
Net investment income $6,375 $12,549
Net realized gain on investments 1,620 871
Net change in unrealized appreciation
on investments 3,714 3,633
------- ---------
Net increase in net assets
resulting from operations 11,709 17,053
------- ---------
Dividends Paid to Shareholders (6,371) (12,552)
------- ---------
Capital Share Transactions:
Proceeds from shares sold:
1,649,320 and 2,513,117
shares, respectively 26,484 38,225
Proceeds from shares issued in reinvestment
of net investment income dividends and
distributions of net realized gain on
investments: 212,177 and 498,341 shares,
respectively 3,407 7,598
Cost of shares repurchased:
1,025,161 and 2,849,307 shares,
respectively (16,442) (42,819)
-------- ---------
Net increase in net assets
resulting from capital share transactions 13,449 3,004
-------- ---------
Total Increase in Net Assets 18,787 7,505
Net Assets:
Beginning of period 233,115 225,610
-------- ---------
End of period $251,902 $233,115
======== =========
</TABLE>
*Unaudited
See Notes to Financial Statements
Notes to Financial Statements
1. The American Funds Tax-Exempt Series II (the "trust") is
registered under the Investment Company Act of 1940 as an open-end, diversified
management investment company and has initially issued one series of shares,
The Tax-Exempt Fund of California (the "fund"). The fund seeks a high level of
current income free from federal and California income taxes, primarily through
investments in California municipal banks, while seeking to preserve capital.
The following paragraphs summarize the significant accounting policies
consistently followed by the fund in the preparation of its financial
statements:
Tax-exempt securities with original or remaining maturities in excess of
60 days are valued at prices obtained from a national municipal bond pricing
service. The pricing service takes into account various factors such as
quality, yield and maturity of tax-exempt securities comparable to those held
by the fund, as well as actual bid and asked prices on a particular day. Other
securities with original or remaining maturities in excess of 60 days,
including securities for which pricing service values are not available, are
valued at the mean of their quoted bid and asked prices. However, in
circumstances where the investment adviser deems it appropriate to do so,
securities will be valued at the mean of their representative quoted bid and
asked prices, or, if such prices are not available, at the mean of such prices
for securities of comparable maturity, quality and type. All securities with 60
days or less to maturity are valued at amortized cost, which approximates
market value. Securities for which market quotations are not readily available
are valued at fair value as determined in good faith by the Valuation Committee
of the Board of Trustees.
As is customary in the mutual fund industry, securities transactions are
accounted for on the date the securities are purchased or sold. In the event
the fund purchases securities on a delayed delivery or "when-issued" basis, it
will segregate with its custodian liquid assets in an amount sufficient to meet
its payment obligations in these transactions. Realized gains and losses from
securities transactions are reported on an identified cost basis. Interest
income is reported on the accrual basis. Premiums and original issue discounts
on securities purchased are amortized over the life of the respective
securities. Amortization of market discounts on securities is recognized upon
disposition, subject to applicable tax requirements. Dividends to shareholders
are declared daily after determination of the fund's net investment income and
paid to shareholders monthly.
Pursuant to the custodian agreement, the fund may receive credit against
its custodian fee for imputed interest on certain balances with the custodian
bank. The custodian fee of $5,000 includes $1,000 paid by these credits rather
than in cash.
2. It is the fund's policy to continue to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its net investment income, including any net realized gain on
investments, to its shareholders. Therefore, no federal income tax provision is
required.
As of February 29, 1996, net unrealized appreciation on investments for
book and federal income tax purposes aggregated $16,411,000, of which
$16,650,000 related to appreciated securities and $239,000 related to
depreciated securities. During the six months ended February 29, 1996, the fund
realized, on a tax basis, a net capital gain of $871,000 on securities
transactions. The fund has available at February 29, 1996, a net capital loss
carryforward totaling $43,000, which may be used to offset capital gains
realized during subsequent years through 2002 and thereby relieve the fund and
its shareholders of any federal income tax liability with respect to capital
gains that are so offset. It is the intention of the fund not to make
distributions from capital gains while there is a capital loss
carryforward. There was no difference between book and tax realized gains on
securities transactions for the six months ended February 29, 1996. The cost of
portfolio securities for book and federal income tax purposes was $236,836,000
at February 29, 1996.
3. The fee of $500,000 for management services was paid pursuant to an
agreement with Capital Research and Management Company (CRMC), with which
certain officers and Trustees of the trust are affiliated. The Investment
Advisory and Service Agreement provides for monthly fees, accrued daily, based
on an annual rate of 0.30% of the first $60 million of average net assets;
0.21% of such assets in excess of $60 million; and 3.00% of the fund's monthly
gross investment income.
Pursuant to a Plan of Distribution, the fund may expend up to 0.25% of its
average net assets annually for any activities primarily intended to result in
sales of fund shares, provided the categories of expenses for which
reimbursement is made are approved by the fund's Board of Trustees. Fund
expenses under the Plan include payments to dealers to compensate them for
their selling and servicing efforts. During the six months ended February 29,
1996, distribution expenses under the Plan were $299,000. As of February 29,
1996, accrued and unpaid distribution expenses were $102,000.
American Funds Service Company (AFS), the transfer agent for the fund, was
paid a fee of $35,000. American Funds Distributors, Inc. (AFD), the principal
underwriter of the fund's shares, received $72,000 (after allowances to
dealers) as its portion of the sales charges paid by purchasers of the fund's
shares. Such sales charges are not an expense of the fund and, hence, are not
reflected in the accompanying statement of operations.
Trustees of the trust who are unaffiliated with CRMC may elect to defer
part or all of the fees earned for services as members of the Board. Amounts
deferred are not funded and are general unsecured liabilities of the fund. As
of February 29, 1996, aggregate amounts deferred and earnings thereon were
$23,000.
CRMC is owned by The Capital Group Companies, Inc. AFS and AFD are both
wholly owned subsidiaries of CRMC. Certain Trustees and officers of the trust
are or may be considered to be affiliated with CRMC, AFS and AFD. No such
persons received any remuneration directly from the fund.
4. As of February 29, 1996, accumulated undistributed net realized gain on
investments was $1,577,000 and paid-in capital was $233,913,000.
The fund made purchases and sales of investment securities, excluding
short-term securities, of $46,054,000 and $31,014,000, respectively, during the
six months ended February 29, 1996.
Per-Share Data and Ratios
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Six
Months
Ended
February Year ended August 31
29, 1996/1/ 1995 1994 1993 1992 1991
Net Asset Value, Beginning
of Period $15.74 $15.40 $16.30 $15.21 $14.59 $13.87
------- ------- ------- ------- ------- -------
Income from Investment
Operations:
Net investment income .42 .86 .84 .84 .85 .85
Net realized and
unrealized gain
(loss) on investments .36 .34 (.84) 1.09 .62 .72
------- ------- ------- ------- ------- -------
Total income from
investment operations .78 1.20 .00 1.93 1.47 1.57
------- ------- ------- ------- ------- -------
Less Distributions:
Dividends from net
investment income (.42) (.86) (.84) (.84) (.85) (.85)
Distributions from net
realized gains - - (.06) - - -
------- ------- ------- ------- ------- -------
Total distributions (.42) (.86) (.90) (.84) (.85) (.85)
------- ------- ------- ------- ------- -------
Net Asset Value, End of Period $16.10 $15.74 $15.40 $16.30 $15.21 $14.59
======= ======= ======= ======= ======= =======
Total Return/2/ 4.99%/3/ 8.16% 0.13% 13.08% 10.36% 11.56%
Ratios/Supplemental Data:
Net assets, end of period
(in millions) $252 $233 $226 $223 $148 $111
Ratio of expenses to average
net assets .36%/3/ .73% .71% .71% .74% .85%
Ratio of net income to
average net assets 2.61%/3/ 5.65% 5.28% 5.36% 5.66% 5.89%
Portfolio turnover rate 13.24%/3/ 41.36% 15.08% 16.82% 20.28% 33.72%
</TABLE>
/1/Unaudited
/2/Calculated without deducting a sales charge. The maximum sales charge is
4.75% of the fund's offering price.
/3/Based on operations for the period shown and, accordingly, not
representative of a full
year's operations.
RESULTS OF SHAREHOLDER MEETING HELD FEBRUARY 29, 1996
Shares Outstanding on January 5, 1996 (record date) 15,443,162
Shares Voting on February 29, 1996 11,815,525 (76.5%)
ELECTION OF TRUSTEES
<TABLE>
<CAPTION>
PERCENT OF PERCENT OF PERCENT OF
VOTES SHARES VOTES SHARES SHARES
TRUSTEE FOR VOTING WITHHELD VOTING ABSTENTIONS VOTING
<S> <C> <C> <C> <C> <C> <C>
H. Frederick Christie 11,346,146 96.0% 469,379 4.0% none 0.0%
Diane C. Creel 11,330,439 95.9 485,086 4.1 none 0.0
Martin Fenton, Jr. 11,357,507 96.1 458,017 3.9
Leonard R. Fuller 11,354,407 96.1 461,117 3.9
Abner D. Goldstine 11,357,916 96.1 457,609 3.9
Paul G. Haaga, Jr. 11,357,916 96.1 457,609 3.9
Herbert Hoover III 11,346,030 96.0 469,494 4.0
Richard G. Newman 11,357,916 96.1 457,609 3.9
Peter C. Valli 11,357,916 96.1 457,609 3.9
</TABLE>
PROPOSAL
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
PERCENT PERCENT PERCENT SHARES
OF OF OF
VOTES SHARES VOTES SHARES ABSTENTIONS VOTING VOTED
Amendment to the 9,297,669 78.7% 154,271 1.3% 611,171 5.2% 1,752,4142
fund's investment
restriction regarding the
maximum percentage ownership of any
class of securities of an issuer
</TABLE>
RATIFICATION OF AUDITORS
<TABLE>
<CAPTION>
PERCENT OF PERCENT OF PERCENT OF
VOTES SHARES VOTES SHARES SHARES
FOR VOTING AGAINST VOTING ABSTENTIONS VOTING
Deloitte & Touche LLP 11,362,983 96.2% 32,872 0.3% 419,669 3.6%
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
OFFICES OF THE FUND AND OF THE INVESTMENT ADVISER,
CAPITAL RESEARCH AND MANAGEMENT COMPANY 333 South Hope Street
Los Angeles, California 90071-1443
135 South State College Boulevard
Brea, California 92621-5804
TRANSFER AGENT FOR SHAREHOLDER ACCOUNTS
American Funds Service Company
P.O. Box 2205
Brea, California 92622-2205
P.O. Box 659522
San Antonio, Texas 78265-9522
P.O. Box 6007
Indianapolis, Indiana 46206-6007
P.O. Box 2280
Norfolk, Virginia 23501-2280
CUSTODIAN OF ASSETS
The Chase Manhattan Bank, N.A.
One Chase Manhattan Plaza New York, New York 10081-0001
COUNSEL
Morrison & Foerster LLP
345 California Street San Francisco, California 94104-2675
PRINCIPAL UNDERWRITER
American Funds Distributors, Inc.
333 South Hope Street Los Angeles, California 90071-1462
FOR INFORMATION ABOUT YOUR ACCOUNT OR ANY OF THE FUND'S SERVICES, PLEASE
CONTACT YOUR SECURITIES DEALER OR FINANCIAL PLANNER, OR CALL THE FUND'S
TRANSFER AGENT, TOLL-FREE, AT 800/421-0180.
This report is for the information of shareholders of The Tax-Exempt Fund of
California, but it may also be used as sales literature when preceded or
accompanied by the current prospectus, which gives details about charges,
expenses, investment objectives and operating policies of the fund. If used
as sales material after June 30, 1996, this report must be accompanied
by an American Funds Group Statistical Update for the most recently
completed calendar quarter.
[The American Funds Group(R)]
Litho in USA MED/ALI/2939
Lit. No. TEFCA-013-0496
Printed on recycled paper
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